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Talking Trade blog

How will the TPP affect digital trade in Asia?

Published 24 August 2016

Exhortations on the importance of digital trade from governments, businesses and commentators are common. The Finnish government now estimates that half of all the value in the global economy will be created digitally by 2025.

By its nature, the digital economy shows scant regard for international borders. Barriers are easy to circumvent or are prohibitively difficult to enforce. International rules on digital trade often receive little attention, especially compared to some traditional areas of strong focus such as agriculture, textiles and automobiles.

Trade agreements are starting to address digital issues. So how does the TPP compare to existing trade agreements in Asia?  The TPP goes further than others in both breadth and depth, and could have a transformative effect on economies across the Asia Pacific, as our new report [available here] and this Talking Trade post highlight.

Currently, there is a patchwork of FTAs with different digital trade benefits that have been signed in Asia over the past 15 years.

At one end of the spectrum, the US-Singapore Free Trade Agreement (USSFTA) entered into force in 2004. This agreement was negotiated before YouTube, Facebook and the iTunes Store were launched and was surprisingly forward-looking for its time. It had no tariffs on digital goods or services, covered cross-border services with negative list scheduling, contained safe-harbour protections and took important steps towards detailed, but balanced, copyright provisions.

On the other end of the spectrum are the Japan-ASEAN and China-ASEAN FTA agreements that barely touched services, let alone covered important digital issues. The Republic of Korea-ASEAN agreement was more comprehensive, though air tickets were notably excluded and little was offered in terms of IP.

By contrast, the TPP uses a negative-list scheduling, still relatively rare in Asian services trade agreements.  This is an especially important technical detail in a fast-changing industry like digital, since a negative list can help future-proof the agreement. 

Under a negative list, new sectors are automatically opened to TPP competition unless a TPP member government explicitly states that they are exempt.  This helps prevent future discrimination and keeps the agreement from becoming quickly irrelevant.

The TPP addresses issues such as intermediary liability protections. If, for instance, you run a website and somebody posts a comment which includes copyrighted material, what is your liability?  This is an important question not just for big internet providers, but also for smaller firms. 

TPP provisions are similar to the U.S.'s ‘notice and takedown’ system that protects website owners and Internet service providers from liability for the infringing acts of their users as long as they remove the content upon receiving notice.

But there is still some variation allowed within the TPP--discrepancy being an essential pragmatic ingredient in a trade deal to be agreed on by 12 diverse countries. Canada, for instance, is exempt from the notice and takedown framework because it has a “notice and notice” system, in which the recipient of the notice is responsible for deciding if the content is infringing.

Copyright protections are increasingly an area of debate as digital reproductions can be instantly copied and transmitted. Regulators are seeking to balance the needs of artists and designers to be paid for their work, while ensuring that others like scholars and journalists can use materials fairly for non-profit purposes. The TPP will align general copyright provisions in 40% of the world’s market, making it easier for products to be exported around the world.

The TPP prohibits people from bypassing technological security measures that restrict unauthorised access to copyrighted digital products. Some have criticised this by arguing it will make it difficult to produce accessible formats for people who may need descriptive audio or closed-captioning. However the IP chapter does allow countries to include exceptions to allow such uses.

The TPP prevents countries from imposing localisation rules on suppliers and customers. This will be coupled with protections for the movement of information, subject to consumer information safeguards, to help make cross-border commerce possible.

This counters a trend towards requiring that data remain on shore. Localisation requirements are now found in Australia, Brunei, Canada, Malaysia and Vietnam, among the TPP countries. These are essentially bans on the foreign provision of data processing.  The requirement to store data on servers physically inside a country fundamentally misunderstands how digital information is stored in the Internet age. It has several damaging effects, and does not improve the security of data.

An ECIPE report modeled the impacts of proposed data localisation policies in various countries. It found, for example, that the impact of Vietnam’s Decree 72, if it had been fully enacted, could reduce GDP by 1.7 percentage points, or US$1.5 billion. Much of this impact would actually be in the manufacturing sector, as much of Vietnam’s supply chains are dependent on related services like logistics, warehousing, customs compliance and finance – all powered by the Internet.

Localisation requirements are most damaging to small and medium businesses. While a major company may have sufficient revenues and scale to justify building data centres in multiple locations, smaller firms can be shut out of the domestic and international Internet economy completely if they cannot access affordable computing and data services.

A ban on localisation will benefit designers of globally applicable mobile apps. It would also help developers making locally focussed apps as they would benefit from more competition and cheaper cloud computing.

Note, however, that the TPP rules may still require financial services providers to store data locally.  This is a provision that could be problematic in the future, particularly to smaller companies, and could especially be an issue for payments in the e-commerce space.

Some companies give little thought to digital regulations. They argue that the industry has flourished successfully and see no regulatory risks. But this complacency is mistaken – it’s true that hitherto there has been minimal regulation as governments are still surveying a fast-moving landscape. This will not always be the case; as the issues crystallise and competing positions solidify, more regulations will be added.

This is especially true in the emerging markets of Asia such as Indonesia and China that have very different approaches to digital regulations than TPP countries. As these markets grow in significance, it will become more and more important that there is regulatory coherence for Asia’s long term economic growth. 

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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