2023.05 The Taiwan Banker NO.161 / By Shen Jung-Chin
CPTPP and DEPA point to a future of digital tradeBanker's Digest
On March 31, UK Prime Minister Rishi Sunak announced that the nation had reached an agreement with members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to join the Partnership, becoming its first European member state. However, CPTPP is only estimated to boost the UK’s GDP 0.08% in the next 15 years. The real importance lies in the UK’s post-Brexit foreign policy shift towards the Indo-Pacific. Media in the US and Japan support Taiwan joining CPTPP Following the UK’s induction, external attention shifted towards China and Taiwan. Amongst the CPTPP’s twelve member states, Japan has openly supported Taiwan’s accession, while China has the support of Singapore and Malaysia. In Evening Fuji magazine, Professor Youichi Shimada of Fukui Prefectural University said that following the principle of the UK joining CPTPP, the next member state should be Taiwan. Otherwise, Taiwan may fear obstruction of its own path to membership if China joins first. Later, an editorial in Bloomberg declared support for Taiwan’s membership and advocated for shutting out China as an economic bully. China has more influence over Southeast Asian and South American member states, while Taiwan better adheres to the high standards of CPTPP. However, as CPTPP relies on the consensus of its members, with each retaining veto power, it is difficult to predict the result of these two membership petitions. The examination process for new members may even include consideration of whether China and Taiwan are the same country, which could influence the result. CPTPP’s standards cover not only traditional goods and services, but also more advanced digital trade, in addition to advanced requirements for labor, the environment, transparency, and anti-corruption. Despite its name, digital trade is not simply composed of digital transactions like books, movies, music, streaming, and chatbots. Traditional products also often also collect and exchange data, such as in e-commerce and the Internet of Things (IOT). The breadth of the companies involved in this trade is vast, including not only tech giants like Amazon, Google, Facebook, and Microsoft, but also the likes of Uber, Airbnb, Netflix, Disney, and OpenAI. Data flows and security are equally important CPTPP initiated prioritization of digital trade. After CPTPP, every nation has included digital trade in their free trade agreements. Whether it be tariffs on digital transactions, storage and cross-border circulation of data, privacy assurances, anti-discrimination, or policy regarding cultural exceptions, nothing is free from debate. When it comes to cultural exceptions, regardless of format, many countries heavily subsidize their own cultural products while controlling inflow of those from aboard or mandating a set proportion of local content. This aims to prevent the loss of local culture and preserve cultural diversity. However, these cultural exceptions inherently conflict with safeguarding digital trade, and are often seen as barriers to trade. One frequent difficulty has been guaranteeing data security while still allowing cross-border circulation of data. The EU has adopted stringent personally identifiable information protections in the form of the General Data Protection Regulation (GDPR). Personally identifiable information, biometrics, and online data like cookies and IP addresses are all strictly regulated. The GDPR strictly regulates the companies that dominate most nations’ digital marketing and collect users’ behavioral information to provide personalized ads, like Google and Facebook. With respect to cross-border transmission of personal information, the EU has adopted an approach that can be described as opposition in principle, while being open to exceptions. Only by receiving permission from the responsible EU authorities or explicit approval from those involved, and by adhering to GDPR, can a third-party nation transmit personal information across borders. Consequently, the reason for controversy over TikTok in the US and EU lies in its insufficient personal data safeguards. There are suspicions of TikTok employees in China being able to acquire foreign users’ personal information and steal clipboard information from phones. China passed its Data Security Law in 2021, formulated by both the Cyberspace Administration and the State Council, which further regulated the cross-border transmission of important data. It is prohibited to transfer data stored in China abroad unless adhering to these guidelines. In addition to this high level of control, China’s Data Security Law also requires relevant institutions to draw up standards for development of data-related technologies, products, and security, and to offer detection and verification services. Companies also need to establish data transaction management systems and marketplaces. This implies that each nation will not only need to weigh the pros and cons of each type of digital trade, and the differences in development and control of the digital economy, but also that conflicts will become increasingly numerous. Development of digital technology will outpace legislative control Technological development often outpaces its legislative controls. Ever since ChatGPT ignited an arms race between tech giants, countries have continued to lack control frameworks for AI, despite the technology’s lightning-fast development. The European Commission has moved the fastest, bit it has still only advanced a regulatory framework proposal on artificial intelligence, and has yet to enact it. The US congress is still reviewing drafts, and it is unclear whether or not the US wants to follow the EU, where legislation and control occur in accordance with risk classification. Although Taiwan has established a Ministry of Digital Affairs, meanwhile, progress has continued to lag. The public is not even clear on the attitude of the government. In addition to speeding up domestic legislation, Taiwan should not overlook the rise of international organizations. Here, we must return to the CPTPP. After the UK’s accession, the CPTPP accounts for 15% of global GDP. If the partnership were to add applicants like China, Taiwan, South Korea, Ecuador, Costa Rica, or Uruguay, it could become one of the world’s largest regional free trade organizations. CPTPP has an unremarkable origin. It grew out of a 2005 agreement between Singapore, New Zealand, Brunei, and Chile to establish a free trade organization with high standards that would surpass an ordinary FTA: the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP). Later, as ASEAN and Japan negotiated the Regional Comprehensive Economic Partnership (RCEP), US President George W. Bush planned on joining a smaller trade organization, and later leading it to increase in size and contend with RCEP. However, that organization would not be implemented until Barack Obama’s election as president. In addition to contending with RCEP, Obama also hoped that the organization would become his “Pivot to Asia” to resist China. As a result, several countries were invited to participate and plan its principal regulatory system. However, President Donald Trump would later withdraw the US from the agreement and leave Japan to lead what would become today’s CPTPP. Due to the CPTPP’s high standards, it incorporates sections on digital trade like e-commerce, but in the end, it was designed for free trade. Faced with an expanding digital economy and increasingly many digital transactions, the CPTPP is out of its depth on many new subjects. At the same time, the US-Mexico-Canada Agreement (USMCA) and free trade agreements signed by the EU, which normally cover digital trade, such as the CETA with Canada and EPA with Japan, all include sections on digital trade. China’s application to join DEPA cannot be ignored In 2019, President Trump and Japanese Premier Abe Shinzo signed the United States-Japan Trade Agreement (USJTA) and U.S.-Japan Digital Trade Agreement (USJDTA). Hoping to prevent small countries from falling behind the trend of digital trade agreements, Singapore, Chile, and New Zealand, the early signatories of TPSEP, signed the Digital Economy Partnership Agreement (DEPA) in 2020. DEPA has since become the world’s first digital economy trade organization, establishing a reliable digital system and promoting digital trade and reliable data transmission. DEPA covers 16 modules: business and trade facilitation, treatment of digital products, data issues, a wide environment of trust, consumer and enterprise trust, digital IDs, emerging trends and technologies, innovation and the digital economy, SME cooperation, digital inclusion, transparency, and mechanisms for dispute settlement. Moreover, it also touches on topics like international transactions, electronic payments, document standards, electronic records, electronic data storage, transmission and use, encryption technology, digital authentication, the location of computers and computation, and network security. Most of these topics require international cooperation and formulation of common standards, and are key to the development of a digital economy. China applied to join DEPA in 2021. It is common knowledge that China strictly controls data via mechanisms like its National Security Law, Internet Security Law, Cryptography Law, and Data Security Law, and has created a digital totalitarian system through its “Golden Shield” and facial recognition systems. Its systems are therefore seemingly incompatible with DEPA, which emphasizes free cross-border digital transactions. The DEPA has been enormously important for China’s digital economy, having yet to sign related agreements with Europe, the US, or Japan. Therefore, Taiwan must not be careless. When China first applied to join the CPTPP, it was widely perceived as a throwaway application. Nobody expected it to move forward so quickly. Going forward, we must keep in mind that on no account is China’s digital totalitarianism incompatible with DEPA’s objectives, nor is it impossible for China to join. Taiwan similarly lacks a digital trade agreement with the EU, Japan, and the US, and the importance of DEPA to Taiwan is greater than its to China. Therefore, in addition to actively seeking to join CPTPP, Taiwan should also quickly revise its legal system and apply to join DEPA, while at the same time pursuing digital trade agreements with other countries or adding digital clauses to existing agreements, participating in formulation of digital trade standards, and seizing international discourse power. The author is an Assistant Professor at York University in Canada, and holds a Ph.D. from France’s INSEAD, specializing in strategic management and organizational economics.