The US is back in Asia. White House officials are exploring a digital trade deal for the Indo-Pacific region to check China’s influence, Bloomberg News reported, citing people familiar with proposals that are currently being drafted.
The specifics are vague, but a meaningful trade agreement is just what the pandemic-ravaged global economy needs to shake off its ennui. Online content and e-commerce have proven their resilience to social distancing and physical lockdowns. That makes a digital trade accord — a set of common standards on how online data and their processors from one country will be treated in another — the perfect vehicle for President Joe Biden’s much-awaited Asia pivot. It can also be a powerful tool for countering Beijing.
Unlike regular goods and services, cross-border trade in data is still largely a lawless terrain. The original Trans-Pacific Partnership was unequivocally against data localization rules, customs duties on online products, discrimination against digital services based on their national origins, and many such blockages in the arteries of a free and open internet. But with then-President Donald Trump pulling the US out of the TPP in 2017, the momentum behind what could have been a template for global rule-making was lost.
The US-China tech cold war has demolished all hopes of a consensus that brings the two superpowers together. A more realistic goal now is for two competing sets of rules, with the US striving to offer a better model than the Regional Comprehensive Economic Partnership. The China-backed alternative to the TPP allows members the broad excuse of “legitimate public policy objective” and “essential security interests” to throw sand in the wheels of data-based commerce.
That’s not a great outcome for small countries with outsize tech prowess or ambitions.
The search for more liberal formulations is on. Singapore, New Zealand and Chile — three small, trade-dependent Pacific Rim nations that pose little threat to bigger economies — came together last year to forge their own digital trade accord. Their deal has the advantage of being “modular,” meaning others can join in without having to accept the agreement in its entirety. If one country’s computer systems aren’t ready to accept digital IDs issued by another nation, it can still make a start by acknowledging the e-invoices of its trading partners.
If the Biden administration takes this trilateral Digital Economy Partnership Agreement (and the US’s own similar bilateral deal with Japan) as the starting point, it may offer a solid economic benefit to joiners. And not just in the Asia-Pacific region. For instance, Uruguay’s vibrant fintech industry is hemmed in by its local market of 3.5 million people; it needs unhindered access to bigger economies like Brazil to fulfill its potential.
By starting with a list of mostly smaller nations, the US can get the ball rolling without incurring too much scrutiny from Beijing. Coupled with a modular approach, this modest beginning could be crucial to giving Washington the momentum it would need to transform a low-key, motley collection of economies into a large digital trade bloc. Small firms in emerging markets getting assured online access to large markets in advanced nations would be America’s answer to China’s infrastructure-led Belt-and-Road network.
It needn’t be long before much of the Association of Southeast Asian Nations could be brought into the fold. Whether India would follow suit remains an open question. Among the unstated reasons for New Delhi’s decision to walk out of RCEP was its own considerable interest in local data storage. The large domestic internet businesses taking shape in the country are pulling trade policies back toward its Soviet-style protectionist past.
Even as India debates openness and autarky, Biden gets a chance to reestablish his country’s position in Asia. And what could be better than winning friends and influencing others without sailing warships through troubled waters?
Washington can work with allies to set standards of interoperability and behavior, while using the agreement to keep its finger on the region’s cyber pulse. The value to the US of setting up a framework of best practices can’t be overstated. With many countries teetering on the brink of digital authoritarianism, risking a plunge toward the kinds of controls seen in China and Myanmar, Washington gets to lay out an alternative vision of interconnectedness, encompassing everything from data management to electronic commerce and artificial intelligence.
One area where China can go toe-to-toe with the US is in the development and use of AI. This technology is employed in fraud detection in financial systems, medical diagnostics, and a whole lot besides. It will be a key driver of widespread adoption of autonomous driving. Yet Washington is well aware that AI has also been deployed for surveillance and control in China and would likely be a weapon of cyberwarfare. By leading a digital agreement, the US can help its partners develop AI while setting the tone on how it should be ethically used.
If successful, such a cyber agreement could fend off efforts by China to export not only its digital products but ideology. The ultimate goal would be to outflank Beijing, if not commercially then at least digitally.
Bloomberg
