Mapping a digital future

Global digital trade rulemaking and China's new policy options

In the context of the rapid digitization of the world economy, the governance of the digital economy has increasingly become a topic of common concern for the international community. In the field of international trade, the inclusion of provisions on e-commerce in free trade agreements is increasingly common. Almost all new agreements signed over the past few years have included those provisions. In the meantime, relevant concepts are transforming from e-commerce toward digital trade. Digital trade refers to trading activities through electronic means via the internet, covering trade in both goods and services. Specifically, digital trade is all international trade that is digitally ordered and/or digitally delivered.

A global rules architecture for digital trade is taking shape, as relevant negotiations at all levels have been making progress. First, the principle that no tax should be imposed on e-commerce was adopted at the WTO in 1998 and relevant plurilateral negotiations started in 2019. Second, at the regional level, alongside the signing of a number of large-scale free trade agreements including the Regional Comprehensive Economic Partnership (RCEP), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the US-Mexico-Canada Agreement (USMCA), rules on digital trade (e-commerce) have become increasingly important. Third, at the bilateral level, digital trade rules are gradually improving as well.

Furthermore, there emerges a new trend of specialization in the global governance of digital trade, with some innovative agreements specially designed for digital trade and economy. For instance, initiated in May 2019 and signed in June 2020 by Singapore, Chile and New Zealand, the Digital Economy Partnership Agreement (DEPA) is the world's first "digital only" regional trade and economic agreement.

As the leader of the global digital economy, the US tops the world in terms of the overall size and competitiveness of its digital sector. The country has demonstrated the aspiration for taking a leadership role in the global regulatory sphere for digital trade.

In particular, the US emphasizes on achieving "strong, binding rules" on digital trade in its negotiations, and strives to sign digital trade agreements that are as comprehensive and high-standard as possible. This reflects both its intention of improving the institutional framework for digital trade and its goals of promoting market access, achieving digital trade liberalization and increasing the exports of US digital services. The content and details of a new type of digital trade agreements led by the US are reflected in the US-Japan Digital Trade Agreement and the 19th chapter of the USMCA — they represent a "US model" of digital trade agreements.

China has a digital sector second only to that of the US in terms of its overall size and competitiveness. The Chinese government is actively participating in digital economy-related negotiations at multilateral mechanisms and international organizations and aims to promote the formulation of global rules concerning digital trade. Since 2015, all free trade agreements signed by China have included a special chapter for e-commerce.

China is a member of the RCEP and has filed an application to join the CPTPP. The two important regional trade agreements both include an e-commerce chapter, presenting the new system of digital trade rules. It's worth noting that, in November 2021, China officially handed in the application to join the DEPA and set up a working group in August 2022 to advance talks on joining the agreement.

The EU's policy stance on digital trade is reflected in its modern bilateral trade agreements, of which the digital trade chapter and its almost 20 binding provisions represent a "EU model" of digital trade agreements.

In recent years, guided by the notion of "digital sovereignty for Europe", the EU has been strengthening its digital economy governance in all respects through legislative measures. It has passed the Digital Markets Act, the Digital Services Act and the Data Governance Act, as well as acts on chips and artificial intelligence. In the field of international trade, its policies particularly emphasize personal privacy protection, with stringent rules on the transfer of data to countries outside the EU.

Other major economies' policy stance is fairly diversified, with some accepting the EU and the US rules and others opting to formulate rules independently. Major developing economies, such as India and the Association of Southeast Asian Nations, are exploring digital trade rules and governance systems that are in line with their own economic interests.

Globally, the formulation of digital trade rules is faced with a number of challenges. Due to different positions of parties concerned, the cross-border transfer of information and the location of computing facilities might constitute a major obstacle to the formulation of global rules. The US-Japan Digital Trade Agreement, the DEPA and the CPTPP stipulate that public policy exceptions must not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade. In addition to that, the RCEP further includes exceptions regarding "essential security interests", which are not permitted to be disputed by signing parties.

The protection of personal information is an equally important issue. In the US, industry self-discipline plays a central role. The EU, on the other hand, has opted for strict legislative supervision, as highlighted by the General Data Protection Regulation. In terms of market access, data flow restrictions, data localization requirements and cloud computing limitations are main barriers to digital trade in services.

China's rapidly expanding digital sector has played a crucial role in driving economic growth and social development. Meanwhile, cross-border e-commerce has become a new accelerator in China's foreign trade, accounting for a noticeably increasing share of Chinese exports. In face of the latest trends in the formulation of global digital trade rules, the Chinese government needs to explore new policy options.

To start with, China needs to formulate a strategy for the development of digital trade within the current frameworks of economic development, digitalization and trade policy. The strategy should include multi-faceted goals such as promoting the growth of digital trade, enhancing the competitiveness of digital industries, boosting the exports of small- and medium-sized enterprises, and protecting consumer rights. It should give an equal emphasis on trade in goods and services, and guide China's negotiations and consultations on the formulation of digital trade rules.

Second, given the importance of digital trade to the Chinese economy, China shall have a clear stance in all major areas of digital trade rules and gradually create a "Chinese model" agreement in line with its own economic interests and development needs. The cross-border transfer of information and the location of computing facilities might constitute a major challenge, and China needs to explicitly define its relevant restrictions in the area.

Lastly, China has the potential to take the lead in the formulation of digital trade rules and use it as an opportunity for advancing opening-up and digitalization. China's proactive participation will enable more progress in plurilateral negotiations on e-commerce and help formulate multilateral rules for digital trade. If breakthroughs could be made in negotiations on joining agreements like the DEPA, China can have a more favorable position in the rules-making process. Furthermore, Chinese government can consider initiating feasibility studies on digital trade and economic agreements with relevant trading partners, at the bilateral level.

The author is a senior economist at the United Nations Conference on Trade and Development. The views expressed in this article are those of the author only and do not necessarily represent those of the UNCTAD. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.