September 15, 2022 l By Anand Raghuraman
On September 8-9, the United States hosted a flagship ministerial to launch negotiations on the Indo-Pacific Economic Framework – the Biden administration’s signature initiative to bolster economic integration in Asia. Senior U.S. officials and counterparts from 13 countries examined ways to collaborate on four broad economic pillars, including one on trade that places special emphasis on digital policy.
Getting digital policy right will go along way in making IPEF a success. Asia is increasingly at the forefront of digital adoption, commerce, and innovation. Today, the region accounts for roughly 50 percent of all global internet users, 60 percent of all online retail sales, and over 40 percent of all unicorn startups. By 2025, Asia will account for almost half of all new mobile subscribers added worldwide and over half of all cashless transactions. Global companies and investors, including Mastercard, recognize the opportunity on hand in Asia. Deepening cross-border trade, investment, and integration through IPEF will spur growth, development, and job creation in the region.
Nevertheless, reaching alignment on digital policy will require intensive dialogue among the IPEF countries. Recent years have seen them take divergent approaches to issues such as data privacy, cross-border data flow, digital payments, and taxation. Differences on foreign investment rules and data localization restrictions have also generated trade frictions. IPEF negotiators now face a difficult task of finding common ground without diluting their policy ambition beyond recognition.
The way forward will require the United States and its partners to think critically about the goals they hope to achieve through IPEF. The official ministerial text on the trade pillar of IPEF highlighted the need to create strong rules that enable “(1) trusted and secure cross-border data flows; (2) inclusive, sustainable growth of the digital economy; and (3) the responsible development and use of emerging technologies.” The ministers also agreed to share best practices on regulation and coordinate on issues including standards, business promotion, MSMEs, and startups.
These are positive signs. But alongside these broad goals, IPEF’s digital components have an opportunity to reflect an Indo-Pacific ethos. Asia has already pioneered innovative frameworks for digital economy collaboration, such as the APEC Cross-Border Privacy Rules, the Digital Economy Partnership Agreement, or the digital provisions in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. IPEF negotiators can draw upon these frameworks as they continue discussions, and put in place strong rules that foster predictability, investment, consumer choice, and expanded trade.
Such rules could include provisions that:
· Ensure non-discrimination of foreign digital products
· Prohibit data localization mandates
· Ensure adequate protections of personal data
· Ban forced technology transfer and protect critical source code
· Foster innovative encryption standards
· Ensure technology choice
· Enhance and secure interoperable payment systems
· Mutual recognition of digital identities
· Promote cooperation on cybersecurity.
IPEF offers Asia and the United States a critical opportunity to script new rules of the road for the digital economy. This kind of cooperation will be vital in the 21st century, particularly as new technological innovations transform the digital landscape and the world at large. Delivering a high-standard digital economy agreement through IPEF would create a strong foundation for inclusive growth and innovation, while also helping drive financial inclusion and digitization at scale. This would be a historic accomplishment for the IPEF countries, and it is one that should inspire them to work toward common ground and high ambition frameworks.