Author: Editorial Board, ANU
The internet once promised a world of seamless connectivity for anyone with access to a digital device. As connectivity costs fell, the workplace became mobile, and digitalization transformed industrial sectors, the laissez-faire agenda of digital developmentalists appeared to align with and promote democratic ideals.
That was then. Today, even as cloud computing and digital transformation agendas have become mainstream, it is clear the threat of digital fragmentation must be actively addressed.
The COVID-19 pandemic and associated lockdowns and social distancing accelerated an e-commerce boom and digitalization globally. The uptake was most remarkable in Asia with 60 million new digital consumers in Southeast Asia. Over half of South Asians have experienced using the internet. Many can now work from home, access healthcare online, and touchless pay is widespread. Fax machines are finally starting to be phased out in high-tech Japan.
Greater digitalization and access to digital service will be central to productivity growth. Distance matters less and transaction costs are close to zero. Data is also non-rival – one company’s use of data need not prevent the use of the same data by others – so barriers to the free flow of data are even more costly than those for physical goods.
As different rules around privacy, cybersecurity and digital sovereignty emerge to thwart interoperability, fragmentation is impacting both governance and infrastructure. Digital borders in China, cross-border data restrictions in Europe and America ‘disavowal of Chinese telecom equipment make for increasing disconnection.
Even as digital services and the online world collapse space and time, the connection to the real world means that distance still matters. The movement of goods, people and capital is increasingly underpinned by data and digital services. Fragmented digital regimes will prevent real economic activity between countries. Conversely, regional interoperability and moving towards a digital single market will unleash productivity, deepen interdependence and strengthen economic security.
As Anupam Chander argues in our lead article this week, ‘the prospect of an Asian digital single market seems remote, especially when India and China seem to be pulling apart. India is busy banning Chinese apps such as TikTok, while China promulgates ever stricter rules on data transfer abroad ‘.
‘Even while some nations commit to open digital trade with each other, they are simultaneously erecting barriers to others’.
This week we launch the latest issue of the East Asia Forum Quarterly on Asia’s Digital Future edited by Peter Lovelock and Dini Sari Djalal. The articles examine where commonalities are possible in the digital economy, and where we may expect more clashes than cross-cutting frameworks.
We face an opportunity to choose the latter for the next generation.
What does the future look like? Competing digital blogs reflecting mercantilist history? Or an interoperable environment, that blends the opportunities of e-commerce and artificial intelligence with the analogous realities of a carbon-based economy into some type of ‘metaverse’?
Asia is not sitting idle and showing that finding commonalities is possible. Much of the early effort towards working solutions has taken place among the region’s multilateral fora. The regional E-Commerce Agreement ASEAN signed in 2019 established common principles and rules for e-commerce growth and potentially heralds a digital ‘common market’. ASEAN’s Model Contractual Clauses for cross-border data transfers, adopted in 2021, breaks ground by enabling ASEAN markets to trade in sensitive data without disrupting domestic privacy requirements.
Southeast Asia is showing the rest of Asia what’s possible and what’s at stake in avoiding digital fragmentation. Giulia Ajmone Marsan explains in a piece in this issue of EAFQ that ‘Southeast Asian tech start-ups raised approximately US $ 8.2 billion in 2020, outperforming most other emerging markets’, and that in 2021,’ there were more than 30 ASEAN unicorns – start-ups with a value of US $ 1 billion or more – and that number is growing fast ‘.
The Digital Economic Partnership Agreement struck by Singapore, New Zealand and Chile, and the Singapore – Australia Digital Economy Agreement, focus on enabling digital trade and the necessary components of digital transformation. It’s still too early to assess whether there’s alignment across the frameworks – or if they are a panacea for digital fragmentation.
Supply chains will be more resilient with interoperable digital systems. There’s shared interest in secure cross-border digital payments. And cyber security and data privacy are shared issues for engagement. Multilateral rules are lacking but regional arrangements can make progress towards them.
Moving towards a multilateral digital regime is not about ceding all sovereignty or a lowest common denominator approach. Multilateral rules for the digital economy can limit discrimination, promote transparency, openness, fairness and predictability and constrain protectionism among diverse and sovereign digital regimes.
Broadening markets will create opportunities across the Asian region.
A path forward on this seemingly lofty goal might start with building upon the positive regional initiatives thus far.
As Chander points out, ‘the world is forging agreements that will create continental markets for digital trade. The European Union launched its digital single market strategy in 2015. North America is building towards a digital trade zone among its biggest economies, with an ambitious digital trade chapter in the US – Mexico – Canada (USMCA) free trade agreement. The African Union has begun negotiations for an e-commerce protocol to the African Continental Free Trade Area. Latin American nations in MERCOSUR and the Pacific Alliance have adopted treaties with digital trade commitments’.
A digital single market for Asia and the global economy doesn’t sound that far-fetched.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.