The first webinar of the Nikkei – ISEAS Forum on August 24 explored the conceptual framework for understanding and measuring digital trade as well as characterizing the impact of digital technologies on cross border trade.
Tuesday, 24 August 2021 – The opening remarks were delivered by Choi Shing Kwok, director and CEO of the ISEAS – Yusof Ishak Institute. Rudy Salahuddin, deputy minister for digital economy, manpower, and SMEs at the coordinating ministry for economic affairs of the Republic of Indonesia, delivered the keynote address. Members of the panel discussion include Annabelle Mourougane, head of the trade and productivity statistics division, statistics and smart data directorate, OECD, Stephanie Honey, a principal at Honey Consulting and Craig J. Burchell, senior vice president of global trade affairs, Huawei. Cassey Lee, senior fellow from the Coordinator of Regional Economic Studies Programme, ISEAS – Yusof Ishak Institute, moderated the discussion.
Pandemic as Opportunity
The contributions and potential of digital trade was highlighted by Choi Shing Kwok in his opening remarks. He said that “digital trade is a promising driver of ASEAN’s trade that came to the fore during the COVID-19 pandemic and we expect it to prevail post-pandemic.”
“By reducing trade costs and increasing productivity, digital technologies such as the Internet of Things, artificial intelligence, and 3D printing can increase the growth rate of trade in developing countries, including those in the ASEAN region, by about 2.5 percentage points per year, or about 22.5 percentage points from this year to 2030,” Choi added.
He pointed out that individual member states tend to develop varied digital trade rules that have the potential to hinder cross-border flows in the ASEAN market without coordinated regional efforts.
Obstacles and Lessons from Indonesia
In his keynote address, Rudy Salahuddin highlighted the impressive digital adoption rates driven by the pandemic, and he emphasized that the momentum should be utilized to accelerate the digital transformation process.
“Within five years 2015 to 2020, there was a significant increase of internet users in ASEAN, reaching 400 million people based on January 2021 data. The penetration rate of mobile connection in ASEAN reached 132% of the total population with up to 69% penetration rate on active social media users,” he said.
However, there are still some challenges in developing the digital economy both in Indonesia and ASEAN, including the lack of ICT or digital infrastructure, he added. “In an archipelagic country like Indonesia, it is challenging to ensure adequate ICT infrastructure is evenly distributed and adopted.”
The digital skill gap is another problem within ASEAN. Around 56% of all employment in ASEAN 5 (Cambodia, Indonesia, the Philippines, Thailand and Vietnam) is at higher risk of being substituted by technology in the next decade or two. Lastly, essential policies such as data openness and privacy remain underdeveloped.
The three critical steps to take as suggested by Salahuddin, for accelerating development of the digital economy in ASEAN are: addressing regulatory gaps to ensure a fair distribution of digital economy benefits; prioritizing collaboration on micro, small and medium enterprises digitalization and digital talent development; and solving cross-cutting policy and regulatory issues.
“Defining and measuring digital trade is probably the most challenging task statisticians have on their plates these days,” said Annabelle Mourougane as core economic data remain primarily constructed around firms and products and there is still no agreed definition of digital trade.
She introduced the handbook developed jointly by the OECD, IMF and the WTO to provide a framework that defines digital trade as “all trade that is digitally ordered and/or digitally delivered.”
National statistical offices can already start using a framework for guide data collection by using or amending existing data and by undertaking surveys that collect new types of data such as credit card transactions, Mourougane said.
The DEPA/DEA Model
The importance of taking a cross-regional approach to digital trade governance was highlighted by Stephanie Honey. “There are real benefits for business from streamlining the rules across as many markets as possible,” Honey commented, citing as possible models the Digital Economy Partnership Agreement (DEPA) among New Zealand, Singapore and Chile, or various Digital Economy Agreements (DEAs) which were being negotiated by Singapore with trading partners. “ASEAN should think about joining the DEPA, or developing something similar. It is an agile model for digital trade that is responsive to emerging technologies and new issues. It also emphasizes interoperability between systems. This helps to create an enabling trade environment,” said Honey, noting that the DEPA also usefully emphasized ongoing engagement with the business community.
Modern Digital Trade Ecosystem
Craig Burchell emphasized the need for greater collaboration now on new rules and better governance of the global digital ecosystem, and an approach to the main challenges aimed at co-existence and interoperability.
Burchell stressed that businesses want practical results to reduce costs and improve access to each other’s markets. Recent studies find “paperless trade” can reduce costs by 35%, processing time by up to 75% and save a billion trees. Efficiency savings can be recycled into the economy. Huawei is in Asia for 20 years promoting “technology for all” and investment in digital skills, infrastructure and start-ups, which are key success factors for digital transformation.
Five Transformational Digital Services
Cloud, artificial intelligence (AI), digital platforms, 5G networks and digital trust services like verification and identity are the five digital services that Burchell thinks have the “most significant potential to shape future digital businesses.” Cloud services support delivery in the field while digital platforms enable the marketplace. AI improves the sifting of data, automation and sophistication of delivery, 5G networks bring smart specialization and more inclusive participation in supply chains, digital trust services enable safe trade in data and digital products.
Impact on Taxation
The discussions went on to examine the implication of digital trade on taxation. Mourougane argued that defining the tax rate is easy but defining the tax base is much more difficult as governments do not have sufficient data to enforce the rules. “We all know that it is extremely difficult to get the information that is necessary from all multinationals because a lot of exchanges are taking place within firms, and governments do not have sufficient visibility on these flows,” she said.
Honey referred to some studies showing that imposing tariffs on electronic transmissions would negatively impact growth and GDP. “At the moment there is a WTO moratorium in place on imposing customs duties. Many trade agreements also have a de minimis threshold for collecting duties on low-value shipments. These are trade-enabling approaches, particularly small businesses engaged in e-commerce or providing digital services across borders,” she noted. Burchell added that businesses want clear and transparent rules for certainty.
Read the Welcome Remarks here.