In this webinar, Professor Rupa Chanda – Director of Trade, Investment and Innovation at UNESCAP Bangkok presented on digital services trade in the global context before focussing on the Asia Pacific region, selecting 6 countries to do a deep dive study on – China, India, Fiji, Mongolia, Philippines and Indonesia. She specifically highlighted the enabling factors, the implications for development and the policy needed to further support the trade in digital services in Asia.
REGIONAL ECONOMIC STUDIES PROGRAMME
Thursday, 2 February 2023 – This webinar was a structured presentation by Professor Rupa Chanda on digital services trade in Asia and the Pacific, the commonalities and differences across selected countries, and the opportunities and challenges these countries face. Professor Rupa Chanda was joined by Dr Tham Siew Yean, Visiting Fellow at ISEAS – Yusof Ishak Institute, who served as a moderator for the webinar.
Professor Rupa Chanda commenced her presentation with a global overview of the digital services trade. The exact value of digital services trade is hard to measure due to differing definitions and its overlap with segments like e-commerce and ICT enabled services. Digital services can be categorised as digitally ordered, digitally delivered, and digitally intermediated via platforms. UNCTAD valued digitally delivered service exports at US $2.9 trillion in 2018 or 50% of global services exports, up from $1.9 trillion in 2008, with 16% contributed by less developing countries (LDCs). Generally, the expansion of digital services trade has brought about benefits such as reduced transaction costs, employment, incomes, foreign exchange earnings, skilling, new business models and innovations. Services that used to be non-tradable has now become tradable. Furthermore, it has also blurred the lines between goods and services.
In the context of Asia Pacific, the subregions of east, southeast and central and south Asia together accounted for US$700bn worth of digital services exports, or 97% of developing countries’ exports, and which it amounted to 21% of global exports in 2019. The region’s ICT services exports amounted to US$576 billion in 2018, accounting for 87% of all developing country ICT services exports. Trade in digital services is driven by increased online penetration, rise in e-commerce and use of e-payment systems, increased adoption of digital technology and growing servicification of goods trade. However, the growth of digital services trade is constrained by infrastructure, a growing restriction on cross border data flows, other regulatory requirements, national security, revenue, and sovereign concerns. These limitations will shape the course of digital services trade going forward.
Professor Rupa Chanda did a deep dive study on 6 countries, one of them being China. China is a big player in the digital service exports and ICT exports. China’s exports of digital services are large and growth is strong, its significance in overall services exports is high and growing, but China’s core competitiveness lies in manufacturing. The growth in digital services exports in China also reflects developments and strengths in other areas – manufacturing, e-commerce and 5G infrastructure.
Unlike China, some countries have potential but varied performance as they are at a nascent stage of development in this area. However, they can tap on niche opportunities for exporting digital services based on country specific characteristics, locational advantages, and growth of the domestic digital economy. For example, Fiji has offshoring operations for international ICT and BPO providers such as HP and Dell. It also has the potential to expand contact services and has the scope to diversify export markets given its advantages of proximity, time zones, culture, language, strategic location, and policy incentives.
Professor Rupa Chanda touched on four broad pillars that are enabling factors to support the growth of digital services trade which include: human capital and related aspects of skills and expertise, telecommunications infrastructure and related aspects capturing digital readiness, innovation, and entrepreneurial environment and lastly, business environment such as regulatory, trade and investment environment. All these factors have been proven to be positively correlated with the growth of digital service exports.
The implications for development are not exhaustive and they include direct, indirect and spillover effects. It is evident that digital services trade has an impact on employment, foreign exchange earnings, investments, skilling and capacity creation, and efficiency gains amongst other benefits.
Lastly, Professor Rupa Chanda identified policies which are necessary to support digital services trade. She opines that governments have a role in terms of incubation support, fiscal incentives, digital literacy and adoption, digital finance, FDI policies, data regulation and start up regulation. There should be further evolvement of regulations to address issues of cybersecurity, personal data protection, cross-border data transfer, data localisation and e-commerce.
During the Question-and-Answer session, Professor Rupa Chanda also addressed the issue of taxation on digital services. She personally encourages countries to align with the OECD taxation initiative instead of individual countries coming up with their own thresholds. To prevent constraining the growth of MNCs, she suggests there should be some exemptions made, by clearly defining the scope and value. Ultimately, however, taxes will stifle the growth of digital services trade.