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  • Lujain Ibrahim

Roundtable Summary - Innovations in Digital Trade and Infrastructure: Enablers and Barrier

Updated: Mar 31, 2023

Introduction


In the age of digital globalization, navigating the complexities of digital trade has become increasingly challenging. Our 5th Platform Futures roundtable discussion focused on enablers and barriers related to the platform economy, with a particular focus on digital trade, data localization, cross-border data flows, and other APAC-oriented harmonization efforts. This summary explores the evolving regulatory landscape and its implications for digital companies and other actors such as governments and consumers.


A transcript and video recording is available here. Our key speakers for the panel featured: Deborah Elms, Executive Director at Asia Trade Center and Warwick Powell, Adjunct Professor at Queensland University and Chair at Smart Trade Networks. This summary captures key themes, ideas, and policy recommendations made during the event.


This summary captures key themes, ideas, and policy recommendations made during the event.


 

Roundup


Navigating the Digital Noodle Bowl

In this discussion, Deborah Elms uses the metaphor of a ‘digital noodle bowl’ to describe the complexities of digital trade and the increasing regulatory landscape surrounding it.

This ‘digital noodle bowl’ is made up of inconsistent and incompatible regulations concerning various aspects of digital trade, such as data hosting, privacy protection, and sector-specific rules for health and financial data. Governments are increasingly imposing taxes on e-commerce and goods delivery, making it harder for micro multinationals to operate globally.

Asian governments are leading the way in creating actual rules or "noodles" for managing digital trade. Some trade agreements include comprehensive e-commerce chapters that address digital concerns such as data flows and data localization requirements. Another approach is digital-only agreements, such as those led by Singapore, which aim to establish aligned rules for the future across various digital aspects, including digital identity and electronic documentation. The major problem with digital only agreements is articulating the difference between digital trade and trade. All trade is going to be digital or digital will be embedded in all trade. For example, payments, order taking, and services. all have digital components. These types of agreements have the potential to undermine our existing trade agreements.


The challenge for digital companies lies in navigating these different rules and regulations, as attempts to harmonize or streamline them may be messy. It is crucial for participants in the digital economy to understand this evolving landscape and identify the real obstacles and opportunities that can be either hindered or facilitated by digital regulation and rulemaking.


Bridging Analog and Digital Worlds

Warwick Powell's research team has been examining the evolving regulatory landscape from a slightly different angle, focusing on the intersection of technology, finance, and international trade. Digitalization in the Asia region has opened up new possibilities and cross-border payments is at the forefront.Warwick raised projects such as mBridge, a cross-border payments platform using a purpose-designed distributed ledger. This platform, co-sponsored by the Bank of International Settlements, has successfully piloted transactions involving multiple central banks such as the People’s Bank Of China, the Central Bank of Thailand, and the Central Bank of the UAE.

However, the flow of money is only half the story. The other half involves the flow of information about people, places, and products. Developing and implementing functional, cross-border information systems will make automated procedures like smart contracts possible. China has been a leader in developing enterprise-level blockchain solutions (Blockchain enabled Service Network BSN) with unique characteristics. These solutions emphasize identified and commissioned participation, enabling consensus without the need for cryptocurrency incentives.

Distributed ledgers have been put center stage in the overall architecture of cross-border information systems to address synchrony and symmetry, ensuring smooth information flow among key participants. This focus on digitalization extends to supply chains as well. Data localization and data flows remain hot topics, with ongoing debates about the necessity of such measures to protect privacy and digital rights.



The Complexity of Data Localization in a Globalized Digital World

Deborah Elms also discussed the digital revolution, which initially allowed unrestricted data flow across borders, but governments are now increasingly concerned about protecting citizens' information. As data is perceived as a valuable resource, governments aim to control access and keep it hosted domestically.

However, defining specific types of data (for example, health data) and ensuring their local storage is challenging, especially given the Internet's global nature. A language gap between government regulators, trade officials, and the tech sector adds to the confusion, leading to a complex debate around data localization.

Achieving Secure Transactions in a Multiplicity of Information Networks

Warwick Powell highlighted the importance of understanding the necessary information for successful transactions within supply chains and the actors involved. He emphasized that much of this information is already standardized and public.

The challenge lies in combining and securing data without compromising commercial or security interests. Cryptography, specifically zero-knowledge proofs, is explored as a potential solution. He also articulates the emergence of purpose-built information networks, raising questions about interoperability and the need to bridge these networks effectively.

China’s BSN was discussed as an initiative that addresses these challenges. The speaker also points to emerging philosophical differences in how data is viewed globally, with China now considering data as a factor of production as well as a public good. Lastly, Warwick Powell distinguishes between trust in human relationships and trust in technology, arguing for trustless systems to minimize points of failure.



Consumer Protection & Rights

Both speakers also discuss how consumers should become a focal point for governments, businesses, and other stakeholders when discussing the implementation of digital technologies in supply chains and internet economies. Governments often claim to represent consumer interests, while businesses may argue that direct consumer representation is necessary to ensure that policies genuinely meet their needs.


A key aspect of the consumer perspective in the digital age is the potential for consumers to drive change within supply chains. Digitalization, through technologies like smart contracts, enables groups of buyers to aggregate their purchasing power and influence production systems, environmental footprints, and social impacts. These groups can signal their preferences and requirements to suppliers, using digital wallets and escrow systems to ensure that their conditions are met.


However, there are challenges and disconnects in realizing this potential. Many governments lack a deep understanding of digitalization, often merely replicating paper processes in digital form without rethinking the underlying systems. In addition, communication between businesses, governments, and consumers is often limited, hindering the development of policies that advance a safe, sustainable internet economy and empower consumers.To address these issues, fostering a dialogue among all stakeholders, including consumers and citizens, is essential.

The distinction between consumers (an economic notion) and citizens (a broader social concept) also requires further exploration to understand the implications of digitalization on both individual and collective levels.

Untangling the Digital Noodle Bowl

The best case scenario would be one consistent set of global rules, for instance data flow rules in the World Trade Organization that applies to its 164 members. This will be very difficult to achieve since the global trade system has not produced global rules since 1995.

Governments definitely understand the risk of fragmentation, incompatibility, the missed opportunities, and the collateral damage from different kinds of rules. Their current approach can be summed up as “try everything and see what works”, searching for the right platform and the sweet spot for managing often contentious issues in a way that is consistent. .


Final words

The digital revolution has brought with it complex regulatory landscapes and challenges, especially in the realm of digital trade. Governments are increasingly imposing taxes on e-commerce and goods delivery, making it harder for micro multinationals to operate globally. However, Asian governments are taking the lead in establishing actual rules for managing digital trade. The emergence of purpose-built information networks and the Blockchain Services Network is an initiative that addresses the challenges of interoperability and bridging these networks effectively. Ultimately, the success of digital trade will depend on understanding this evolving landscape and identifying the real obstacles and opportunities that can either hinder or facilitate digital regulation and rulemaking.



 

Platform Futures, a project by Digital Asia Hub, convenes a network of academics and experts to create a space for dialogue on opportunities, challenges, and governance best practices across the Asia-Pacific region.



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