Evolving Digital and E-Commerce Trade Rules for Northeast Asia

Abstract

Economic policy-making is often a delicate dance between government officials and regulators and the marketplace. Governments want to ensure, for example, that consumers are safe, that public goods are properly provided, and that government services are adequately supplied. Companies want to find new markets and new consumers and reap maximum profits. In mature markets or slowly evolving industries, finding the right equilibrium that balances the needs of government, citizens and companies is easier. In digital trade and e-commerce, however, new technological advances are being developed so rapidly that governments are struggling to keep up. Officials have responded by either allowing industries to exist in entirely unregulated spaces or have tried to adapt off-line rules and legislation to match growing on-line trade. The result has satisfied no one. Governments are uneasy with patchwork regulations and legislation in place to monitor the digital economy at the domestic, regional and global levels. Companies face growing risks and uncertainty in their business models, since poorly structured and fragmented responses by governments can upend once profitable ventures overnight. Consumers are also not getting the best outcomes since many products and services that they might want are not available, have uncertain quality, cost more, and may compromise their own privacy. This paper tracks the rapidly evolving landscape for digital trade and e-commerce across five Northeast Asian economies? China, Japan, Hong Kong, South Korea, and Taiwan. These five countries are at the cutting edge of the digital revolution with increasingly wired citizens and innovative companies offering a staggering range of products and services. The paper examines several business and consumer important trends of note, including the rapid explosion of e-commerce generally, the shift to online and mobile purchases, the proliferation of data and challenges of managing data flows across borders, and new disruptive technologies like fintech, 3D printing and the Internet of Things (IoT). Each of these trends highlights the growing challenges to regulators in continuing to apply existing rules and legislation created for off-line applications to a digital world. It is one thing to note exciting new changing on the horizon. It is another to grapple with how governments can actually address these rapidly evolving challenges. The paper therefore breaks down digital trade and e-commerce into eight discrete segments of relevance for the digital economy. The eight areas under examination are not the only areas that matter for digital trade, but give a better sense of the scale and scope of issues facing regulators at the domestic level. The paper then tracks actual legislative and regulatory policies that govern (or do not yet address) policy for the following issue areas: overall e-commerce regulatory frameworks; customs and trade facilitation rules that apply to e-commerce goods; data protection frameworks; data localization and cross-border data flow rules; domain names; intellectual property rights rules; consumer protection in an online world; and over-the-top internet services. A review of how the five Northeast Asian countries are grappling with policy in these eight discrete issue areas reveals wide differences in rules between the countries at the domestic level and often significant variation from what might be considered “best practice” ideas for each topic. Overall, the review of policy at the domestic level shows that governments have not yet figured out the best approach for creating supportive and enabling frameworks for digital trade and e-commerce. To date, much of the official response has been fragmented between ministries and agencies, with little coordination. Digital trade is unlike many other sectors? It cuts across an increasingly wide swath of the economy and regulatory policies in one area often has knock-on or unintended consequences in other areas. It is also rapidly evolving, which is making it difficult for government officials to address. If governments are too far out in front, too prescriptive or too forward leaning, they risk cutting off new sources of innovation and growth. They may unintentionally box in specific technologies or platforms. Yet it can be very difficult to think about regulating for outcomes, since it requires bureaucrats to have a visionary sense of the future that few individuals are likely to have. Creating digital economy policies at the domestic level, in any case, is probably not the best or most effective way to create sensible regulations. The digital economy does not recognize national boundaries. It does not logically stop at a customs border. Hence, the more efficient and effective way to manage digital policies is at the regional or international level. The paper therefore considers ongoing efforts in Asia the regional level, through the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) trade negotiations. Both trade talks have digital components that could create sensible broader frameworks. Both the TPP and RCEP could also usefully contribute to broader global trade rules, crafted in the World Trade Organization (WTO), in the World Intellectual Property Organization (WIPO) and the World Customs Organization (WCO). The paper also makes recommendations in the final chapter for provisions that should be considered in each of these fora to advance supportive, enabling digital trade and e-commerce rules that would allow governments and companies to reduce risk and uncertainty while ensuring that consumers are properly supported. In the end, digital trade and e-commerce are likely to be the dominant means of creating and delivering goods and services to consumers and companies around the globe in the future. Northeast Asian economies are at the cutting edge of these trends. The struggles that government officials, legislators and regulators are facing in creating the right frameworks to support this growth shows how vitally important it will be to get the appropriate scaffolding into place at the domestic, regional and global levels.