June 20, 2016 7:00 pm JST
Commentary

Jim Foster -- TPP is a win for Asia's digital economy

After nearly 20 years, the internet now stands to deliver on the vision that it promised when first conceived. The emerging digital economy will benefit not just existing companies in the internet space, but countless startups and "old economy" businesses that can respond flexibly and quickly. Perhaps no region stands to gain more from this than Asia.

Yet the actions taken by defense ministries and law enforcement authorities in this area may be just as critical as those made by finance and trade offices. There is a real danger that unilateral assertions of national cyber-sovereignty could fragment Asia's internet and set back the development of an economically integrated and vibrant cyberspace in the region.

In this regard, the recent signing of the Trans-Pacific Partnership agreement is both very welcome and timely. The TPP may not be the solution to every problem, but it moves the region in the right direction. Even if not fully implemented, the agreement's chapters on e-commerce can be a core around which businesses large and small can move to the cloud and serve regional and global markets.

For a country like Japan, the importance of the digital economy to overall growth is keenly appreciated, if not completely realized. Its likely early accession to the TPP underscores how the agreement is about much more than agricultural liberalization and autoparts tariffs.

Similarly, South Korea's recent adoption of the world's first cloud promotion law highlights the intent of government and industry to move beyond the currently saturated domestic information technology market. While South Korea is currently outside the TPP, the agreement will undoubtedly be a spur for the country's "best in market" companies to adjust their policies and perspectives to the new norms sanctioned by the treaty.

As companies consider the opportunities offered in regional markets opened up by the trade pact, there remains a concern as to whether it can deliver on its stated principles. To the extent that the TPP can result in greater alignment of regulations for the digital economy across Asia, the new treaty will help local businesses move quickly to scale by opening markets for goods and services throughout the region.

At the same time, there is controversy over whether the provisions in the TPP in the competition policy area are too weak to provide meaningful protections to smaller players going up against global giants in their home markets. There is a need for more evidence-based research on the pact's impact on competition in national markets and in the region.

A related issue is the contribution of the TPP to improving consumer welfare and protection. Will agreeing to the provisions diminish the signatories' ability to protect domestic users? And can the dispute-resolution mechanisms envisioned in the agreement provide meaningful and timely remedies? This is not yet entirely clear and is again an area for further research. But there is no denying that a key benefit of the digital economy is the way it empowers consumers through greater access to information and cross-border markets.

The transition to a new set of digital economic arrangements will inevitably produce winners and losers. What the Asian economy may look like five years from today depends on many factors, but the TPP will certainly reinforce trends leading to a digitally based regional economy. Countries are joining the agreement because they want to gain the maximum advantage from this shift and in the process are creating a powerful and progressive new trading bloc that is premised on deployment and greater utilization of new internet technologies.

The pact still faces many hurdles. Its image as an innovative arrangement for dealing with the next generation of trade issues has been buffeted by strong suspicions and complaints about the secretive and nontransparent nature of its negotiation process. This may be the first time that a trade agreement of the TPP's complexity has been held to this standard. But if it is to be ratified and implemented, its sponsors will need to address these concerns.

This effort will require mechanisms for building trust and reaching out beyond the traditional trade community. Privacy is a good example. The question of who "owns" the data flows that the TPP facilitates is a problem that can involve the data-protection authorities of multiple jurisdictions. The future impact of the trade deal on the region's digital economy will depend in part on its capacity to serve as a framework for forging innovative responses to such transnational issues.

Jim Foster is executive director of The Asia Pacific Institute for the Digital Economy, a regional think tank based in Tokyo and associated with Keio University. 

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