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The rules hammered in the TPP-11 free trade agreement signed on March 8 are at risk of not keeping pace with fast-moving developments in worlds of technology and business.   © Reuters

Pacific trade rules on digital data may already be outdated

TPP-11 principles to contain China could be counterproductive

YASU OTA, Nikkei Asian Review columnist | China

TOKYO -- When 11 countries from around the Pacific signed a sweeping free trade pact in Chile on March 8, it included rules touted as being geared for the 21st century, including those on digital trade, which will no doubt be key to economic growth in the coming years.

But with technology and its related business models changing so rapidly, will these rules really keep pace and fulfill their purpose of ensuring free trade in cyberspace? The answer seems doubtful.

The original negotiations for the Trans-Pacific Partnership were completed in October 2015. In the two and half years since, the pact that emerged among the 11 members that remained after President Donald Trump withdrew the U.S. soon after taking office in January 2017 -- the TPP 11 --may have already become obsolete.

Moreover, the TPP-11 rules on digital trade may have actually become a stumbling block in negotiations toward another proposed free trade agreement among 16 countries modeled on the TPP -- the Regional Comprehensive Economic Partnership, or RCEP.

At March 3 ministerial talks in Singapore, the RCEP group -- which includes the 10 members of the Association of Southeast Asian Nations, Japan, China, South Korea, India, Australia and New Zealand -- failed to make significant progress due to differences between Japan and other Asian countries. In the end, they merely reaffirmed their intention to eventually reach an agreement.

The differences are rooted how the participants view prospects for digital free trade. Japan would like the RCEP to adopt the same rules as the TPP, but some other Asian countries resist this. And importantly, unlike the TPP 11, the RCEP includes China, changing the game considerably.

During negotiations on the original TPP, Japan, the U.S. and other countries developed principles for rules to prevent state interference in the handling of data gathered through internet-related business activities.

The three principles for free digital trade included in the original TPP agreement are: 1) servers can be set up in any country; 2) data can be transferred across borders; 3) source codes do not have to be disclosed.

In Vietnam, for example -- a country with one-party rule and heavy state control -- digital information such as the interests, consumption patterns and transaction records of consumers would be accumulated on the servers of e-commerce companies.

A company like, which plans to set up servers in Vietnam in the near future, would not want the government to be able to demand it hand over such information, or to worry that its servers might be seized. The data that Amazon collects is a valuable resource that can be used in conjunction with artificial intelligence and machine learning to create new businesses opportunities. Clear digital trade rules make it easier for a company like Amazon to operate in Vietnam.

Another reason for the digital rules included in the TPP talks was that Japan and the U.S. feared the spread of digital protectionism originating in China.

China was not a party to the TPP negotiations, and has been protecting its domestic market by building a "Great Wall" in cyberspace. At the same time, its giant internet companies, such as Alibaba Group Holding and Tencent Holdings, have been expanding their reach overseas. One aim of the TPP was to limit China's reach by building a rules-based international framework that China was not a party to.

But China is a core member of the RCEP. What would happen if the TPP's digital trade rules are transplanted into the RCEP without change? Most likely, China would be the only winner.

In Vietnam, Alibaba and Tencent would expand their presence, gathering vast amounts of data. The data would then flow in only one direction, back to China, where it would be consolidated behind the new Great Wall.

Thus Vietnam and other emerging markets resist accepting any pact that includes digital trade principles like those in the TPP that include the freedom to set up servers and transfer data.

Moreover, the assumption that servers are the most important thing to be protected is outdated due to the rapid development of blockchain technology, which allows many people to share widely dispersed data without respect for national borders.

Japan, perhaps, does not fully appreciate the considerable power of the Chinese companies. Its attempt to contain digital protectionism may be a misguided dead end.

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