Asia’s digital future | East Asia Forum

Author: Editorial board, ANU

The internet once promised a world of seamless connectivity for anyone with access to a digital device. As connectivity costs fell, the workplace became mobile, and digitalization transformed industrial sectors, the digital developmentists’ laissez-faire agenda seemed to align with and promote democratic ideals.

That was then. Today, even as cloud computing and digital transformation agendas have become mainstream, it is clear that the threat of digital fragmentation must be actively combated.

The COVID-19 pandemic, associated lockdowns and social distancing have accelerated the e-commerce boom and digitalization globally. Adoption was most notable in Asia with 60 million new digital consumers in Southeast Asia. More than half of South Asians have ever used the Internet. Many can now work from home, access healthcare online and contactless payment is widespread. Fax machines are finally starting to be phased out in high-tech Japan.

Increased digitization and access to digital services will be central to productivity growth. Distance matters less and transaction costs are close to zero. Data is also non-rivalry – the use of data by one company need not preclude the use of the same data by others – so barriers to the free flow of data are even more costly than those of goods physical.

As different privacy, cybersecurity and digital sovereignty rules emerge to thwart interoperability, fragmentation impacts both governance and infrastructure. Digital borders in China, cross-border data restrictions in Europe, and US disavowal of Chinese telecommunications equipment are contributing to increasing disconnection.

Even though digital services and the online world are collapsing in space and time, connecting to the real world means that distance still matters. The movement of goods, people and capital increasingly relies on digital data and services. Fragmented digital regimes will hamper real economic activity between countries. Conversely, regional interoperability and the move towards a digital single market will unleash productivity, deepen interdependence and enhance economic security.

As Anupam Chander argues in our lead article this week, “The prospect of an Asian digital single market seems remote, especially when India and China seem to be going their separate ways. India is busy banning Chinese apps such as TikTok, while China is enacting ever stricter rules on transferring data overseas.

“Even as some nations commit to open digital trade among themselves, they are simultaneously erecting barriers for others.”

This week we are launching the latest issue of East Asia Quarterly Forum on Asia’s digital future edited by Peter Lovelock and Dini Sari Djalal. The articles examine where commonalities are possible in the digital economy and where we can expect more conflict than cross-cutting frameworks.

We’re faced with an opportunity to choose the latter for the next generation.

What does the future look like? Competing digital blocks reflecting mercantilist history? Or an interoperable environment, which blends the opportunities of e-commerce and artificial intelligence with the analogous realities of a carbon-based economy in a sort of “metaverse”?

Asia does not remain inactive and shows that it is possible to find common points. Much of the early efforts to find working solutions took place within the region’s multilateral forums. The regional e-commerce agreement signed by ASEAN in 2019 established common principles and rules for the growth of e-commerce and potentially heralds a digital “common market”. The ASEAN Standard Contractual Clauses for Cross-Border Data Transfers, adopted in 2021, break new ground by allowing ASEAN markets to exchange sensitive data without disrupting national privacy requirements.

Southeast Asia is showing the rest of Asia what is possible and what is at stake to avoid digital fragmentation. Giulia Ajmone Marsan explains in an article in this issue of EAFQ that “Southeast Asian tech start-ups raised approximately US$8.2 billion in 2020, outpacing most other emerging markets,” and that in 2021 “there were more than 30 unicorns from ASEAN – start-ups worth US$1 billion or more – and that number is growing rapidly.”

The Digital Economic Partnership Agreement between Singapore, New Zealand and Chile, and the Digital Economy Agreement between Singapore and Australia, focus on enabling digital trade and the necessary components of digital transformation. It is still too early to assess whether there is alignment between the frameworks – or whether they are a panacea for digital fragmentation.

Supply chains will be more resilient with interoperable digital systems. There is a shared interest in secure cross-border digital payments. And cybersecurity and data privacy are common issues for engagement. Multilateral rules are lacking, but regional agreements can make progress in their direction.

Moving towards a multilateral digital regime is not about ceding all sovereignty or adopting a lowest common denominator approach. Multilateral rules for the digital economy can limit discrimination, promote transparency, openness, fairness and predictability, and limit protectionism between diverse and sovereign digital regimes.

Expanding markets will create opportunities throughout the Asian region.

A way forward towards this seemingly lofty goal could start by building on the positive regional initiatives so far.

As Chander points out, “The world is forging agreements that will create continental markets for digital commerce. The European Union launched its Digital Single Market Strategy in 2015. North America is moving towards a digital trade zone among its largest economies, with an ambitious digital trade chapter in the States Free Trade Agreement -United-Mexico-Canada (USMCA). The African Union has started negotiations for an electronic commerce protocol in the African Continental Free Trade Area. The Latin American countries of MERCOSUR and the Pacific Alliance have adopted treaties with digital trade commitments”.

A digital single market for Asia and the global economy doesn’t sound so far-fetched.

The EAF Editorial Board is located at the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

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