The 2016 APRU Digital Economy Business Offsite met April 11 – 12 at the International House of Japan in downtown Tokyo. The 2016 program was attended by over 50 academic, business, government and civil society leaders in the Asia Pacific region and was organized and hosted by Keio University under the auspices of the Association of Pacific Rim Universities (APRU). Preparations for the Offsite were coordinated by the Asia Pacific Institute for the Digital Economy (APIDE), a regional think tank based in Tokyo and associated with Keio University.
Welcoming remarks were offered by Professor Jiro Kokuryo (Keio University, Vice President for International Collaboration), Makiko Yamada (Director General, Global ICT Strategy, Ministry of Communications and Internal Affairs (MIC)), and Yoshiaki Takeuchi (Deputy Director General, IT Strategy, Ministry of Economy, Trade and Industry (METI)). The Off-Site continued to emphasize informal and highly interactive conversation by foregoing formal presentations and was conducted under Chatham House rules.
The theme of the 2016 Offsite was the recently signed Trans-Pacific Partnership (TPP) Agreement.
The focus of the discussion was whether the provisions of this still controversial trade agreement (now embracing 12 nations in the region and over 40 percent of global trade) amounts to “a new Digital Economic agenda” for the Asia Pacific region. Over a day and half of discussion divided into six sessions, participants wrestled with the following questions:
1 | What are the key provisions in TPP related to the Digital Economy and how specifically might they support the greater deployment of ICT technologies and utilization of data in Asian economies? What are the significant gaps that still need to be addressed, e.g. should more be done to better align national approaches to privacy to better facilitate sharing data across borders?
2 | As a trade agreement, does the TPP have the authority and scope to target issues, such as the “digital divide”, cultural diversity, and national security concerns that could slow the development of the Digital Economy in the region and thus weaken its overall contribution to regional growth? How does the TPP address questions related to the “digital divide”, cultural diversity and national security – or can these be better pursued in forums, such as APEC and ARF? Is this a fundamental weakness of a trade-based approach to Internet rulemaking?
3 | Could TPP evolve into a de facto standard for the Asian region in managing the Digital Economy. Can its market-oriented trade-based approach to managing the Internet offer a compelling alternative to the Internet policy perspectives that depend on state-led intervention favored in China and the EU?
4 | Does TPP expand the concept of “Internet governance” as it sets rules for areas including government procurement of technology, restrictions on the operations of State Owned Enterprises (SOEs) and outside participation in national regulatory processes, in addition to subjecting them to regional disciplines? How does the “multi-stakeholder” community fit into this process and how might this relate to strongly voiced dissatisfaction within elements of civil society regarding both the provisions and negotiating process of TPP?
5 | Will TPP ultimately be ratified and implemented in ways that strengthen the Digital Economy in the region or could the controversy over its provisions and its “exclusion” of a number of key economies accelerate “fragmentation” of the Internet in the Asia Pacific to detriment of the global Internet? How can the debate over TPP be framed to support a more constructive dialogue? Do we need to start working on TPP 2?
The Digital Economy and TPP
The discussion opened with a challenge: if TPP represents a new type of trade agreement for the 21st Century, how is it related to the emerging “digital economy” in the region and what is its connection to topic of “Internet governance”?
To get a quick snapshot of views in the room, participants at the conference were asked to sum up their expectations for the new agreement in one or two words. The results reflected a range of opinions:
Opportunity | Growth | Accountability | High Standards | Conflict Avoidance | Game-Changing |
Political “Hot Potato” | Nationalism | Non-Transparent | National Sovereignty | Ambiguity
On how TPP is “game-changing”, the argument was made that TPP provides the “opportunity” for national governments to do things that they would not likely do by themselves and sets limits on government actions in the context of the digital economy. For example, the prohibition against “data localization” requirements was cited as one of most significant provisions in TPP, because it was based on how the technology of the Internet has transformed the way services are delivered. The Digital Economy does not reference borders – TPP is the first trade agreement premised on this new environment.
Yet, while services may be delivered globally, the data they use is often locally derived and usage occurs within a geographically and legally defined area. Data localization requirements are not necessarily introduced to impede digital services – rather they are “policy” solutions responding to the concerns of users who often do not understand where their personal data goes or how it might be used. For that reason, enforcement of this prohibition could be problematic and an obstacle to others joining the agreement.
This tension between “national sovereignty” and TPP was often cited over the course of the discussion. Implementation of TPP will require important changes in domestic regulation and administrative procedures. This will be particularly true with regard to countries with less developed political and economic systems. For example, Malaysia may have to amend 25 pieces of legislation to come into compliance – a process on par with both the scale and intensity of the WTO accession process that China underwent in the 1990s.
Others were less convinced that TPP will necessarily create so many new and contentious requirements, pointing out the agreement’s “national security” exceptions which are have rarely been challenged in other trade agreements. Moreover, in the sensitive area of financial transaction, there are exceptions for preserving national control. It was agreed that the “digital trade” aspects of TPP are important because the impact of its new “rules” cut across all sector of economy and society. It is no longer just about “telecom” – everything is “digital”. From this perspective, TPP is not just about a few big global service providers. In fact, its largest potential impact will be on small businesses.
One distinguishing aspect of TPP is that its e-commerce provisions are generally predicated on performance based compliance rather than prescriptive requirements. This frees both large and small companies to decide how to comply with regional and national regulations, but ensures a minimum level of provider support to end-users. Singapore pioneered this approach to data privacy by mandating that user data be “protected” while not specifying where data must be stored or the type of encryption technologies or method to be used. Companies are free to decide how to do this as long as a minimum performance standards for the type of data used are met.
In this view, TPP can be likened to a set of “norms” for the region. This makes it similar to the IGF process, aiming for “non-binding” results based on input from industry, civil society and government. TPP’s provisions are “binding”, but allow for flexibility in how these provisions are to be achieved. The strength of this arrangement is that it epitomizes the rapidly changing nature of technology and the diversity of a region that is host to such differing social, economic, and political systems and cultures. However, capacity building will be both vital and difficult given the critical shortage of leadership and understanding regarding TPP nearly everywhere.
New TPP “Rules” for the Regional Digital Economy
This session drew and built on the concepts of “new norms” for the Digital Economy by turning the conversation to the development of “rules” within TPP dealing with sensitive areas, such as privacy, intellectual property, cyber security and government procurement. Underlying the discussion was the shared realization that the Internet has dramatically altered business models across industries. A related observation was that the “diversity” in Asia is a real obstacle to common rules. Thus, the Internet is driving changes in the nature of national sovereignty, particularly with regard to the cross-border flow of data and related services.
Nowhere are the challenges of establishing new “rules” for the Digital Economy in the Asia Pacific larger than in the privacy space. A good deal of discussion was focused on why TPP was unable to drive greater convergence with respect to rules for privacy, leaving matters largely to national discretion unless the “results” are proven “discriminatory.” The explanation is related to the role played by the APEC Cross Border Privacy Rules (CBPR).
Unlike the European model for privacy, the APEC framework is self-enforcing. Apart from a few US companies, firms in the region have neither been very interested nor active within APEC on this. A lack of available analysis on compliance costs highlights the “chicken and egg” nature of the problem: a “critical mass” of countries must become involved before the system gains the legitimacy to justify investment of resources by the private sector. To date, only four countries have stepped up to the line. A related and also critical weakness of the APEC CBPR is its lack of interoperability with the European system. Particularly in light of its recent discussions with the US on “adequacy,” the EU is not convinced that “self-enforcement” by companies of privacy rules is sufficient.
TPP is innovative from a trade perspective by including privacy within the agreement. “Data” has become an economic mode of production – thus the import and export of data should be tackled as an area of trade. Yet, at this point, TPP does not go beyond the CBPR framework so its true impact is uncertain on an issue that is central to the Digital Economy.
The outcome within TPP on intellectual property is paradoxically different. TPP contains tough provisions against piracy that have sparked significant backlash from civil society as a restriction on free speech and more generally from users. Silicon Valley did get an exemption in TPP for Internet Service Providers (ISPs) indemnifying them against intermediary liability, but the tougher copyright rules will likely slow adoption of TPP norms in countries like India, which are still building the Internet and unwilling to put strong controls on the availability of content.
TPP prohibits national government demands to share source code as a condition for market entry, an important step since some governments have made these demands for economic reasons rather than for reasons of security. The provision positions TPP as an important bulwark against the proliferation of this practice. At the same time, TPP is unlikely to weaken measures against hacking and the protecting of sensitive systems. The Common Criteria and other evaluation schemes will remain in place and exemptions will be available for critical infrastructure.
Fundamentally, the digital economy requires solid cyber security. Across the region, investment in security is deficient in the extreme. TPP can help support significant investments in mechanisms for greater information sharing and the training of needed human resources. For example, it could evolve regional frameworks on a sectorial basis for threat information sharing along the lines of national Information Sharing and Analysis Centers (ISAC). TPP might also help pave the way for serious capacity building through national education programs and promotion of greater regional labor mobility for trained cyber engineers
Government Procurement and Data Localization
On issues related to government procurement, TPP was thought to be a step backwards. The provisions outlined in the agreement for digital devices and services is too abstract and essentially unenforceable. Combined with tougher IP protections and provisions against weakening DRM devices and software, TPP seems at odds with its own objective of increasing the flow of goods, services and data in the region.
The issue of “data localization” within TPP was revisited in this context. The argument was advanced that such requirements in developing countries make an important contribution to “capacity building” for the local digital economy. For example, a “localization” law introduced in 2013 has produced significant foreign investment in Indonesia’s IT sector. This evoked some skepticism, since local data centers have a limited economic impact and can have security issues. However, the political arguments for keeping important data at home may be more relevant from the perspective of national security and domestic law enforcement.
TPP Support for Greater Utilization of ICT in the Economies of the Region
After nearly 20 years, the Internet now stands to deliver on the vision that it promised when first conceived. The Digital Economy will benefit not just existing companies in the Internet space, but countless startups and “old economy” firms that can respond flexibly and quickly. The challenge for the region is how do avoid the “splinter-net” – only then can the potential of the Digital Economy be fully realized. Defense ministries and law enforcement are just as critical to this goal as trade and finance ministries. TPP may not be the solution to every problem, but it moves the region in the right direction. Even if not fully implemented, TPP’s chapters on e-commerce can serve as a core around which businesses in the region can move to the cloud.
For a technologically advanced country like Japan, the importance of the digital economy to overall growth is still not fully appreciated. The implementation of the new privacy law could close off new opportunities. Tokyo must identify obstacles and develop policies with an eye to spurring further growth. Similarly, Korea has begun to consider a regional dimension to their saturated domestic digital market. While currently outside the TPP, the agreement could be a springboard for local Korean “best in market” firms to go international.
As domestic companies consider the opportunities offered in international markets opened up by TPP, a nagging concern is whether the pact can deliver on its stated principles. To the extent that TPP can result in greater alignment of regulations for the Digital Economy across the region, the new treaty will help local businesses to move quickly to scale by opening markets for goods and services throughout Asia. At the same time, the provisions in TPP in the competition policy area may be too weak to provide meaningful protections to smaller players in their home markets. There is a need for more evidenced based research on TPP’s impact on competition in national markets and in the region.
A related issue is the extent of TPP’s ability to improve consumer welfare and protection. Will agreeing to TPP provisions diminish national governments’ ability to protect domestic users? Will the dispute resolution mechanisms envisioned in the agreement really work? This is not yet entirely clear, but a key characteristic of the emerging Digital Economy is the empowerment of consumers through greater access of information over the Internet.
The transition to a new set of digital economic arrangements will inevitably produce winners and losers. What the economy may look like five years from today is up for debate, but TPP can be an enabler that helps sets the stage for a shift to a digitally based economy. Countries are joining the agreement because they want to gain the maximum advantage from this shift.
TPP 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 non-transparent nature of its negotiation process. This may be the first time that a trade agreement of TPP’s complexity has been held to this standard. It illustrates how much rule-making with respect to the Internet focuses on “process” as much as “substance.”
If TPP is to be ratified and implemented, its sponsors will need to address these concerns. This requires mechanisms for building trust and reaching out beyond the traditional trade community. Intellectual property is one area for dialogue; privacy is another. For example, the question of who “owns” the data flows that TPP is facilitating is difficult to ignore. The problem is one that may not be susceptible to adequate oversight in national jurisdictions, but there currently exists no alternative framework for addressing this. The future relevance of the TPP may depend on developing an innovative response to such transnational issues.
TPP and the Challenges of the Digital Divide and Diversity
While some parts of Asia are setting the pace for the global Internet, other areas are being left behind. For example, Indonesia may have 80 million people on the Internet, but that is far short of its potential. The “digital divide” is real, encompassing infrastructure, governance and policy weaknesses, and the absence of local firms with regional and global reach.
These issues are challenges not just for domestic constituencies, but for global firms that wish to develop and serve these markets. The diversity within the Asia Pacific region requires service providers to engage with governments and to recognize the importance of involving all elements of the multi-stakeholder community from the start.
This is also true for TPP, which was put together from necessity and past practice out of the public view. The ratification and implementation of the agreement will require a wider range of players. TPP cannot be solely an “American” issue. Asian firms need to shoulder some of the responsibility for working with governments and the broader multi-stakeholder community to understand the details of the agreement. Japanese, Korean and even Chinese firms looking for regional markets have to step up to the challenge.
The Internet is increasingly interwoven into the political and economic lives of Asians. The issues constricting its growth are the structure of the telecom sector and spectrum allocation policies. Can TPP help address those kind of issues? The answer is yes to some extent. TPP cannot “regulate” the “digital divide” away, but it can support growth by encouraging domestic and foreign investments, supporting an economic climate of regulatory certainty and promoting a regional digital market where scale is possible.
In this context, positive factors associated with TPP and the groundwork required to move forward can be supported by the activities of regional infrastructure banks, prominently the Asian Development Bank (ADB). While the banks are only beginning to focus on the digital economy, investments in infrastructure can both help to bring in additional private capital and assist groups outside the digital economy capitalize and grow future innovations.
This was also a key theme at the 2016 G-7 ICT Ministers meeting, which Japan hosted in Takamatsu on April 29. Private efforts in the healthcare field have highlighted the benefits to all stakeholders when proper attention is given to striking the balance between effective service delivery and individual protections. Neither governments nor business can solve the challenge of the digital divide alone.
How does civil society fit into this process? Governments and business should do more in the way of engagement with civil society than just “checking the box.” Civil society needs to be part of the solution. This is especially the case with TPP, which is more than simply a trade deal. Privacy, human rights, labor mobility, access to networks and relevant content are all important values for the future digital economy. Proponents of TPP need to make these arguments and supply evidence demonstrating as much.
APEC is an important regional platform for these discussion and has already established a steering group on the digital economy. In parallel with the development of TPP, APEC is discussing how to train the three to five million people that the Asia Pacific will need to fill new jobs associated with the Internet of Things, Artificial Intelligence and Big Data. At the same time, APEC is looking at how to deal with the “mismatch” between the new digital economy and the skill set of seniors, women and youth in the less developed parts of the region. The academic community is well placed to provide the fresh thinking and analysis need to address these issues.
TPP, Regional Integration and the Global Digital Economy
The US is clearly the major player in the region with respect to TPP and statements coming from the American presidential campaign have raised questions as to whether the US Congress will approve the TPP Agreement. A delay or rejection of TPP by the US could doom the agreement in the short run and disrupt the nascent consensus developing around some of its key provisions in the area of the digital economy. It would also undercut movement on the part of India and China to take a serious look at both the challenges and opportunities presented by TPP.
For India, TPP is seen as having the potential to create a normative framework around the digital economy. The Indian government and business community are paying close attention to TPP and considering the practical benefits that will accrue to the Indian economy. That said, India’s immediate focus is not the regional digital economy, but rather its domestic market and the enormous challenge of building infrastructure and bringing the population online. As deployment of the Internet in India accelerates, so too will Indian interest in better aligning its internal market practices with those of trading partners, e.g. the protection of intellectual property or source code. This process is already producing more insistent calls for reform of internal practices from the business community and TPP is looked on as a benchmark for what needs to be done.
For China, the question is how will TPP as a regional agreement relate to international treaty frameworks? For example, how do the provisions of the TPP’s e-commerce chapter match up with similar work ongoing at the United Nations? Will TPP accommodate new areas, such as identity management, where international norms are emerging that are not part of the TPP agreement? The expectation is that TPP will be a spur for international trade law while also being influenced by it. At least in the short run, TPP’s impact on the Chinese will be mediated through this mechanism.
TPP is clearly a government based multilateral process. As such, it contradicts the transnational, multi-stakeholder governance process enshrined in the UN-based Internet Governance Forum (IGF) process. Concerns about this may be most acute in the engineering community, which has safeguarded the integrity of basic Internet operations from the start, but now finds that its stewardship of domain names is a “subset” of TPP’s treatment of intellectual property.
As technical experts, the engineering community does not have much connection with the management of the broader economy and the issues of trade policy. Opening stronger channels of communication between engineering and trade policy circles will be important for the success of TPP and of the new Digital Economy generally – particularly given mounting concern about the need for an overhaul of the Internet’s basic architecture if it is to support a digital economy on a global basis. Absent concerted attention to issues, such as the technical integrity of the domain system, there is an imminent danger of Internet fragmentation.
The need to eliminate stove piping between government ministries and strengthen horizontal communications across industrial sectors is vital to the growth of the digital economy. TPP is not just about moving data across borders. It addresses new ways of doing business in a wide range of sectors from healthcare to education to insurance and to shipping. The challenge will be whether TPP can quickly develop the institutional framework and complexity needed to support greater cross-sectorial integration in the region.
ASEAN has so far been unable to meet this challenge – more than 60 percent of the population of ASEAN member nations remains unconnected to the Internet. Like APEC, ASEAN is hampered by its inability to get member states to implement the digital roadmaps and initiatives put forward over the recent years. TPP may be different in this regard since it is a binding arrangement. However, TPP’s ultimate contribution to regional integration is less certain. Trade agreements are more about growth than inclusion.
The Asia-Pacific’s road to the digital economy will not likely follow the same path as North America or Europe. Along with economic growth and inclusion, attention will also need to be paid to building trust across different cultures and religions, reducing security tensions and further developing a pan-Asian identity. The expansion of the digital economy in the region will be a key element of this process, but not sufficient in and of itself.
Terrorism is an issue that goes quite beyond TPP, but an effective counter-strategy is vital to protecting the gains from the digital economy. Even as TPP goes forward, parallel discussions on building capacity and cooperative frameworks to guard cyber security will also be necessary. Harmonizing approaches with respect to the handling of data is difficult without trust and security and goes quite beyond agreeing on protocols for sharing data. However, such capabilities are unevenly distributed and international organizations like ICANN and IETF are currently not equipped to manage this challenge.
The TPP negotiations spanned five years. A key objective of the talks with regards to the digital economy was to anticipate future problems and encourage steps to deal with them. For example, global data centers may be the most efficient way to move data around the world but also have clear risks. As a result, we are seeing rules from governments working with their engineering communities to set standards for encryption and the hardening of data centers.
At the same time, we should neither put too much on or into the TPP, nor risk it becoming a “straitjacket” that stifles innovation. TPP may not be the best place to deal with the problems of privacy, especially when it is conflated with data security. The same may be said for areas like consumer protection or issues closely tied with values related to human and labor rights.
The distinguishing characteristic for TPP in the regional context is that it is a binding agreement for its signatories. This separates the TPP community from ASEAN and APEC. TPP is also different from arrangements such as the Pan-Asia E-Commerce Alliance, which takes a multi-stakeholder approach among its 11 member states to develop non-treaty based measures to facilitate cross-border trade and improve operational efficiency. Given the complexity of the Asia Pacific market and its rapid and ongoing transformation, the variability of these approaches is a strength, and TPP’s contribution to regional integration should be understood in this context.
Wrap Up and Takeaways
The question remains: will TPP be ratified by the signatories and implemented in ways that deliver on expectations for a truly “21st Century” Agreement? While its connection to the digital economy has been clear to most governments and elements of the business community, this has not been well communicated to groups outside the negotiations, such as the public.
TPP is too often debated in zero-sum terms; gains for one group come at the cost of another. This is often portrayed as “wins” for incumbents in advanced countries and “losses” for less well connected communities in the developing world. The concept of an integrating and rapidly growing digital economy based on cross-border flows is both unfamiliar and potentially threatening to many outside the process. Moreover, even core elements of the original “Internet Economy” coalition are at cross-purposes, with voices in civil society and the engineering community complaining at the lack of transparency in the government-led negotiations and distrustful of business intentions and interests with regard to the new arrangements within TPP.
The 2016 APRU Digital Economy Business Offsite was organized to initiate a broader discussion on what must happen next for TPP to deliver on its promises for the “digital economy” in the region. Universities, in particular, need to engage with business, government, the engineering community and civil society as well as contribute solid analysis and informed opinion on issues affecting the ratification and implementation of this ground-breaking agreement. Capacity-building and education are both also a key part of this outreach process.
Two upcoming APRU sponsored events are particularly relevant to challenge. The APRU will be bringing key academic experts from its member institution to join a five-day Digital Economy Summer Seminar August 21-28 at Keio University in Tokyo that will target government regulators from over ten countries in the Asia Pacific region. Later in November of this year, the APRU will convene a Digital Community Workshop on the Digital Economy which will bring together civil society with other members of the “digital community” in the region including academics, the legal profession, the engineering community, and consumers. The “Summer Seminar” and “Workshop” will focus on developing a shared analytic framework based on sound research on how to realize and grow a “digital economy” in the region.
Ten Takeaways for Further Discussion
1 | TPP is a “game-changer.” It is the first trade agreement to address the transformations engendered by the emergence of the Digital Economy. The new disciplines within the TPP set binding rules that cut across all sectors of the economy premised on the role of “data” as a new mode of production.
2 | TPP provisions are performance-based rather than a set of prescriptive requirements, reflecting a market-based approach to promoting the flow of data across national borders. This potentially opens the door for TPP-based norms to diffuse throughout the region even in the absence of formal accession by new members. This is key to engaging other large potential partners, such as Indonesia, India and China, who are more likely to take a piecemeal approach to aligning their policies with TPP rather than formally acceding to the agreement.
3 | TPP is innovative from a trade perspective, bringing together new disciplines related to privacy, intellectual property, cyber security, cross-border data flows, government procurement and competition policy. However, effectiveness depends critically on how they are implemented and enforced.
4 | There remain a number of areas in TPP that require more clarity and attention during the implementation phase: the definition and enforcement of privacy is largely left up to national governments, obscuring its regional dimension; intellectual property provisions are highly controversial with user groups; cyber security cooperation will still occur largely outside the agreement; the prohibition on data localization is subject to national security and law enforcement exceptions; and pledges on government procurement and competition lack needed granularity.
5 | TPP’s image in the region has been damaged by the secrecy and non-transparency of its negotiation process. This may be the first time that a trade agreement has been held to such a high standard. However, successful ratification and implementation of this far-reaching agreement will require stronger efforts to build trust and to engage beyond the traditional trade communities.
6 | As a trade instrument, TPP cannot be expected to bridge the “digital divide”, but it can do a lot to spark growth across the region by encouraging domestic and foreign investments, creating a climate of regulatory certainty and promoting a regional digital market at scale. Measures need to be put in place to help small business take full advantage of the new opportunities.
7 | TPP is the product of a government-centered, multilateral process. Yet its proponents also need to develop mechanisms for the regular engagement and inclusion of the multi-stakeholder community. The process surrounding the development of TPP highlights how the concept of “Internet governance” may need to be expanded in the context of the Digital Economy. This can no longer simply be the preserve of the UN-based IGF process.
8 | TPP differs from APEC and ASEAN in that it is a binding agreement. However, its ultimate contribution to integration in the Asia Pacific region is uncertain. Trade is more about growth than inclusion. Parallel to the expansion of the Digital Economy, there must be renewed efforts in other forums to build trust across cultures and religions and to reduce tensions in the security area.
9 | TPP cannot remain static or it will act as a “straitjacket” rather than a “catalyst” for the Digital Economy. It needs to develop an institutional identity and administrative mechanisms in step with the increasing size and complexity of the Digital Economy. It is not too early to start preparations for TPP 2.
10 | US ratification is hugely important to the future success of TPP, but the agreement is larger than one country or economy. Japan may be the first nation to formally accede to TPP and that will give important momentum and legitimacy to discussions over TPP in other jurisdictions. As the process goes forward, Asian governments and the private sector in the region need to better understand and incorporate TPP as an integral part of their economic growth and investment strategies. TPP is the roadmap for doing business in Asia’s Digital Economy.