As world bickers over trade status of data, S’pore concludes landmark pact with Chile, NZ to build 'digital bridges'

SINGAPORE — Data is the new oil, but just as control over crude is a tussle in geopolitics, there is little global consensus even among paramount bodies such as the World Trade Organization (WTO) on how to treat the trade of data amid a booming international digital economy.

In a novel move, Singapore, Chile and New Zealand on Tuesday (Jan 21) concluded negotiations on a new form of collaborative trade deal — the Digital Economy Partnership Agreement (Depa) — that removes barriers to data flows, harmonises standards in digital commerce and boosts opportunities for firms with digital business models.

The agreement, touted by Trade and Industry Minister Chan Chun Sing as a new type of economic deal, will address several unanswered questions on data flows: When firms trade data to another country, whose standard should they use, how can they trust it will not be misused or hacked, and should governments force them to build data centres in the country in which they want to operate?

"The Depa represents a new form of economic engagement in the digital era. It goes beyond setting rules for e-commerce to include novel elements that promote co-operation in the digital era... This is especially pertinent in the current evolving landscape," Mr Chan said on Tuesday evening.

The signing of the full agreement is expected in April, he added.

TODAY looks at why such an agreement is pivotal for Singapore, at a time when other countries are still deciding how to resolve data privacy, protection and regulatory issues in the digital Wild West.

COMPLEX WORLD OF DATA GOVERNANCE

Global consultancy McKinsey said that data flows accounted for US$2.8 trillion of economic output around the world in 2014, and are expected to surge to US$11 trillion by 2025. Other studies have also noted an expected meteoric rise of data-driven technologies, such as artificial intelligence (AI) and blockchain, that could add trillions of dollars to the global economy.

“Cross-border data flows now generate more economic value than traditional flows of traded goods,” McKinsey said in 2016.

Southeast Asia’s digital economy trebled from US$32 billion in 2015 to around US$100 billion (S$135 billion) last year, and is expected to treble again to US$300 billion by 2025,. This is based on a report by Google, Singapore's state investment firm Temasek, and global management consulting firm Bain and Company that was published last year.

These towering figures are indicative of a rising digital economy fuelled by data flows that are not hindered by physical distance or borders.

Governments and jurisdictions around the world, as a result, have formulated differing data standards and regulatory practices to safeguard how data is used in their countries, with more than 100 countries now having data privacy and protection laws.

However, many of these rules are not compatible — data that can be legally used in one country may be illegal in another. Since 2018, for instance, any company that wants to do business in the European Union must comply with its strict but well-meaning General Data Protection Regulation standards that protect customer privacy and hold companies accountable for any breaches.

There is also a rising trend of data sovereignty laws, including in Southeast Asia. These are protectionist policies enacted to keep commercial data localised within a country’s or a jurisdiction’s physical borders so that they can be regulated by the local government.

Such policies, when used for protectionist purposes instead of genuine concern over privacy and security issues, were flagged by Monetary Authority of Singapore chief Ravi Menon in 2018 as a “serious risk” to the digital economy.

The issue continues to be debated by WTO, which already has an established framework for free-trade agreements between countries to strip away trade barriers from goods and services.

But when it came to e-commerce, WTO members in 1998 agreed to a two-year moratorium “to not impose customs duties on electronic transmissions”, which has been continuously renewed since, except for the 2003 to 2005 period.

Today, there is a global debate about whether these electronic transmissions, or data, should be classified as a “good” and its online trade as a “service”, and whether it should be subject to custom duties.

Proponents to end the moratorium, including the United Nations Conference on Trade and Development, the main UN trade body, argue that the moratorium has serious implications on existing trade flows and trade competitiveness of developing countries, which are usually net importers of data.

Opponents, such as the think-tank European Centre for International Political Economy, argue that the moratorium is a boon to digital trade, which all governments can tax for increased revenue.

In other words, world leaders had come to different conclusions on whether an e-book that is sold via the internet should be treated differently — as bits of data — or the same as physical hard copies bought from stores.

In any case, there is no consensus on the moratorium at the WTO level. The impasse has also hampered meaningful discussions on how emerging fields such as AI and cloud computing should be handled.

The WTO's Joint Statement Initiative on E-Commerce, which has not yet concluded, promises to carve out global rules governing digital trade. Singapore is a co-convenor of this initiative.

WHAT IS DEPA?

As this ongoing global debate continues, Mr Chan Chun Sing, Mr David Parker, New Zealand’s Minister for Trade and Export Growth, and Mr Rodrigo Yanez, Chile’s Vice-Minister for Trade, met in Singapore on Tuesday to conclude the trilateral negotiations on Depa.

Mr Chan said: "As I have mentioned, the current trade rules and policies do not fully address the ill issues brought about by digitisation and digital trade, and this is why we have initiated this agreement with like-minded partners like New Zealand and Chile."

Discussions on a similar agreement between Australia and Singapore are still underway.

In a joint statement, Singapore's Ministry of Trade and Industry, Ministry of Communications and Information, and the Infocomm Media Development Authority said: “The Depa represents a new form of economic engagement and trade in the digital era.

"It is a comprehensive and forward-looking agreement that establishes new approaches and collaborations in digital trade issues, promotes interoperability between different regimes and addresses the new issues brought about by digitalisation,”

Initiated by Singapore in May last year, Depa is a commitment by the three countries to co-operate on several areas in the digital economy, a factsheet accompanying the statement said.

Among other things, the agreement includes:

Personal information protection

Key to maintaining people’s trust in the digital economy, the agreement allows countries “to forge consensus” on their data protection policies and legal frameworks based on a common set of principles. Countries will also develop mechanisms to allow their respective legal approaches to be compatible.

Cross border data flows

Depa allows businesses operating in Singapore, Chile and New Zealand to transfer information more seamlessly across borders, with assurance that they meet the requisite regulations, so that businesses can serve their customers “regardless of where they are located”.

Open government data for businesses

There is value for some government data to be made publicly accessible for economic and social development, competitiveness and innovation in the digital economy. Depa countries can explore ways to expand access to open government data by identifying valuable data sets to enable tech transfer, talent creation and innovation.

Data innovation and regulatory sandboxes

Singapore, Chile and New Zealand will work towards collaborating on data regulatory sandboxes to create safe environments where companies can innovate while in consultation with the respective governments, such as Singapore’s Fintech Regulatory Sandbox for financial technology (fintech) firms.

Artificial intelligence governance

Depa encourages the adoption of ethical AI governance frameworks to use AI responsibly, with the partner countries having agreed on a set of principles surrounding AI.

Digital identities

Mutual recognition of corporate identities and business information, such as bank account or company registration information, which can make complex data-heavy “know your customer” processes — including risk assessments and identity verification — more efficient.

Paperless trade

Digitalising trade documents can significantly reduce document transit time, and requires the customs authorities of Singapore, Chile and New Zealand to work towards the exchange of electronic trade documents at the border.

Electronic invoicing

In traditional manual invoicing today, it costs around S$8 to process each manual invoice and S$72 to rectify errors. The agreement encourages partner countries to use similar e-invoicing systems that can cut down on processing time and costs.

Fintech and e-payments

Depa countries agree to promote mutual co-operation of their respective fintech sectors and to create a conducive environment through “non-discriminatory, transparent and facilitative” rules.

Mr Ho Meng Kit, chief executive officer of the Singapore Business Federation, said of Depa: “As the first trade and commerce agreement focused on the digital economy, Depa will set a benchmark for the governance of digital trade not only across Singapore’s key trading partners, but also globally.”

He added: "We hope that the conclusion of this agreement will influence positively the nature and speed of similar negotiations ongoing at the WTO in Geneva."

IMPACT ON SINGAPORE

Despite its lack of natural resources, Singapore has an abundance of the “new oil” of data, several studies have shown.

In 2018, Singapore managed around 9.15 petabytes of data, a significant jump from the 1.65 petabytes managed in 2016, Dell EMC’s Global Data Protection Index showed.

A petabyte is 1,000 million million bytes. Singapore is also ranked the second most digitally competitive country in the world last year by the IMD World Digital Competitiveness Ranking.

The United Nations Conference on Trade and Development said that Singapore is the fifth largest net exporter of products that can be digitised in the world — behind China, Germany, Hong Kong, and the United States in 2017.

From 2019 to 2024, Singapore and its neighbours Malaysia and Indonesia are predicted to be the fastest-growing region for building data centres, with the market size expanding by a compounded annual growth rate of 13 per cent, one report by property consultancy Cushman & Wakefield stated.

Singapore has also attracted a sizeable number of tech companies to set up here, the report said. Facebook made headlines when it said it will invest more than US$1 billion to build a 170,000 sqm data centre here, which is slated to open in 2022.

Mr Samuel John Mathew, head of documentary trade and trade platform transformation at Standard Chartered Bank, said that with Depa, Singapore has taken a “meaningful first step” to greater interoperability, secured data flows and seamless e-invoicing between trade platforms.

“Digital technologies will continue to shape the future of trade and trade finance. For trade to flourish in an increasingly borderless world, the establishment of a common set of digital standards and guidelines is vital,” he added.

Mr Ted Osius, Google’s vice-president of public policy and government relations in the Asia Pacific, agreed: “By addressing emerging and important issues that impact the digital economy such as artificial intelligence and data innovation, Depa is a milestone in international trade agreements.”