The digital revolution is transforming how we buy, sell, learn, work and play, creating new ways to create and capture value. The shift is generating enormous opportunities, but has also become the source of great social dislocation and disruption. Digital policy formulation is challenged to keep pace, both within and among countries.
The withdrawal of the United States from the Trans-Pacific Partnership (TPP) process, and the current deep freeze of U.S.-EU negotiations on a Trans-Atlantic Trade and Investment Partnership (TTIP) has generated gaps in plurilateral efforts to promote the Digital Economy through targeted policy initiatives and regional commercial frameworks. It has become difficult to address emerging digital challenges in areas like privacy and intellectual property in key economic sectors such as healthcare, financial services, and government procurement despite agreement among all parties that measures to support the cross-border flow of data are central to economic growth and innovation.
This hiatus has also underscored the need to strengthen engagement between Asia and Europe on future cooperation in growing the new digital economy, and to consider joint approaches to building a Eurasian “common market” for digital goods and services based on an agreed framework of digital rules and best practices. The Asia Europe Dialogue on Growing the Digital Economy brought together academic experts from the Asia-Pacific and Europe to consider ways to:
A related objective of this first dialogue was to mobilize a network of academic experts on the Digital Economy across Europe and Asia. Improved and sustained interaction among the scholarly, business, government, and NGO communities is likely to contribute to the development of sound policies supportive of growth and continued innovation in digital markets.
The Internet status quo is not sustainable. It was built on a set of hardware and software that is neither up to the job of becoming the essential platform for critical mission entities, such as power and banking systems, nor able to cope with the proliferation of malevolent activities.The Internet will not be trusted unless users believe it is safe. The rise of cyber-physical systems poses additional challenges to the very nature of the Internet. Just as experts at the dawn of the Nuclear Age developed a series of habits, procedures, and policies to address nuclear power’s most devastating consequences, so too must the expert community of the Digital Age craft similar tools to build an Internet of “Trust” that addresses the full consequences of malicious digital activities.
Users of a free Internet must have confidence that they are free from harm—but we must not regulate out of fear. The architecture of the Internet itself requires an overhaul. The best option is to take the last thirty years of advancement in computer science and perform a total top-down re-do of the entire system. We have the means, but serious work that will have to be done in a staged, targeted manner, beginning with the banking system and other critical infrastructure.
Focus on how the digital revolution may interact with other. Equally transformative revolutions such as in the biological or military sciences are occurring – further transforming our societies and economies. This means thinking beyond “artificial intelligence” to consider how a dawning bio-cognitive age could transform the very nature of life or the very nature of conflict. The last trillion-dollar industry was built on a code of 1s and 0s; the next could be built on our own genetic code. What will that mean for our societies, and who will capture the next economy?
Focus on quick wins that have tangible positive impacts for societies. Many Asian and European societies are facing issues related to aging, mobility, and demographic change.There is potential for “first movers” to use the digital revolution to address these issues. Japan’s concept of “Society 5.0” and European approaches such as “Industrie 4.0” might be approached with this in mind. Tying this all together will require working harder on cross-border data analytics.
Asia-Europe collaboration is needed to better understand and “map” the very nature of cross-border data flows – how much and what kinds of information are actually being shared, by whom and with whom. This has been very difficult to map regionally. There is also little understanding of the value of data, highlighting a need to “price” data flows. This can be difficult, since data is more like light than it is like money, and has different qualities than traditional goods and services. An individual can simultaneously be a consumer and a supplier of data of value. This redefines the nature of trade, and will inform the type of institutions or governance mechanisms we need to create.
Asia-Pacific views on the Digital Economy are rooted more in an economic imperative than a social perspective. There are also significant implications flowing from the EU’s view of data protection as a fundamental human right in sharp contrast to China’s view of data security as a fundamental state right. The General Data Protection Regulation (GDPR), to be implemented by the EU in May 2018, has sparked deep concerns across the Asia-Pacific region regarding regulatory costs, market access and the impact on innovation and growth. European views on privacy and Asian concerns about the extent to which such views may be pushed via regulation might be addressed in part, but not fully, through better technology. National and regional regulation needs to be grounded in how the technology actually operates.
The diversity in approaches to the management of data seen in Asia may be more functional than the conformity demanded by the European approach. “Adequacy” provisions are moving forward between the EU and Japan, and most likely between the EU and the Republic of Korea, with uncertain implications for other Asia-Pacific countries or broader international norms.
In trying to develop a systematic framework for guiding the Digital Economy, the EU Digital Single Market Initiative is bumping up against the reality that law does not move at the speed of innovation. Many “analog” elements of Europe’s “common market” are still poorly realized, e.g. the “services directive.” There are blockages in a host of areas from health to finance to labor. In some respects, Internet infrastructure is like a utility or common carrier that acts as a platform for a wide range of commercial and individual activities. In that context, a “light” regulatory touch or self-regulation needs to be the norm for the Digital Economy – if only because it is evolving so quickly. When problems arise, they need to be dealt with sequentially, not ex ante.
Mandating data portability has been regarded as a possible solution to competition issues in the Digital Economy. However, in jurisdictions where it has been tested, the practical impact of this measure has been mixed – resulting in increased competition in some areas but not in others. Regulatory “sandboxes” have also not offered sufficient insight into how such measures operate at scale. Startups are not necessarily pushing for open data; they are also looking to hold data. Under current laws, data is not copyrightable – it does not have IPR protections. Moreover, the relationship between the collector and the provider is a contractual one and can change. To date, data markets have not worked well since companies do not like to share data indiscriminately. Yet, given the central role of data in the Digital Economy, consideration might be given to opening up data after a period of time on FRAND (fair, reasonable and non-discriminatory) terms, including as well information on how the data was collected and created.
In Asia, Indonesia is making steady strides in reducing its digital divide and the “sharing” economy is booming. More than 800 million Chinese are online. China boasts the largest online consumer market and is second only to the United States in the size of its B2B online commerce. Malaysia’s Central Bank has just introduced guidelines for mobile payments and the country is among the largest centers for data processing globally. Japan is investing heavily in next generation technologies, prominently AI and robotics. The Republic of Korea boasts global industry leaders, such as Samsung and Naver. India has also fully embraced the potential of the Digital Economy. A recent example is the government’s push to reduce the amount of paper money in circulation and grow the digital payments space.
Yet overall the Asia-Pacific region is less connected digitally among its constituent parts, and less connected to North America and Europe than the other two regions are connected to each other. Europe has the largest share of interregional data flows of all regions, and is pushing international norms on a series of issues related to the digital economy that could have significant repercussions in the Asia-Pacific region. European companies account for 21% of Internet of Things (IoT) companies globally, compared to a 5% share for Chinese and Japanese companies. European companies account for 32% of big data companies globally, compared to 6% for Chinese and Indian companies and 2% for Japanese and Korean companies. Yet Europe suffers problems of fragmentation, scale, and divisions between “network-ready” western and northern Europe and less-ready countries in southern and eastern Europe.
As governments in Asia and Europe craft policies towards the Digital Economy, they would be well advised to widen the circle beyond legal experts to include engineers and economists. This is particularly important for AI and IoT so that regulation focuses as much on opportunities as on threats. Governments need to better understand the workings of the “digital” market and develop a different mindset toward regulation, seeing it as dynamic rather than static. This may be most necessary in the competition policy area, where the old rules governing monopoly behavior simply do not apply to the new digital reality. What is needed is a new strategic framework that evolves organically and addresses specific problems as they arise, rather than ex ante prohibition of certain behaviors.
Currently, digital flows are treated as an exception to the GATS. There is a need to bring this new and growing area of commerce under a rules-based process, but issues of cybersecurity and “trust” in digital trade flows may require other mechanisms and processes to resolve. This is why the “multi-stakeholder” process that guided cross-border cooperation on the Internet in its first two decades will have continued relevance, particularly as it provides a vehicle for involving end users and promoting digital literacy and capacity. In this respect, a “digital” trade agenda is different than “traditional” trade agendas, which were mainly about unwinding tariffs and domestic regulations that constrained the flow of goods and service. In the digital area, the focus has to be on how governments, firms and other interested parties create a new and cooperative global regulatory framework for the digital economy, which can deal with the threats, disruptions and opportunities presented by the new wave of digital technologies.
The Asia Pacific Institute for the Digital Economy (APIDE) is a new think tank that seeks to mobilize the academic expertise and institutional resources of 45 major research universities in the region in cooperation with the Association of Pacific Rim Universities (APRU) to promote new Internet-based technologies and policies that are vital to the future growth of the Digital Economy.
Researcher Timo Seppälä, Etla, p. +358 46 8510500, firstname.lastname@example.org