Digital economy agreements are a new frontier for trade – here's why

The Fourth Industrial Revolution has had a profound impact on the way we trade. Digital payments, data flows and digital services have grown rapidly, and emerging technologies such as blockchain, AI and 3D printing could further alter the trade landscape in years to come.

At the same time, the expansion of digital trade faces significant challenges. Digital protectionism is on the rise (see below) and could lead to missed trade opportunities, especially for small and medium-sized enterprises (SMEs). Moreover, the absence of a global digital trade agreement further adds to the coordination challenges between digital economies.

Amid this daunting global trade environment, one glimmer of hope is the emergence of the digital economy agreement (DEA) – where innovative governments are uniting to modernize rules and tackle digital policy fragmentation head-on. DEAs are comprehensive “digital-only” agreements that establish trade rules and facilitate interoperability between two or more digital economies.

Unlike traditional trade agreements, which sometimes include chapters on digital trade issues and typically focus more on market access, digital economy agreements encourage domestic regulatory reforms and “soft” cross-border collaboration on issues as wide-ranging as data innovation, digital identities, cybersecurity, consumer protection and digital inclusion. DEAs are particularly beneficial for SMEs, who stand to gain the most from consistent, interoperable digital regulations.

The Digital Economy Partnership Agreement (DEPA) between Chile, New Zealand and Singapore is the first digital-only trade agreement open to all WTO members, and the first to be signed electronically in June 2020. It was designed to complement the WTO negotiations on e-commerce and digital economy work underway within other international forums such as APEC and the OECD. By pushing the boundaries of traditional economic engagement, this first-of-its-kind agreement represents a new frontier in trade policy and has already gained the attention of some of the world’s largest economies, with Canada, China and South Korea applying to join.

The most recent DEA is the UK-Singapore Digital Economy Agreement, or UKSDEA, which entered into force in June 2022 after only six months of negotiations. The first digital-only agreement between an Asian country and a European one, UKSDEA was hailed by Singapore’s Deputy Prime Minister Heng Swee Keat as a landmark trade deal that goes “beyond traditional economic linkages to build new digital bridges”. The agreement has three main goals: to facilitate a more secure digital environment; enable trusted data flows, and support end-to-end digital trade. Consumers will also enjoy greater protection, with both countries committing to increase safeguards against online fraud.

While DEAs are a relatively new phenomenon, they have already transformed the trade landscape and paved the way for other innovative approaches to regional trade cooperation. For example, the Association of Southeast Asian Nations (ASEAN) is considering its own regional digital economy agreement, or Digital Economy Framework Agreement (DEFA), as laid out in its Bandar Seri Begawan Roadmap on ASEAN’s Digital Transformation Agenda.

With the fastest growing internet market in the world and a digital economy projected to add an estimated $1 trillion to regional GDP over the next decade, ASEAN is poised to embrace the benefits of digital integration. That said, its 10 member states represent a diverse group of economies with divergent levels of digital readiness, so it will be critical to take both digital “hardware” (ICT infrastructure, 5G deployment) and “software” (laws and regulations, digital skills) considerations into account.

In addition, the US-led Indo-Pacific Framework for Economic Prosperity (IPEF) launched in May 2022 includes a “connected economy” pillar that puts digital trade issues such as cross-border data flows and privacy protection front and centre. Not a traditional trade agreement by design, IPEF seeks a more flexible approach to economic cooperation by helping governments harness innovation, especially in the digital and technology sectors.

As a relatively new trade tool, the current batch of digital economy agreements certainly has left some room for improvement on specific issues, and it remains to be seen how they are enforced and implemented; but it is a positive trend that many economies are adopting and paying attention to. Building on this momentum, several organizations have led discussions on how DEAs can mitigate the challenges of digital transformation.

The Wilson Center hosted a discussion with Mary Ng, Canada’s Minister for International Trade, Export Promotion, Small Business and Economic Development on how the digital economy is not properly supported by existing trade structures. In a webinar on increasing digital trade, the Peterson Institute for International Economics examined how digital agreements like DEPA can provide certainty and foster collaboration. Visa’s Economic Empowerment Institute has also highlighted how DEAs can modernize trade to fit the needs of the digital economy and eventually lead to greater growth.

For its part, the World Economic Forum has launched the Digital Economy Agreement Leadership (“DEAL”) Group to provide an impartial forum for digital economy information exchanges and debates. The DEAL Group’s inaugural ASEAN-focused workshop convened diverse stakeholders from governments, businesses, IOs, academia and civil society to discuss digital economy opportunities and challenges in South-East Asia, and the role DEAs can play in the region.

There was wide agreement that DEAs must be flexible and innovative, and that an ASEAN agreement must prioritize digital inclusion – with SMEs making up around 90% of ASEAN businesses and 60% of new digital consumers coming from non-urban areas last year alone. Private sector participants also encouraged governments to increase transparency through multistakeholder engagement early in the negotiation process. In the long run, the DEAL Group’s goal is two-fold: promote inclusive digital economy growth globally and prevent further digital policy fragmentation.

It is clear that the future of trade is digital. Digital economy agreements have already pushed the boundaries of traditional trade agreements, and more governments are eager to join this new frontier. Ultimately, the goal is not just to sign more trade agreements or DEAs, but to advance global trade and inclusive economic growth in the digital age. The World Economic Forum welcomes further public-private cooperation to maximize the benefits of this new trade tool and, more broadly, advance digital transformation and innovation around the world.