Digital economy agreements have been happening for more than two decades, yet there’s still no single accepted definition of “digital trade.”
Digital economy agreements have been happening for more than two decades, yet there’s still no single accepted definition of digital trade, Nydia Ngiow told NPF’s International Trade Fellowship journalists in Singapore.
Ngiow, a managing director at BowerGroupAsia, is a former international trade negotiator with the Singapore government who worked on the Trans-Pacific Partnership as well as the EU-Singapore free trade agreement.
“What parties are clear [about] though, is that a digital product is anything that is digitally encoded. A program, text, video image that is produced for commercial sale that can be transmitted electronically. They just haven’t decided if this is a good or service or both,” Ngiow said. “If you check the definitions of the digital economy agreements, the general consensus is that this includes digitally enabled transactions of trading goods and services, and that this involves consumers, companies and governments.” [Transcript | Video]
Ngiow and Sheldon Goh of Microsoft explained acronyms and terms business journalists covering digital trade are likely to encounter:
Trade finance digitization: Digitizing trade finance seeks to address the significant gap in global trade financing by working with the public and private sectors to identify and develop technologies and associated technology standards that facilitate connections between digital islands, trade finance inclusion for SMEs and trade tech for EMEs, according to Microsoft’s Sheldon Goh. Supply chain disruptions have increased the focus on trade finance digitization, converting the processes and paperwork into electronic documents, allowing for text analytics and extraction, Goh said.
SMEs: Small- and medium-sized enterprises.
EMEs: Emerging market economies
Digital currency: Currency available in digital form that exhibits properties similar to physical currencies but can allow for instantaneous transactions and borderless transfer-of-ownership, according to Goh. “Cryptocurrency will continue to make news over the next 12 months at least … but when we talk about digital currency, it’s not just about cryptocurrency,” he said. Other examples include virtual currencies and CBDC. “As we speak today, there might be a new digital currency that is being invented and being floating around in some way. The law and regulation are not able to keep up with such innovation speed and also the consumer sentiments in their interest.”
CBDC: Central bank digital currency. Goh calls CBDCs an area to watch because it’s “being explored by all major economies in the world,” though he does not expect them to fully replace physical currencies in the next decade.
DEAs: Digital economy agreements. “These look to encompass digital trade rules and … to contribute to what is the development of international frameworks to foster the interoperability of standards, systems, support businesses, especially SMEs engaging in digital trade and e-commerce,” Ngiow said. “In addition, DEAs also support cross-border data flows, safeguard personal data and consumer rights, as well as promote cooperation in emerging areas such as digital identities, AI and data innovation.”
Fintech: Technology used to augment, streamline, digitize or disrupt traditional financial services in the form of apps, algorithms and software, according to Forbes.
Like digital trade, fintech has a very broad definition.
“I actually hate the word fintech, because it absolutely means nothing. Who’s a fintech?” Truera Chief Strategy Officer Shameek Kundu asked. But he said the name shouldn’t matter when it comes to how these companies are treated. “How regulators look at fintechs increasingly [is] if it walks like a duck and quacks like a duck, treat it as a duck. … I don’t care whether you call yourself a fintech or Timbuktu, doesn’t matter. If you are lending, you will be subject to lending regulations.”
Goh predicts that the fintech model will grow, while traditional banking will fade.
“You’ll be hearing bankers talking about how much they have to spend on maintaining the regulations in order for them to survive and continue to grow, where the fintech is not really having to do that,” he said.
There is also debate about governments regulating cryptocurrencies.
“Governments, when it comes to emerging tech, have always had to tread that fine line of deciding when, if ever, they want to regulate. If you look at when Uber first came into the picture for ride-hailing, governments didn’t really regulate until [later],” Ngiow said. “They acknowledge that blockchain technologies can be very, very useful, but how much warning can they do before they actually start regulating?”
Kundu said governments should regulate cryptocurrencies for a number of reasons, including “the ability to use cryptocurrencies for money laundering and financial crime … cyber threats often get paid off through cryptocurrencies – and the contingent effect on the mainstream financial services.”
Still, “despite lots of warnings, people are expecting 18% interest rates. Is that the government’s responsibility to protect them? There’s pros and cons. If that causes social unrest, you might want to do it. If not, you might say, ‘Yeah, tough luck. You made your choice.’”
Goh called crypto a “scheme.”
“The meaning and definition of cryptocurrency itself has changed a lot and it’s changing by we speak, every second. The way that I see is that it is created as a medium of speculation. … The LUNA crash, it can happen to any major cryptocurrency … because there’s really no basis in how the currency value goes up and down,” he said. “Cryptocurrency is a new term, but if you look at the history of financial services, you might have seen schemes that happened like that happened before.”
Regulatory debates, taxation and other barriers to trading and financial services have been around well before the digital economy, Kundu said, but “data protectionism” is a newer hurdle.
“Data is the center around which the world is revolving,” he said. “Every country is right in thinking, ‘How do we ensure that we as a country and our citizens are able to keep control of that data … and that it is not misused by other countries?’”
In Asia, some countries went in opposite directions on data residency.
“The Indonesia model for a very long time was, ‘I don’t care where you send the data. But what I do care is that you must have the data at least in my country … You must have everything you need to run this bank and for us to supervise you in this country,’” Kundu said. India, on the other hand, “went to the other extreme and said, ‘you cannot send any domestic payment information outside the country.’”
How to strike the right balance between protecting data and promoting digital trade is the question, Kundu said.
Goh advised journalists to keep an eye on the following topics for stories:
- Changes to international trade law in your country
- What are the new trade finance networks? How is blockchain facilitating these networks?
- Where are disruptions happening in the supply chain and what resolutions are being found regionally or globally?
- What are the areas of innovation, of automation (blockchain, AI, machine learning, Web3.0, 5G, IOT)?
“There’s no doubt that digital transformation has reduced cost of engaging in international trade. It’s facilitated the coordination of global value chains and connected businesses with consumers globally,” Ngiow said. “But this has also given rise to more complex international trade transactions and policy issues, which are taking place at unprecedented speed and trade rules also need to be able to reflect that accordingly.”
National Press Foundation’s International Trade Fellowship in Singapore is sponsored by the Hinrich Foundation. NPF is solely responsible for the content.
