Trade pacts may hinder regulation

Many governments are working on national policies on the digital economy. They correctly believe that the forces of computerisation, robotics and artificial intelligence are fast changing production and consumption systems.

The old ways of doing things are being disrupted and if we don’t change with the times, we will be left behind.

In Malaysia, there are already significant responses to adapt to the digital revolution. Various government agencies are encouraging small enterprises and universities to make use of digital tools to advance their business and activities.

Companies and banks are also taking their own measures. But much more needs to be done.

Last week, Prime Minister Tun Dr Mahathir Mohamad launched the country’s Industry 4.0 policy formulated by the International Trade and Industry Ministry. It is a four-prong strategy to boost Malaysia’s manufacturing sector, and is a response to the call for digital transformation of manufacturing and related services.

There should be a follow-up, specifically to develop a national policy on the digital economy. In doing so, we should be aware that discussions are taking place in various countries and institutions.

There is realisation that in the new economy, data is king. Data is seen as the new oil. It fuels the digital economy and is its most valuable resource. Data is the raw material for the digital-based industry. Those that have access to data and use it to effect can have control over digital-based activities.

Billions of pieces of data are being collected by the digital-based companies and entities to make profiles of millions or billions of people, who in turn can be targeted for the promotion of products and ideas.

Masses of people can be persuaded to buy certain products, visit certain countries, or vote in elections for certain candidates or parties. Collected data also provides information for identification, medical records, banking, security, and so on.

In the commercial world, companies communicate increasingly with customers through the Internet. Goods are bought online. The winners are Internet-based giants like Google, Facebook and Amazon, who make billions from adverts and sales.

Many local companies in developing countries like Malaysia that use the old systems lose out, especially if they have to pay taxes while the online companies don’t. Thus the calls to impose digital taxes so that there is more of a level playing field.

Some developing countries, notably China and India, have taken measures to develop their own companies and also to protect their security through a number of measures that are part of a national digital policy.

One such policy element is data localisation or a regulation that requires data generated through online activities be retained within the country. This means that data collected by international tech giants like Google and Facebook or credit card companies like Visa and Mastercard have to be retained in computer data storage centres located in the country and not abroad.

The objectives include to protect data security (at least to some degree); counter the high market concentration and anti-competitive practices in the digital economy; get the global tech companies to invest in data centres in the country; and develop local tech companies.

Linked to this are measures to regulate cross-border data flows. The free flow of data across countries are benefiting the global tech companies.

“In the context of data as a raw material for the virtual world, the free flow of data without government regulation will have adverse consequences for establishing data-based business in developing countries in the future,” says Abhijit Das, director of the Delhi-based Centre for WTO Studies.

The Comprehensive and Progressive Trans Pacific Partnership (CPTPP) trade agreement has a chapter on e-commerce that prohibits or restricts member governments from having data localisation policies or from regulating cross-border data flows.

The CPTPP also restricts governments from requiring that companies selling computer software in their countries allow access to their source code as a condition for the sale or use of the software or products containing the software.

With such a prohibition, governments may not be able to access the source code, except in a few listed circumstances.

Prohibiting access to or transfer of source code has the effect of discouraging the diffusion of software technology, perpetuate technology dependency and deepen the digital inequities by further entrenching the already established players in the developing countries’ markets, according to a paper by R.S. Neeraj of the Centre for WTO Studies.

Another issue is the prohibition of government regulations on electronic authentication methods. Many governments have guidelines or regulations, for example, on the use of online banking to protect the safety of consumers.

However, maintaining such rules would be difficult because of a CPTPP clause that says companies should be able to decide how secure their electronic transactions should be, with the exception of one category of transactions.

Some developed countries are also advocating that similar clauses be included in the RCEP (Regional Comprehensive Economic Partnership), which is still being negotiated.

The World Trade Organisation is facing pressure to have an e-commerce agreement. The heavyweight global technology companies are, of course, eager to maintain their domi­nance and suppress new rivals.

However, developing countries that are trying to embark on their own digital industrial transformation should have the space and freedom to make use of policy measures to develop digital strategies. This could combine the use of the technologies of the existing tech giants and the development of our own digital technological capacities.

Thus, we should keep an eye (or both eyes) open on trade agreements that have a bearing on what we can or cannot do, and negotiate to keep open our options to formulate policies that allow us to participate in and benefit from the digital industrial revolution.

Martin Khor is adviser of the Third World Network/The Star

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