Can RCEP Facilitate an Integrated Digital Economy?

July 18, 2022

Zhang Kaifu, Head of Taobao Operations, Alibaba Group, Former CKGSB Professor

Kaifu Zhang is a former professor at CKGSB. Currently, he is the vice president of global commerce at Alibaba Group. His research interests include the business and policy aspects of the digital economy. He holds a PhD in management from INSEAD and has previously taught at the Tepper School of Business, Carnegie Mellon University.

Europe benefits from its own regional comprehensive economic partnership by creating a unified framework for personal data regulation, the GDPR. RCEP should do the same.

RCEP carries its spirit in the name. The word ‘comprehensive’ indicates that it is not just about trade liberalization and supply chain optimization. To truly reach its full potential, a comprehensive framework for economic partnership must span both the physical and digital world. In fact, creating an integrated digital economy promises greater benefit than ever, especially as we enter the third decade of the century – a time when the world economy is decidedly digital. To do this, RCEP should facilitate regulatory standards that are integral to the digital economy across its member countries, promote the free flow of data and lower the cost of doing business in the digital world.

The digital economy includes e-commerce to entertainment to some of the latest innovations in fin-tech. However, it cannot prosper unless there is a clear, predictable and well-designed regulatory framework. Let’s consider three examples: personal data regulation; harmful content regulation and cross-border e-commerce.

Let’s first consider the example of personal data regulation. Protecting consumer privacy is like protecting ‘a fundamental right,’ according to the EU’s General Data Protection Regulation (GDPR). But overly stringent rules can hamper economic efficiency by preventing firms from utilizing personal data to provide personalized services. In addition, it may lead to huge compliance costs for small-and-medium-sized firms. The estimates vary, but often the extra costs can add up to millions of dollars. For example, GDPR includes detailed stipulations on how a website should acquire users’ explicit consent before it can utilize the user’s personal data for customized services. This, however, requires a website to spend technical resources in order to modify its user registration procedure and content acquisition procedures. GDPR also stipulates the local storage of data, which may require physically migrating a firm’s data centres. Such are the reasons why compliance cost can be high.

The situation can be worsened if each country decides to implement its own regulatory framework, and firms have to multiply its investment in data regulation compliance. Europe benefits from its own regional comprehensive economic partnership by creating a unified framework for personal data regulation, the GDPR. RCEP should do the same. If done right, this ensures that a firm who is compliant in one country is compliant in all RCEP countries, thus ensuring that data can flow freely among member countries without being taxed, withheld or wasted.

As a second example, consider the policing of online content – which can be harmful to consumers in a variety of ways. Online content posted by a user in country A can be viewed by another user in country B. Without international cooperation, it is difficult for law enforcement in country B to punish the original poster of such content. In addition, without a shared framework to define what content is harmful, websites have to multiply their efforts to implement different standard operating procedures to meet regulations and delete harmful content in each country they operate in.

Finally, online commerce can benefit from a unified regional regulatory frameworks. Online commerce provides a low barrier way for SMEs or even individuals to do business. Different countries have different regulatory framework on doing business online, from ‘know your business’ requirements to taxation policies. This is further complicated when businesses engage in cross-border commerce. Implementing a shared framework for doing business online, and lowering the barrier of cross-border sales can both stimulate business dynamism, especially for small and medium enterprises.

The EU started with trade and economic partnership, progressed through the free movement of labor and a single currency, and arrived at a shared regulatory framework for the digital economy. We can skip some steps. RCEP must be digital in order to be comprehensive.

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