Building on the modular design of DEPA

10 July 2020

By Giridharan Ramasubramanian, ANU

This article first appeared on East Asia Forum

On 12 June 2020, three countries — Chile, New Zealand and Singapore — signed the Digital Economy Partnership Agreement (DEPA), deepening their international cooperation on digital economy issues. One of the most unique aspects of DEPA is its innovative modular design, which trade policymakers in other countries should explore and build upon.

Modules cover discrete components within a broader issue area. This modular structure allows policy negotiators to elaborate on the specific characteristics of a component and segment it from other components while ensuring that they all fit within the wider framework of an agreement. It also allows specific parts of an agreement to be transferred to various other contexts.

DEPA contains twelve modules including Business and Trade Facilitation, Digital Identities, Emerging Trends and Technologies, and Innovation and the Digital Economy. It aims to facilitate end-to-end digital trade, enable trusted data flows and build trust in digital systems. Through this modular approach, the DEPA negotiators quickly created cutting-edge digital economy rules available for other countries and forums to engage with.

DEPA has the potential to co-evolve with advances in the digital economy. It can also grow in membership, as new countries seek to join this living agreement. Progress within DEPA could feed back into existing and new trade agreements and processes, catalysing international cooperation in that regulatory space. DEPA’s modular approach enhances these features to increase opportunities to co-create and shape global norms for digital trade.

A modular design is made up of building blocks within a building block, resembling a multi-level complex adaptive system. Traditionally, individual free trade agreements (FTAs) are often seen as incrementally contributing to the complex trade institutional architecture. They are often considered in totality even if only part of the language is incorporated in subsequent agreements. In a modular agreement, each individual module acts as a detachable component that could be used elsewhere.

This modular structure provides countries with more options. They could join the agreement in its entirety. Alternatively, they could incorporate specific modules either within their domestic policy settings or in different trade negotiations. Countries working on digital economy legislation at a national level may find modular templates helpful in drafting their language. Similarly, DEPA has the potential to shape ideas and norms in multilateral processes such as the World Trade Organization (WTO) Joint Statement on Electronic Commerce Initiative with the inclusion of content from specific modules.

These modules could also be incorporated into current and future FTAs such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU–Japan Economic Partnership Agreement and the United States–Mexico–Canada Agreement. For example, a comparison of the language of DEPA and the electronic commerce chapter of the CPTPP shows that key emerging issues related to digital identities, financial technology and artificial intelligence are missing in the current CPTPP but covered in DEPA. If negotiators of the CPTPP and other living agreements look to the specific modules of DEPA for future inspiration, this will diffuse the content of DEPA at a faster pace, accelerating its influence over international digital rule-making.

Equally, rules implemented in other FTAs and forums on rapidly changing issues surrounding the digital economy can be easily incorporated into DEPA’s modular structure. Progress in APEC and OECD digital working group discussions could inspire future changes to the content of DEPA.

The recently negotiated Australia–Singapore Digital Economy Agreement is supported by several memoranda of understanding which facilitate practical cooperation initiatives. Topics covered include data innovation, artificial intelligence, e-invoicing, e-certification for agricultural exports and imports, trade facilitation, personal data protection and digital identity. Innovation in these topics can support existing DEPA modules or lead to new modules.

DEPA’s modular design also serves as a useful template for current and future plurilateral agreements. For instance, the Agreement on Climate Change, Trade and Sustainability between New Zealand and several other countries could benefit from a modular structure that brings in cutting-edge issues at the intersection of trade and climate (such as plastic pollution, circular economy) while retaining its core focus on environmental goods and services, fossil fuel subsidies and ecolabelling. This could result in a potentially layered membership structure where all members participate in the core issues while a subset of members focus on other specific areas where cooperation seems possible.

More broadly, the modular structure could inspire other regional future FTAs. A modular approach, as opposed to a Chapters or Clusters approach, recognises that some countries will be better prepared to implement certain components of an FTA better and faster than others. This flexibility allows certain countries to accelerate their efforts to engage in deeper trade rule-making, similar to how FTAs originally allowed countries to push past deadlocks in the WTO.

While modular approaches might raise fears over institutional fragmentation or regulatory competition, they can be designed to avoid such problems. Similar fears were raised about FTAs or plurilateral agreements within the WTO. But when well designed, these agreements have successfully complemented multilateral processes — modular agreements can seek to do the same.

Trade negotiators should further explore the potential of modular design for future digital economy and trade agreements. In order to ensure that the international trade architecture becomes more resilient and adaptive, a careful re-design of new agreements to incorporate greater modularity will be helpful. This will allow trade policymakers to navigate and shape that architecture at multiple levels and steer it in a more ambitious direction.

Giridharan Ramasubramanian is a PhD candidate at the Coral Bell School of Asia-Pacific Affairs, The Australian National University.