[The Editors' Verdict] Not Much Time Left for CPTPP Accession

Kim Kyung-soo, Professor Emeritus at Sungkyunkwan University

Digital technology is essential in all industries. Thanks to the Internet of Things (IoT), which connects over 5 billion objects, it is expected that by 2024, approximately 27 billion devices will continuously generate data that will be transmitted across borders. In particular, manufacturing generates data at every link of the value chain, from research and development (R&D) to factory operations and services, and companies use this data to increase productivity and reduce costs.

Digital technology has created new trade opportunities that allow companies to sell more goods and services in the market. Digital trade based on digital technology is a broad concept encompassing not only goods and services on the internet but also data flows and services that enable global value chains (GVC) and smart manufacturing, as well as numerous platforms and applications. Digital trade has enabled innovation in GVCs in the 21st century and changed the patterns of international trade. According to a McKinsey report published in 2019, the share of services in GVCs in 2017 was larger than that of goods when measured by value added. The counterintuitive fact is because international balance of payments statistics do not properly reflect service trade.

As digital trade expands comprehensively, barriers to its core?digital data services?are increasing. This is because the World Trade Organization (WTO)’s digital trade rules are outdated and do not properly align with 21st-century realities. These include country-specific data movement regulations to protect domestic markets, differing security standards, requirements for encryption algorithms and source code disclosure, and internet service regulations.

As competition in digital technology intensifies, technological fragmentation is emerging, where the use of digital technology and data is divided regionally and nationally, replacing the technological pan-globalism that has supported inter-country technological cooperation. Although the possibility of a Splinternet has long been raised, the bifurcation of digital technology in strategic and military technology fields appears evident.

The United States and China are expected to become the core architects of the new world. The U.S. has begun regulating exports of its digital technology to Chinese companies, while Europe has started regulating imports of digital technology from China. As seen recently in the cases of Apple iPhone and Tesla, fierce disputes over data are occurring. Conflicts in the international community over digital data flows inevitably limit the scalability of digital trade. Therefore, even aside from geopolitical risks arising from U.S.-China confrontation, efforts to overcome regulatory differences between countries are necessary, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can be an alternative.

The most innovative aspect of the CPTPP, which was ratified by 11 countries including Japan, Canada, and Australia and launched at the end of 2018, is its 21st-century digital trade rules. The e-commerce provisions focus on removing distorted trade barriers such as restrictions on data transmission and requirements prohibiting data movement.

Originally led by the U.S., the Trans-Pacific Partnership (TPP) was overturned by former President Donald Trump and later transformed into the CPTPP. The United Kingdom has applied to join, and the European Union (EU) is also reported to have received an invitation. The Biden administration, which emphasizes a world order based on international norms and has rejoined the Paris Climate Agreement, will certainly not ignore this. Ultimately, it seems inevitable that South Korea will also participate in the largest multilateral agreement since the WTO.

The CPTPP still leaves a gap in government support regulations for small and medium-sized enterprises (SMEs), which are at a disadvantage in digital trade. Integrating digital technology into SMEs is an urgent task for our economy, which has stagnant productivity, but considering the likelihood that technologically advanced developed countries will participate in the CPTPP, the remaining time is limited.

Kyungsoo Kim, Professor Emeritus, Sungkyunkwan University

This content was produced with the assistance of AI translation services.