Comments to the Australian Senate on the Global Trade System and Digital Economy

Australia’s economic future will depend on successfully driving innovation and productivity growth. Digital free trade and the free flow of data supports these by improving firm competitiveness and by providing critical economies of scale (via open global markets), which also underpins the ability of Australian firms to invest in the research and development needed for future innovation. However, policymakers need to make conscientious decisions to convert this potential scale into economic value. A pro-active and digitally-focused trade policy is definitely one of the many levers Australian policymakers should use when seeking to build an international framework that supports free and open digital trade. It needs to be a priority as, collectively, countries that support the international trading system have not done enough to ensure it adjusts to the data-driven nature of 21st-century trade, from its (largely successful) focus on addressing barriers to traditional 20th-century trade (tariffs). In this way, Australia’s economic and trade policy strategies will need to reflect the emerging set of behind-the-border digital trade barriers that countries are enacting in an attempt to give their local firms an unfair advantage.

Australia has already taken many steps to ensure its trade policy reflects the increasingly digital nature of international trade and economic activity. This is reflected in the fact that 9 of Australia’s 10 existing free trade agreements include e-commerce provisions. Australia’s commitment to negotiating and completing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and its high-standard e-commerce provisions go a long way toward setting new global standards on many digital trade issues. This Senate inquiry, the “2017 Foreign Policy White Paper,” the Department of Industry, Innovation, and Science’s report on “The Digital Economy: Opening Up the Conversation,” and the Australian government’s International Cyber Engagement Strategy are all welcome steps toward revising and shifting Australia’s focus, goals, resources, and structures toward digital issues. Yet, much more can be done to ensure Australian firms are best placed to benefit from trade rules that addresses modern digital issues, as this report outlines. Australia is well placed to build on this progress and use it as the basis for heightened engagement internationally on new rules, norms, and cooperation to support an open and competitive global digital economy.

In reviewing its trade policy, Australia needs to recognize that it cannot afford to stand still, as it is in a global race for innovation advantage. Countries increasingly recognize that conscientious policy decisions impart a tremendous impact on the levels of innovation their economies and societies produce, as ITIF identifies in Innovation Economics: The Race for Global Advantage. China, the United States, the European Union, and many other countries are pursuing policies that support their own ability to innovate and compete in new technology. Unfortunately, as this global race for innovation advantage intensifies, many countries have turned to “innovation mercantilism”—a strategy that seeks to achieve prosperity by imposing protectionist- and trade-distorting policies that tip market scales in favor of local firms in order to help them expand domestic technology production. These destructive “beggar-thy-neighbor” tactics are intended to either replace imports with domestic production or to unfairly promote exports. Countries are increasingly using such innovation mercantilist policies in high-value tech sectors such as computers and electronics and Internet services, including by introducing barriers to data flows. Australia’s trade policy needs to adjust to this race and the changing nature of protectionism.

The following submission covers several critical policy issues relevant to the Committee’s investigation into the trading system, the digital economy, and Australian trade policy. Firstly, the submission focuses on the critical role of data to digital trade, the rationales countries use to enact barriers to data flows, and the impact of these barriers, including relevant econometric studies that estimate the cost of barriers to data flows, including local data residency requirements. In addition to this, Appendix A-D provides a number of case studies to show how China, Indonesia, Vietnam, and Russia have enacted a range of barriers to digital trade, while Appendix E provides an extensive list of data localization policies in these countries and others around the world. The submission then examines issues around the measurement of data flows and digital trade in Australia, which needs improvement in order to provide a better basis of understanding for policymakers. Building on this, the submission analyzes how Australia should do more to improve the measurement of data flows and digital trade at the multilateral level, along with efforts to push multilateral organizations to do more to identify and report on barriers to both data flows and digital trade. In conclusion, the submission looks at the critical role of intellectual property in digital trade.