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Vietnam, Singapore begin negotiations on digital trade agreement

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Despite all the challenges, an agreement between the two nations would further liberalize the digital trade environment in Southeast Asia.

On June 21, Vietnam and Singapore agreed to set up a joint technical working group on Digital Partnership, examining the potential for developing a bilateral digital economy agreement. This initiative took place right before the High Level Opening of the Asia Europe Meeting (ASEM) High Level Policy Dialogue, indicating its importance to the political agenda of both countries. This article aims to disentangle what this initiative means for Singapore, Vietnam, and the future of digital trade in the region in general.

First, it is important to understand the potential scope of the upcoming digital economy agreement. If realized, this will be the third of its kind initiated by Singapore. The first two are the Digital Economy Partnership Agreement (DEPA) between Singapore, Chile, and New Zealand and the Singapore-Australia Digital Economy Agreement (SADEA), both of which were signed in 2020. Two further countries, South Korea and the U.K., ave also officially launched negotiations on digital partnerships with Singapore, in June 2020 and June 2021, respectively.

Despite being named “digital economy agreement,” DEPA and SADEA both aim at enabling a free digital trade environment. A large portion of these agreements are spent on conventional issues of digital trade like digital identities, e-invoicing, e-payments, paperless trading, personal data protection, and cross-border data flows.

But their provisions significantly differ from those addressed in an e-commerce chapter of a typical FTA in three aspects: First, they enhance cooperation on developing ethical principles and standards for emerging technologies like AI; second, they support SMEs’ participation in digital trade by promoting interoperability of e-transactions; and third, they adopt a flexible “modular” approach to expanding participation and accommodating partners’ varying levels of trade readiness. Accordingly, new partners are able to choose which modules to sign up for first, while delaying more challenging parts until they are ready. The digital economy agreements initiated by Singapore have been referred to as good models for the U.S. engagement in Indo-Pacific digital trade.

The establishment of a joint technical working group on digital partnership with Vietnam, though not yet an official part of bilateral trade negotiations, is a political win for Singapore. Despite being a relatively small country in size, Singapore has successfully used diplomacy to shape new rules around the digital trade game. Those who have been watching the agenda of the World Trade Organization (WTO) closely are well aware of Singapore’s active role, alongside that of Australia and Japan, in pushing forward consensus on e-commerce regulations.

One of Singapore’s strategies is to facilitate small group discussions among WTO members in order to promote consensus on key e-commerce issues of interest to Singapore. These include open government data, e-contracts, online consumer protection, and paperless trading, which, if realized at the WTO level, would solidify Singapore’s position as an international and regional trade hub. In fact, as the convener of these discussions, the Singaporean government has expressed its ambition about concluding clean texts on these issues before the summer. Against the backdrop of the WTO’s 12th Ministerial Conference, which is scheduled to take place in Geneva in November, it is critical that Singapore has won Vietnam as another ally on the e-commerce debate.

Another Singaporean strategy has been to promote bilateral digital economy agreements, a new generation of free trade agreement specifically designed to cope with the unique emerging challenges of digital trade. Considering the slow-moving negotiations in the WTO, setting examples via bilaterally negotiated agreements appears an effective alternative. Making Vietnam its next potential partner was indeed a strategic move on Singapore’s part.

The city-state’s traditional partners, including Australia, New Zealand, Chile, South Korea, and the U.K., all share relatively high levels of interoperability in terms of trade regulations and standards, which makes digital economy agreements look like a game for the developed. As such, Vietnam’s participation as a developing country signals to the world that Singapore’s digital trade conditions are open for everyone. In the end, a greater network of digital alliances also means greater economies of scale and scope resulting from interoperability across global platforms.

With these two strategies, Singapore has effectively positioned itself a rules maker in the digital trade game and a focal point for digital partnership with ASEAN and the wider Indo-Pacific region, which would inevitably lead to significant economic gains in the long run.

As for Vietnam, the agreement represents both a political and economic win. From a geopolitical point of view, a digital trade agreement with Singapore presents a window of opportunity for Vietnam to join other partners in shaping digital trade rules at both the WTO and regional levels. Moreover, should Vietnam manage to become the first fellow ASEAN state to negotiate this new generation of digital trade agreement with Singapore, it could potentially gain a competitive advantage over other ASEAN counterparts like Indonesia, Malaysia, Thailand, or the Philippines in the digitalization race.

This is especially true in the context of U.S. attempts to reshape global supply chains and re-engage in the Indo-Pacific region by nurturing trade partnerships. If implemented properly, this agreement could act as an impetus for reforming trade regulations in Vietnam, improving the country’s potential as a regional digital trade hub, and upgrading its position in global supply chains. Economic gains are expected to be significant. If fully leveraged, digital trade could contribute approximately $42 billion to Vietnam’s economy by 2030.

If successfully negotiated and implemented, the Singapore-Vietnam digital trade agreement could help further liberalize the digital trade environment in ASEAN. The modular format of the digital economy agreement allows other ASEAN countries easy participation and to choose their preferred areas of cooperation. The most positive scenario is establishment of an ASEAN-wide agreement on key modules like digital identities and e-payments, potentially turning the region into the world’s largest free digital trade zone.

In the worst case, however, the agreement might not get beyond a friendly political gesture between the two countries. Singapore has already obtained considerable political wins from digital trade cooperation at both the WTO and regional levels and thus may have less incentive to push for official negotiations of the agreement in future. Compared to Australia, New Zealand, Chile, South Korea, and the U.K., Vietnam indeed presents a tougher case for digital standards interoperability. By the time of this writing, Vietnam has neither a unified Personal Data Protection code nor a working independent regulator responsible for this key enabler of digital trade. In terms of government’s digital capacity, Vietnam ranked 86th in the 2020 E-Government Development Index, compared to Singapore’s 11th place, indicating a significant gap for inter-governmental collaboration for digital standard interoperability.

The economic composition of the two countries also demonstrates a wide disparity as services, which stand to benefit the most from global trade digitalization, constitute 70.38 percent of Singaporean GDP but only 41.64 percent of Vietnam’s. Therefore, the agreement’s success, if is eventually negotiated, signed, and implemented, depends a lot on how Vietnam is going to maximize this opportunity to comprehensively reform its domestic trade regimes. This great challenge, if overcome, could pose a bright example of the positive impacts that government interventions can exert on fixing market inefficiencies in the digital age.

It is still too early to hail a digital economy agreement between Singapore and Vietnam. And it will be an even longer road before Vietnam can align itself with Singapore’s digital trade standards so that both nations can reap the full benefits of any potential agreement. But in agreeing to begin discussions, the two nations mark a recognition of the benefits of a liberalized approach in dealing with the emerging challenges of digital trade. At the very least, by taking the first steps along this road, Vietnam and Singapore have recognized that no single nation can fully enjoy digital trade benefits by imposing protectionist regulations, separating itself from the global digitalization standards. There must be win-win cooperation in order for digital trade to fulfill its full potential.

Par Linh Tong – The Diplomat – June 30, 2021

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