Opinion | US-China tech war: why a digital trade deal with Japan and South Korea is key to gaining the upper hand
Washington or Beijing could gain a strategic advantage as they compete to shape global digital architecture by locking in a three-way deal with Seoul and Tokyo
The US has more economic incentives to do so, but for China scooping such a compact would demonstrate its diplomatic prowess, say Daniel Aum and Elliot Silverberg
There is an aspect of the US-China technology race that is more consequential than simply mining more data or developing better technology. It is writing the rules of the digital road. In this competition over standards, whichever nation first strikes a trilateral deal with technology leaders Japan and South Korea will secure a strategic chokepoint in the digital architecture of Asia.
Far more so than China, the United States generally prefers an open, integrated global market that promotes unencumbered flows of data. In practice, Washington has established high standards for protecting data, reducing digital services taxes, and enforcing intellectual property rights. Examples include the US-Mexico-Canada Agreement and the US-Japan Digital Trade Agreement. Also significant is Washington’s push for such a framework in its engagement at multilateral forums, such as the World Trade Organization, Asia-Pacific Economic Cooperation and the G7, whose digital ministers recently endorsed digital standards that evoke shared liberal values of open and competitive markets.
For its part, Beijing has developed a national digital strategy to become a “network great power”. Composed of multiple elements – the “Great Firewall”, Digital Silk Road, and Belt and Road Initiative – and synchronised with Beijing’s regularly revised five-year plans, the blueprint is complex in design but straightforward in its objectives: to leverage the country’s immense pool of data, police the flow of foreign information, and boost digital trade. In so doing, Beijing aims to leapfrog the US as a global technology leader and to become a dominant force in shaping digital rules.
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RCEP: 15 Asia-Pacific countries sign world’s largest free-trade deal
RCEP: 15 Asia-Pacific countries sign world’s largest free-trade deal
What might a Chinese digital system look like on a global scale? The Regional Comprehensive Economic Partnership (RCEP) offers clues. This 15-country pact, led by China, impels members to liberate cross-border data flows and to eliminate data localisation requirements, similar to accords such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). But a blanket “public policy” exception in the RCEP enables each country to decide for itself when to skirt such commitments. As observers have noted, the pact generally reflects China’s preferred digital framework, one that reduces tariffs on digital goods and services, but also restricts data flows, mandates data localisation, and favours domestic firms.
The conflicting models put forward by the US and China, along with various disparate efforts by other nations, have led to a fragmentation of digital standards. Without uniform rules, individual nations, as well as regional blocs like the European Union, are building a hodgepodge of different frameworks.
Amid this patchwork, Washington or Beijing could gain a strategic advantage by locking in a three-way deal with Seoul and Tokyo. South Korea and Japan are major producers of data and leading innovators in the region. A 2019 study by the Harvard Business Review ranked South Korea second and Japan third among the top “global data product” producers in Asia, behind only China. And in the Global Innovation Index for 2020, the World Intellectual Property Organization placed South Korea as the second and Japan as the fifth most innovative economies in the region.
Each nation is already undertaking a “digital new deal” at home. Abroad, South Korea is negotiating its first digital trade deal with Singapore. The objectives are to allow a greater flow of data between the two nations by improving consumer protections, relaxing barriers on cross-border data flows, and developing governance standards for artificial intelligence.
