The new rules of digital trade

Above (from left): Mr Gerald Sun, vice president of trade and industry, MasterCard, Singapore; Professor Irene Calboli, deputy director of SMU's Applied Research Centre for Intellectual Assets and the Law in Asia; Ms Elizabeth Chelliah, principal trade specialist at the Ministry of Trade and Industry, Singapore; Professor David Llewelyn, deputy dean of the SMU School of Law; Mr Rishi Anand, senior manager at PricewaterhouseCoopers Consulting, Singapore

By Jeremy Chan

SMU Office of Research & Tech Transfer – The advent of the internet has sparked a revolution in the way goods and services are exchanged. Marketplaces, once constrained by geography, now span a world that is suddenly metaphorically smaller due to increased connectivity; meanwhile, goods increasingly contain digital elements that make them hybrids of tangible and intangible commodities.

Trade in the modern day, with its ease of placement of orders, tracking and delivery of orders via the use of digital devices is thus a vastly different beast from what it was in the last decade – much faster, nimbler and more varied in form. Against this rapidly evolving landscape, the rules that govern such digital trade seem sluggish by comparison.

“The law governing such digital trade has on the whole been moving more sedately,” remarked Ms Mary Elizabeth Chelliah, principal trade specialist at the Ministry of Trade and Industry, Singapore. “But recently calls have been made for governments to speed up their intervention to allow for a level playing digital field. The issue though is how should governments react? Do we do so in a way that could invariably affect new businesses, or should we first be aware of what laws already exist, what was done in the past and what can still apply?”

Ms Chelliah was speaking on 6 December 2017 on a panel convened as part of the ‘Digital Trade in the Asia-Pacific – Identifying Challenges, Seeking Solutions’ conference, organised by the Singapore Management University (SMU) School of Law and Melbourne Law School.

Moderated by Professor David Llewelyn, deputy dean of the SMU School of Law, the panel also comprised Professor Irene Calboli, deputy director of SMU’s Applied Research Centre for Intellectual Assets and the Law in Asia; Mr Rishi Anand, senior manager at PricewaterhouseCoopers Consulting, Singapore; and Mr Gerald Sun, vice president of trade and industry, MasterCard, Singapore. The panellists contemplated the question: “How can trade law and policy in the Asia-Pacific region contribute to promoting innovation in digital technologies?”

Blurred lines

As marketplaces are digitally transformed, traditional boundaries are fast becoming obsolete. The exchange of digital goods such as software and apps defy geographical borders; products and services are blending into one another; and the distinction between producers and consumers is becoming less clear.

Additive manufacturing, colloquially known as 3D printing, is a case in point, noted Professor Calboli. Standard tessellation language (STL) files specifying a physical product can be downloaded from the internet and created by a 3D printer owned by anyone, anywhere in the world. The cross-border nature of the supply chain enabled by 3D printing could raise jurisdictional and intellectual property (IP) infringement issues, she said.

Despite these IP concerns, governments were more worried about a new kind of security challenge when 3D printing first burst onto the global manufacturing scene, Ms Chelliah pointed out. Tangible nuts and bolts that assemble into dangerous items, such as guns or bombs, are likely to be detected by security controls at the customs border. But what if, thanks to 3D printing, such components are simply being manufactured in somebody’s basement?

“This is one of the challenges governments are facing with digital trade. Things are no longer coming through natural borders, they’re going straight into homes to be used immediately,” she said.

Old laws, new trade

Given the many potential legal and policy problems posed by digital trade, to what extent should the law respond? The lawyers on the panel, Professor Calboli, Professor Llewelyn and Ms Chelliah, were of the opinion that existing laws are sufficient to deal with new complexities.

“Disruptive digital technologies – whether it’s 3D printing, artificial intelligence or autonomous vehicles – do create challenges for current business models, but they do not necessarily create legal challenges warranting new laws. We already have the laws on the books,” said Professor Calboli.

Returning to the example of 3D printing, Ms Chelliah highlighted that once an item is printed out and becomes tangible, trade in goods regulations – which deal with the exchange of material resources – apply. Hence, even though processes may change due to digitalisation and technological advancement, the outcomes of those processes still fall under the purview of prevailing laws. She advocates a ‘light touch’ approach by governments when it comes to the regulation of digital trade, lest innovation is stifled.

“Actually, when you boil a lot of these things down to their essence, these problems have been around for a very long time. They’re just taking on slightly different forms,” said Professor Llewelyn, adding that “there’s really nothing new under the sun”.

Perhaps, then, the inertia of the law is intentional – like putting new toys into old containers, digital trade and emerging technologies may simply need to be sorted into existing legal categories.

Setting a standard

Adding nuance to the discussion was Mr Sun of MasterCard, Singapore, who suggested the need for wide adoption of standards for interoperation in order to facilitate end-to-end digital trade.  Common standards would allow a myriad of trade participants to connect with a network of counterparties more efficiently.   These standards – not laws, he emphasised – could, for example, enable more uniform recognition of digital documents, for example digital contracts, among countries.

“Not every country today recognises [digital contracts],” he said, “If you have differentiated regulation, you then have differentiated liabilities, and that would have ripple effects throughout the supply chain.”

The USB connection, for example, is an industry standard that has had tremendous impact on the electronics sector by unifying the hardware format for data transfer and power charging across digital devices, said Mr Sun, adding that similar standards in the context of trade could be immensely valuable.

But even if governments and enterprises do manage to agree upon common rules and best practices in digital trade, all these efforts could be undone by cybersecurity attack on technologies being used for digital trade, cautioned Mr Anand of PricewaterhouseCoopers Consulting, Singapore.

“There are organisations like the World Trade Organisation, or agreements like the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP) that are trying to eradicate trade policy hurdles,” he shared. 

“But until you resolve the tech-specific problems, especially on the cybersecurity front, you would not be able to raise the confidence of people in being part of digital trade,” Mr Anand said, adding that laws and policies to bolster cybersecurity could therefore become the linchpin of digital trade in the future. 

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