ReportsNew Faces of Indo-Pacific Digital Trade

New Faces of Indo-Pacific Digital Trade

Fostering digital connectivity in and with the Indo-Pacific

Introduction

In 2020, small businesses in the Indo-Pacific region proved resilient by leveraging the internet and digital tools to adapt their businesses and everyday operations. Through crisis and in recovery, the region’s digital economy continues to grow exponentially. 

The Indo-Pacific represents 60 percent of the world economy and digital trade continues to play an overwhelming role. In 2022, it is estimated that global Internet traffic will exceed that of all the Internet traffic up to 2016. 

In Southeast Asia alone, 60 million people joined the digital economy since the pandemic started, bringing internet penetration to 75 percent. This momentum remains, with the adoption of digital services showing no signs of slowing down.

While the pandemic accelerated the digital transformation of trade, this is only the beginning. The surge of new consumers online is spurring tremendous opportunities for the Indo-Pacific and trading partners in the broader region. 

Enabled by digital tools, platforms and services, small businesses are reaching and selling to new customers across their borders more efficiently than ever before. 

One study estimated that if small businesses had better access to global markets, their sales would see a 14 percent increase over the next three years. The benefits would extend to the local economies—it is expected that the United States’ economic output would rise by $81 billion, adding 900,000 jobs. 

The Challenges

However, despite the world of opportunity possible for small businesses, the current global policy environment does not create certainty for business owners.

The benefits from digital trade are dependent on access to the e-commerce ecosystem including tools that enable marketing, communications, payments, productivity and more. The absence of an effective regulatory landscape dramatically reduces market access opportunities due to high costs to entry, disproportionately impacting small businesses. 

Analysis from the Organisation for Economic Co-operation and Development (OECD) has demonstrated that in more restrictive services markets, new exports are faced with costs 53 percent greater than current exporters. 

When restrictions in services trade are eased, small businesses are the first to benefit. 

The development of digital trade and the rise in e-commerce has not been met with the parallel evolution of the regulatory regime. 

The threat of digital protectionism

Instead, around the world, governments are building barriers to digital trade. Many of these policies are designed to restrict the flow of data, force the localization of data and block digital services and content. 2020 was documented as the tenth consecutive year of decline in global internet freedom

Without a legal framework, the rise of digital protectionism threatens the success of small businesses. 

An Inclusive Approach to Trade, Digital Economy & SMEs

The digital nature of trade has made it possible for even the smallest businesses to have a global footprint. 

Governments in the region must act quickly to shape the rules of the global e-commerce ecosystem to ensure companies of all sizes can continue to benefit from the digital economy. 

The Biden Administration’s proposed Indo-Pacific Economy Framework can be an effective vehicle for engagement in the region with an inclusive approach. Regarding trade and the digital economy, an initiative should focus not only on high-standard digital trade rules and practices but should also enable small businesses’ digital skills development and prioritize support for underserved communities. 

This report profiles small businesses from the Indo-Pacific that are engaged in digital trade, to showcase their experiences and understand the opportunities and challenges they face. 

The stories from entrepreneurs in Australia, Japan, New Zealand, Singapore, South Korea and the United States will help to illustrate the role of small businesses in the digital economy and how governments can provide support.

Small Business Stories

Conclusion & Recommendations

The small businesses featured in this report reinforced the importance of establishing regional norms and standards to support the seamless cross-border flow of lawful goods and services to enable their global success.

Foundations for a Prosperous Digital Economy in the Indo-Pacific

Digital trade represents an avenue to opportunity for SMEs in the Indo-Pacific. A digital trade initiative would unite the region in endorsing gold-standard rules and practices that preserve an open global internet while ensuring that international markets are inclusive, transparent and fair. 

Such an agreement would also serve the interests of all economies, including the millions of small and medium-sized businesses that rely on digital tools to reach customers, stay connected and conduct day-to-day business. 

Supporting Small Business Access to the Global Digital Economy

The United States and other partners in the Indo-Pacific have a unique opportunity to shape the future of global trade by laying the foundation for an inclusive, open, secure and resilient digital economy. In doing so, governments have a responsibility to establish a digital trade initiative within the Indo-Pacific economic framework that enable the benefits of trade flow to workers and businesses of all sizes, including by:

Committing to high-standard digital trade rules:

Commitments should promote inclusive innovation, growth, and development, and enable non-discriminatory market access for services sectors critical for e-commerce. An agreement should encourage the widespread use of and access to key technologies, including cloud computing, payments, logistics and communications. 

Mainstreaming digital technologies in trade facilitation:

Digitalizing the physical trade lanes process would reduce costs and supply chain bottlenecks and decrease entry barriers for SMEs. By adopting policies recognizing and permitting electronic signatures and transactions, and facilitating contactless customs clearance, governments would improve the regulatory framework for small businesses and encourage their global engagement. Streamlining export and import processes will enable more SMEs to trade their goods across the region.

Enabling secure and reliable data flows:

As the global digital economy continues to grow, businesses must be able to move data securely across borders to maintain essential operations, connect with customers, and compete globally. The ability to transfer data internationally is critical to businesses of all sizes, in all sectors. Governments should agree to support secure and reliable cross-border data flows and oppose forced data localization while appropriately protecting privacy.

Supporting digital skills and digital transformations:

Too often, trade promotion programs target larger enterprises, while leaving out small businesses and workers. By targeting SME involvement in the global trading system, governments can create new opportunities for communities across the Indo-Pacific. Governments in the region should explore creating a regional framework for digital skills training and workforce development that takes into consideration their specific needs and challenges, and enables them to reach their full digital potential, in partnership with the private sector.

Making trade and technology more inclusive:

A regional digital trade initiative would serve as an opportunity to advance the ability to support the resilience and success of women and minority-owned businesses. Policymakers should prioritize improving data collection, elevating the role of trade in the success of underserved businesses, and delivering cohort-based export and digital skills training programs. In crafting this initiative, governments can take a leadership role in engaging and advancing underserved communities across the region, including by equipping their small businesses with tools, information and skills that ensure digital competitiveness and participation in international markets.