Canada’s Indo-Pacific strategy was released by the Government of Canada on November 27th and it has been defined under five core objectives which will impact the life of Canadians, from peace, security, climate change and human rights, to trade, investment, supply chain resilience and partnerships.
Home of 40 diverse economies with over four billion people, including three of the largest economies in the world (China, Japan and India), the Indo-Pacific strategy will play a pivotal role in defining Canada’s future.
So, it is worthwhile to reflect about how this strategy should be implemented effectively from a business perspective and how to increase its chances to succeed under the challenging economic, social and geopolitical scenarios that both Canada and Indo-Pacific countries face.
Without a doubt, there are several tools that will be useful to consider during the implementation stage of this strategy, but taking advantage of digital trade is an essential one for business success due to its scope and cross-cutting nature.
Digital trade, which refers to commerce enabled by electronic means, has grown rapidly during the present century. It has become critical over the course of the Covid-19 pandemic by providing solutions to effectively support companies across industries, and by keeping products and services within reach of consumers.
Nonetheless, international organizations such as the World Economic Forum notes that, despite the growing value of the digital economy, digital protectionism is on the rise, and that cybercrime will grow faster and account for half the value of the digital economy by 2025.
This brings up three important questions:
- How can Canada contribute to governing and harnessing the full potential in digital data without compromising the security of people?
- What can Canada’s government do so that digital trade is utilized as a tool of inclusion?
- How can Canadian entrepreneurs leverage digital trade to succeed within the Indo-Pacific strategy?
There are 4 key reasons digital trade is a perfect fit to support Canada’s Indo-Pacific Strategy
1. Promote and action Canada’s values
Adding digital trade as an important tool to implement the strategy can apply Canada’s values to promote open societies and free and sustainable trade.
A recent report issued by the Digital Policy Alert Organization highlights that over the past three years governments have gone into regulatory overdrive in digital sectors. In areas such as data governance, online content moderation, taxation and competition law enforcement this has created digital fragmentation due to the inconsistency of rules.
Regulatory heterogeneity is growing, and this is a threat for businesses because this discourages participation in global markets and imposes barriers that affect both entrepreneurs and consumers.
Regulation in digital trade is imperative. However, it needs to be coherent and consistent with principles that guarantee non-discrimination, transparency and fairness, but also offer predictability.
With no multilateral agreement in place to regulate activities in the digital world, Canada’s Government has the opportunity through the Indo-Pacific strategy to step in, propose rules to address concerns on digital issues and guarantee a level playing field.
This is a chance to create consensus around the principles that will govern digital sectors in the region and, at the same time, confirm its commitment for high-standard, rule-based digital trade that works for all.
2. Increase trade liberalization
The digital economy is associated with greater levels of trade liberalization, which improves trade activities between countries.
An OECD study points out that a 10% increase in digital connectivity between two countries, which allows their companies to deliver their products and services beyond borders by improving regulations and infrastructure, might expand their trade in goods by around 2% and over 3% trade in services.
The OECD report adds that when digital policies are implemented alongside regional trade agreements, the growth in good exports could duplicate the impact. Based on this evidence, Canada is in a great position to link digitalization with trade activities thanks to its extensive network sustained in 15 Free Trade Agreements (FTAs) in force with 51 different nations.
To be noted, Canada is part of two of the most advanced free trade agreements that include stand-alone chapters on digital trade issues, namely the CPTPP and the USMCA. This valuable expertise must be leveraged to expand partnerships and strength ties in the Indo-Pacific.
As part of the strategy, Canada has committed to join the Digital Economic Partnership Agreement (DEPA) with Singapore, New Zealand and Chile, which is excellent news for Canadian businesses. DEPA has emerged as an innovative solution to address critical issues that the digital economy confronts and has encouraged cross-border collaboration on topics such as digital inclusion, artificial intelligence and digital identities.
Canada has the opportunity through the Indo-Pacific strategy to encourage a holistic, balanced and effective policy-setting across the region via digital and trade agreements that address key issues.
These issues include data flows and governing data, which increase business activities and supply chains resilience, and guarantee a more equitable distribution of the gains of digital technologies while addressing risks.
3. Help Canadian companies diversify their markets
Promoting the adoption of digital technologies supports Canadian companies in diversifying their markets.
Recognizing the country’s high export concentration, the Indo-Pacific strategy aims to promote a more sustainable economic growth and to reduce Canada’s vulnerability to adverse external shocks including geopolitics. In this line, a key piece of the Indo-Pacific strategy is the approach that Canada will take moving forward to engage with two of the world’s largest economies, namely China and India.
On the one hand, Canada’s government recognizes within the strategy that its relationship with China will be aligned with those of its closest allies and will be displayed on different levels, both challenging and collaborating with China depending on the circumstances. Canada’s government knows that geopolitics currently plays an important role and that this is a latent risk for its businesses running operations in China; so the strategy aims to support Canadian companies to build business opportunities in other Indo-Pacific markets.
On the other hand, Canada’s goal with India is to expand the bilateral relationship through a broad range of cooperative projects.
The level of Canada’s engagement with China and India have been set in opposite directions in the strategy.
Supporting Canadian entrepreneurs to improve their processes, distribution, marketing and commercialization methods via digitalization can help to succeed in its position with these two countries by opening new markets beyond China and creating more robust commercial ties with India.
4. Make trade more accessible to SMEs
The digital economy can help to increase the participation of small and medium-sized enterprises (SMEs) and in this manner, contribute to alleviating one of the most pressing challenges in the Indo-Pacific, which is to create a more inclusive and equitable business environment.
SMEs, including under-represented groups, youth, women entrepreneurs and indigenous groups, need to have access to digital technologies in order to be able to participate, compete and reap the benefits of international trade and encompassing supply chains. Digitalization can offer SMEs access to affordable, more advanced technologies, which can help to reduce costs and increase competitiveness.
Canada’s Indo-Pacific Strategy will be considered a compelling and viable approach if it provides solutions to the most critical issues faced by SMEs, which includes digital exclusion and lack of digital infrastructure.
The digital exclusion in some Indo-Pacific economies is an important issue to address in order to fully integrate their people into the digital economy. For instance, the internet penetration rate in Papua New Guinea, Bangladesh and India are 18, 31 and 47 percent of their total population, respectively.
Canada should promote digital capacity-building across the region through the strategy and walk the talk by collaborating and supporting connectivity initiatives in the Indo-Pacific, revising regulatory frameworks affecting SMEs’ adoption of digital technologies and investing in the improvement of digital infrastructure. The strategy has to reflect Canada’s commitment with inclusive and sustainable digital development.
Canada’s Indo-Pacific strategy offers a comprehensive and well-articulated policy that sets an important roadmap to Canada’s present and future, aiming to become a trusted and influential partner in the region.
To succeed in the implementation of this strategy, it should incorporate digital trade as a strategic tool for inclusion due to the portion that this represents in the global economy. Canada’s priority must be to avoid falling behind in the development of digital technologies and to assume a leadership position in the discussion of the agenda.
Canada’s Indo Pacific strategy has put the country in a better position for the future, so implementing this strategy using digital trade could represent a cornerstone upon which all the trade initiatives are supported, contributing significantly to reaching its goals.
The digital trade approach could also contribute to the ultimate goal shared by most of Indo-Pacific countries of building greater levels of economic integration that translate into sustainable jobs and prosperity for all.
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