How Digital Trade Agreements Affect Online Businesses

This article has been written by Honey Dalal, currently in Semester 8 of the BBA LLB program at Auro University.

Introduction

The advent of digital trade has revolutionized the global economy, breaking down barriers and enabling companies to conduct business across borders. Digital services, cloud computing, and e-commerce have become the backbone of global business operations, compelling governments to establish regulatory systems that enable frictionless digital trade. This has resulted in the formation of Digital Trade Agreements (DTAs), which provide guidelines for businesses operating in international markets. These agreements prescribe rules with regard to:

• Data Transfers
• E-Commerce Rules
• Intellectual Property Rights Protection
• Cybersecurity
• Financial Technology

DTAs standardize these elements in order to allow businesses to operate effectively in the digital global marketplace.

This post discusses the implications of digital trade agreements on how businesses interact in cyberspace, specifically through market access, data protection, intellectual property, and financial technology. It also discusses their consequences for small and medium-sized businesses (SMEs) as well as on future trends for digital trade.

What Are Digital Trade Agreements?

Digital Trade Agreements (DTAs) are global agreements aimed at creating regulatory schemes for digital cross-border commerce. Their core goals are to remove digital trade barriers, enhance fair competition, and stimulate innovation. Major content of DTAs are:

1. Cross-Border Data Flows

DTAs formulate regulations to enable data movement from one border to another to enhance smooth digital commerce. Such regulations keep enterprises safe from binding data localization laws that mandate businesses to host data locally within defined territorial boundaries. Without such restraints, DTAs improve the world’s efficiency for e-commerce as well as online services.

2. Regulations for E-Commerce

DTAs enact regulations of online transactions to assure harmonious international business conduct. These enactments usually cover protection of consumers, electronic signatures, contract enforcement, and e-invoicing. By e-commerce regulation harmonization, companies can conduct business smoothly across various jurisdictions and instilling confidence in online transactions.

5. Financial Technology and Digital Payments

Enabling cross-border fintech services’ growth increases financial inclusivity. DTAs promote payment systems’ interoperability, allowing for easy transactions across several banking networks and currencies.

Key Digital Trade Agreements

There are a number of international agreements that enable consistent cross-border digital trade. The most notable ones are:

Digital Economy Partnership Agreement (DEPA)

Members: Singapore, Chile, New Zealand

Overview:

The Digital Economy Partnership Agreement (DEPA)[1] is a novel free trade agreement that seeks to promote cross-border digital trade and digital economy cooperation. DEPA was signed in 2020. It stands out for its modularity, where new participants can join individual provisions instead of having to sign up for the whole agreement. This facilitates adaptive digital trade rule adoption in accordance with changing technologies.

Key Provisions and Features:

Cross-Border Data Flows:

DEPA enables seamless cross-border data flows, allowing companies to operate effectively without inhibition from data localization restrictions. It ensures personal data protection and cybersecurity safeguards while ensuring interoperability among various regulatory models.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

Members: Canada, Australia, Japan, Mexico, Peru, New Zealand, Singapore, Vietnam, Malaysia, Chile, and Brunei

Overview:

The CPTPP is a free trade agreement that developed from the Trans-Pacific Partnership (TPP) following the withdrawal of the United States in 2017. Although it encompasses a wide variety of trade and investment rules, digital trade is one of its principal areas of emphasis. The agreement encourages free and fair e-commerce, intellectual property (IP) protection, and innovation-led economic growth in Pacific Rim nations.

Key Provisions and Features:

Removing Digital Trade Barriers:

CPTPP bars customs charges on digital goods, including software, music, e-books, and video streaming services. It also guarantees fair treatment of domestic and foreign digital enterprises, avoiding discriminatory regulations that may privilege local enterprises over foreign enterprises.

United States-Mexico-Canada Agreement (USMCA)

Members: United States, Mexico, Canada

Overview:

The USMCA, which became law in 2020 to replace the North American Free Trade Agreement (NAFTA), features an updated digital trade chapter guaranteeing free and open digital trade throughout North America. It provides greater e-commerce protections, prohibits data localization requirements, and sets stringent online consumer protections.

Key Provisions and Features:

Prohibition of Data Localization Requirements:

USMCA bars governments from mandating firms to store data within their territory. This is especially advantageous for digital multinational businesses, as they can operate without the expense of data storage across different jurisdictions.

Free Flow of Data and Expansion of E-Commerce:

The treaty promotes free flows of data across borders, enabling companies to exchange and process data without any hindrances across the three member states. Fosters expansion of e-commerce sites, cloud computing, and electronic payment systems.

Regional Comprehensive Economic Partnership (RCEP)[2]

Members: ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) + China, Japan, South Korea, Australia, and New Zealand

Overview:

The RCEP is the largest free trade arrangement in the world, with almost 30% of the global GDP. The goal of RCEP is to harmonize the rules of digital trade across Asian economies and make cross-border digital trade more efficient and streamlined.

Main Features and Provisions:

Harmonization of Digital Trade Laws:

RCEP has the goal of developing uniform and transparent e-commerce regulations across the member countries. The provisions include uniform standards for cybersecurity, electronic authentication, and online consumer protection.

African Continental Free Trade Area (AfCFTA) Digital Trade Protocol

Members: African Union member countries

Overview:

The AfCFTA Digital Trade Protocol is formulated to stimulate Africa’s digital economy by developing more e-commerce rules and bringing together digital trade systems on the continent. The deal is meant to digitalize trade, expand financial inclusion, and establish an integrated African digital market.

Key Provisions and Features:

Harmonization of E-Commerce Laws:

Fosters harmonized e-commerce regulations to ensure easier digital trade between African nations. Facilitates cross-border digital transactions, enhancing online business operations.

Impact of Digital Trade Agreements

1. Enhanced Market Access

One of the primary benefits of Digital Trade Agreements (DTAs) is the facilitation of market access for businesses, enabling them to conduct operations across borders with reduced regulatory hindrances. These agreements establish a framework that minimizes trade barriers and harmonizes regulations, ultimately boosting digital commerce.

Major Benefits of DTAs in Market Access:

• Facilitation of Cross-Border E-Commerce:
  Reduced compliance requirements and streamlined customs processes allow online businesses to sell products internationally with ease. Platforms like Amazon, Alibaba, and Shopify benefit from smoother international transactions, reducing logistical complexities and enhancing customer experiences.
• Digital Services Growth:
  Companies offering cloud computing, artificial intelligence (AI), fintech, and online education services benefit from regulatory consistency across multiple jurisdictions. With DTAs ensuring interoperability of digital policies, businesses can scale operations globally without fear of inconsistent legal frameworks.

Case Study: Shopify’s Global Expansion[3]

Shopify, a leading e-commerce platform, exemplifies the advantages of DTAs in expanding market access:

1. Harmonized E-Commerce Regulations:
   • Shopify leveraged DTAs to simplify compliance with digital trade rules in various countries.
   • It ensured that its marketplace adhered to local tax and data regulations, enabling a seamless global presence.
2. Cross-Border Payment Solutions:
   • By utilizing DTA-supported payment gateways, Shopify expanded its ability to support multiple currencies and ensure compliant financial transactions worldwide.
3. Shipping and Logistics Efficiency:
   • DTAs reduce customs barriers, allowing Shopify merchants to ship products internationally with fewer delays and lower costs.
   • This streamlined process enhances delivery speeds and customer satisfaction in international markets.

2. Cross-Border Data Flow and Privacy Regulations

In the digital economy, data is a valuable asset, influencing e-commerce transactions, personalized marketing, and global analytics. However, data localization laws—which require companies to store data within specific national borders.

Key Aspects of DTAs in Cross-Border Data Regulations:

• Facilitating Unrestricted Data Transfers:
  • For example, agreements like the Digital Economy Partnership Agreement (DEPA) between New Zealand, Chile, and Singapore set standards for cross-border data exchange, benefiting businesses operating across multiple jurisdictions.

Relevant Case Law: Schrems II (2020)

The Schrems II ruling by the European Court of Justice (ECJ) in 2020 had a significant impact on cross-border data transfers. The case challenged the validity of the EU-U.S. Privacy Shield, a mechanism that allowed businesses to transfer data between the EU and the U.S.

• Key Takeaways from Schrems II:
  • The ruling invalidated the Privacy Shield framework due to concerns over the U.S. government’s surveillance practices, emphasizing the need for adequate data protection mechanisms in cross-border data flows.
  • The case set a precedent for future DTAs, ensuring that digital trade agreements include strong privacy protections that align with GDPR-like laws.

Conclusion

Digital trade agreements are integral to defining modern-day business practice. By limiting trade barriers, safeguarding intellectual property, and promoting regulatory clarity, DTAs enable businesses to succeed in the digital economy. As data privacy, cybersecurity, and fintech challenges change, legal frameworks and case laws will increasingly influence international digital trade. Companies need to strategically use these agreements to drive the most opportunities in a more integrated world.

REFRENCES

• https://www.diplomacy.edu/topics/e-commerce-and-trade/
• https://www.ituc-csi.org/IMG/pdf/digital_chapters_and_the_impact_on_labour_en.pdf
• https://www.wto.org/english/res_e/booksp_e/dtd2023_e.pdf
• https://policy.trade.ec.europa.eu/help-exporters-and-importers/accessing-markets/goods-and-services/digital-trade/digital-trade-agreements_en

[1] E-commerce and trade  , available at : https://www.diplomacy.edu/topics/e-commerce-and-trade/ (last visited on March 10, 2025)

[2] Digital economy agreements are a new frontier for trade, available at : https://www.weforum.org/stories/2022/08/digital-economy-agreements-trade/ ( last visited on March 20,2025)

[3] Global Expansion: Four Types of Global Expansion Strategies, available at https://www.shopify.com/enterprise/blog/global-expansion ( last visited at March 24, 2025)