After lengthy negotiations, 15 nations, including Japan, China and South Korea, in November 2020 agreed on the Regional Comprehensive Economic Partnership (RCEP), which is effectively a mega-free trade agreement (FTA) that covers most of Asia.

Naoko Munakata, adviser to Dai-Ichi Life Research Institute Inc. who was closely involved in negotiations for Japan’s first FTA, with Singapore, as well as the Trans-Pacific Partnership (TPP) free trade arrangement, talked about the benefits and limitations of the RCEP.

Munakata, a former commissioner of the Japan Patent Office, also addressed concerns on how to push forward talks to create rules governing the digital economy. She said Japan could play a key role in spreading digital rules around the world that protect democracy.

Excerpts of the interview follow:

Question: Fifteen nations, including Japan, China, South Korea, the ASEAN members, Australia and New Zealand, signed the RCEP. The agreement was reached after eight years of negotiations and came 20 years after discussions first emerged about economic integration agreements in East Asia. What is the significance of the RCEP?

Munakata: Having a diverse group of nations, which combine about 30 percent of the world’s gross domestic product, trade and population and are at varying stages of economic development, reach an agreement on trade liberalization and common rules is a positive development amid a weakening trend in multilateral cooperation.

For Japan, the RCEP has brought about its first FTA with China and South Korea. It also combines the existing FTAs in Japan's neighborhood, making cumulation for the purposes of the agreement's rules of origin available for production throughout the region. This will help reduce transaction costs for the extensive supply chains developed across this region.

Question: Among the RCEP nations, China accounts for 60 percent of the population and economic scale and is the leading trading partner of 12 nations, with the only exceptions being Laos and Brunei. The only combination of nations among RCEP members that had not signed an FTA were Japan and China, as well as Japan and South Korea. What does this signify?

Munakata: ASEAN has held the ideal of being united and taking the initiative in building regional order to protect regional stability without being pushed around by major powers. An agreement that included Japan, China, and South Korea, which had made little progress in FTA negotiations among themselves, was an achievement for ASEAN to demonstrate its centrality.

Question: The Japanese government had insisted that India join the RCEP to prevent China from dominating the rules making, but in the end, India decided not to take part. That gives the impression that ASEAN got what it wanted since it sought an agreement even if India was not a part of it. What do you think?

Munakata: India is Asia’s largest democracy. It has developed a digital platform to authenticate its residents who can decide themselves whether to get enrolled. India is an indispensable country for a regional cooperation framework that includes a wide part of Asia and therefore missed in the RCEP. Its participation may have been hindered by its persistent trade deficit and border conflicts with China.

Question: Of the three principles related to digital commerce agreed to in the TPP, the RCEP did not include a ban on requests for disclosure of source codes, which are important information related to computer programming. Information technology companies from advanced nations were in a bind because they were pressured by the Chinese government to disclose such codes.

On the other hand, the RCEP did secure free cross-border transfer of data related to economic activity as well as a ban on government requests for computer-related equipment to be installed within their borders. What is your assessment of such rules?

Munakata: Because there are no global rules governing the digital economy, there are countries, including China, that have moved toward digital protectionism that allows them to control the data within their borders. While there is no denying the RCEP rules are insufficient, there is also an argument that it is not desirable to have no rules at all that bind such nations.

Once the RCEP takes effect, a committee will be set up for monitoring on how the rules are implemented as well as for a review of the agreement. I think it is a positive development that a mechanism has been created that brings member countries to the discussion table. We should pay close attention to  future developments.

Question: Regarding digital rules, there are differences in approach to  the handling of data between the United States and Europe. Since it is such a new field, is the creation of the rules still a work in progress?

Munakata: One aim of digital rules is to prevent digital protectionism, whereby a nation hoards data arising from within its borders, and to enable innovative cross-border services utilizing such data.

Another aim is to protect personal privacy, which lies at the foundation of democracy and political freedom.

How to strike the balance between the two goals has long been the point at issue between the United States and Europe. The focus, as was made evident by last summer’s ruling by the European Court of Justice, ultimately comes down to the extent that a foreign nation’s law enforcement agency is allowed access to personal information.

In the meantime, newly developing nations have also made major strides in digitalization and a new situation has emerged. Nations free from checks and balances under the separation of powers, are collecting data on their citizens efficiently, accelerating improvements in the accuracy of artificial intelligence and realizing a digital surveillance.

Some nations have also begun providing such systems to other nations as a means of controlling their population.

If such a surveillance state model becomes the standard in the digital age, democracy itself will be threatened. That must not happen. If this strong sense of crisis and sense of mission is shared, it will serve as the driving force to push the United States and Europe to overcome their differences.

Japan has developed rules based on the three principles of free flow of data, a ban on data localization, and a ban on forced disclosure of source codes, with the TPP as a starting point and it has expanded the range of countries that agree to such rules.

Negotiations on digital rules are currently  taking place at the World Trade Organization. Japan should take advantage of the network it has developed so far. It should work together with like-minded countries and regions, such as the United States and Europe with which it shares basic values, to bring about data utilization rules that will enhance the well-being of people in the digital age, and eventually spread those rules around the world.

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Naoko Munakata entered the then Ministry of International Trade and Industry in 1984 after graduating from the Faculty of Law at the University of Tokyo. She served as director-general of the Multilateral Trade System Department and the Trade and Economic Cooperation Bureau. She also served as an executive secretary to then Prime Minister Shinzo Abe before becoming commissioner of the Japan Patent Office. She has an MBA from Harvard University.