Discussion Highlights
2-3 October, 2017, Kuala Lumpur
Official Malaysian Opening Ceremony
Opening remarks focused on the transformation underway in the “4th industrial revolution”, the manner in which technology is helping solve increasingly more sophisticated problems and Big Data assisting in increasingly complex decision making. The digital economy lies at the heart of discussion between industry representatives and policy makers in the Malaysian national plan. It was noted that Malaysia had recently launched its digital trade free trade zone (DFTZ) initiative and e-fulfilment hub designed to help speed up imports and exports for e-traders and accessibility to key central locations in the region. The DFTZ is a collaboration with Alibaba anticipated to handle more than USD65b worth of goods by 2025.
APEC GOS PPD Opening
The Australian High Commissioner to Malaysia noted the importance on the APEC agenda of cooperation on services. The PPD provided a valuable opportunity for business views to inform policy makers among all APEC economies on the potential of digital technologies. Businesses use digital technology to varying degrees – use websites to sell, use social media, use digital sensors in the supply chain collecting data on customer interaction, use AI to determine what services to promote, create new businesses that make the most of digital platforms and analytics.
Services are being transformed by the pace of development of digitalization – it is hard to think of services that are not in some way disrupted by technology: digital banking, healthcare, and retail increasingly relying on technology and integration. Public and private sectors are looking for ways to maximize benefits of this shift. For policymaking, it is challenging to set the right regulatory framework to maximize the potential of businesses to harness this new technology in the domestic economy as well as regionally and globally. The ASCR provides a blueprint for APEC economies to boost services trade as a driver for regional and global growth. As part of the Roadmap, APEC economies are committed to collaborate to support development in internet-based technology, encouraging best practices.
Highlights from Day 1
Panel 1: Digital Transformation of the Economy
This panel brought out the importance of APEC economies acting as fast as possible to implement the ASCR given the immense and rapid transformation to digitization underway in every economy.
What started as “servicification” (increasing intensity of services inputs as value-added in all sectors of the economy) has now intensified in what is commonly called the “4th Industrial Revolution” (mobile internet, internet-of-things {IoT}, autonomous vehicle, 3D printing, energy storage, AI). Essentially this is a continuation of the process of greater services intensity and digital enablement becoming evident across many economies. What is “new” perhaps is the increased velocity of technological change, the scope of change and the impact including on trade. What has long been evident in the services sector is clearly now a whole economy issue. Everyone – whichever sector they are employed in – is now aware of the changes taking place with the transformation to digitization, the business opportunities opening up for services SMEs and MSMEs, the regulatory reform challenges arising in the services sectors and questions on the “future of work” as the structural shifts intensify. The AI revolution in the next 10 years will be even wider in scope, faster and stronger than previous industrial revolutions. 50% of current work will be replaced. From a business perspective, this makes demonstrable progress with implementation of the ASCR all the more urgent.
But understanding of the changes taking place is in many ways a prerequisite for full implementation. The ASCR is designed to trigger the various identified drivers of services competitiveness in order to boost and sustain regional services industry growth. During the preparation of the Roadmap Implementation Plan in 2016, the members of the Asia Pacific Services Coalition spent alot of time inputting their views on what drives services competitiveness – this is seen as important because these underlying drivers help determine the appropriate policy paths.
Discussion in this panel repeatedly highlighted a number of key ingredients to services competitiveness including talent, innovation, digital infrastructure, openness at the border, connectivity, regulatory efficiency and organized business advocacy. But the overwhelming message from the business community at this PPD in 2017 was that the fundamental driver of services business competitiveness today is speed of access to data: internet speed is critical; access to cross-border data flows is critical.
All firms are now using “knowledge-intensive business services” inputs. Increasingly these services inputs, for both goods and services firms, are transforming to “data” inputs. A unit of “data” – digitized into a digital unit – is ultimately a service – digitally packaged services knowledge – the key ingredient in all digitally-enabled services business.
Meanwhile governments are not keeping up with the digital reality that business currently faces. Appropriate governance structures for E-Commerce are largely not in place. Restrictiveness in trade in services remains pervasive – many of the restrictions are behind the border at regulatory level – greater flexibility is required to allow firms to adjust more quickly to new technological circumstances. The ASCR Implementation Plan is of paramount importance to business.
Participants in the PPD were exposed to a wide range of practical international business success stories. There was a big focus on digital enablement delivering huge commercial opportunities for SMEs as the worldwide web lowers the barriers to market entry. What economies need, for business to reap these benefits, is high speed broadband. Like building highways to move goods around, economies need to construct high speed broadband to connect SMEs with this global opportunity.
The OECD contribution focused on the need for structural reform as the key to longer term sustainable growth. The ASCR has all the ingredients to make a significant structural contribution. It recognizes the centrality of services across all economies. It recognizes the potential of ICT as an enabler of services. It acknowledges that services are key to manufacturing competitiveness. Its implementation could contribute importantly to boosting growth in services, a sector which has potential in every APEC economy.
The OECD sees enormous potential for national administrations to take a strategic look across all the different services regulations with an eye to reducing barriers and improving efficiency. Targeted strategic reform can improve competitiveness across the national economy. The OECD has recently done some work of this nature with Australia to look at how targeted and strategic national level reforms to overall services regulations can improve competitiveness across the national economy. This work could form a useful basis for capacity building programs on implementation of the ASCR.
There was active engagement in the discussion from all quarters. Policy messages tended to coalesce around;
- creating a good environment in terms of the ease of doing business
- enhancing mobility of mutual recognition of services providers’ qualifications
- improving digital infrastructure
- ensuring pro-competitive regulation of telecommunication services
- providing appropriate frameworks for businesses to transfer data
- anchoring work on services in overall structural reform
- responding effectively to anti-globalization sentiments
- identifying quick wins with the ASCR for example in the following areas
Regulatory Cooperation; need for APEC to make progress in getting regulators together, exchanging best practices in services regulation – the region is heading into too much fragmentation and not enough connectivity.
Trade Facilitation; need for APEC members to be more aggressive in redefining approaches to facilitate things cross border – policy and regulatory mindsets are increasingly out of date from a business point of view.
Interoperability of Standards; the region needs to converge around international standards.
Cross Border Data flows; the ASCR provides a mechanism for taking action now, to prevent fragmentation of data and privacy regimes across different jurisdictions which will increase the cost of doing business.
Digital Infrastructure; it is essential to have open markets for investment in telecommunications and good pro-competitive regulatory environment
Individual Action Plans; These are just as important as the 14 collective action plans. Businesses are all looking for action in our own national economy to boost the competitiveness of the services sector.
AI and The Future of Work; It is essential to have a strong focus on producing talent to meet the challenges of the future. The key is education; life-long learning and appropriate new ways of teaching. Despite automation, or even because of automation, there is an increasing role for people to communicate and provide insights on what to do with the data. Two thirds of new jobs will be in the communications field, others in other soft-skill intensive areas. There will not be a shortage of data to mine or machines to do things, but they do not necessarily connect to the end user. There needs to be more research in this area.
Panel 2: Changing Landscape for E-Commerce
Panelists in this session all made a serious effort to depart from the now traditional conversations about bundled services that support E Commerce for goods and to focus more explicitly on E Commerce for services themselves including the role of that increasingly important service, the computer aided design (CAD) file.
A key message is that more opportunities are needed, as APEC economies seek to implement the ASCR, to engage with business to shift the policy conversation specifically to embrace international E-Commerce in services (E-Services).
Another key message is that trade in goods is going to continue to decline as a percentage of global trade. The goods aspects of value chains will decrease in length and the services aspects of value chains will increase. Over the next two decades, many of the “goods” we know today will effectively transform towards services (CAD files) and take physical format only at the final point of consumption. 3 D printing or additive manufacturing lies at the heart of this transition, expected to replace more than 50% of the manufacturing processes.
The business evidence is that the B2C market for 3D printing is growing; 3D printing hubs allow any consumer wanting to print a CAD file to readily locate a 3D printing service. The B2B market for 3D printing remains more of a challenge because professional 3D printing is complicated and businesses are still a reluctant to change. Outsourcing of services is the current trend. Not everyone is thinking of investing in-house in purchasing a 3D printer. Survey results nevertheless predict significant early changes in household production – 36% of consumers will increase in household production while business in-house production will increase by 70%.
Disruptive technologies are ultimately embraced because of the enhancements they offer for competitiveness and efficiency. A project not utilizing 3D printing, might take a year to get one single product to the market, but with 3D printing this can be achieved within a month. The key is for businesses as well as consumers to accept plastic goods in place of traditional goods previously made of metal. (The additives used in 3D printing consist of three types of material: plastic, powder based material and liquid based material. Advanced materials need to be improved a lot for many applications; there is still a long way to go.)
Discussion also covered many other traded digital services perceived as having growth potential, for example financial technology (fintech), E-Commerce marketplace services, cyber security services, data centers and cloud computing services.
Another takeaway is the extent to which the regional business community is focused on access to cross-border data flows. Data in the past was not seen as an asset, now data has a lot of value as the critical input into every industry.
It was noted that Chile will host APEC in 2019 and expects to pursue digital trade as a key priority. E-Commerce blurs the line between goods and services. Books delivered over the Internet – are they goods or services? This matters because treatment under the multilateral trade rules differ for goods and services. How do we treat data flows, data protection, IP, taxation, secured payment systems – there are many challenges related to these issues.
Attention was drawn to the fact that of the 14 Collective Actions set out in the ASCR, many are relevant to E-Commerce specifically Action number 9. APEC needs to promote regulatory approaches that provide legitimate consumer and security protection and enable the cross-border flow of data in an increasingly digitalized world. APEC needs to work towards prohibition on the localization of data, prohibition of duties on transmission and non-discrimination between digital products and services.
There was some discussion on the APEC Roadmap on the Internet Economy which covers digital infrastructure, interoperability, regulatory approaches, data flows and which APEC forum might become be chiefly responsible for these digital economy issues. The regional services business community attaches high priority to this work.
This discussion of E-Commerce demonstrated how blurred the distinction between goods and services is becoming, which raised questions as to whether new international governance is needed with respect both to rule-making and regulatory cooperation? Is future rule-making going to be separately about E-Commerce in goods and E-Commerce in services? Or can we think horizontally across both?
It was suggested that establishing standards on the quality of services was more difficult than for goods and yet essential in order to help SMEs to export. Businesses in ASEAN are already thinking about creating the market in ASEAN as one “envelope” because they need to optimize the global value chain. But regulatory settings are not aligned. From a business perspective, this is a pre-condition for advancing trade in services cross border.
Discussion focused on how to overcome the inertia of regulations that do not accommodate the reality of today’s world that is the e-commerce world. Businesses move fast, consumers move fast – how do we get the regulatory environment in each of economy to move faster?
In response to a series of questions, the GOS Chair noted there is much for APEC to learn from the discussions which took place in the plurilateral Trade in Services Agreement (TiSA) negotiations. Government tends to be slower than the private sector so the private sector should continue to push to move forward, providing a sense of urgency. She noted that development of APEC principles on domestic regulation was indeed a priority – at the last GOS workshop, there had been discussion about topics to help develop a common understanding and agreement to work on possible recommendations.
A business panelist responded that governments should be more proactive in anticipating new business formats, but agreed that in most cases, government normally follows what happens on the ground. Business changes first and then government regulation follows. The key question is how to mitigate the risk of misalignment between government and businesses. Consultation and PPD is critically important; indeed it is core business for services industry coalitions. There are tools to assess the impact on business – regulatory impact assessment should be a streamlined process for every change in regulation.
A key message is that the regional services business community attaches priority to APEC work towards principles on domestic regulation.
Panel 3: Growing Importance of E-Services
Rather unusually for a policy-oriented forum, the APEC officials present were largely silent during this particular panel session, which was in fact the most policy oriented of them all. On the other hand, the session saw a high degree of enthusiastic engagement and sharing of perspectives among the business participants.
Indeed there was a clear shared agenda among the business speakers. All of them identified the policy and regulatory issues in a very similar way e.g. localization, source code, encryption, consumer protection and data protection. The business community is aware of an evident struggle going on with respect to how to handle policy-making in these areas– and sees a clear need for APEC to intensify its efforts, APEC being particularly well placed to bring together the various stakeholders.
It needs to be better understood that the power of digitally-enabled services is not just an issue for internet, social media and communication companies, but is equally relevant for farmers, manufacturers, and governments. Internet platforms and digitally-enabled services connect to allow better growth for all companies both large and small. A McKinsey study shows SMEs utilizing the internet for business functions grow at twice the rate of those which are not. According to eBay, exports by SMEs accessing those platforms exceed those in the traditional economy by fivefold. These companies have higher wages and employ more people.
Meanwhile, despite the new business environment, policy-makers seem to be drifting into squeezing things into existing regulatory frameworks. There is a need to work together better to create sensible rules around this new thing called the internet. Everyone needs it be a trustworthy place that could actually be a framework for the explosion of social and economic growth. Any new law should recognize the different nature of digital trade. To arrive at this balance business wants to see strong engagement among regulators at the APEC level. Some of the current challenges are already leading to protectionist outcomes and other regulatory responses that are likely to prove overly dangerous and counterproductive in the long run. The tendency to require localization of data centers, rules that force technology transfer, requirements to introduce digital custom taxes to try to benefit local economies from imports of digital services and products. There is also an increasing tendency by some regulators to look at encryption issues and deal with terrorism and security issues in ways which undermine the security and the trustworthiness of digital products. All these issues need to be put on the APEC table. Getting the right balance in the regulatory structure is critical.
The speaker from Huawei Technologies referred to a Huawei white paper on the emerging opportunities and risks from new trade rules on digital economy. He referred to the promise of the plurilateral approach to new rule setting and to recent advances with digital provisions in FTAs; on free flow of data, data localization and protection of source code. Given pushback from Geneva on the discussion on the work program on e-commerce, he said it was important to recognize the potential of the plurilateral approach among like-minded countries. He noted that government has a role to play in deciding what is a legitimate public policy objective, which counts as an exception at the WTO. There are many carve outs. National security is vital but cannot be used to justify every policy.
One clear takeaway is we live in a world where the Internet is global but we are running the risk of fragmentation which would be detrimental to the future growth of the digital economy.
Another key takeaway is that E-Commerce has strong benefits in terms of inclusivity for SMEs and gender equality for women-owned enterprises. E-Commerce lowers the international market entry threshold for firms; 82% of companies that started trading thanks to the Internet are micro and small. Looking at the gender perspective, companies that do offline trade are still dominated by men-owned companies, whereas for those who do only online trade, the share of women-owned companies doubles.
The Indonesian Services Dialogue collaborated with the ITC to conduct a survey to assess the competitiveness of women SMEs in the services sector. Traditional advertising tends only to be accessible to those who are privileged. Online advertising provides an equal level playing field – small companies are equally as competitive as medium and large. As a result of this finding, Facebook offered to partner with ITC to deliver capacity building and improve the digital skills of women entrepreneurs in Indonesia. Large companies do not necessarily have to be perceived as a threat, they can also provide opportunities for SMEs.
To bring more people into the digital economy and benefit from it, it is essential to ensure the systems are trust-worthy. Economies are adopting different definitions regarding personal data such as medical and financial records and what is an appropriate level of privacy. Regulatory dialogue can be useful on this front. It is a particular challenge to get regulators to get together when domestic regulations are already in place and there is a high degree of regulatory inertia. On the digital front, the rules are not yet in place, so it is a good time to start discussing.
Business interlocutors were strongly of the view that APEC should work hard and fast to establish principles on E Commerce in services to achieve greater regional consistency in relation to the cross-border flow of data, localization rules, encryption and freedom to make electronic payments. The principles should allow for legitimate policy exceptions for health data and financial records.
IBM introduced its concept of “new collar jobs”, not blue or white. The era of new collar jobs is emerging, which may not necessarily require a traditional university degree. As part of a recruitment process, companies will start to look at expertise and qualifications from alot of short courses – this is going to change the whole employment environment. Digital disruption is coming also in the education sector.
The Moderator drew the session to a close noting that all digital units of data are in effect “knowledge-capturing” services as defined under the international System of National Accounts. Ultimately it is E-Commerce in services (E-Services) which will dominate the E-Commerce policy agenda. This explains why it is the services business community that finds itself soonest and most forcefully engaged at the cutting edge of the digital economy discussion – because its these businesses that are out there doing it.
It was therefore recommended that ongoing APEC work on the digital agenda should be recognised as central to implementation of the ASCR.
Picking up on a comment from Huawei that global trade rule-making remains stalled, it was noted that there are many non-trade issues involved on the digital agenda, for example authentication. APEC is well placed to tackle cooperatively a wider variety of these issues and hence to contribute something hugely important for the entire global economy as it transitions to digitization.
Highlights from Day 2
Session 1: Internet Marketing
Moderated by the President of the Coalition of Services Industries (US), discussion focused on how internet platforms and social media (Google, Facebook, Twitter, Whatsapp, Line, WeChat, Instagram etc) help SMEs reach the international market.
The SME panelist focussed on the need for capacity building for services SMEs to establish and maintain an effective online corporate presence. In an online market place, where content is “king”, SMEs struggle to keep up; the key is to access the younger generation, all fully on top of this in their daily lives. Government organisations including APEC need to put higher priority on their online presence and reach. The Santiago Chamber of Commerce drew out the implications for education and training and for cybersecurity management.
Policy issues were prominent in the discussion. One issue raised was a possible consumer need for government regulation with respect to online content and/or standard setting for e commerce players. The second related to government blocking in some APEC economies of particular online platforms, sites or services which results in marked fragmentation of the regional online market. No single social media platform can reach consumers in all APEC economies; SMEs doing regional business need at least two social media channels. Any company doing business outside China needs to employ a channel other than WeChat, which is otherwise essential for all companies dealing inside the Chinese market.
Attention was drawn to the possibility that what is technologically possible may not necessarily be the same, from a regulatory perspective, as what is in the public interest. New technologies enable the development for example of integrated platforms combining instant messaging, e commerce and payments services. But regulators need to be involved at each step of the digital value chain to discipline horizontal and vertical integrations of different services provisions for public policy reasons – such as universal access, public goods, anti-monopoly policy, consumer choice etc. Everywhere in the APEC region, regulators are not keeping up with technological progress and business needs to encourage them towards greater sharing of best practices. It is not only what is technologically possible but also what is in the public interest that will affect what kinds of platforms are going to prevail.
Active participants in the discussion included IBM, Australian Services Roundtable, the APEC GOS Chair, Indonesian Services Dialogue, Philippines Services Coalition and PBEC.
Session 2: Cross Border Digital Trade
Discussion focused especially on E Commerce for goods, both the advantages and the challenges compared with traditional goods trade in the APEC region.
One SME panelist providing bonded warehousing and rapid local delivery services in China described significant advantages for SMEs associated with cross-border E Commerce such as absence of need to maintain any commercial presence in the destination market and lower costs of “testing” a market with smaller samples. He explained that in some markets, use of bonded warehousing facilities offered more efficient customs clearance processes, lower import taxes, less onerous standards testing and certification processes and even less onerous intellectual property protection requirements.
Another SME panelist providing an online marketplace for courier services described the practical logistical pitfalls of E Commerce for SMEs; onerous registration processes for courier services, dealing with illegibility of handwritten shipment labels, difficulties communicating in multiple languages with local couriers, organising shipping, insurance, point to point delivery tracking and parcel return. Automated online systems eliminate or simplify all these processes and delivered considerable cost savings for SMEs.
One panelist bemoaned the absence of sufficient regulatory transparency and predictability in many APEC economy markets. Online sellers need the latest information on requirements to sell into other APEC markets and the information is largely unavailable. This information needs to be available online in user-friendly format. Can we get a place to get such information updated and disseminate to our sellers online? Difficulties accessing regulatory information is a major constraint on SME participation in cross-border E Commerce.
Discussion ranged from practical business experiences with shipping terminals, Free Trade Zones and the likely impact of implementation of the Trade Facilitation Agreement – to SME human resource needs and the implications of AI for the future of online work.
It also covered policy questions on how to foster the growth of digitally-enabled start-ups, on the need or otherwise for government intervention to prevent predatory pricing and other anti-competitive behaviour by big players and the need for government support for business mentoring and accelerator programs.
Some participants noted the need for more discussion about cross-border E Commerce for digital products and services, which can be sold/downloaded millions of times unlike goods. The services aspects are still relatively new and each economy has its own regulatory framework; business needs to be outspoken with respect to the need for greater liberalization and regulatory reform. E Commerce for services (e-services) was seen as a topic which needed much more exploration in any future PPD.
Active participants in the discussion included the Singapore Business Federation, Indonesian Services Dialogue, Malaysian Services Providers Confederation, IBM and ITC.
Session 3: Digital Smart Technology
Moderated by the Chair of the APEC Ad Hoc Group on the Internet Economy, the session explored 2 case studies of international business efficiencies gained via new technologies.
One panelist demonstrated digital applications in financial services (automated payments and accounts recievable tracing, promise-to-pay follow-up and accounting for SMEs).
Other panelists demonstrated, including by use of video, the benefits of disruptive applications of smart technology in surveying and architectural design services. Five new technologies were discussed: high definition geolocation; 5D building information modelling (BIM); virtual reality and digital collaboration; IoT and advanced analytics;future proofing.
High definition geolocation reduces the discrepancy between real ground condition and surveyor estimation and reduces costly last minute changes for project scope and design. Devices for electronic distance measurement such as GPS and LIDA (a 3D imaging technique that uses optical laser and radar to produce above and below ground imaging) are becoming more powerful and cheaper. The surveying process is transformed as geographical information is collected and uploaded to the cloud, retrieved by architects to create offsite realistic modelling and provide immediate feedback to the surveyor.
5 D Modelling (BIM) improves the visualization process by converting 2D drawings to 5D models to help manage and control workflow both in the design and the construction phase. BIP is a representation of a physical project, adding a 4th dimension to simulate project scheduling and a 5th dimension to determine costing for each specification of a project e.g. choice of colour or material.
The addition of augmented virtual reality technology generates further solutions by facilitating remote design collaboration among architects. Digitisation allows real time information sharing online, reducing risks of paper-based miscommunication and errors in blueprints. Digital solutions are not only improving design management, but also enabling online contracting and bidding, document management, project scheduling and performance tracking in real time, including remote procurement and quality control of materials.
The application of IoT allows all construction objects to be connected in sustainable and affordable ways to create a seamless environment to collect and exchange data on equipment, people, tools and materials. IoT allows contractors to keep track of equipment, issue maintenance alerts, track inventory and re-order, undertake quality tests on-site, detect defects early, predict accidents, ensure safety and track the whereabouts and wellbeing of staff in any sort of emergency or construction site evacuation.
Future proofing has also been transformed with the use of computer aided design (CAD), enabling estimates for example of a buildings future energy consumption and improving the sustainability of built environment outcomes.
Discussion centred on the policy and regulatory implications of these digital smart technologies. The regional market is currently fragmented, with different degrees of regulatory intervention in place; business interlocutors considered that regulations would likely adapt naturally and increasingly the submission of 3D models would likely become mandatory.
Active participants in the discussion included the Philippine Services Coalition and members of the Malaysian Services Providers Confederation.
Session 4: Learning from Successful Start-Ups
Moderated by the Papua New Guinea Business Council, this panel demonstrated the efficiency gains being realised by SME start-ups from the application of the new technologies presented in the previous session. Two interesting business cases were presented by start-ups in 3D printing and surveying services (robotics). The overwhelming business message was that 2D industry is shrinking and very rapidly.
Discussion focussed on the nature of successful start-ups, their business models and their exit strategies. It also covered the regulatory environment and business perspectives on the need for government support, grants for start-ups etc.
Active participants in the discussion included the Australian Services Roundtable, the Philippine Services Coalition and the Lima Chamber of Commerce.
Official Close
The two-day event was closed by MSPC Chair, Ts Choo Kok Beng. He noted that the event proved to be a major learning exercise for all participants, consistent with the objectives of both the Asia Pacific Services Coalition and the APEC governments involved. The discussion had been especially lively and interactive right throughout the two days, with both business facilitators and participants asking alot of questions. He stressed the importance of continuing via public private dialogue to drive the change of mind-set needed for the digital technology. The MSPC offered to perhaps repeat the event, maybe on an annual basis and possibly as soon as 2018, with participation from the other APSC members.
Powerpoint presentations are available
PSU Presentation on the APEC Services Competitiveness Roadmap
Powerpoint Presentations for Day 2