Cross-border transactions of intangible goods/services and information are rapidly increasing, and raise new issues in terms of both domestic and international rules. This study defines digital trade and identifies issues of cross-border digital trade and its economic potentials. Especially we focus on three major issues of cross-border digital trade: cross-border data transfer, IPRs and taxation issues.
Chapter 2 defines digital trade and categorizes the relevant issues by examining international debates, economic theories, and empirical literature. Digital trade is commercial transactions conducted over internet by methods designed for receiving or placing of orders. Payment and delivery do not have to be conducted over internet. Subjects of digital trade consist of goods, services(digitally deliverable services), digital products that cannot be categorized neither goods nor services(e.g. music downloaded from internet) and diverse kind of information such as private information transferred over internet. Cross-border flows of digitized information generate novel issues.
In a broad sense, we classify issues of international digital trade as follow: ① issues related to cross-border data flows: barriers to international data flows, regulations on privacy protection, localization of computing facilities, etc., ② protection of digital IPRs, ③ taxation on internet services providers located in foreign territories, ④ consumer protection and convenience: payment system, dispute resolution, redress, privacy protection, etc., ⑤ border measures: tariffs, delivery costs, etc.
Korea recently witnesses its e-commerce market growing fast, and has potentials in internet platforms and digital content such as online games. Korean firms now spur development of new internet service businesses such as cloud computing, big data analysis, etc. The rapid growth of East Asian market, especially China, is an opportunity factor. In this sense, Korea need to actively participate in international fora to build global norms of cross-border digital trade. More importantly, Korea has to establish comprehensive, flexible policy making system and upgrade its domestic regulatory system consistently.
Chapter 3 covers issues on cross-border data flows and its implications. It is essential to balance between freer data flows and personal information protection. Countries has introduced different policy measures to regulate data flows across borders and data protection. Emergence of hyper-connected ICT industries such as cloud computing, IoT and big data lead to consider new approach to deal with cross-border data flows and data protection and thus to examine effectiveness of existing regulations and policy measures.
Korea’s policy measures regarding cross-border transfer of personal information should focus on secure use of data. In this context, comprehensive review and improvement of existing regulations, particularly those in contradiction to hyper-connected industries, is necessary. Also, with lessons learned from EU and Japan’s cases, Korea should introduce diverse measures besides prior consent system in order to guarantee freer and safer cross-border transfer of personal information. Korea also should actively take part in international and regional cooperation to harmonize regulatory approaches and enhance interoperatability. Accountability of data processors is a basic condition to secure free and safe flows of personal information.
Chapter 4 examines the trend of international discussions as well as major issues of digital IPRs, where debates arise along with the development of internet technology. In general, due to the characteristics of digital products as public goods, there is a high possibility of market failure, and it is difficult to protect rights with the existing IPR regulations. Main issues of digital IPRs can be divided into ① an issue on whether to strengthen protection of rights on digital products through patent protection, ② an issue on expansion of property rights to items that have not been protected so far like the sui generis database right, and ③ an issue related to reducing internet piracy.
It is necessary to establish multiple IPR protection system including software-related patents and trade secret protection rights(especially related to source codes) as well as copyrights. Also, sui generis database right should be designed not to contradict the protection of personal information. Additionally, Korea has to actively participate in multilateral patent-integration and cooperate to prevent internet piracy.
Chapter 5 draws core taxation issues of international digital trade, and examines them in the context of Korea. Major issues are permanent establishment rule(direct tax), effective VAT collection(indirect tax), and characterization of taxation scope. Korea’s regulation system is not clearly established regarding permanent establishment in cross-border digital trade and destination principle of VAT. Regarding characterization of taxation scope, international discussion begins lately.
Above all, it is necessary to revise tax regulations(VAT and Corporate tax) by reflecting new permanent establishment rule and destination principle. New permanent establishment rule in digital trade should be reflected in tax treaty with key countries like US, China, and Japan. Also, institutional framework like mini One-stop Shop of EU needs to be established for effective VAT collection on cross-border digital trade. In the case of characterization of taxation scope, policies should focus on revising tax regulation by reflecting characteristics of new business, and actively participating in international discussions.
In terms of international trade policy, TPP(Trans-Pacific Partnership)'s Electronic Commerce chapter suggests new rules on global digital trade. In general, Korea has conditions to occupy a strong position to major issues such as privacy protection, cross-border information transfer, location of computing facilities, and requirement of softwares' source codes. Nevertheless, it is necessary to improve domestic regulations and establish a strategy to build up core ICT industries' competitiveness.