The Uncontrolled Digital Market
The world of international trade is no longer driven solely by containers in ports but by optical fibers crossing oceans. Recent data shows a tectonic shift in the global economy: global e-commerce revenue is projected to reach US$6.86 trillion by 2025, with 21% of total global retail transactions now occurring in the digital space (Sellers Commerce, 2025). This entire trillion-dollar ecosystem, from the expansively growing live commerce to 2.77 billion active consumers, depends on one lifeline: cross-border data flows. Ironically, behind this surge in numbers, the World Trade Organization (WTO), as the global trade referee, is paralyzed. The WTO’s failure to create binding rules to protect this data flow has left global governance in a state of anarchy.
The WTO’s failure to integrate e-commerce regulations is not merely a technical problem but a direct result of the clash of Data Sovereignty (Mercantilism) ideologies practiced by major powers such as China. This clash has created fragmentation in global regulations, which ultimately harms developing countries such as Indonesia, which are caught in the middle without adequate bargaining power.
The Digital Ideological War: Between Efficiency and Protection
The paralysis of the WTO is a reflection of the conflict between two main political economic schools of thought that negate each other:
On the one hand, the United States and Big Tech champion the banner of digital liberalism. Referring to the classical thinking of Adam Smith and David Ricardo on comparative advantage, this view believes that countries will reap maximum benefits if data flows freely for the sake of global efficiency (Estevez, 2022). However, this demand for freedom is often paradoxical, given that the US demands global data access while failing to provide adequate privacy protection within its own borders following the collapse of the Privacy Shield agreement with the European Union. On the other hand, China presents itself with a face of New Mercantilism. China views digital trade as a zero-sum game in which the state acts as the primary protector. China’s Data Sovereignty Doctrine, enforced through the Cybersecurity Law (2017) and the Personal Information Protection Law (PIPL 2021), requires data to be stored on local servers for national security and technological independence (In Country, 2024).
This market value is driven not only by the number of users but also by an increase in average spending per individual, as shown in Figure 1. This clash of digital ideologies gave rise to digital protectionism, a practice that quickly spread to other countries and stalled the diplomatic machine in Geneva.
Institutional Crisis and the Rise of Digital Protectionism
This clash directly paralyzed the WTO’s functions. Existing mechanisms, such as GATS Mode 1: Cross-border Supply, proved obsolete for regulating modern platforms (Lateef, 2025). This paralysis was exacerbated by the issue of the e-commerce moratorium, namely the exemption of customs duties on electronic transmissions, which continued to be extended. Developing countries, which suffer tariff revenue losses due to cheap digital imports, reject this extension, reflecting the classic North-South tension (Kugler, 2025). The WTO’s legal vacuum is quickly filled by unilateralism. Data localization practices led by China and India through the Digital Personal Data Protection Act (DPDPA) 2025 and the European Union’s data transfer restrictions (GDPR) serve as non-tariff barriers that violate the spirit of free trade. As a result, countries are shifting from WTO multilateralism toward regional trade agreements and sectoral agreements such as the Digital Economy Partnership Agreement (DEPA). This creates fragmentation in global digital rules, forcing countries to choose blocs rather than maintain a single international standard.
Structural Implications for Indonesia
For Indonesia, this fragmentation of global regulations creates acute policy dilemmas and structural risks. Indonesia is caught between the need for foreign investment (liberalism) and the obligation to protect data sovereignty and MSMEs (mercantilism/structuralism).
The Trap of Digital Structuralism
Indonesia risks being trapped as a digital periphery. US trade agreements often insist on free data flows, allowing tech giants to extract Indonesian data without equivalent reciprocity (Alchemist Group, 2025). Meanwhile, Indonesia’s 2022 PDP Law requires data transfers only to countries with equivalent protection standards. From a structuralist perspective, Indonesia becomes a provider of raw data, which strengthens the position of the Core (US/China). Although technologically in a peripheral position, Indonesia’s large demographic provides “market power” that should be capitalized on in the Digital Economy Framework Agreement (DEFA) negotiations.
The Costs of Fragmentation and Erosion of Bargaining Power
Without a single set of WTO rules, Indonesia is forced to negotiate data rules bilaterally, creating a “spaghetti bowl effect.” Compliance costs for Indonesian MSMEs are skyrocketing. Indonesia’s bargaining position has also weakened; as a rule-taker, Indonesia is forced to accept disadvantageous data clauses in order to gain market access.
Towards a Hybrid Strategy
The e-commerce regulatory crisis at the WTO confirms that data seems to have replaced oil as a strategic resource contested in high politics. China’s data sovereignty ambitions and global protectionist responses have crippled multilateralism. Faced with this reality, Indonesia can no longer remain passive and wait for WTO reforms. Indonesia needs to adopt a hybrid strategy: utilizing regional forums such as DEFA to unify regional data standards in order to increase collective bargaining power, while strengthening the implementation of the PDP Law domestically as a shield for sovereignty. Only in this way can Indonesia balance the benefits of global market efficiency with the protection of vital national interests amid the storm of digital trade wars.
