Understanding Digital Trade

Understanding Digital Trade

Digital trade is a broad concept that can be a means to mitigate the economic slowdown. But barriers need to be mitigated first

Of late, there have been a flurry of international activities focussed on Digital Trade. Several agreements and Memorandums of Understanding (MoUs) around digital trade and economy are being drafted between nations – especially in the Asia-Pacific region. Sample these:• During the first week of December this year, Singapore and the UK concluded negotiations on a digital economy agreement that focuses on digital trade, data flows, and cybersecurity. Both nations seek to establish interoperable systems for digital payments, secured data flows, digital identities, and data security. • On December 15, Singapore and South Korea agreed on the Korea-Singapore Digital Partnership Agreement (KSDPA). Setting down rules and standards for digital trade and partnership between the two countries, it is Singapore’s first digital economy agreement with an Asian country.• Earlier, Singapore had entered into digital economy agreement’s with Chile, New Zealand and Australia DEA.• On December 15 again, the International Chamber of Commerce (ICC) launched an advisory board comprising intergovernmental, policy and industry actors in the global trade and trade finance industry. Formed under ICC’s Digital Standards Initiative (DSI) governance board, it aims to accelerate progress on the worldwide legal reform needed to enable digital trade.• Meanwhile, a recently published study by the New Zealand Institute of Economic Research estimatedthat improved digital trade between New Zealand and its Asia-Pacific Economic Corporation trading partners could bring in around $18 billion in the comingdecade.

It really looks like everyone is suddenly interested in digital trade!

What is Digital Trade anyway?

Digital trade refers to commerce enabled by electronic means – by telecommunications and/or ICT services – and covers trade in both goods and services. Underpinning digital trade is the movement of data – not only a means of production, but also as an asset that can itself be traded.

We still do not have any single universally accepted definition, but it is generally agreed that digital trade encompasses digitally enabled transactions of trade in goods and services that can either be digitally or physically delivered, and that involve consumers, firms, and governments. As defined by Lopez-Gonzalez and Jouanjean: Digital trade involves digitally enabled or digitally ordered cross-border transactions in goods and services which can be digitally or physically delivered.  

Digital trade is a broad concept, capturing not just the sale of consumer products on the Internet and the supply of online services, but also data flows that enable global value chains, services that enable smart manufacturing, and myriad other platforms and applications.  

Some areas of nearly every business are digitally enabled, and every industry leverages digital technology to compete internationally. It is understood that decliningcosts of sharing information, induced by digital trade, willreduce barriers to international trade leading to:• More traditional trade across all sectors at lowered costs• More digitally enabled transaction of packages across borders • More digitally delivered trade and services delivered through new technology/platforms• More cross-border data flows that will escalate new issues on: privacy, national security, intellectual property protection, cybersecurity, industrial policy.

How does it impact the world?

The COVID-19 pandemic has accelerated the shift towards a digital economy and underscored the need for governments to enable digital trade as a means to mitigate the economic slowdown. Let us cast a quick glance on the immediate implications:• Digitalization will increase the scale, scope and speed of trade.• Digitalization will also change the way goods are traded. • Emerging technologies will alter the way services are produced and supplied, blurring already grey distinctions between goods and services and modes of delivery, and introducing new combinations of goods and services. • Information and communication technology services will form the backbone of trade, catalysing rapid digitization of most related services. • Radical shift in technology will pose unforeseenchallenges for international trade and investment policy – concrete solutions will emerge only with time.• In a digitized world of, old trade issues may have new consequences and new issues for trade policy willemerge, giving rise to new issues in regulatory concepts.• Data reveals that a 10% increase in ‘bilateral digital connectivity’ raises goods trade by nearly 2% and trade in services by over 3%. • Digitalization will also lead to countries drawing greater benefits from regional trade agreements. 

Barriers to Digital Trade

There are several barriers to digital trade as yet, and these are even growing in some areas. The prime cause of these barriers are outdated rules, revived protectionism, or lacunae to international collaboration. New data localization policies and other similar hurdles are emerging for international digital service supply. The disruptive effects on business and an effective taxing mode for international digital activities remains to be sorted out yet

The Office of the U.S. Trade Representative (USTR) has categorised digital trade barriers as follows:− Data Localization Barriers: Including unnecessary requirements to store data within a particular jurisdiction or locate computing facilities locally, as well as outright bans on cross-border data flows.− Technology Barriers: Including requirements to meet onerous and unnecessary security standards and requirements to disclose encryption algorithms or other proprietary source code.− Barriers to Internet Services: Including inappropriate application of old regulatory regimes to new business models and unreasonable burdens on Internet platforms for non-IP-related liability for user-generated content and activity.− Other Barriers: Including issues surrounding electronic authentication and signatures, internet domain names, digital products, electronic payment platforms, and other discriminatory practices.

Role of the WTO

So where does the World Trade Organization come into the picture when we discuss digital trade? The answer is not very convincing. Although a Model Law on Electronic Commerce was formulated by the United Nations Commission on International Trade Law (UNCITRAL) way back in 1996, progress has been tardy to say the least. We must remember that the World Trade Organization (WTO) had been formed in 1995 and that Model Law was conceived within a year. And yet, the WTO still does not have a functioning e-commerce regime in 2021. Theorganization has failed to keep up with the evolution of the trading regime or with the adaptation of commercial frameworks to the digital environment 

However, the WTO is trying to gain momentum on this count only very recently. In 2019 it launched multilateral negotiations members to arrive at an e-commerce trade facilitation agreement. It started with 76 member countries which now stands at 86, with Australia, Japan and Singapore being the co-convenors. The initiative could lower trading costs and enhance predictability, interoperability and trust for digital and digitally enabled trade.

Most of the WTO steps regarding digital trade is decidedly safe territory. Still, letting WTO a governing handle woulddefinitely enhance the legitimacy and geographical coverage of e-commerce protocols. And it would promotethe authority of the WTO itself as being relevant to the changing times.

Specific issues addressed in the WTO e-commerce negotiations include: electronic signatures, authentication, paperless trading, consumer protection (including protection of personally identifiable information), open government data, unsolicited commercial messages (spam), cross-border data flows and localization of computing facilities, among others.

The real problem is that various WTO members have varied – and often conflicting – interests when it comes to policy matters. These differences will play out, more so because the WTO still perceives digital trade to be anumbrella concept, and consensus is the only way the organization can operate. That is a legacy issue, because the WTO was born to cater to an analogue world, and hence anything radical is not expected.

It remains to be seen whether the WTO can remain relevant and resilient enough to proactively adapt to the regulatory challenges of the new era. Else, without international guidance, digital trade might just turn into yet another rogue innovation.

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