Debating the Future of E-Commerce and Digital Trade in Buenos Aires

30 November 2017

There is growing interest among trade experts and delegations in Geneva and beyond over the potential for e-commerce and digital trade to support economic development, especially by providing an effective way for small companies in less developed countries to participate in global trade and penetrate global value chains.

However, these opportunities must be considered along with concerns that the “digital divide” between countries which are capitalising on these opportunities and those which are not could become a digital chasm if the frameworks governing them do not adequately ensure the equitable distribution of benefits and overcome barriers to inclusive growth.

Estimates published by eMarketer, a news and research site on digital trends, put global e-commerce website sales at above US$22 trillion last year, with projections that they will expand to US$27 trillion by 2020. Many experts argue that developing new rules in the WTO context is important not just to keep pace with an evolving global economy, but also to ensure that this field is inclusive – rather than evolving into a patchwork of preferential arrangements that involve select countries.

Digitisation and the Global Economy

Over the past two decades, the global economy has been transformed by digitisation and rapid technological change, boosting e-commerce, engaging new actors, and presenting novel possibilities. The frameworks of global trade can be harnessed towards shaping the nature and outcomes of digitisation, including towards realising sustainable development outcomes.

Effects of Digitisation on World Trade

The internet has helped new business models emerge and disrupted incumbent industries, forcing companies to adjust to remain competitive. Rapidly evolving telecommunications capacities have further fuelled this process, making e-commerce easy to engage in from any smart device and allowing companies to profit by providing new kinds of services. It has also facilitated a greater role for entrepreneurs and small and medium-sized enterprises (SMEs) in the international trading landscape, cutting production and trading costs and saving time.

However, it seems that developed and some developing countries often have more enabling environments for e-commerce, and thus reap the benefits more easily, while for many least developed countries (LDCs), this not yet the case given persistent institutional, regulatory, knowledge, and skills asymmetries, as well as limitations on physical infrastructure that affect connectivity. The development of future policies in this area could either resolve these problems, or conversely make disparities between and within countries worse, depending on how they are crafted.

Scope for Trade Frameworks to Regulate and Shape the Digital Economy

Advocates for pursuing more detailed e-commerce discussions – or undertaking negotiations on new rules – in the WTO framework say that the rapid pace of technological change will require a digital trade agenda attentive to the needs of SMEs, with conducive policies and mitigated regulatory friction through reduced transaction costs, lower administrative and logistical burdens, greater transparency, and regulatory coherence.

They also note that these measures will need to be coupled with the provision of reliable internet access, in line with SDG target 9.C; training and skills development; and infrastructural support. The digital economy can also enable access to education and skills building through e-learning platforms and online courses, in line with SDG target 4.A on upgrading education facilities that are “child, disability, and gender-sensitive” and provide safe learning environments for everyone. It can also contribute to global health and wellbeing (SDG 3), through access to online health care services, which can in turn support quality employment.

E-commerce can also facilitate greater participation by women, and can be harnessed to build companies in countries where they lack professional networks and resources, in line with SDG Target 5.B on the enhanced use of information and communications technology (ICT) to empower women.

History of E-Commerce in WTO Negotiations

There are some aspects of e-commerce that already fall within the scope of WTO rules, including telecommunications, services commitments, customs reforms, and intellectual property considerations. These are enshrined in and advanced through multilateral and plurilateral agreements.

The WTO’s General Agreement on Trade in Services (GATS), Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and Information Technology Agreement (ITA, later expanded to ITA-II) contain rules with a direct bearing on e-commerce. The plurilateral Trade in Services Agreement (TiSA), negotiations which are currently on hold, could also be of significance in this field if concluded.

The WTO E-Commerce Work Programme

Just before the turn of the century, ministers meeting in Geneva at the Second WTO Ministerial Conference called for establishing a work programme on e-commerce, adopted in September 1998 by the General Council. This would be carried out under four standing WTO bodies: the Council for Trade in Goods, the Council for Trade in Services, the TRIPS Council, and the Committee on Trade and Development. These bodies would then report back to the General Council on their progress.

The e-commerce work programme has been proactive in identifying the pertinent issues and mapping the agenda, but analysts say that its implementation has been slow, partly due to a protracted lack of consensus on key areas, including whether to clarify existing rules or pursue a separate agreement altogether. For years, detailed discussions on e-commerce were completely absent from some meetings of these WTO bodies.

Other questions that have emerged include whether digital trade activities should be subject to the General Agreement on Tariffs and Trade (GATT) or GATS rules; whether electronically delivered products should be treated as goods, services, or both; and the question of how to address the moratorium on customs duties for electronic transmissions, among others. That moratorium has so far been renewed every two years, often preceded by debate over whether to make it permanent and tied to an agreement not to pursue TRIPS non-violation and situation complaints.

At the Tenth WTO Ministerial Conference held in Nairobi in 2015, ministers agreed to hold periodic reviews on the work programme and report to the Eleventh Ministerial Conference (MC11) on the result. Outside the process of the designated formal bodies, the Friends of E-commerce for Development (FED) group is working to further the global trade policy agenda for e-commerce through informal meetings at the WTO. That group includes Argentina, Chile, Colombia, Costa Rica, Kenya, Mexico, Nigeria, Pakistan, Sri Lanka, and Uruguay.

Advances in free trade agreements

Parallel to this, there has been progress in free trade agreements in developing new disciplines on digital trade. At least 70 regional trade agreements (RTAs) currently exist which include an e-commerce chapter or one or more articles dedicated to e-commerce, but which vary extensively in scope and depth, according to a recent paper by Mark Wu. This number includes RTAs under negotiation. More than half of the WTO’s members have signed at least one RTA with a standalone e-commerce provision, including several developing countries.

For example, the US-Korea Free Trade Agreement, known as KORUS, administers considerable e-commerce coverage, including banning customs fees on trade in digital products; disallowing discrimination in favour of domestic digital products over “like” imported digital products; encouraging the use of digital signatures; and promoting cooperation among national consumer protection authorities on prevention of e-commerce deceptive practices through its rules.

Similarly, the proposed Trans-Pacific Partnership (TPP) expands on KORUS to include commitments on the free flow of data across borders subject to exceptions; disciplines on data localisation requirements; a ban on requirements to transfer technology as a condition of conducting business; restrictions on imposing customs duties on internet traffic; and provisions for enforcing encryption. Since talks were re-opened following US withdrawal from the pact, a dozen provisions relating to intellectual property and telecommunications have since been suspended, though only a handful were related to digital clauses. The vast bulk of suspended intellectual property provisions related to biologics, pharmaceutical test data, and patents.

Escalation in WTO activity

The level of WTO members’ engagement and activity regarding the future of the e-commerce work programme is changing fast, with dozens of submissions tabled since July 2016 – a notable shift given the various preceding years where limited activity was seen in this area. Heading into the ministerial, positions remain polarised. Members have not agreed whether to continue with the status quo in the current work programme, expand the scope of discussions, explore the basis for negotiations, or commit to opening talks straight away. Furthermore, negotiators have yet to agree on whether to extend or revisit the moratorium on duties on electronic transmissions.

Critically, there remain persistent disagreements on how and whether to address the so-called “new issues” that go beyond the agenda of the Doha Round, an issue that dominated ministerial-level talks in Nairobi two years ago. Alongside this debate, certain WTO members have also cited the absence of a mandate for negotiations on e-commerce and the need to first address the open questions of the work programme before looking to further action.

Certain recent draft ministerial decisions have diverged from the previous mandate, demonstrating a range of views regarding whether to proceed under the existing work programme or to set up new structures and objectives for discussion, which could potentially lead to discussing new rules or ideas.

The draft ministerial decision tabled by Russia in October proposes the establishment of a Working Group on Electronic Commerce as a forum for the continuation of e-commerce work beyond the WTO bodies currently charged with the work programme. The body would consider developing country participation, trade facilitation, intellectual property rights, and existing WTO rules and gaps, among other items. Similarly, a submission from Japan, Hong Kong, and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu suggested a working group to evaluate whether clarification or strengthening of existing WTO rules would be necessary, after which members can consider whether to launch negotiations.

China suggested in November that efforts should continue under the work programme with the existing mandate, using member proposals  to develop and agree to a work plan, with special consideration for least connected countries. A November communication from Bangladesh also suggested the continuation of efforts under the existing work programme, and urged developed and developing countries, with the  necessary capacity, to provide duty-free and quota-free (DFQF) market  access to LDC exports delivered through e-commerce platforms.

Costa Rica honed in on six areas of proposed work for a potential WTO E-commerce for Development Agenda in its own submission, namely ICT infrastructure and services; trade logistics; payment solutions; legal and regulatory frameworks; e-commerce skills development and technical assistance; and access to finance. The document draws an explicit link between e-commerce discussions and development  objectives, with a view to obtaining a ministerial mandate. A communication from Australia, Canada, Chile, the EU, Norway, Paraguay, and South Korea, went further, proposing the establishment of a working party to prepare for and carry out negotiations based on member proposals.

A statement on behalf of the African Group said that the creation of new multilateral rules on e-commerce would be premature, where the work programme has not yet been sufficiently explored, urging for discussions to continue in this venue. The group has since tabled a draft ministerial decision on the subject. Meanwhile, Singapore has issued a draft ministerial decision which would continue discussions under the current work programme, along with calling for periodic reviews by the General Council of the work of the relevant WTO bodies, among other provisions.

Looking to MC11 and beyond

In negotiating terms, as noted above, advocates of discussing e-commerce rules in the WTO framework warn that failure to address this issue here could deepen asymmetries in setting the rules, and miss out on the possibilities for e-commerce to help countries and regions meet the challenges of unemployment, poverty, and limited cross-border trade.

Between setting inclusion opportunities across borders and the potential to contribute to sustainable development agendas, proponents for addressing e-commerce in more depth within the WTO context say that failure to discuss these ideas – especially given that RTA rules, while advancing, are still limited – also risks further entrenching economic inequalities and widening the digital divide.

Heading into Buenos Aires, it remains unclear how ministers will treat e-commerce at the multilateral level, given the wide range of opinions on the subject. However, the plethora of proposals that have emerged in recent months are in themselves a sign of far greater interest and engagement on the subject than what the WTO has seen in several years – suggesting that whatever emerges from the discussions in Argentina could be telling for whether members continue turning to the global trade club as a valuable forum for exchanging ideas, even if at the informal or plurilateral level, or if they will instead pursue these discussions in RTAs or other settings.

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