What trade rules are needed to support growth in the digital age?

6 July 2017

With no major regulatory leap forward in the shape of a multilateral or plurilateral digital trade agreement likely in the short term, interim knowledge and capacity-building steps by the G20 could be taken to boost the enabling environment for online goods and services trade, and keep alive conversation on the importance of a global economic architecture supportive of digitally enabled growth. 

 

The global economy has been transformed over the past two decades by rapid technological change and digitisation. Through the rise and spread of the Internet, new business models have emerged, company functions altered, and incumbent industries disrupted. Digital platforms allow more players, both consumers and business, to trade goods and services at scale and reap the benefits of globalization directly. Cross-border data flows are also at the core of technological change fusing physical, digital and biological spheres described by the World Economic Forum as the Fourth Industrial Revolution. In general terms, McKinsey estimates that data flows enabled economic activity that boosted GDP by US$2.8 trillion in 2014 alone.

A complex imperative

Policymakers have an imperative to respond and to shape a global economic architecture supportive of today’s growth and innovation drivers. The pace, scale and nature of the digital transformation pose challenges for all regulators – with the trade community no exception. There is a coordination challenge as digital policy issues cut across sectors, ministerial portfolios and jurisdictional boundaries. Further, questions around trust, privacy and security loom large in debates on the governance of cross-border data flows, conflating national security, commercial and civil liberty priorities.

To make matters more complex, common definitions of “digital trade” are notoriously elusive, with various forums deploying different mandates. Beyond definitions, identifying what trade rules might apply to digital trade both now and in the future is also no straightforward task. For example, 3D printing could be a digitally delivered service – so governed by WTO Members commitments under the General Agreement in Trade in Services (GATS) – or, with physical product properties, could be subject to General Agreement on Trade in Tariffs (GATT) rules.

With all this in mind policymakers must additionally decide when and how to strategically intervene on digital trade. While some aspects of digital trade already fall within the scope of WTO rules – such as on telecommunications, customs reform and services commitments – others may not be covered or sit in a grey area.

Advocating serious trade policy reform may also appear foolhardy amid a trade and investment landscape that has seen a wave of anti-globalization sweep through many advanced economies. Further, while the past twelve months have seen a renaissance in e-commerce discussion at the World Trade Organization, a cloud of uncertainty hangs over potential outcomes for the Eleventh WTO Ministerial Conference (MC11) in Buenos Aires, Argentina in December.

Mastering uncertainty

With no major regulatory leap forward in the shape of a multilateral or plurilateral digital trade agreement likely in the short term, interim knowledge and capacity-building steps by the G20 could be taken to boost the enabling environment for online goods and services trade, and keep alive conversation on the importance of a global economic architecture supportive of digitally enabled growth. 

There is a general need for a much deeper cross-community dialogue around best practices for governing data flows.[1] Efforts should be made to unpack the motives behind data flow barriers and elaborate norms for exceptions to cross-border information flows such as those related to personal data and privacy protection, national security and so on. Work in this area by the World Economic Forum on operational impact of data flow barriers and subsequent multistakeholder discussion on appropriate principles, policy and practice would benefit from G20 member economy engagement. The group could eventually advance greater policy coherence on digital data management.

On e-commerce, G20 members could provide space for regulatory dialogue between themselves and non-G20 member economies on interoperable e-commerce related policies, supported by analysis from international organizations on current legal inadequacies. There is a need for deeper knowledge-sharing between the trade policy community and other international policy forums, such as UNCITRAL, on where trade tools can contribute to lower barriers to e-commerce and related activities. While several FTAs already refer to existing international principles and model laws, a global consensus on how these contribute to the e-commerce enabling environment, or indeed what classifies as best practice and why, remains absent.

Dialogues involving governments, civil society and the private sector across multilateral, regional or the G20 setting could help advance this consensus, while initiatives such as the RTA Exchange could help to identify common approaches on select e-commerce facilitation elements – such as paperless trading, electronic transaction laws, e-signatures and e-authentication and electronic payments. According to the WTO, about 20% of notified RTAs have e-commerce chapters, and have been concluded by a range of countries, 18 involving developing economies. In the medium-term, G20 members could consider developing a set of principles that target e-commerce facilitation as a way of boosting the recent WTO Trade Facilitation Agreement (TFA)’s implementation.[2] Care should be taken that such principles do not inadvertently set a lower bar on commitments or principles than those found in existing WTO Agreements.[3] In time, these principles could inform future regional or multilateral commitments.

As a priority the G20 should advance a digital agenda that addresses the needs of small and medium sized enterprises (SMEs) that are the beating heart of the global economy. These formally account for up to 60 percent of total global employment and create around 4 out of 5 positions in developing countries. Ensuring small businesses have the opportunity to grow through digital trade will require cutting transaction costs associated with excessive customs paperwork – already targeted by the TFA – regulatory divergence, administrative burdens and lack of transparency. As recommended by the B20 Cross-Thematic Group on SMEs, G20 members should adapt their e-commerce-related policies, such as on digital authentication, online payments and consumer protection to international standards and best practices.

Capacity is key  

A crucial systemic element to advancing digital trade will be capacity building for least developed countries and emerging economies to build up affordable internet access and other elements of e-commerce readiness – including e-transaction laws, credit card penetration, postal reliability, skills and relevant content. Failure to do so would risk further entrenching economic inequalities. As recommended by the B20, G20 economies should develop an action plan to support the seven policy areas of the UNCTAD-led eTrade for All initiative – which covers areas such as ICT infrastructure, trade logistics, skills and so on – as well as channelling Aid for Trade funding towards similar objectives. Policymakers and development agencies should consider e-commerce readiness – or the lack thereof – as a barrier to today’s growth opportunities.

 

This post is derived from an article published in Sticking to the Job: Key Trade Policy Condierations for the G20 Hamburg Summit and Beyond.

Kimberley Botwright is  Policy Analyst, Digital Trade, International Trade and Investment, World Economic Forum
Cristian Rodriguez Chiffelle is Lead, International Trade and Investment, World Economic Forum 

[1] Mitchell, Andrew D. & Jarrod Hepburn. Don’t Fence Me In: Reforming Trade and Investment Law to Better Facilitate Cross-Border Data Transfer. 19 Yale Journal of Law and technology 182 (2017).

[2] The TFA already addresses some important elements of digitising customs that can facilitate trade. For example, it compels members to accept, where appropriate, paper or electronic copies of supporting documents required for import, export or transit formalities. Advancing understanding of what specifically would be TFA-plus in terms of e-commerce facilitation, or customs improvements 2.0, could be one useful contribution by the G20.

[3] Building for Success – A World Trade Agenda for the Buenos Aires Ministerial. Report by ECIPE. Commissioned by the ICC World Trade Agenda. March 2017. http://bit.ly/2qI46SA