Effects on International Trade Relations due to the Emerging Concept of Digital Trade

By Shreya Maheshwari

Online platforms mean more small packages crossing borders, while new technologies are changing how services are produced and delivered. Underpinning digital trade is the movement of data: data is a means of production, an asset that can itself be traded, and the means through which some services are traded and GVCs are organized. While there is no single definition of digital trade, there is a growing consensus that it encompasses digitally enabled transactions in trade in goods and services which can be either digitally or physically delivered involving consumers, firms, and governments. Unpacking trade transactions along these lines using a tentative typology can help in understanding and identifying issues. For example, measuring digital trade poses challenges ranging from identifying transactions that are digitally enabled to the sectoral classification of services in a transaction, and efforts are underway to better reflect digital trade in trade statistics.[1] For trade policy, the increased bundling of goods and services raises issues about which trade rules (GATT or GATS) apply; trade facilitation is ever more critical for just-in-time delivery and GVCs; and the role of data flows in enabling digital trade may require further attention, along with how to ensure that the gains from digital trade are inclusive, within and across countries.

Introduction

 The rapid growth of digital technologies in recent years has created new opportunities for consumers and businesses but also new challenges in international trade. For example, consumers today access e-commerce, social media, telemedicine, and other offerings not imagined thirty years ago. Businesses use advanced technology to reach new markets, track global supply chains, analyze big data, and create new products and services. New technologies facilitate economic activity but also create new trade policy questions and concerns. Data and data flow to form a pillar of innovation and economic growth.

The digital transformation has facilitated old modes of trade and business models and enabled the creation of entirely new ones. Digital disruption is being felt across all modes: digital versions of products or services compete with physically embodied versions and digital distribution/facilitation business models compete with traditional distribution business models.

Background

As trade shifts into the digital realm, trade norms, rules, and procedures have to be reconciled with those developed for internet governance. [2]While the underlying principles on which the internet was developed are well aligned with the key WTO principles of non-discrimination and treatment, frictions are emerging in part due to the divergence in interests and policies of the major digital economies. The shape of the future framework for the governance of digital commerce is an open issue and controversies have emerged when RTAs have intervened in digital regulation. Trade governance in the digital realm will likely be more a rules taker than a rules maker in the digital realm.

What is Digital trade?

Digitalization is reducing the cost of engaging in international trade, connecting businesses and consumers globally, helping diffuse ideas and technologies, and facilitating the coordination of global value chains. While there is no single recognized and accepted definition of digital trade, there is a growing consensus that it 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. That is, while all forms of digital trade are enabled by digital technologies, not all digital trade is digitally delivered. For instance, digital trade also involves digitally enabled but physically delivered trade in goods and services such as the purchase of a book through an online marketplace, or booking a stay in an apartment through a matching application.

Issue and barriers

 Digital trade is becoming an important issue, with a growing technical and policy literature within international institutions. The digital trade agenda, however, has received limited research attention from those exploring the politics of international trade. Digital products can be sold online and the Internet provides opportunities for businesses to use the Internet to manage global supply chains communicate with customers and access IT in the cloud. At the same time, governments are restricting the Internet in ways that reduce the ability of businesses and entrepreneurs to use the Internet as a place for international commerce and limit the access of consumers to goods and services. 

[3]Since digital and digitally-enabled trade has emerged, for the most part, in the highest open post-WTO era and through new enabling technologies for which trade restrictions have not yet had a chance to evolve, there is less of a need to liberalize such trade. Rather, there is a need to prevent the adaptation to the digital realm of trade protections prevalent in the pre-existing physical modes of trade—viz the WTO moratorium on the application of tariffs to electronic transmissions.

In the world of digitalization, old trade issues may have new consequences – such as the impacts of cumbersome border procedures on parcel trade, or restrictions on newly tradable services – and new issues for trade policy are emerging, such as differing regulations among nations about data flows. Further understanding of the nature and extent of these changes is needed to help policymakers create an environment that nurtures innovation and promotes digital trade in goods and services.

Challenges and Classification

The rise of digital trade is challenging existing trade rules at different levels. The cornerstone of the international trading regime is the classification of goods and services and the adoption of rules that govern the different classifications. [4]The distinction between goods and services reflects the historical evolution of the trading regime rather than a clear definition of what constitutes a good and what constitutes a service. This issue of distinction can be seen in the case of goods that were previously traded physically but are increasingly traded digitally. This applies to goods such as software, books, and magazines, film, TV, and music. Some states have maintained that as goods become electronically delivered they should be reclassified as services and subject to the GATS agreement others objected to that argument maintaining that those physical products maintain “goods-like” characteristics even when they are transmitted digitally.

Technological development

Rapid technological developments also facilitate the rise of service in international cross border trade. Information and communication technology services form the backbone of digital trade, providing the necessary network infrastructure and underpinning the digitization of other types of services. [5]New technologies have also facilitated the rise of digitally enabled services that are supported by a range of new services building on data-driven innovative solutions such as cloud computing.

[6]Digital trade exists and in some cases growing, whether due to outdated rules, new forms of protectionism, or as domestic policymakers seek to address novel governance questions without international collaboration. E-commerce entrepreneurs must navigate challenges from last-mile delivery logistics to secure cross-border payments. [7]New data localization policies are emerging and other hurdles are emerging for international digital service supply. The promise of trade technologies to increase efficiency and inclusiveness is being challenged. Disruptive effects on business and the workforce will need to be navigated, while questions on taxing global digital activities are ongoing.

Modes

 The digital transformation has facilitated old modes of trade and business models and enabled the creation of entirely new ones.[8] World Trade Organization (WTO) rules are technologically neutral and thus apply fully to the new trade modes. However, new trade frictions arise as the new modes are dependent on access to the internet and cross-border flow of data. In part, these new frictions reflect new regulatory concerns in areas that range from privacy to ensuring tax neutrality across different modes of trade, to conditions of competition. In part, they arise from the divergence in interests and policies of the major digital economies. The economics of the digital economy also promotes skewing of distributional gains, with skilled workers and connected individuals moving ahead, while others fall behind. This is consistent with the emergence of a digital divide between and within countries.

Conclusion

We need more holistic approaches, spanning goods, services, and digital connectivity; approaches that involve more stakeholders, including governments, civil society, and the business community; and approaches that are informed by the interests of a range of countries at different levels of development.

FAQs

  1. What is the relationship between trade and the environment?
  2. What are the disadvantages of international trade?
  3. What is the effect of trade on consumption?
  4. How does the WTO protect the environment?
  5. Why is free trade bad for the environment?

References


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