Trade in the Digital Age

This OECD Forum 2019 background note was used to prepare speakers on the panel 'Trade in the Digital Age', which took place at the OECD headquarters from 15:45-17:00 on Tuesday, 21 May. 
Trade in the Digital Age

From opposition to free trade agreements moving from the fringes to the centre stage of the political landscape, to “reshoring” becoming cost-effective thanks to technological advances and rising wages in emerging countries, global trade in goods and services faces significant headwinds. In such a climate, some have come to believe that the world economy may have entered a period of “de-globalisation”. Others, however, stress that far from having come to a halt, or even less reversed, globalisation continues to advance, albeit in new forms. 

To be sure, the growth in global trade of goods and services has stalled. Cross-border data flows, however, have followed a different beat, and risen in unprecedented ways. The McKinsey Global Institute reports that the movement of data is already surpassing traditional physical trade as the connective tissue in the global economy. Leading technology firms expect this trend to continue - if not to accelerate – in the foreseeable future. 

Yet, digital trade not only refers to the transaction of dematerialised goods, but also to digitally enabled but physically delivered goods and services. In the offline world, a Parisian customer would hail a taxi and pay for the ride in cash. In the digital world, however, the customer no longer needs to wait until he or she sees a taxi, nor carry cash in hand. Instead, a mobile application developed thousands of kilometres away provides a matching service and manages payment. 

Digital technologies and cross-border data flows have a profound effect on international trade by reducing costs, connecting a greater number of businesses and consumers globally, thereby allowing SMEs to be “born global’, and helping diffuse ideas and technologies across the globe. It has become trite to say that data has become the oil of our economies. A lesser-known fact is that this fuel also increasingly oils the wheels of globalisation. 

Data may have become the lifeblood of digital trade, but it does face impediments to its flow, too. Concerns about its ubiquitous exchange have given rise to new regulations that condition its movement across borders. Prompted by privacy or security rationales, “data localisation” laws have surged in recent years. With so much information being collected, transferred and used, often without the knowledge of data subjects, these market barriers stem from legitimate concerns, and may well be required. Other motives, however, such as desires to foster the emergence of national champions, play a role too. Whilst unrestrained flows of data may not be desirable, the emergence of “data islands” would equally prevent consumers and producers alike to reap the benefit of digital trade.    

Existing WTO rules and agreements cover digital trade, but there are questions about how well adapted current frameworks are to the digitalisation of international exchanges. Trade rules are traditionally predicated on identifying whether products are goods or services and the borders they cross. In the digital era, however, these distinctions may not always be clear-cut. Furthermore, market openness increasingly needs to be balanced against other objectives, such as the protection of personal data and intellectual property. Understanding the drivers of this new paradigm for trade will be key in getting the policy mix right and making digital trade more inclusive for all. 

Questions for the discussion: 

  • Market barriers to digital trade can stem from a number of rationales. Is it possible to draw a line between legitimate protection measures and unwarranted ones?
  • Is there a conflict between privacy and digital trade? If so, can it be resolved?
  • What would be the cost of a lack of global cooperation in digital trade? 
OECD Forum 2019: World in EMotion

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Go to the profile of Bashar H. Malkawi
about 4 years ago

The US-Mexico-Canada trade agreement (USMCA) FTA includes explicitly provisions concerning digital trade. The USMCA ensures that physical software and downloaded software are both treated the same. The entire purpose of the FTA is to lower barriers to trade in all sectors, including digital trade; therefore, the U.S., Mexico, and Canada were in the position with digital trade to never even establish a tariff that would later need to be lowered and eliminated.The FTA creates duty-free cyberspace. 

A closer examination of the USMCA on digital trade revealed that the parties invent some specific rules needed for digital trade. For most of the digital trade provisions in the USMCA, the approach of the parties was based on the simple premise that digital trade is trade, that it is only the form by which the commercial transaction is performed which may be new, and not its substance; thus the parties relied on existing treaties or domestic laws. Thus, the USMCA does not require many legal changes to domestic laws.

The digital trade provisions in the USMCA showed the need to push the debate over digital trade forward. Future trade agreements should expand existing trade rules or draw up new rules. There is a host of digital trade issues that need to be addressed in future trade agreements. Among them are including new technologies such as block chain, classification of the content of certain electronic transmissions, the issue of "likeness" of e-goods; development-related issues, including access to infrastructure and technology; fiscal and revenue implications of digital trade. Bashar H. Malkawi