Here’s how we reboot digital trade for the 21st century

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum. Author: Vinay Mendonca, Managing Director; Global Head, Product and Structuring, Trade and Receivables Finance (GTRF), HSBC

---

When it comes to the headlines on global trade, the talk is all about geopolitics and tariff, but away from all that noise, technology is driving a seismic shift in what, where and how the world trades.

Disruption is nothing new. The container ship changed the rules of the game beginning in the 1950s. Rapid improvements in transport infrastructure over the second half of the twentieth century made the world a smaller place and removed longstanding barriers to trade.

But never before has the pace of change been so quick or dizzying. In the past, great innovations and technological advancements have been accompanied by rules and regulations to harness their use and govern their development, with varying degrees of success.

Policymakers now face a serious challenge in updating rules to manage the rapid expansion in digital trade. Talks have already started behind the scenes on a deal that will shape the future of digital trade, and perhaps trade itself, for years to come.

Seventy-six members of the World Trade Organization (WTO) – which collectively account for 90 per cent of global commerce – are discussing how to update the common rules governing digital trade, which has been the fastest growing type of trade. While their focus will be on e-commerce, they will also touch upon wider issues relating to data flow and data-enabled goods and services.

The breakneck pace of technological change has rendered many of the current rules obsolete. In some cases, entirely new ones are needed. Despite the cross-border consumer e-commerce market being projected to reach USD1 trillion next year, many rules governing digital trade date back to 1998; when only 1 in 32 people globally had access to the internet.

If the negotiators succeed, the benefits could be huge. Harnessed in the right way, traded services and cross-border data flows can drive growth in global trade and contribute significantly to global GDP. To help realise that potential, policymakers and negotiators would be wise to focus on three areas.

The first is balancing the benefits of cross-border data flow with concerns about data security and privacy. Insights from analysing mountains of data enable products to be improved and experiences to be personalised. But those same insights can also be used to keep information safer and more secure. Take the example of cloud computing services. Utilising the free flow of data, cloud computing enables businesses to perform activities at scale, in a manner which is cost-effective, agile and geared to ensuring security.[1]

To be inclusive and enduring, an agreement must earn consumers’ confidence through appropriate protections to respect personal data and avoid undue data localisation requirements, which risk a new form of e-protectionism. Getting the balance right will be difficult.

The second is standardising duties for digital products and services across national borders. This will ensure duties don’t inhibit the growth of digital trade. This provision is already included in recent high-profile trade agreements between EU and Japan and in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The WTO has regularly reapproved a temporary moratorium on applying customs duties to the transmission of data and digital products like software, music and movies. Making it permanent would provide welcome certainty.

Third, enable more e-commerce deliveries to pass through customs without charges. Raising duty-free thresholds would simplify processes and avoid shoppers’ frustration at paying unexpected fees before goods purchased abroad can be delivered. Negotiators may therefore follow the example of the USA, where the threshold was increased from $200 to $800 in 2015.

More broadly, there will also be a need for the countries involved to look at standards and frameworks for digital trade, including the legality of electronic contracts and the use of digital signatures.

Consumers and businesses alike should hope for a successful outcome to the negotiations. Consumers would benefit from cheaper goods and services, while lower costs would enable SMEs to export far more widely, supporting higher-wage jobs and economic growth. Easy and efficient e-commerce would also facilitate trade between emerging markets, promoting economic development and poverty reduction.[

We should be under no illusion that building consensus between countries will take time. But it is worth the effort. At a time of global trade tensions, international cooperation around digital trade can help give the global economy a shot in the arm, and show the world that it is possible to reach an agreement around difficult and complex issues. This is crucial in an era when data flows already account for a larger share of economic growth than trade in goods. And they’re only going to get bigger. We need these talks to succeed.