Trade in digital services is booming. Here’s how we can unleash its full potential

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(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Sherry Stephenson, Senior Fellow; Member, Services Network, Pacific Economic Cooperation Council (PECC) & Jimena Sotelo, Project Lead, Digital Trade, World Economic Forum


  • Cross-border trade in digital services such as videoconferencing, entertainment and professional services has grown hugely in recent years, and is expanding faster than trade in goods.
  • As people stay home to stop the spread of COVID-19, cross-border digital services are keeping our economies running and keeping us connected.
  • A number of barriers have held back the potential of this fast-growing form of trade. Putting in place the right regulations and broadening digital access can help boost sectors from education to healthcare, and create the jobs of the future.

Since the start of the COVID-19 pandemic, digital services such as online education, virtual meeting rooms and online marketplaces have kept our economies running and helped us stay connected. Almost all of these services are underpinned by cross-border digital trade. Even if you meet colleagues from your own town in a video conference, consult a local doctor online, or follow a virtual class by a teacher in your neighbourhood, the companies providing the networks and platforms for these interactions are probably at least partly in another country.

The global exchange of digital services is easy to overlook given its intangibility, but it’s been one of the fastest-growing areas of trade in recent years. Trade in telecom and IT services, which underpin digital trade in services, has been growing particularly strongly. In 2018, telecommunications, computer and information services was the fastest-growing services sector in terms of global exports, increasing by 15%, according to the World Trade Organization.

Information and communications technology-enabled services in world trade, 2008-2018
Growth of share of information and communications technology-enabled services in world trade, 2008-2018
Image: WTO, World Trade Statistical Review 2019

 

Digital trade in services has not only become a lifeline during this outbreak, but also has the power to transform our world for the better in the long run. It could help us build a more resilient global economy, and create countless opportunities for people around the world in areas as diverse as healthcare and professional services. The telemedicine market alone is estimated to exceed $175 billion by 2026. Some telemedicine providers have been experiencing three-digit percentage increases in consultations as result of the COVID-19 outbreak. However, a number of obstacles are still preventing us from unleashing the full potential of digital trade.

The first problem is the lack of universal access to digital infrastructure. Many people who could hugely benefit from online education, jobs and healthcare lack the basic digital resources to tap these opportunities. Many businesses whose services could thrive in a global market, supported by convenient services such as online payments and online orders, also lack such access.

Even in places with a strong digital infrastructure, trade barriers limit the sector’s potential growth. In 2019, the level of services trade restrictions was 30% higher than the year before, according to the OECD. These barriers especially affected service sectors that underpin digital trade, including telecommunications, computer services and audio-visual services. They include limiting foreign providers’ access to infrastructure and connectivity, hindering electronic transactions and international payments, and other restrictive measures.

Policy changes affecting trade in digitally-enabled services (2014-2018)
Policy changes affecting trade in digitally-enabled services (2014-2018)
Image: OECD

A closer look at three areas of digital trade in services at the core of the response during the pandemic – telework, remote education and healthcare – shows what needs to be done to allow this sector to flourish.

Telework

Working from home typically requires a wealth of services provided by global companies, such as video conferences and other collaboration platforms, as well as the networks themselves. Workers may, for example, use a virtual private network (VPN) access that crosses two or more jurisdictions, for privacy and security reasons, even when accessing local systems to work domestically. Access to these underlying services can be vital for keeping entire industries running. However, regulatory restrictions are preventing some people from using them. For instance, in some countries, the use of voice over Internet Protocol (VoIP) services such as Zoom, Google Meet, Teams or Skype is banned. Some countries, such as Oman, have recently relaxed restrictions on VoIP services both to facilitate the flow of information during the COVID-19 pandemic, and make it easier for people to work from home.

International telework in itself represents another huge opportunity for growth and cooperation. “Telemigration” allows people to work remotely in a different country thanks to technology, without the need to physically move across borders. This can create job opportunities even when local labour markets are weak, and alleviate the impact of economic slowdowns by allowing workers to create a portfolio of remote jobs. Many telemigrants are freelancers working in the global gig economy, an $82 billion industry based on completing individual tasks for different clients. These freelancers tend to offer services that don’t require licenses or accreditations, such as writing, editing, graphic design, virtual assistance and so on.

In areas like medicine and law, opportunities for cross-border telework could be created through the mutual recognition of licenses. As a way to ensure the quality of these services, some countries also require providers to sign up to insurance schemes so that consumers can be compensated in case of an unsatisfactory service provision.

A lack of formal education can make it difficult to access the opportunities offered by telework. A survey by the U.S. Bureau of Labor Statistics showed that before the COVID-19 outbreak, only 12% of high school graduates over the age of 25 worked remotely, compared to 37% workers with a bachelor´s degree, and 42% workers with an advanced degree. To give more people the chance to work remotely, we need to boost access to education. Digital services have an important part to play in this.

What is the World Economic Forum doing about digital trade?

What is the World Economic Forum doing about digital trade?

The Fourth Industrial Revolution – driven by rapid technological change and digitalization – has already had a profound impact on global trade, economic growth and social progress. Cross-border e-commerce has generated trillions of dollars in economic activity continues to accelerate and the ability of data to move across borders underpins new business models, boosting global GDP by 10% in the last decade alone.

The application of emerging technologies in trade looks to increase efficiency and inclusivity in global trade by enabling more small and medium enterprises (SMEs) to repeat its benefits and by closing the economic gap between developed and developing countries.

However, digital trade barriers including outdated regulations and fragmented governance of emerging technologies could potentially hamper these gains. We are leading the charge to apply 4IR technologies to make international trade more inclusive and efficient, ranging from enabling e-commerce and digital payments to designing norms and trade policies around emerging technologies (‘TradeTech’).

Remote education

Right now, the whole world is undergoing a giant experiment in remote education. More than 1.57billion students in 191 countries have been affected by school and university closures due to the coronavirus pandemic. Online education, powered by cross-border digital services such as virtual classrooms and homework portals, has allowed learning to continue in many countries. Businesses have also stepped in to help. Coursera, for example, is offering affected universities all over the world access to more than 3,800 courses and 400 specializations, giving them the option of developing private content to complement their programs. EdX has taken a similar initiative.

This shows the enormous potential of digital education not just as a short-term fix, but as a long-term solution to skills shortages. Delivering high-quality training and education across borders, by digital means, could lift the quality of the global workforce. Some particularly fast-growing areas of work, such as data analysis, artificial intelligence and engineering, but also sales, content and product development, lend themselves to digital training. Agreements to facilitate the international recognition of credits and foreign university degrees could help unlock the potential for formal higher education.

World Economic Forum Jobs of Tomorrow
World Economic Forum Jobs of Tomorrow
Image: World Economic Forum, LinkedIn Data

To make these educational opportunities available to all, we must urgently bridge the digital divide. 830 million students do not have access to a computer, while more than 40% do not have Internet access. One alternative is to deliver education by radio, television or mobile phones – even by SMS, as has been trialled in Africa and Central America.

Telemedicine

Telemedicine – that’s to say, meeting a doctor, nurse or other health professional remotely, or accessing some other form of digital healthcare – can help solve a number of pressing global problems.

The World Health Organization (WHO) and governments all over the world are encouraging telemedicine to contain the spread of COVID-19, and save protective equipment. The cross-border delivery of certain healthcare services to COVID-19 patients could help alleviate shortages across countries. Estimates from 2017 showed that even before the crisis, only half the countries in the world had enough health workers to cover their needs. The largest shortfalls were in sub-Saharan Africa, south and southeast Asia, and some countries in Oceania. The World Health Organization predicts a global health worker shortage of 12.9 million by 2035.

Medical services are generally strictly regulated, however the COVID-19 pandemic has led some countries to relax regulatory barriers domestically. For instance, France and the United States have lifted restrictions on reimbursement so that patients can consult any doctor online, regardless whether they previously met them face-to-face.

Some countries have also shown temporary flexibility on the licensing of health practitioners. For instance, 47 states in the U.S. have recognized out-of-state medical licenses for in-person or tele-medicine during the emergency under the Uniform Emergency Volunteer Health Practitioner Act. Such pragmatism and flexibility could boost the provision of global healthcare in the long run and should be explored internationally as well. Though much more coordination is needed, as even though some governments have recruited foreign doctors and nurses to help with the crisis, they were then held back by travel restrictions and a lack of coordination with immigration authorities. When possible, delivering their services digitally could help bridge that gap.

Digital hope

Capabilities to provide digital access to services vary greatly among the more than 200 countries affected by COVID-19. There are profound differences in infrastructure development, effective regulation, and the availability and robustness of business services providers in areas as diverse as IT, finance, insurance and logistics. Encouraging trade in digitized services could help even out this imbalance, connecting providers and customers around the world. It could alleviate the disruptions that consumers and small businesses are facing during the pandemic, especially those with fewer local options. It could also open up new markets for local businesses and create new export opportunities for firms in developing countries.

During this crisis, digitized services have sustained our jobs and social lives. Suddenly, this invisible form of trade turned out to be the lifeblood of so many sectors and countless private interactions. This is a wake-up call for governments and multilateral institutions to acknowledge the relevance of digital services trade. If we want it to thrive and grow beyond this crisis, and help us underpin a more resilient global economy, we must enable and encourage its flow in a secure and inclusive manner.

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