TradeTech has huge potential to boost trade – here’s what policy-makers should know

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

Author: Mikael Lind, Senior Research Adviser, Research Institutes of Sweden & Wolfgang Lehmacher, Operating Partner, Industrial Innovation Partners, Anchor Group

• TradeTech aims to ensure the efficient global exchange of goods.
• Policy-makers should consider global coordination and equal access to TradeTech when legislating on these technologies.
• TradeTech development and related policy-making needs to be pursued in close collaboration between multiple stakeholders to foster innovation and mitigate risks.

TradeTech – in short, technology that facilitates trade – can be understood in two layers: a first level of transforming internal systems and processes from analogue to digital; a second level in which trade process optimization and synchronization between different parties is possible thanks to new technologies and greater connectivity. For it to achieve its full potential to produce innovative solutions that grow economic, societal and environmental value, it needs to be globally coordinated to unleash efficiency gains and mitigate risks like job displacement and environmental harm.

It’s also paramount that policy-makers ensure everyone has equal access to it. While TradeTech adoption remains a challenge for large enterprises, most micro and small- and medium-sized enterprises risk being excluded as they lack access. Another key consideration is whether and how to regulate it, given that technology development typically evolves faster than the law. The impact of new solutions needs to be understood before policy-makers can decide whether there is need for regulation – and if so how to come up with a coordinated approach across countries as to avoid market silos.

Continuous monitoring of TradeTech developments and regular consultations of national and global experts are a necessity to make the appropriate policy decisions on all these fronts. Here is a framework to help make this possible:

1. Understanding the diversity and complexity of the landscape

Technologies emerge and develop quickly, and policy decisions need to evolve in tandem with the solutions. One example of such TradeTech is the recently introduced e-bill of lading (eBL), the electronic version of the typically paper-based inventory of a ship’s cargo. To be of value for global trade, the technology needs to be based on global cooperation and harmonization of national policies. Another example for a technology-driven solution that facilitates international trade are online trading platforms that have opened new sales and sourcing channels for small and medium-sized enterprises (SMEs), including global e-commerce sales in particular, during the COVID-19 pandemic. Online platforms are a key avenue towards SMEs becoming a digital enterprise.

Innovations that are in their infancy require room to grow to gradually unveil what value they can bring to society. Mature solutions, though, might require regulations to avoid unintended consequences and ensure inclusiveness. Keeping policies in line with technological evolution requires a dynamic approach. In the newly released joint publication on The Promise of TradeTech: Policy Approaches to Harness Trade Digitalization from the World Economic Forum and World Trade Organization, several examples of existing and emerging regulations on national and international levels are pinpointed, underscoring the need for coherence across nations. At the same time, the lenses that policy-makers apply differ from jurisdiction to jurisdiction due to differences in local beliefs, values and socio-economic structures. The complex context calls for a structured, coordinated and inclusive approach to policy-making.

2. Applying a framework to structure the policy approach

The TradeTech Policymaking Quadrant has been conceived in two dimensions with the above-mentioned considerations in mind: horizontally around the stage of development, namely whether the solution is in its infancy or has reached maturity; and vertically around its area of impact, i.e. whether the innovation is of national or international concern.

This four-field model is aimed at clarifying the appropriate policy response, for example when regulations are formulated for preparing new solutions for global reach and impact (A2). Or a solution that is approaching maturity may move into scope B1, indicating the possible need for national policies for adoption and the controlled use to protect the interests of the nation.

3. Developing policies based on actual use cases

The framework can be populated with examples of different solutions or use cases. One example is data-sharing platforms. Recent supply chain disruptions confirm the call for increased visibility and situational awareness across supply and demand networks by digitally connecting information-sharing communities. Data-sharing platforms are generally conceived as a mature technology bringing a local set of actors together (B1) or integrating local communities into the global context (B2).

Today, and rightly so, a lot of attention is directed towards the broader adoption of e-documents substituting physical paper through digital means backed by, for example, blockchain technology. Examples of e-document applications are the above mentioned e-bill of lading (eBL) and e-certificates associated with resources, like digital certificates for seafarers’ capabilities, and infrastructure, such as documents for conditions of ships. Global legal acceptance of e-documents would significantly accelerate their adoption, reducing costs, delays and red tape worldwide (B2). Experts estimate that the global adoption of the eBL alone saves the economy around $4 billion. But there are many documents that can potentially become electronic, like the warehouse receipt (A1), or the letter of credit (A2), a common instrument in trade finance.

As the world becomes more digital and interconnected, this drives the need for solutions providing protection against cyberattacks. Different attacks in recent years, which have negatively affected companies like Hellmann, Toll, TNT and APM Terminals, show that we need to improve the adoption of cybersecurity solutions which, by definition, constantly evolve and reinvent themselves to keep up with the fast development of malicious software (A2).

Recent trade and tech tensions between the United States and China have increased the level of compliance risk for businesses where changing regulations are concerned. These risks can be mitigated with the help of regulatory technology, or RegTech. New export control-driven RegTech involves microscopic tracking technology that can be placed inside the tiniest of components and sub-components, which then get subsumed within larger machines. These new technologies can be used to trace “end use” and “end users” of restricted technologies worldwide (A2).

4. Coordinating with stakeholders on national and global level

The understanding of the positionings of technology-driven solutions in the quadrant provides the grounds for developing appropriate and effective policy responses.

In case of solutions in their infancy, governments should stay informed through regular consultations of relevant stakeholders to understand the level of opportunity and threat residing in the technologies and applications, but also to identify when to shift from policies that drive innovation and adoption to policies that ensure safety and inclusiveness. In the case of mature technologies and applications, policy-makers can mitigate risks through policies crafted with the support of the relevant stakeholders. Crafting effective national policies requires coordination among stakeholders in the ecosystem.

Meanwhile, for solutions emerging outside the nation and for national developments with global reach, governments should seek international involvement and alignment to follow proof of concept and identify pilot opportunities as a foundation for fast adaptation, but more importantly to ensure that as many companies as possible can benefit from TradeTech.

Not to regulate is also a policy response. Whether regulation is required or not should be the result of discussions with multistakeholder expert groups led by governments’ innovation teams. Ill-crafted polices may negatively impact a country’s competitive position or exclude nationally developed technologies and applications from participating in the global market where international alignment, standards and compatibility are common prerequisites. Such aspects can only be identified provided the respective experts are consulted, and international treaties are established.

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.

Embracing Digital Trade

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’).

The TradeTech Policymaking Quadrant encourages international regulatory cooperation for harmonization and coherence by introducing a common framework for dialogue within and across nations responding to recommendations of international organizations, like the World Economic Forum and the World Trade Organization. In this spirit of cooperation, the private sector has an important role to play and should support governments in their policy-making. If it doesn’t engage, it may find itself confronted with surprises and policy choices that limit its development potential and growth. This would neither be in the interest of innovators nor society at large.