Digital trade: Global anarchy or revival of rule-based world order?

4 Oct 2018 02:00h

Event report

The session on digital trade was organised by the Confederation of Danish Industry (DI) and was moderated by Mr Peter Bay Kirkegaard (Senior Adviser, Confederation of Danish Industry (DI)). The session explored the rise of digital trade and the counter-evolution of digital protectionism, which is currently being observed by specialists. While digital trade increases productivity and provides better market access for small and medium sized enterprises (SMEs) on global markets, it also raises a range of concerns with regard to data security, privacy, and tech monopolies. In the absence of international rules to handle these issues, countries worldwide have introduced digital trade barriers hampering digitalisation and international trade. This is why governments and organisations increasingly demand multilateral rules that provide transparent and stabile regulation of digital trade.

Kirkegaard introduced the session by providing examples of businesses which are part of the DI, Denmark’s biggest confederation, which is privately owned, and showcased how data collected in one place of the world is being processed in another, in order to manufacture tailored products for their customers. He explained that certain members of the confederation voiced concerns about the evolution of the digital agenda in light of countries adopting more protective measures on data transfers and data localisation that could harm their business models. He mentioned that clients are in favour of international trade rules and that these same clients were also in favour of the EU’s General Data Protection Regulation (GDPR) because it enhanced consumer trust in their products and services.

Mr Erik Van der Marel (Senior Economist at ECIPE) and his team created an indicator for digital restrictiveness in trends, and spoke about the rising trend of digital trade policies. In general, it could be observed that information and communications technology (ICT) services have grown much faster than trade in goods and commodities. Additionally, he mentioned that many sectors are not digital but are undergoing digitalisation. The importance of data across all sectors is also reflected in a McKinsey study which shows that the contribution of data to global GDP already surpasses that of goods, and its impact will keep increasing with the rapid deployment of artificial intelligence (AI) enhanced technologies.

The indicator also identified privacy and data protection as well as data localisation policies as being most restrictive for trade. As observed by Van der Marel, data policies, especially policies regulating cross-border flows, are rising. However, the economist noted that according to their findings, countries with more restrictive data cross-border flow regulations are benefitting less from digital trade. In order to overcome these challenges, the panellist mentioned the importance of multilateral rules and the creation of an enabling environment for digital trade, particularly with regards to developing countries.

Mr Pascal Kerneis (Managing Director at ESF) acknowledged that certain countries are in need of the most basic infrastructure for companies to have a chance of prospering in digital trade. These needs range from a continuous power supply to road infrastructure, and are not only the basis for digital trade, but trade in general. To that, he added, legal frameworks and access to finances are essential.

He further stated that ‘digital trade is about services’ and that ‘data is a service’, given that trade in general could not operate without the varous data produced, starting from the ICT infrastructure required to operate transactions, to the information analysis which is based on benchmark results.

Kerneis reminded the audience of the WTO’s precursory role in 1998 when it adopted a programme on electronic commerce and said that no progress had been made since. He is therefore in favour of the joint initiative on electronic commerce that 71 sates pledged to during the Buenos Aires round of negotiations, and would allow willing countries to move forward with an agreement on e-commerce. In that context, he also encouraged negotiators to look into free trade agreements that already adopted provisions on digital trade and data flow principles, such as the agreement between the EU and Canada (CETA), the EU and Japan (EPA), and the newly negotiated USMCA. According to Kerneis, localised data would prove to be an extremely costly solution that would only increase costs for consumers and businesses alike.

Frank Matsaert (CEO, Trademark East Africa) spoke about the transformative power of digitisation for trade, which creates a robust inclusive and sustainable operating framework for trade besides the creation of innovate disruptive models of operations. It also introduces data-driven, and automation-enabled trade systems and procedures. Additionally, Matsaert mentioned the redefinition of geospatial differences and the blurring of physical borders as results of these transformative powers.

According to Matsaert, the downside of these developments is the risk of increasing the digital divide due to many sectors of the economy in developing countries being weak and informal. In these contexts, alternative technologies are often accompanied with cybersecurity risks or cannot be supported effectively due to the lack of infrastructure. He also mentioned the lack of appropriate legal frameworks as being a limit to regional cross-border trade, for example due to restrictions imposed on cross-border money transfers. He therefore identified the risk of developing countries being locked into commodities and labour sectors of trade.

He further said that in order to avoid the digital divide becoming a permanent situation, solutions must be found to incorporate informal sectors into digital trade. Herein, he identified regional and shared regional capacities as being a good way forward. Bilateral agreements, especially on money transfers across borders, could also alleviate the situation. Additionally, Matsaert explained that incorporating these sectors would also increase efficiency and help reduce corruption.

Dr Burcu Kilic (Legal and Policy Director at Public Citizen, Access to innovation, Knowledge and Information Program) pointed out that data should be analysed differently than regular commodities, given that it is created and produced by us, and often comprises sensitive information about our lives. This is particularly important as ‘whoever controls our data, controls the future’, in particular with the rise of automation and AI.

Kilic explained that we find ourselves in a similar situation as with the first emergence of personal computers. People understood that great changes and technological disruption was to come, but nobody was able to fully understand and foresee how this technology would affect their lives. In this context, AI might be the next big disruption that we cannot fully understand and whose effects on our everyday lives we cannot forsee.

She further noted that ‘your rights do not flow with the data’ and warned that cross-border flows of data do not sufficiently ensure the protection of privacy. She therefore spoke about the necessity of governments aligning to increase consumer protection and of the need for trade decision-makers to incorporate consumer protection frameworks in future agreements.