E-commerce and trade

We engage in e-commerce transactions at least several times a week, whether we realise it or not. Have you recently purchased digital products such as software, a movie, an e-book, or a service, or bought tickets online? Did you order a physical product such as clothing and pay online? Did you order a physical book from a website and pay cash upon delivery? All of these examples can be classified as e-commerce. In 2021, approximately 2.14 billion people – over a quarter of the global population – bought goods and services online. 

Global flows of goods, services, and money have historically underpinned economic and social development. These flows have been transported in many ways: in ships across oceans, in chariots on ancient highways, in trucks over paved roads, and by cargo planes. In the 21st century, global flows are increasingly carried by datagrams – packets of digital information flowing through fibre-optic cables.

The digital economy was made possible by two parallel developments: the accelerated speed of digitisation (the conversion of data from analogue to digital form) and the digitalisation of processes known as digital transformation. The concomitant increase in the processing power of computers allows more correlations to be seen and more information to be extracted from data than ever before. Data is the raw material from which new services, business models, and value are created.

Global volume of data Statista

Volume of data/information created, captured, copied, and consumed worldwide from 2010 to 2025. Source: Statista, 2022

 

Digitisation is leading to the dematerialisation of products that were previously commercialised as physical objects (such as books, films, games, and recorded music). Digital flows also underpin and facilitate every other kind of traditional cross-border flow: Even when ships carry physical products, customers increasingly order and pay online.

The digitisation of information and the instantaneous internet data flow have also transformed the composition of world trade. Services such as education and health that were once almost impossible to provide across borders are now considered tradable. At the same time, there is growing servicification of global trade, which can be understood as the increasing integration of services with goods. Manufacturing companies increasingly buy, produce, and sell services to complement their wares; services are increasingly embedded in manufactured goods. Examples of servicification include the provision (service) of a digital wrapper (a set of digital information that is paired to a product when crossing a border, including the information required for global tracking) – and services that are sold to the consumer as a bundle with goods, such as applications that accompany fitness equipment and health trackers.

Diplo illustration digitisation

 

The most visible interfaces connecting individuals to global flows are digital platforms. Amazon and Alibaba are the world’s largest e-commerce companies, maintaining enormous market shares. Platforms facilitate access to market information and reduce transaction costs for consumers. They can democratise e-commerce by facilitating access to the global market for micro, small, and medium enterprises (MSMEs) as well. Nevertheless, many MSMEs face obstacles accessing these platforms. It may also be difficult for MSMEs to compete with the products offered by the platforms themselves.

The COVID-19 pandemic has led to a significant shift in purchasing habits across the world, accelerating the uptake of e-commerce by approximately five years. The crisis has generated an expansion of e-commerce toward new firms, customers, and types of products. E-commerce is now key to the purchase of everyday necessities and is increasingly relevant to most individuals. Although the isolation measures to contain COVID-19 are temporary, they are likely to trigger long-term changes in customer habits and business operations. In addition, e-commerce is key not only to mitigate the economic slowdown, but also to speed up the economic recovery.

COVID acceleration digital transformation

The sense of urgency around digital transformation created by COVID-19. Source: IBM, 2020

 

Despite significant efforts by different governments to support the adoption of e-commerce during the pandemic, the crisis also showed that the ability to make this transition varied significantly. This was due to gaps in critical e-commerce enablers, such as access to the internet and connectivity, digital skills, and a developed postal or delivery infrastructure, between and within countries. For example, countries with lower incomes show lower usage of technology as part of their response to COVID-19. The quarterly growth in internet usage was 1.3 percentage points higher in lower-middle-income countries in the first quarter of 2020, compared with the first quarter of 2019. This excess growth is 10 times below the growth that was experienced by high-income countries during the same time.

COVID increase internet use

Excess quarterly growth in internet usage Q.1 2020. Source: IFC/World Bank, 2020

 

Large businesses adapted most quickly to the crisis. Many of them were already fully digital and enjoyed a sound and well-developed e-commerce ecosystem. The growth of e-commerce has disproportionately benefited third-party marketplaces, according to a survey conducted by UNCTAD. While 58% of businesses selling their own products or services online recorded a drop in monthly revenues, about 64% of third-party marketplaces have seen a spike in sales.

COVID growth e commerce companies and marketplaces

Impact of COVID on monthly e-commerce sales. Source: UNCTAD, 2020

 

This scenario threatens to scale back progress on reducing global poverty and inequality and further damage social cohesion and global cooperation. Creating the enabling conditions for e-commerce to prosper and contribute to economic recovery at the national and international levels is paramount. In this scenario, international cooperation is of key importance not only to facilitate seamless cross-border trade but also to deconstruct divides in the digital economy.

For detailed information on WTO’s Joint Statement Initiative on e-commerce, visit the dedicated page on the Digital Watch Observatory.

 

As the primary policy player in modern global trade, the World Trade Organization (WTO) established a system of agreements that regulate international trade. The principal treaties are the General Agreement on Tariffs and Trade (GATT), dealing with trade in goods; the General Agreement on Trade in Services (GATS); and the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS).

Other agreements developed at the WTO which are of relevance to e-commerce include the Information Technology Agreement (ITA) of 1996, with an impact on the price of hardware and connectivity; the ITA-II of 2015; and the agreements and reference documents that guided the global opening of telecommunications services such as the GATS Annex on Telecommunications, the Fourth Protocol on Basic Telecommunications, and the WTO Reference Paper on Basic Telecommunications.

At the WTO, specific discussions on e-commerce are taking place in two parallel tracks. The first is known as the multilateral track, which was launched in 1998, following the Ministerial Declaration on Global Electronic Commerce. The second involves a subset of WTO members, which are currently part of the WTO Joint Statement Initiative (JSI) on e-commerce.

The 1998 Ministerial Declaration on e-commerce launched the Work Programme on Electronic Commerce (WPEC) and put in place a moratorium on customs duties on electronic transmissions by stating that members would ‘continue their current practice of not imposing customs duties on electronic transmissions’(WTO, 1998). The moratorium has been renewed roughly every two years at the WTO Ministerial Conference. The last renewal took place in 2019 by means of a General Council decision. In recent years, there have been questions raised on the scope of the moratorium and on its impact on the revenue of developing countries. While developed countries hope to make the moratorium permanent, developing countries are increasingly putting its renewal into question

The WPEC was mainly designed to build understanding around the trade-related aspects of e-commerce without a pre-set objective to negotiate new rules. Its main goals are (1) to examine all trade-related aspects of e-commerce, (2) to examine the relationship between e-commerce and WTO agreements, (3) to consider the economic, financial, and development needs of developing countries. The programme instructed four bodies of the WTO – the Council for Trade in Services, the Council for Trade in Goods, the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS), and the Committee on Trade and Development – to examine e-commerce issues under their purview and report to the WTO General Council.

Diplo illustration e commerce negotiations

Due to the increasingly important role that e-commerce plays in the digital economy, some members argued that the WTO should more strongly incorporate e-commerce in its agenda. Accordingly, the first Joint Statement on Electronic Commerce was released at the 11th Ministerial Conference in Buenos Aires on 13 December 2017. The 71 signatories announced their goal to ‘initiate exploratory work together toward future WTO negotiations on trade-related aspects of electronic commerce.

During the 2019 World Economic Forum Annual Meeting in Davos, 76 members announced a Second Joint Statement expressing the participating members’ intention to begin negotiation at the WTO on ‘trade-related aspects of electronic commerce (…) that builds on existing WTO agreements and frameworks with the participation of as many WTO Members as possible. The co-facilitators of the JSI on e-commerce are Australia, Japan and Singapore.

The agenda of the JSI on e-commerce includes not only classic trade issues, such as trade facilitation and market access, but also a wide range of digital policy issues, such as data flows, localisation, data protection, cybersecurity and spam.

 

Recording of the Geneva Internet Platform’s Trade and Finance Tour, which discussed trade negotiations in Geneva.

 

The ever-growing importance of digital commerce has found its way into regional initiatives, including regional trade agreements (RTAs). RTAs are key mechanisms that produce norms on digital commerce. More than half of the WTO members, including many developing countries, have signed RTAs that encompass e-commerce provisions.

In June 2020, Chile, New Zealand, and Singapore signed the Digital Economy Partnership Agreement (DEPA), while the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade deal, which includes  a chapter on e-commerce, entered into force on 1 January 2022. In December 2020, the Assembly of the African Union decided to fast-track e-commerce negotiations under the African Continental Free Trade Area (AfCFTA).

Nowadays, a growing number of RTAs worldwide have standalone digital commerce chapters. They include provisions on different topics, such as the elimination of customs duties, consumer protection, digital authentication and e-signature, paperless trade, cross-border data flows, and data localisation.

The European Union (EU) has embraced a private, market-centred approach to e-commerce but has also introduced several corrective measures directed towards protecting public and social interests (promotion of universal access, competition policy involving consideration of the public interest, and restriction of the distribution of harmful content).

The 2015 Digital Single Market Strategy set a vision to overcome market fragmentation within the EU, with a strong focus on e-commerce, seeking to facilitate better online access to digital goods and services and to strengthen the digital economy as a driver of growth. The 2019–2024 strategy, Shaping Europe’s Digital Future, anchors this vision in values such as promoting people-centred technological development, a fair and competitive economy, and an open, democratic, and sustainable society.

Among the actions encompassed by the strategy, the Digital Services Package, composed of the Digital Services Act (DSA) and the Digital Markets Act (DMA), is of particular interest to e-commerce. The DSA imposes new obligations on online intermediaries such as online marketplaces, social media platforms, app stores, and booking websites, while the DMA introduces new rules for large online platforms, called gatekeepers by the DMA. Together, these regulations aim to ensure transparency, better consumer protection, clear responsibility, liability rules, and enhanced competition between market players. The expectation is that a harmonised set of rules for the entire EU will foster the growth of cross-border digital trade.

In the Asia-Pacific region, the focal point of e-commerce cooperation is the Asia-Pacific Economic Cooperation (APEC). One of the first APEC e-commerce-related programmes was the 1998 APEC Blueprint for Action on Electronic Commerce. In 2017, APEC leaders adopted the APEC Internet and Digital Economy Roadmap and created the Digital Economy Steering Group (DESG), aiming to facilitate the development of the internet and digital economy, including e-commerce and digital trade, and advising on the implementation of the roadmap.

In Africa, provisions relevant to e-commerce can be found in the 2014 African Union Convention on Cybersecurity and Personal Data Protection (Malabo Convention) and the African Union Digital Transformation Strategy (2020-2030). The convention, which is not yet binding, sets out standards, principles, and actions to be taken by AU member states in the areas of e-commerce, electronic contracts, personal data protection, electronic advertising, and security of electronic transactions. The strategy presents goals related to e-commerce, including the creation of a continental digital single market.

Diplo illustration e commerce SMEs Africa goods

Many organisations address e-commerce-related issues. The UN Commission on International Trade Law (UNCITRAL) has done significant work in this area, leading to the adoption of the Model Law on Electronic Commerce and the UN Convention on the Use of Electronic Communications in International Contracts. The model law is one of the most successful and widely-supported international initiatives in the field; it focuses on mechanisms for the integration of e-commerce with traditional commercial law (e.g. recognising the validity of electronic documents).

The UN Conference on Trade and Development (UNCTAD) is particularly active in research, analysis, capacity development, and technical assistance, focusing on the relevance of digital commerce to development. UNCTAD’s Digital Economy Report captures trends and policies related to access, use, and impact of digital technologies from a development perspective.

UNCTAD’s ICT Policy Review (ICTPR) Programme provides technical assistance, advisory services, diagnostics, and strategy development on e-commerce and national ICT planning at the request of governments, taking into consideration eight key strategic policy areas ranging from ICT infrastructure and telecom services to electronic payments. In 2016, UNCTAD launched the eTrade for All Initiative, a multistakeholder initiative aimed at improving the ability of developing countries to use and benefit from digital commerce.

The Organization for Economic Co-operation and Development (OECD) addresses various aspects related to e-commerce, including consumer protection, privacy and data protection, and digital signatures. Its involvement in e-commerce issues started with the 1998 Action Plan for Electronic Commerce, structured around building trust for users and consumers, establishing ground rules for the digital marketplace, enhancing the information infrastructure for electronic commerce, and maximising its benefits. Such issues have since been approached in OECD recommendations and guidelines. The OECD has also advanced research and publications that shed light on different aspects of digital trade.

The International Trade Centre (ITC) provides capacity development through a set of solutions that enable small and medium-sized enterprises (SMEs) to trade via digital channels. The ITC also provides advice for policy formulation with the objective to facilitate SME participation in digital commerce. The ITC has produced a number of publications on e-commerce, examining the issue from an SME perspective and linking the views from businesses to the policy discussions. A collection of ITC publications on e-commerce and digital trade is available online.

The World Intellectual Property Organization (WIPO) has created a Digital Agenda to respond to the confluence of digital technologies and the intellectual property (IP) system. Digital commerce often involves selling IP-based products and services, such as music, software, and design. Trademarks are also an essential element for digital commerce as a branding and customer recognition tool. In addition, the dissemination of indigenous IP and culture by exposure to the global digital market is considered a major concern for developing countries.

Diplo illustration e commerce diversity consumers

Consumers International is the membership organisation for consumer groups around the world. The organization aims to defend consumer rights and ensure that consumers are treated safely, fairly, and honestly. It also aims to promote access to safe and sustainable products and services by influencing international policy-making forums and the global marketplace. Following the approval of the revised UN Guidelines for Consumer Protection, Consumers International produced a guide to the UN consumer protection guidelines, which summarises the main principles of consumer protection and how they can be applied.

The International Chamber of Commerce (ICC) is the largest business sector organisation in the world and is one of the most active international organisations.  It produces a wide range of recommendations and analyses in the field of e-commerce, with major emphases on rule-setting, arbitration, and policy.