Digital trade is a valuable product of the internet, extending the movement of goods and services on a global scale and multiplying economic benefits for companies both big and small. E-commerce, defined as “the production, distribution, marketing, sale or delivery of goods and services by electronic means” in 1998, is now making up larger portions of the global market. In 2013, e-commerce transactions made up 57.1% of total shipments by manufacturing firms in the US alone.
However, when it comes to developing international trade regulations for e-commerce, it would be a mistake to assume digital trade can be treated exactly the same as physical goods and services. Cyber-relations between producers, consumers, and government agencies have complicated these traditional transactions. While international trade organizations have tackled some aspects of digital trade (particularly e-signatures), it seems that legislators, on both national and international levels, have struggled to develop substantial e-commerce standards at a time when domestic businesses need governments to lead the way. The following issues will need to be addressed for domestic economies, and by extension the global economy, to maximize the potential underlying digital-based transactions.
Lack of International Coordination
The WTO tried to stimulate international discussions on digital trade through their Work Programme on Electronic Commerce, created in 1998. The Work Programme was structured to address how e-commerce affected the trade of goods and services, intellectual property, and business development in developing countries. The overall Declaration on global electronic commerce recognized the increasing importance of the digital mode of business and committed WTO members to “not imposing customs duties on electronic transmissions.”
Unfortunately, the Work Programme has been unable to progress beyond member discussions due to a number of factors. First, there is the issue of classification within e-commerce. The full scope of how an e-commerce transaction is regulated depends on whether the product of that transmission is a good or a service, at which point terms under the General Agreement on Trade and Tariffs (GATT) and General Agreement on Trade in Services (GATS) need to be more directly considered. Referring to the GATT or GATS to determine whether a e-commerce-based transaction is a good or service is not hard to do on a case-by-case basis, but it does make it difficult to build a comprehensive plan for digital trade that all countries can follow on a consistent basis. Without this guide, it may be hard for countries to cooperate where a digital item in question is classified as a good in one place and a service in another.
Additionally, the differing levels of digital development between members also places a strain on the Work Programme. In the 2015 Review of Progress, it was pointed out that developing countries, though willing to participate in discussions, can only do so under theoretical modes due to restricted levels of access to internet. It would not be fair to obligate a developing country to e-commerce regulations that, although beneficial at a certain moment of digital accessibility, does not fit that country’s economy. While any international agreement should be flexible, it does make it hard to maximize digital trade for both the present and the future, leaving a lingering uncertainty about how much benefit these regulations will actually bring. This doubt may undermine international cooperative efforts in the future.
With the Work Programme tied up in those details, the WTO may not be the guiding force in solidifying an e-commerce framework in the near future. The WTO is the guiding body in the trade of goods and services for most countries; without straightforward leadership there, countries will have to choose how to approach e-commerce on their own or through regional agreements. Neither of these will stop digital trade from happening, but this may lead to the fragmentation of digital trade regulations between countries or regions, which may prevent businesses from operating digitally beyond their own country/region.
National Barriers on Data Movement: the Social Impact of Data Abuse
Even with the economic benefits of digital trade, abuses in the use of data and breaches in citizens’ privacy have led some countries to adopt their own regulations on data movement, some of which have negative consequences for businesses (such as restrictions to servicing customers beyond one’s national borders).
One particular provision is the data localization requirement, which stipulates that the servers through which a company stores and processes data be located in the country in which the data originates. While this measure could prevent citizens’ private information from being collected through surveillance, the costs of building and sustaining data storages locally may be much higher, hurting small and medium enterprises (SMEs) by limiting their ability to engage in digital trade outside their own country.
In September 2015, the countries with the strongest data localization provisions included China, Indonesia, Russia, Nigeria, Brunei and Vietnam. The EU was listed as having de facto data localization by virtue of its economic structure. Although the US was able to tap into the EU digital market through agreements such as Safe Harbour, the repeal of Safe Harbour in October, 2015, demonstrates the damage infringement of privacy can have on data movement and, thus, digital trade.
Regional Fragmentation: the Digital Single Market, TTIP, and TPP
With international e-commerce bodies unlikely to produce substantial guidelines in the future, and individual countries addressing data issues on their own, e-commerce is now being addressed through regional agreements.
The EU has proposed a Digital Single Market, in which member countries would share free flowing data. It is estimated that removing barriers to the flow of trade between countries’ borders would add €415 billion per year to the EU’s economy.
At the same time, the US and EU are also trying to include provisions on e-commerce within the upcoming Transatlantic Trade and Investment Partnership (TTIP). The EU released its own memo on e-commerce proposals with basic suggestions for e-commerce networks and services, including provisions on regulatory authority and cooperation in e-commerce legislation implementation. However, leaked TTIP documents indicate that there have been discrepancies regarding encryption.
The Trans-Pacific Partnership (TPP) also includes e-commerce standards that would be shared between Australia, Canada, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and the United States. Some interesting articles include non-discriminatory treatment of digital products, cooperation in all areas electronic, personal information protection, cybersecurity, provisions against data localization, and the removal of barriers for SMEs into digital trade.
Each of these regional agreements are good for facilitating digital trade in the short term. However, the concern is that these agreements, built on what is possible between members at the time the terms are negotiated, may fragment how certain regions choose to manage e-commerce, making it more difficult to coordinate a unified international front to digital trade in the future.
Lack of international coordination, national barriers to data movement, and regional fragmentation are all shortcomings in how we currently manage e-commerce. While these issues are not currently threatening the existence of digital trade, they are serving as barriers to businesses seeking to gain access to the global market through digital means. In my next article, I will discuss certain actions states can take to overcome some of these shortcomings and maximize the economic benefits of digital trade for their businesses.
Photo courtesy of Rafael Matsunaga via Wikimedia Commons
Disclaimer: Any views or opinions expressed in articles are solely those of the authors and do not necessarily represent the views of the NATO Association of Canada.