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Addressing impediments to digital trade: A new eBook

Summary:
The contribution that digital trade can make to economic growth and employment, in the UK and elsewhere, is huge.  In 2019, UK businesses received e-commerce orders worth £118 billion from abroad, of which £4.5 billion of overseas sales were captured by UK micro enterprises with fewer than ten employees (ONS 2021).  Around one-third of the UK digital sector’s gross value added is exported, underscoring the salience of trade openness for the sector’s prosperity (DCMS 2021).  As the radical changes imparted by digitisation require new policy responses in many areas (Labhard et al. 2019), there are also unique challenges to formulating and implementing sound trade policy for the digital economy.  Two principal factors combine to render digital trade policymaking different from

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The contribution that digital trade can make to economic growth and employment, in the UK and elsewhere, is huge.  In 2019, UK businesses received e-commerce orders worth £118 billion from abroad, of which £4.5 billion of overseas sales were captured by UK micro enterprises with fewer than ten employees (ONS 2021).  Around one-third of the UK digital sector’s gross value added is exported, underscoring the salience of trade openness for the sector’s prosperity (DCMS 2021).  As the radical changes imparted by digitisation require new policy responses in many areas (Labhard et al. 2019), there are also unique challenges to formulating and implementing sound trade policy for the digital economy.  Two principal factors combine to render digital trade policymaking different from anything that we are used to.

First, digital trade is intrinsically linked to cross-border data flows, an area with huge positive network externalities.  This feature leads to international rivalry over data governance standards.  Currently the world is fragmented into three ‘digital realms’ led by the US, the EU and China, each of which pursues a quite different approach to personal data governance and seems unwilling to compromise much (Jones et al. 2021: 8-13, Aaronson 2016).  The situation of distinct digital realms, in turn, presents a dilemma for medium-sized economies such as the UK.  The desire to trade digitally with all major players in order to achieve reasonable scale requires that policymaking in these smaller economies manages and, if possible, reconciles different regulatory stances. 

Second, digital trade is driven by rapidly advancing technologies such as artificial intelligence (AI), which has risen to the top of innovation and policy agendas in many countries (OECD 2020: 272, Agrawal 2018).  These technological underpinnings render the distinction between national public policy and international trade policy increasingly blurred, for two reasons.  The unconventional features of data – non-rivalrous in consumption and transmittable at virtual zero cost – give rise to concerns that need to be addressed from across a range of public policy areas such as consumer protection, competition policy, cybersecurity, and intellectual property rights.  Second, technologies such as AI are so sweeping and profound that, without a deep national conversation, governments do not have a well-defined idea of what they require by way of regulating digital activity.  A fortiori, engaging in binding international negotiations is risky, for there is a danger of agreeing to provisions that do not suit local views.


Download the eBook Addressing Impediments to Digital Trade here.


These challenges call for close cooperation between academic disciplines (economics, law, international relations and business), between academia and policymakers, and across branches of Government.  Thus, in March 2021, the UK Department for Digital, Culture, Media and Sport and the UK Trade Policy Observatory organised an interdisciplinary conference, hosted by CEPR, to discuss new directions for digital trade policy.  A new eBook presents the conference proceedings (Borchert and Winters 2021).  Part 1 sets out to identify impediments to digital trade in general and in specific contexts, while Part 2 discuss policy options to address them.  

Impediments to digital trade

It is not self-evident what currently constitutes a barrier to digital trade and what barriers may arise in the future.  Simon Evenett and Johannes Fritz propose an approach to collecting information whereby policy measures are described in terms of their attributes. Is the measure even-handed? Is it transparent? Does it allow scope for affected parties to engage the government over its consequences? And is it best practice? They argue that detailed entries of this kind will enable the resultant repository to be useful for monitoring, benchmarking, and negotiations, provided that the attributes-based collection is sustained over a longer term.  A particular aspect of mapping impediments to digital trade pertains to the constantly evolving regulatory landscape with regard to cross-border data flows.  Javier López-González, Francesca Casalini and Taku Nemoto survey extant approaches to data flow regulation.  The commonalities that they identify in data governance instruments contribute to finding pathways towards greater interoperability between the emerging regimes. 

Two further chapters speak directly to technology-driven aspects of digital trade.  The proliferation of AI applications will have major repercussions for international trade (and beyond).  From amongst the many complex questions raised by AI, Bryan Mercurio and Ronald Yu focus on the substantive issues that AI poses for intellectual property law, and specifically for provisions in these areas embedded in trade agreements.  Acknowledging that access to data is paramount for competitiveness, they identify links through which the UK’s international trade strategy can influence success in the realm of AI.  Cosmina Dorobantu, Florian Ostmann and Christina Hitrova focus on a comparison of source code disclosure requirements in free trade agreements.  Theirs is the first comprehensive mapping of how recent trade agreements deal with source code disclosure.  Reviewing the different motivations for government-mandated source code disclosure, they conclude that trade negotiators should exercise caution in expanding the scope of general prohibitions on such disclosure requirements.  

In many respects, including collaboration on new technologies such as digital identities or e-invoicing, countries in the Asia-Pacific region have been at the forefront of digital trade policymaking.  Stephanie Honey evaluates the region’s overlapping web of ambitious provisions in free trade agreements and in innovative ‘digital-first’ agreements, which demonstrate to other players what can be achieved with good will and creativity in digital policymaking.  Figure 1 elucidates the scope and specificity of digital topics covered.  Honey also notes that what business and government see as barriers to digital trade can be quite different.

Figure 1 Digital topics in four Asian trade agreements

Addressing impediments to digital trade: A new eBook

Notes: CPTPP = Comprehensive and Progressive Agreement for Trans-Pacific Partnership (2018); DEPA = Digital Economy Partnership Agreement (2020); DEA = Digital Economy Agreement (2020); RCEP = Regional Comprehensive Economic Partnership agreement (2020).
Source: Honey (2021), Figure 2.

Data governance and digital protectionism

Because of the salience of all kinds of data for digital trade, in particular personal data, a second set of papers presented at the conference explores specific topics around data governance. Patrick Leblond’s proposal for an International Data Standards Board would aim to develop broadly, if not universally, agreed standards and so facilitate a single data area within which data would be free to flow.  He discusses what features of existing international financial standard-setting bodies – e.g. the Basel Committee on Banking Supervision – could be emulated in international data governance. 

Conditions of access to different kinds of data is another crucial aspect, even if data were to flow across jurisdictions.  Again, innovation through AI systems in particular relies on vast quantities of personal and proprietary data.  Against this backdrop, Teresa Scassa explores the role of copyright and trade secret law in balancing public interests in the disclosure of data versus private interests in the protection of data.  

Going forward, the big question is what new types of interventions might impede digital trade.  In her discussion of digital protectionism, Susan Ariel Aaronson notes that, while many trade agreements include provisions on, for example, source code protection or server location rules, they do not address an array of other potential barriers to cross-border data flows.  This includes regulations on algorithmic decision-making, competition policies, policies to limit disinformation, privacy labels for apps, censorship, internet shutdowns, and cybersecurity rules.  Innovative solutions are necessary to create and maintain the trusted environment for data flows that is vital for digital trade to flourish. In addition, for digital trade to be inclusive, developing countries may need assistance in designing data governance that will allow them to participate in, and benefit from, the data-driven economy (Aaronson 2020).

Conclusion 

Digital innovation is transforming the world. Trade policymaking in the area is unavoidable and is happening in a ‘high stakes high return’ environment.  The challenges involve balancing interests at home and negotiating digital realms abroad.  The policy trade-offs and technical challenges are many and are multidisciplinary. This eBook presents some of the latest and deepest analysis on some of them.

References

Aaronson, S A (2020), “Data are a development issue”, VoxEU.org, 30 January.

Aaronson, S A (2016), “Solutions to the digital trade imbalance”, VoxEU.org, 07 March.

Agrawal, A, J Gans and A Goldfarb (2018), “Economic policy for artificial intelligence”, VoxEU.org, 08 August.

Borchert, I and L A Winters (eds) (2021), Addressing Impediments to Digital Trade, CEPR Press.

DCMS – Department for Digital, Media, Culture and Sport (2021), “DCMS Sectors Economic Estimates 2019: Trade in services”, updated 11 February.

Honey, S (2021), “Asia-Pacific digital trade policy innovation”, I Borchert and L A Winters (eds) (2021), Addressing Impediments to Digital Trade, CEPR Press, pp. 217-239.

Jones, E, B Kira, D B Garrido Alves and A Sands (2021), “The UK and digital trade: Which way forward?” BSG-WP-2021/038, February.

Labhard, V, P McAdam, F Petroulakis and L Vivian (2019), “Challenges in the digital age”, VoxEU.org, 27 August.

OECD (2020), OECD Digital Economy Outlook 2020, OECD Publishing. 

ONS – Office for National Statistics (2021), “E-commerce and ICT activity, UK: 2019 – Use of information and communication technology (ICT) and the value of e-commerce activity by UK businesses”, 5 February.

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