Looking for Cloud Nine: Leveraging the benefits of digital trade for New Zealand

The “digital revolution” is transforming not only the way that we live, work and socialise, but also how the world trades.   The flow of data across borders now drives more economic growth than the flow of goods – but digital trade regulation lags far behind the realities of international e-commerce and other activity “in the cloud”. 

New Zealand, along with 75 other WTO members, has agreed to negotiate new trade rules in this area.  We should seize the opportunity to maximise the benefits for our companies and inclusive growth for our communities, while also addressing legitimate concerns around privacy and cybersecurity.

The digital economy is already enhancing productivity and facilitating trade by providing new channels for trade, new ways of doing business and even new things to buy and sell.   It is crucial even to facilitate trade in traditional products such as agriculture and manufactured goods.  The figures for global e-commerce are in the realm of Monopoly money, with one estimate putting the value of business-to-consumer e-commerce at US$1 trillion globally by 2020, with business-to-business e-commerce potentially five or six times as large.   

Digital trade also has huge potential to open up new opportunities for groups that have otherwise struggled to do business across borders, including small firms, women entrepreneurs, and Maori:  digital trade significantly reduces if not eliminates the challenges of scale, distance, connectivity and cost that have plagued New Zealand’s export efforts for the last century.   

Trade rules lag behind on digital

However, the cross-border digital economy is an area where trade rules are lagging behind both the technology and commercial activity.  Although the existing WTO rules – developed in the very earliest days of the internet – offer some (prescient) relevant rules, in many countries we are seeing the introduction of new restrictions on cross-border data flows and on other aspects of e-commerce and digital trade that risk undermining our ability to thrive in a data-driven world. 

A ‘Digital Trade Restrictiveness Index’ produced by Brussels thinktank ECIPE estimates that the top ten most restrictive countries for digital trade cover nearly half of the world’s population.  (In the same index, it is cheering to see that New Zealand takes out the top spot for the least digital trade-restrictive environment.)  The price of these restrictions is being paid by consumers and business – and not just the big corporates, but also the SMEs that make up 97% of New Zealand’s business community.

“We have seen the impact of a messy ‘noodle bowl’ of divergent regulation in traditional trade, and avoiding a second go-round in the digital space would seem to be a no-brainer. “ 

FTAs go part of the way…

Absent comprehensive WTO rules, a handful of modern FTAs have tried to devise cross-cutting rules in this area, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).  CPTPP contains a suite of provisions designed to facilitate cross-border e-commerce and tackle digital “NTBs” head-on.  For example, it prohibits the imposition of costly requirements on firms to set up local data servers in other markets (known in the jargon as ‘forced data localisation’), tries to streamline burdensome Customs and other administrative processes, for example through electronic authentication, e-contracts and e-signatures, bans import duties on digital products, and provides for enforceable consumer protections and cooperation on cybersecurity.

…but global rules would be better

While FTAs are a good start, the ideal would be coordinated global policy-making in this new ‘borderless’ world: we have seen the impact of a messy noodle bowl of divergent regulation in traditional trade, and avoiding a second go-round in the digital space would seem to be a no-brainer.   Instead we should seek a rules-based, open global trading environment that supports cross-border data flows and digital trade, adopting the “least-trade-restrictive” approach to regulation while also building consumer trust and confidence.  (Even where the goal may be hugely important, such as the protection of personal privacy or cybersecurity, some of the proposed approaches, such as forced data localisation, may not in fact technically deliver on the desired outcome – as well as hurting trade.)  There are technical, policy, and political challenges, to be sure; but we should not shy away from them.

New e-commerce negotiations agreed by half of all WTO members

It was accordingly excellent to see that in the margins of the recent World Economic Forum, a group of 76 WTO members, including New Zealand, have agreed to launch negotiations for rules governing e-commerce.   The negotiations will be open to all – and importantly, the participants include most of the largest global players, including the United States, the EU and (in a last-minute decision) China, accounting for over 90 percent of global trade.   The issues are both complex and highly sensitive, and clearly will continue to evolve as frontier technologies such as artificial intelligence become more ubiquitous.  In short, there is a long way to go before we get a new future-proofed global rules framework for 21st-century trade.  But this is an important next step, for the credibility of the WTO and for the digital economy.   It allows New Zealand and others the opportunity to truly leverage the advantages of the digital age, not just for business but also for more equitable sharing of the enormous social and economic benefits of global trade.  It will be very soon be a false dichotomy to talk about “digital trade” and “trade”.  Let us be sure that the rules are fit for purpose.  

This post was prepared by Stephanie Honey, Associate Director of NZIBF.

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