The decade that began last year will be particularly crucial in determining the new trends of the global economy. International trade will be no exception. First, the pandemic has clearly hit both supply and demand hard, so it is necessary to get both back up to steam. Secondly, technological innovation is also revolutionising how goods and services are traded. Such processes might well have a major impact on the world economy, creating new business opportunities, but also generating potential international governance issues, and impacting on relations between key geopolitical actors.
What is digital trade?
In the age of the digital economy, international trade is heavily influenced by the development of new technologies. But what does "digital trade" mean exactly? No universally accepted definition exists, but the Organisation for Economic Co-operation and Development (OECD) sees it as "digitally-enabled transactions of trade in goods and services that can either be digitally or physically delivered, and that involve consumers, firms, and governments." This immediately resonates with e-commerce and the numerous platforms and marketplaces - from Amazon and Alibaba to small, industry-specific ones - that spread rapidly in recent years. Factoring in the impact of new technologies is also important. Cloud computing services and payment apps are the obvious examples, but traits like artificial intelligence and blockchains could have a key impact on simplifying product tracking along supply chains, potentially meaning less time to clear customers at borders (making the actual departure of the United Kingdom from the European Union a key test-bench for this), improved product tracing (making it easier for manufacturers to certify their products are part of a specific supply chain) and benefits for consumers (who can get real-time information on a product's origins or its quality and safety profile).
Pandemic pushing e-commerce
The lockdowns imposed by many countries in the opening months of the Covid-19 outbreak clearly and significantly accelerated a trend that started a number of years ago—consumers increasingly using online e-commerce platforms to make purchases. Global online trade grew to $25.6 trillion in 2018, an 8% increase on the previous year. Italy was already in eighth place globally for purchasing using e-commerce channels. Yet in 2020 this already growing trend, driven by the constant development and spread of new digital technologies, experienced a veritable "boom" that saw online sales grow by 26% globally compared to 2019, based on a preliminary estimate from Politecnico di Milano. According to Forbes, such was the acceleration that, in less than a year, the increase was equivalent to the same growth that would have taken 4-6 years at the pre-pandemic rate. The growing demand for buying online was crucial to compensating for the dramatic drop in retail sales in both the B2C (Business-to-Consumer) and the B2B (Business-to-Business) channels. In this light, it is worth looking at some of the measures adopted to prop up the international trade fair industry, which was hit very hard by the restrictions on travel and movement. The Italian government also took steps on this front. As part of the "Export Pact" launched in June 2020, managed by the Italian Trade Agency, a virtual marketplace was created and made available to companies to help them expand their supplier networks.
Problems ahead and rules to draft
Although digital trade offers many alluring opportunities, it does raise questions on at least three levels and these will require suitable global solutions to avoid diplomatic friction and ensure fair market access. Let's look at the details.
- Storage and processing of personal data. Every online transaction requires the transfer of data that must be carefully managed. Yet, internationally, there are no accepted standards and the major economic powers have clearly divergent views on this matter. The European Union is currently the most advanced area in terms of protecting personal data, following the entry into force of GDPR in 2018. The United States has focused on less expansive standards, favouring the business interests of companies over the individual rights of users and customers. Regulations in China (the key market at present for e-commerce expansion) are less transparent. Nonetheless, new generation trade agreements must include rules governing the processing of data, otherwise the related online sales of goods and services could be compromised. Brexit offers a concrete example in this sense. In the interim before an "adequacy" decision is made by Brussels, the EU granted the United Kingdom (which is continuing to apply GDPR for now) temporary mutual recognition, thus avoiding further uncertainties and bottlenecks.
- Concentration of market power. The cases of Amazon and Alibaba have taught us that e-commerce platforms are often controlled, by players with enormous economic and contractual power. The increasingly broad diffusion of such platforms does provide a key avenue for the smallest companies to internationalise, but at the same time the near-monopolistic power of these multinationals could limit access for SMEs with them consequently losing bargaining power. Plus, tax considerations need to be dealt with. The debate about introducing an international web tax (i.e. a uniform tax on the revenues generated by the major digital multinationals) was ground to a halt because of the major differences between European nations (with the United Kingdom firmly on the EU side) and the United States. However, the recent statement by the new US Treasury Secretary, Janet Yellen, at the virtual meeting of G20 Finance Ministers, removed a crucial veto dropping their traditional insistence for a “safe harbour” for digital companies. This could be the first step leading to more common ground and a progressive harmonisation of taxes in an industry that remains scarcely regulated.
- Largely ineffective multilateral governance. An examination of the agreements underpinning the World Trade Organisation (WTO), which govern trade in goods (GATT), services (GATS), information technology (ITA) and intellectual property (TRIPS), reveals some shared principles underpinning e-commerce. Still, questions about differentiation between digital services and goods, and a definition of crossing "physical" borders for online transactions remain to be resolved. WTC negotiations about e-commerce are seeking to resolve such matters, but it has proven impossible to reach a final agreement thus far. However, during the latest round of negotiations held in February some progress was achieved (with particular respect to how “spam emailing” is regulated, raising expectations that a positive conclusion could be reached before the 12th Ministerial Conference due to take place later this year.
G20 looking to the future?
2021 would seem to be a good year for making joint progress on digital trade issues at multilateral level. The USA administration is showing greater willingness to discuss issues and the arrival of the new WTO Director General (Ngozi Okonjo-Iweala – whose appointment was a historical moment - just took office) should lay the groundwork for renewed dialogue on the main trade policy issues currently on the table. The Italian Presidency of the G20 is another opportunity to encourage debate on such topics, taking a forward-looking approach to ensure businesses and ordinary people can enjoy the opportunities that lie ahead through greater international agreement on rules and responsibilities.