Digital services trade “must-haves” for MC13
Jane Drake-Brockman (Director, Australian Services Roundtable, Co-Convenor, Global Services Coalition and Visiting Fellow, Institute for International Trade, University of Adelaide) & Hildegunn Kyvik Nordås (Senior Associate, Council on Economic Policies, Zurich, and Visiting Professor, Örebro University).
This blog summarises policy recommendations across recent work published by the authors.
The internet is a global public good that we can no longer take for granted. Recent years have witnessed escalating constraints on cross-border data transfers - undermining the integrity of the internet itself, and threatening the global digital transformation. The WTO has a critical role to play to keep markets open, particularly to the benefit of micro, small and medium sized services firms in developing countries. A minimum is an extension at the Ministerial Conference (MC13) of the E-commerce Moratorium. Also, the MC13 must not come and go without visible evidence of a path to a plurilateral deal on the Joint Initiative (JI) on E-commerce.
The internet is a network of networks with an open architecture that exchanges information through packets in a decentralised manner. Everybody can connect to anyone around the world; new digital applications can be accommodated and offered everywhere. This structure has facilitated and stimulated international trade for decades by lowering business search and transaction costs and lowered the barriers to entering international markets for micro, small and medium sized enterprises (MSMEs) everywhere. It also enhances access to information for consumers and enables families and friends to stay in touch, students to learn, and doctors and patients to monitor health and access information about prevention and care. The internet is also an arena for financial fraud and scams, drug trafficking, misinformation and manipulation. The policy challenge is to secure individual safety, privacy, security and accountability, while maintaining the integrity, safety and security of the internet itself. All too often, however, government interventions have the unintended consequence that an open internet can no longer be taken for granted. Policymakers seem largely unaware of the dangers their restrictive policy approaches to cross-border data flows pose for the integrity of the internet itself (see the Internet Society Toolkit).
Connectivity over the open internet is a necessary but not sufficient condition for a thriving global digital services market. The International Telecommunication Union (ITU) identifies a significant usage gap particularly in low-income countries, meaning not all available network capacity is being utilised. The reasons include unaffordable network services and thin markets for digital services. Pro-competitive regulation in telecommunications, underpinned by the WTO General Agreement on Trade in Services (GATS) Annex on Telecommunications and the Reference Paper has undoubtedly helped rein in costs.
Turning to online content, it has been shown that access to streaming services, cloud computing, collaborative platform services, education and health applications stimulate the uptake of the internet. Openness to trade in online services, in turn, thickens the market for such services. This culminates in a virtuous circle where the open internet and competitive telecoms offer opportunities for digital content providers to access global markets, which in turn stimulates demand for network infrastructure and services.
However, the internet is far from universally adopted even in OECD countries. The OECD Information and Communication Technology (ICT) Access and Usage by Businesses database reveals that most firms have a website for marketing and interactive communication, but a quarter of small firms even in the OECD do not. While a majority of larger firms use cloud services, this is not the case for small firms. Similarly, a third of large OECD firms use AI but the overwhelming majority of smaller firms do not.
The internet, including digital platforms, can vastly extend MSMEs’ reach beyond the local market. Cloud services can reduce their costs, and artificial intelligence (AI) can potentially boost their productivity. ICT firms in India, for example, have embraced AI and expect substantial productivity and competitiveness gains. So why are MSMEs on average such laggards in adopting digital solutions? Study after study shows that the burden of regulation in dealing with complex privacy, security and data localisation requirements falls disproportionately on MSMEs. For example, the EU General Data Protection Regulation (GDPR) has led to market concentration in e-commerce while compliance reduces revenue twice as much for small e-commerce sites as larger ones.
The WTO JI on E-commerce, co-chaired by Australia, Singapore, and Japan, is designed to fill the long-standing governance gap as fast as possible. A key underlying objective is to deal with the array of inconsistent digital regulatory approaches WTO members have adopted since the WTO Work Programme on E-commerce began in 1995, and the host of restrictive measures which have since been introduced. Fortunately, WTO members had the foresight to agree in 1995 on a Moratorium on customs duties on electronic transmissions. Alongside the GATS, the Moratorium has allowed the global digital economy to take off and flourish.
The JI on E-commerce must support the AI for Humanity agenda
Let us move to the most recent complication. Digital transformation is outpacing the sclerotic trade negotiation cycle. AI, which like the internet depends fundamentally on cross-border data transfers, is poised for deployment at scale. As with the internet, issues of public trust are generating discriminatory domestic regulatory impetus and domestic standards development. Again, the WTO has a critical part to play.
The past year or so has seen some awesome - or terrifying - developments in AI-enabled algorithms. They could drastically change the way the digital economy and society at large is organised. The upside potential is for inclusive green growth and imaginative human-centred societal solutions, while credible dystopian scenarios foresee surveillance societies, misinformation, polarisation and the end of democracy.
The relationship between AI and trade in services is multifaceted with data at its core. The AI-enabled digital transition of services makes them more easily tradeable, while trade in services and associated data flows provide inputs for further development of AI-enabled applications: another virtuous circle. Large Language Models (LLM) are hungry for data for their development and training, and the market is dominated by a few players. But the recent development of small language models that can run on smartphones and laptops could enable tailoring programs for such uses as overcoming language barriers facing services traders, including MSMEs in developing countries.
Against the background of intensifying domestic regulatory impetus, the UN Secretary General’s Advisory Body on AI recently released its interim report on AI for Humanity, proposing for comment some principles and functions for new multilateral cooperation on international AI governance. Trade governance must support this agenda.
The possible solution, interoperable standards
Trade governance must align with other international initiatives to ensure that trade supports the path to sustainable development. The converse also applies. Restrictions on cross-border data flows must not impede the high-level sustainable development objectives.
Trade restrictions are rarely the most efficient means of achieving non-trade objectives. Achievement of privacy and cyber security does not require restrictions on cross-border data flows, but rather the development of common or interoperable standards. Achievement of AI for humanity similarly requires development of baseline international standards frameworks including on the ethics of AI. These are tasks for the multistakeholder international standards community.
The tasks for the WTO are threefold. First, to assert and commit to the core trade principles which must apply. Second, to facilitate international regulatory cooperation to help ensure that domestic digital regulation is consistent with international interoperability. Third, to promote the development and adoption of international standards through open multi-stakeholder processes and technical assistance, as a key in unlocking global digital market access.
What can MC13 contribute?
MC13 must not come and go this week without visible evidence of an emerging plurilateral deal on the JI on E-commerce. Whether governments are prepared to admit it or not, the Ministerial Conference will be deemed a failure if it does not help get a deal in this JI before the window of opportunity closes. A minimum prerequisite is extension at MC13 of the E-commerce Moratorium. And for all the above reasons, a JI announcement must clearly identify pathways for continued progress to facilitate interconnectedness of electronic systems by disciplining barriers to cross-border data flows.
Since the United States’ dramatic about-turn on digital trade announced last October, frantic negotiating activity has been underway in Geneva to at least complete a reduced scope plurilateral deal on e-commerce in time to announce at MC13. The business community waits with bated breath as the ink dries on the latest negotiating text. Participating members still have a chance to deliver a halfway decent deal. The WTO still has a chance to celebrate relevance in the digital economy of the 21st century. Business is not yet walking away. Indeed, there can be no doubt of the enormity of international services business support for WTO processes over the past year. More time, more energy, more concerted resources, more evidence-based publications, more trips to Geneva and most important of all, more MSMEs participation. The JI co-convenors continue their efforts 24/7, in difficult and deteriorating geopolitical circumstances.
In the final slouch towards MC13 outcomes, where anticipated action may yet need more time, words will really matter. The global business community will be listening: but maybe for the last time. Ministers will need to publicly acknowledge that alignment around common or interoperable digital standards is easier said than done and can not necessarily be implemented in the WTO alone. The potential disruptive force of AI applications is not making the task any easier. The stakes for public trust in the digital economy are very high. Working together in good faith based on agreed principles is more important than ever. MC13 is the best chance WTO members have to make it clear they do in fact have political will to cooperate - before it is too late. If they do not, we are headed globally into digital market disintegration and collapse of the open internet as we know it.
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