This article is written by Saswata Tewari, from the University of Petroleum and Energy Studies, Dehradun. This article summarizes all the points that show how digital trade helps in contributing to the world economy and analyzes the policies that regulate digital trade and tells about the necessary recommendations that should be brought by new policies.
Table of Contents
Digital trade is the transactions involved in the trade of goods and services which can be either digitally or physically delivered and which involves the buyers, sellers, businesses, and governments. The digital transformation that has been achieved in the field of business, has changed the way people used to conduct business. Digital platforms have enabled them to share ideas and interact with businessmen living across borders and have developed a link between sellers and buyers breaking all barriers in between. The Internet provides opportunities specifically for small and medium-sized enterprises (SMEs), businesses in developing countries, and preference matching for the buyers.
How is digitization changing trade
Digitalization is affecting all kinds of economic activities and as a result, commerce has become e-commerce. Digitization has changed how people trade. It is the way how digital media is being used to finance, process, and regulate trade. Digitization ensures the pathway and broadens access to global commerce.
Digitalization has the following impacts on trade:
- Digital trade has reduced the transaction costs involved in extending a company’s existing offering into a foreign market. The process of the trade is still the same- the same goods and services are exchanged but it only happens because digitization has enabled a cost-efficient technique of matching buyers and sellers based in different countries.
- Digital trade has enabled the sellers to reach potential customers in domestic and foreign markets in a more efficient way and at a less cost than through traditional channels.
- Suppliers that rely on e-commerce can cut the delivery costs now through the use of digitally provided content. For example Amazon’s Kindle for books and streaming services such as Netflix.
- Digital trade provides opportunities for entrepreneurship, innovation, and creates new jobs every day.
- Digital trade helps small business owners to overcome the barriers to their expansion of business operations. It can help them in expansion by using alternative funding mechanisms such as crowdfunding (the practice of funding small ventures by raising small capitals from a large number of people via the Internet.)
Trade in the digital era
Digital trade has changed not only how we trade but also what we trade. A large number of smaller value packages of physical goods, as well as digital services, are now included in cross border transactions. Goods that were non-tradable previously, are now being traded across borders. The use of digital platforms has introduced the technique of bundling goods with services. Digital trade has reduced the cost of sharing business ideas across borders and connecting the members along the value have helped to beat the constraints associated with engaging in international markets. Digital trade has replaced the traditional physical intermediaries to connect supply and trade. Online shopping platforms such as Amazon, Alibaba, eBay, etc are helping small and medium-sized enterprises and consumers to get involved directly in international trade. Such platforms have helped SMEs to produce goods and services of high quality and bear the costs involved with exporting which is a significant factor for businesses in developing countries.
Consumers now can find matches to their choices and preferences and are directly engaged in importing and exporting products. Digitalization has established innovative cross borders amalgamation processes for the production of goods and services and has provided new means for their delivery through digital platforms and physical devices. Trade-in services have increased and this includes small-value digital services such as streaming music, ebooks, and online games. Digitalization has also increased the credibility of already established industries such as transport services. Previously taxi services were not tradable across borders and have required a domestic presence in the region but it is possible in the age of digitalization.
Today, a simple digital trade transaction depends upon a sequence of assisting factors. For example, ordering an e-book is dependent on access to a retailer’s website. This in turn depends on the management making the conditions under which the retailer creates the webpage and the cost for the consumer of Internet access which is affected by the regulatory conditions in the telecommunications sector. Finally, the buying of the e-book will also be affected by the facility to pay electronically and the tariff and non-tariff barriers dealt with by the physical device used to read the e-book.
Challenges of trade rules in the digital age
The usage and maintenance of data is the main challenge in the digital age. Digital trade is heavily dependent on moving, storing, and using data across the trade. Data in digital trade allows:
- Allows the coordination of international production processes through Global Value Chains (GVC).
- Helps small firms to reach global markets.
- Becomes an asset to be traded over.
- Becomes a channel for delivering services.
- Become a key part of automation in trade facilitation.
The worldwide transfer of data has arisen concerns by the government and the citizens about some possible threats of so much data being collected, transferred, and used, often without the knowledge of the data subjects. Privacy and security concerns have led to the growing calls for strict regulation of the Internet and the underlying data flows.
The digital trade harms the bargaining powers of the customers and questions have been raised on the issue that the widespread use of technology has led to the loss of jobs, inequality in terms of income, and greater concentration of market power and wealth.
How to ensure technology drives new, inclusive trade growth and recovery in the digital age
Technology is changing the economic activities and transforming how businesses work by allowing them to access data on consumer preferences and to adapt their marketing strategies to this data. Technology plays a significant role in digital trade and is always evolving to bring out the best in the world of digital trade.
- Technology helps to regulate the rules concerning digital trade and decrease customs compliance costs. For example, AI-based software can be used to aid businesses to handle regulatory compliance concerning international trade on digital platforms. It can be used to check and evaluate the regulatory changes and to make recommendations to clients to assure compliance. All of this is achieved by going through millions of pages of regulations, saving both time and monetary costs.
- Technology helps to save both time and resources spent on customs procedures. Digitilatizion decreases trade costs considerably but ineffective customs still trouble trade especially in manufacturing goods. New technologies such as the blockchain help further to diminish the costs involved in crossing borders. Lastly, decreasing the cost involved in the customs procedures would result in boosting both imports and exports in especially developing countries where these costs are high.
- Using technology helps to reduce the costs of matching buyers and sellers, getting market information, and providing information to potential customers. These help to increase participation in international trade and provide mechanisms such as feedback and guarantees that boosts customer trust in online sellers.
- Technology helps digital trade to overcome communication barriers. The Internet has played a significant role in breaking down language barriers across countries. Technology’s power is not limited to text translation anymore. The availability of software performing real-time interpretation such as Skype Translator reduces the significance of language barriers which opens the door to trade opportunities especially for small business organizations that have less developed language skills.
- Technology has developed e-commerce platforms to improve its payment systems across border digital transactions. In-house payment systems can ease the exchange of goods and services on their platforms and have improved to provide quick processing time and no processing fees. Amazon Pay and Paypal are a few examples of payment systems that are affiliated with e-commerce giants.
- Technology helps to reduce the costs involved in searching for trade partners and obtaining relevant market information. They tend to provide mechanisms such as feedback and it guarantees which improves the trust of consumers in online sellers and therefore bridge contract implementation matters connected to different legal institutions.
What can policymakers do to help businesses operate globally in the digital world
It is necessary to make policies for the development of digital trade and e-commerce. Policies should be made to maximize the benefits and opportunities of digital platforms while keeping in mind the different risks involved. Policies should be made relating to the circumstances varying in terms of a country’s readiness to get involved in and get the privilege from the digital trade. Usually, the least developed countries are not in a position to take charge of these challenges. The policymakers have to craft out rules and regulations for making digital trade flawless and efficient. Policymakers should make regulations mainly in the following areas:
- Information and Technology Communications infrastructure
- Education and skills department
- The labor market
- Competition matters
- Issues relating to science, technology, innovation, and taxation
- Trade and industrial policies
Australian free trade agreements
A free trade agreement is a pact between two or more nations to lessen the barriers to imports and exports among them. Free trade agreement allows the buying and selling of goods and services across international borders with no government tariffs, quotas, subsidies, or prohibitions to restrain their exchange.
The free trade agreements have proven extremely beneficial for Australia. It has provided greater economic activity and created jobs for the people of Australia and has provided opportunities for big and small Australian businesses to get benefit from greater trade and investment. Benefits Australia has got from using free trade agreements are:
- Have helped to eliminate the tariffs in trade.
- Have reduced the behind-the-border barriers that would have delayed the goods and services.
- Have encouraged investment and have developed the rules relating to issues concerning intellectual property, e-commerce, and government procurement.
- Have expanded the access of Australian businesses and consumers to a wider range of competitively priced goods and services, new technologies, and innovative practices.
- Foreign investments have been utilized well by the Free Trade Agreements.
- Free Trade Agreements boost regional economic integration and investment opportunities that contribute to the economic growth of less-developed economies.
- Free trade agreements reinforce the links between people to people and business to business which has improved Australia’s overall bilateral relationships with Free trade agreement partners.
- Free trade agreements can persistently provide additional benefits to Australia and trading partners which includes encouraging ongoing domestic reform and trade liberalization.
Points to keep in mind while framing digital trade rules for developing countries
The policymakers should keep in mind that:
- Policymakers should strengthen the involvement of trade to free, fair, non-discriminatory, transparent, and investment environments and to keep the markets open. No such steps should be taken that shall bring forward trade-restrictive measures that would prohibit the necessary flow of goods and services including digital service and technology and physical goods sold over the internet.
- The government should make clear and consistent guidance on essential workers that includes information and communications technology (ICT) workers. This will make sure that there is a continuation of critical ICT manufacturing and uninterrupted delivery of services.
- Policymakers should ensure the free flow of data across borders and no such measures should be taken that shall require using the local storage or processing of data or the use of local computing facilities.
- Policymakers should enhance cybersecurity as with the increased use of digital platforms it is possible to encounter problematic situations and should also protect the customers from all sorts of deceptive activities that take place online.
- Policymakers should layout assistance plans to provide technical and capacity building tools for developing countries to pursue appropriate data governance policies and practices.
- Policymakers should make sure that there are no discriminatory treatment of digital products and should avoid making definitions and standards that apply differently to digital and non-digital businesses.
- The policymakers should make provisions that are in sync with the WTO Moratorium on custom duties for electronic transmissions.
- Recognize the need for safeguarding the role of online services and intermediaries play in helping the communications and transactions in the process of digital trade.
- Should provide for opportunities for job creation in the new sectors of business and promote economic growth through the adoption of digital technologies that benefit digital trade to support Micro, Small, and Medium Enterprises(MSME) integration into global chains.
- Follow worldwide best practices in the adoption, application, and improvement of laws, guidelines, and different approaches identifying with information and developing technologies.
Many more policies can be thought of and enforced to prepare digital trade for the future. Digital technology should be used effectively and efficiently and in a well-guided fashion to ensure there are no loopholes in the current digital trade.
Need for appropriate democratic governance
The democracy and development of a nation depend on the free flow of data but unregulated collection and transfer of data can prove to be detrimental to the democratic functioning of the digital economy. To keep a check on the regulation of the collection of data and cross border transfer of data, people should appoint the appropriate governance. The capitalist environment made by the Transnational Companies(TNC) is affecting the democratic functioning in areas of media, knowledge, culture, transportation, agricultural, judicial, commercial, health, and other sectors, and damaging our democratic processes. Unrestricted free flow of data could prove harmful to the local economy and if the new rules of the unrestricted free flow of data get established then the TNCs will misuse the collected data and transfer it across borders.
How are the public interest data policies essential for the economic development and prosperity in a country
The most important aspect in the matters of digital trade is data and without the free flow of data, it would be almost impossible to conduct business digitally. However, if the flow of data is unchecked it can cost any economy huge amounts of money. The government should restrict the data. Most nations do not acknowledge the real value of data and so the government has granted permission to big companies to gather local data and transfer cross borders.
Data provides for the wealth-creating part opportunities in an economy and it should be used to facilitate the development of local businesses. It should not be abused by the high-value players in the digital trade to create a digital colonialism environment which can result in inequality. Developing countries should harness the value of data for domestic businesses and the financial improvement of the community.
To make sure that the public gets the proper benefit from the digitization of trade one has to lay out an arrangement for managing the policy space to maintain policies on the governance of data, which should include keeping the data locally or regionally. Restrictions should be made on the transfer of data by the big companies across borders. Nations should be allowed to require domestic data storage for keeping the data within themselves and local servers should be effectively used regularly.
Importance to privacy rights and policies promoting jobs
It is very important to make rules and regulations for matters relating to privacy and data protection. Every customer has the right to privacy and to have their data protected and not be misused for private profits by the TNCs or by the government against the privacy rights in the digital space. WTO should not take any measure which shall give corporations unrestricted rights to transfer data across borders and privilege commercial rights over consumer protection and privacy rights. All the rights about matters of labour, consumer, human, economic and civil rights must apply proportionately and impartially in the digital space and should not be labelled as barriers to trade.
The digitalization of trade should focus on the creation of new jobs and livelihoods. Trade policies have weakened the bargaining power of workers and e-commerce rules would further lessen the rights of workers and would bring inequality in many sectors. New rules that have been made to reinforce the structural inequalities between and within countries will not be accepted just because of a labor clause or gender clause. The most significant plan to ensure widespread and inclusive privileges from digital trade is a commitment to creating jobs towards full employment including labor rights and appropriate working conditions for all workers irrespective of gender.
Will digital liberalization decimate development and increase poverty in developing countries
Digital liberalization would decimate development and increase poverty in developing if it is made prematurely without taking any necessary precautions. If by chance, digital trade is expanded without developing productive capacities, developing countries will be opening their economies to overseas imports. Just linking to e-commerce platforms will not boost the exports but can turn to further damage to domestic market shares.
Developing countries have to focus on making local investments in the productive capacities to boost and enhance the value captured from production. Liberalization of digital trade has to be made with domestic investments to improve productive capacities otherwise it will result in destroying jobs and decimate MSMEs and severely restrict future development.
Policies to promote innovation, small businesses, and security, not more patent monopolies
Policies have an important role in the success of small businesses and industries. Many times, it has been seen that the focus of policymakers is mainly on big business and as a result, small businesses suffer. Therefore, it is important to develop policies to improve the business operations of small businesses.
Some of the important policy recommendations are:
- A policy must aim for the development of local and regional regions. Stable development of macroeconomic conditions must be ensured in the local regions. These regions have their characteristics and demands according to their businesses. There should not be widespread poverty scattered across the land and the wealth should not accumulate in one place.
- Policies should focus on making an environment to facilitate entrepreneurship and enterprise creation in which innovative young firms have a scope to increase rapidly once they have established themselves. It is an important factor that contributes to building an entrepreneurial society as it determines career preferences and helps to build attitudes to risk-taking and reward. The government has been providing education and training to develop an entrepreneurial culture and fostering entrepreneurial attitudes and values.
- Policies should focus on making an environment to facilitate entrepreneurship and enterprise creation in which innovative young firms have a scope to increase rapidly once they have established themselves. It should integrate the local development dimension into the encouragement of entrepreneurship.
- Reinforcing and supportive policies should be made to include sound fiscal and monetary regulations that are necessary to provide a basis for a stable macroeconomic environment. These also policies that determine the financial system in which the business sector operates such as labour markets, tax design, competition, financial markets, and bankruptcy laws. The way these policies impact enterprise creation and small business organizations must be kept in check in the formulation stages.
- Policies should ensure that the programs that are made to support SMEs and entrepreneurship are realistic in terms of cost and are designed to give measurable results.
- Policies should guarantee the reduction and simplification of the administrative regulations and costs which fall upon the SMEs.
Digital trade brings a lot of opportunities for individuals and firms of all sizes but it raises different challenges along with it. With the use of the Internet, goods can be searched for, purchased, and delivered all while sitting in the comfort of your home. People now have access to the international markets which would not have been possible without the use of digital platforms. Digital trade is regulated by the sound and safe rules laid down by the policymakers. Trade rules have to be modified and developed to cover every flaw that arises from using the mechanism of digital trade and contribute to the world economy. By developing and framing concepts, policymakers should be able to overcome all the challenges to make the most out of digital trade and make sure that the privileges of the digital age are reaped more inclusively.
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