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Digital trade and global governance of the digital economy

It is easy to forget that a decade ago, the digital economy was tiny in most countries. This is changing, and in many regions accelerated by the COVID crisis. The global growth of the digital economy has, however, not been matched by the growth of domestic digital firms. Rather, we have seen a growth in digital firms located in technologically-leading economies, operating across multiple markets and often with limited local investments.

This state of affairs has important implications globally, especially for countries who are looking to ‘catch up’ with technologically leading nations. In these contexts, digital development is as much about how policies (at all levels) shape foreign digital firms as it is about nurturing domestic digital economies.

We explore these issues in a recent paper which discusses the way that policies around digital technologies and data flows are becoming entwined with international trade [1]. We specifically look to examine such debates through a political economy perspective. Perhaps when we first started researching this topic a few years ago, connecting digital development outcomes to global political economy was an obscure topic. But in an era of app bans and global trade wars driven by a desire to control advanced technologies, political economy approaches are becoming ever more important.

Global governance and digital trade

Emerging from the birth of the Internet, so-called “Internet Governance” (IG) organisations were designed to govern technical issues as the Internet expanded globally (e.g. IP address allocations and standards). While there have been attempts to bring broader economic and social issues under the IG umbrella, the lack of formal rule making power limited the political power of these organisations.

As cross-border flows of data have expanded globally, actors have sought to integrate the governance of digital technologies and data within rule making on trade, typically referred to as “digital trade”. The goal of trade agreements is to encourage free-trade across borders. Following this, digital trade chapters in trade agreements look to enforce “open” digital trade, for example in binding commitments to “free flows of data” across borders and rules to prevent signatories undertaking certain domestic policies around digital and data [2]. The CPTPP (11 nations bordering the Pacific) and the USMCA (US, Mexico, Canada) are examples of recent trade agreements that include chapters with binding “digital trade” rules.

Clearly digital technologies and data have overlaps with trade, particularly in areas like e-commerce. But it is not clear if trade agreements are the most appropriate place to globally regulate digital and data [3]. From a political economy perspective, one can associate the growth of digital trade with the power of technologically advanced nations such as the US and Japan who seek to more strictly govern global norms around digital, and push open data flows. These nations are strongly backed by lobbying of ‘big tech’ firms who see such open digital trade as central to their global expansion.

Trade agreements are powerful because they offer binding rules unlike other spaces of global governance. In addition, dispute settlement mechanisms in trade agreements mean that signatories who break rules can face serious consequences. Even for a nation with a small digital economy, trade agreements can mean that breaking digital trade rules will lead to retaliatory tariffs in other sectors.

Ultimately the inclusion of digital trade in trade agreements (regional and bilateral) is a first step to powerful nations establishing digital trade rules at a global level. This would be through digital trade agreements in the World Trade Organisation (WTO). Digital trade rules at the WTO are controversial, not only because they look to enforce open digital trade globally, but because they potentially override existing trade agreements where developing countries have negotiated exceptions (such as the General Agreement on Trade in Services – GATS). These exceptions are thrown into question if goods and services that are transmitted digitally are subject to new rules [4].

This is best illustrated in the case of financial services, where some developing countries are permitted in WTO agreements to impose regulations on foreign operators to support development. But when a financial service becomes an application which is delivered digitally, how this is regulated can become a grey area. Would developing countries be able to continue to legitimately impose barriers, or would they be prevented if digital trade rules were present?

Global conflicts around digital trade

The path to binding digital trade rules within trade agreements has not so far been a smooth path. There is significant divergence in positions across powerful countries, including in Europe and China who see more strategic approaches and policy around digital as being an important part of their future development.

Vocal opponents to digital trade have also come from developing countries, especially India, South Africa and the “WTO Africa Group” [5]. They have opposed such rules arguing that they would override previous trade agreements, and potentially limit them undertaking new types of “industrial policy” to catch up in the digital area [6].

So far these alliances, alongside the recent anti-international approach of the Trump administration, has meant that digital trade has moved slowly and mainly in regional and bilateral agreements. But this story is still unfolding, and the political economy of digital trade is liable to change rapidly in the future.

These tensions are not just of policy concern. From licencing apps in the gig economy, to supporting local data pools for community development, to taxing the digital economy. Digital trade touches on crucial future directions of digital development [2].


References

[1] Azmeh, S., Foster, C.G. & Echavarri, J. (2020) The International Trade Regime and the Quest for Free Digital Trade. International Studies Review, 22(3), pp. 671–692.

[2] For details on specific policies on digital trade, we have launched an accompanying website – The digital trade tracker tracks digital trade policy and its relevance to development

[3] Aaronson, S.A. (2016) The Digital Trade Imbalance and Its Implications for Internet Governance, Paper 25, Centre for International Governance Innovation, Waterloo, Canada.

[4] Kelsey, J. (2018) How a TPP-Style E-Commerce Outcome in the WTO Would Endanger the Development Dimension of the GATS Acquis (and Potentially the WTO). Journal of International Economic Law, 21(2), pp. 273–295.

[5] Foster, C. & Azmeh, S. (2018) The Digital Trade Agenda and Africa. Bridges Africa, 7(2). Available at https://infomediation.net/publication-the-digital-trade-agenda-and-africa/

[6] Foster, C.G. & Azmeh, S. (2020) Latecomer Economies and National Digital Policy: An Industrial Policy Perspective. Journal of Development Studies, 56(7), pp. 1247–1262.


Image Credit: Kofi Annan, Monhla Hlahla and Gao Xiqing – World Economic Forum on Africa 2012 – Wikimedia Commons – CC Attribution Sharealike

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