DDG Ellard highlights impact of technological developments on global trade

DDG Ellard highlights impact of technological developments on global trade

In a keynote speech at the 2023 Annual WTO Conference organized by the British Institute of International and Comparative Law in London on 6 October, Deputy Director-General Angela Ellard outlined how technological developments are changing the face of international trade. She stressed the increased role of services, especially digitally-delivered services, in the global economy, and how new technologies have helped to facilitate trade and improve transparency. She also outlined the latest state of play in negotiations on updating WTO rules. The text of her speech is below.

Ladies and gentlemen, good morning. It is a pleasure to be here with you today.

First of all, I would like to thank BIICL and its Director Professor Maniatis for the invitation to deliver an opening speech at this important conference. I would also like to commend BIICL on all the work it has been doing on researching, teaching, and publishing on pressing legal and policy issues, including on international trade and the WTO.  To me, BIICL stands for objectivity, rigor, and creativity, so it is an honor to open your conference. Thanks also to our own Gabrielle Marceau for her steady leadership in organizing this conference over the years.

It is an obvious point that technological developments are changing the face of international trade today. But how and why that is happening is quite complex, with many implications for policy making at the national and international level.

Let me give you three examples. The first one is services.

Global exports of services exports reached a record US$7.2 trillion in 2022, up 17 percent in just one year.  There is considerable scope for further growth — at the WTO, we estimate that the share of services in world trade could reach one-third by 2040. And that’s a conservative estimate because it does not account for all the different ways in which services may be traded, such as Mode 3, when a service supplier establishes a presence abroad.

Much of this growth is due to technological developments allowing many services that traditionally required proximity between producers and consumers to instead be traded remotely. I am sure that many of you have streamed music on Spotify, sweated through a fitness class remotely, or maybe took or delivered one of the virtual BIICL training programs.

Since 2005, exports of digitally delivered services have more than tripled, far outpacing trade in goods and other services. This trend accelerated during the pandemic — leaping by 30% in 2021 compared to 2019.  In 2022, the value of digitally delivered services reached $3.82 trillion, or 12% of total global trade. Digitally delivered services also becoming increasingly important as inputs into the production of other services.

These figures stand in stark contrast to the claim we’ve been hearing that globalization is ending (or de-globalizing).  Such a demise has been greatly exaggerated, to borrow from Mark Twain from the other side of the Pond.  Instead, the nature of globalization is changing, and trade in intangibles, such as services, plays an increasingly important role. Trade in services will continue to increase as we enter the era of the ‘intangible’ or ‘digital’ globalization. At the WTO, we often say that the future of the global economy is more green, inclusive, and digital. The data illustrate the relevance of digitization quite well.

But let’s also not forget the essential role of trade in goods as an enabler of this “intangibility” trend. The emergence of a data-driven global economy, and transformational technological advances, such as Artificial Intelligence, would never be possible without, for instance, today’s very “tangible” computers capable, thanks to their evermore performing microchips, of unimaginable computation capacities to process and crunch data. This trend would also not be possible without very sophisticated telecommunication physical infrastructure. Trade liberalization in these goods, both in reducing tariffs as well as non-tariff barriers, has played, and will continue to play, a key role. So, we see a goods-services dyad, in which one reinforces the other.

This brings me to my second example:  there is great potential for improving cross-border flows of goods through a variety of technology tools, such as Artificial Intelligence, blockchain, and customs e‑declarations, which can cut trade costs substantially.

Technology has simplified the process of customs clearance, helping customs authorities navigate challenges, such as strained human resources and supply chain vulnerabilities, as well as risks associated with online sales. Our joint research with the World Customs Organization has shown that customs authorities increasingly rely on big data analytics, artificial intelligence, and machine learning to manage risks, detect fraud, and ensure greater compliance. The use of blockchain technology can further facilitate the flow of information between companies and customs authorities and simplify customs clearance. For example, BConnect, a network connecting customs of Mercosur members, is a pioneer in leveraging blockchain technology to facilitate the exchange of customs data among participants.

But to realize this potential, we need to overcome the growing risk of digital regulatory fragmentation. One of the key contributions of the WTO on this front is prioritizing harmonization with international standards. The TBT Agreement requires that our Members align their national regulations and procedures with relevant international standards, promoting interoperability. International standards play a vital role in the safe and secure deployment of novel digital technologies, sitting at the interface between technological possibility and societal expectations.

My third example is how we use technology at the WTO to improve transparency, reduce trade frictions, and modernize our ways of working.

In particular, we have developed an innovative E-Ping platform, used by WTO Members last year to submit more than 6000 notifications of upcoming changes to their regulations, whether to protect the environment, set requirements for digital products, ensure food safety, or achieve other policy objectives. Any interested stakeholder can register to receive customized alerts on regulatory developments affecting products of interest to them and even to communicate with other stakeholders. This is a concrete example of how the WTO can leverage technology to help facilitate trade.

We are also harnessing digital technologies to modernize the working practices of our committees and Councils. For instance, the eAgenda platform allows our Members to collaboratively build the agendas of meetings online, promoting transparency and cooperation. These tools have increased efficiency of meetings, and helped Members resolve trade concerns.

The technological revolution means more than simply increasing the volume or ease of trade.  It also holds great promise for integrating into the global trading system those developing countries and LDCs that have not fully benefitted from globalization.  It can also allow more Micro, Small and Medium-Sized Enterprises (MSMEs), women, and youth to participate more effectively in regional and global trade, make trade more inclusive — better for them, and better for their economies and societies. Digitally delivered services can also be a lifeline for countries affected by disasters or conflict, and with limited access to infrastructure. For example, in 2022, in Ukraine, exports of IT services reached the historic high of $7.34 billion, even as the county’s economy contracted by a third.

However, to fully realize the potential of new technology and the value and growth it brings, we need an adequate ecosystem, including good connectivity, sufficient skills, logistics and payments systems, and enabling a policy framework. We need to tackle the many existing impediments to trade in services, such as barriers to cross-border payments and data flows, commercial presence requirements to supply services, and restrictions on foreign investment as well as on the ability of people to move abroad to supply services. Our WTO Members’ work on technology transfer from developed to developing countries is aimed at enabling economic diversification, creating better jobs, and promoting sustainable development.

The current WTO framework was put in place in 1995, light years ago in technology terms.  WTO Members are working to improve the existing tools and developing new ones to reflect the changing nature of trade.

Let me elaborate on some of that work.

Moratorium on e-commerce and work programme

I’ll start with what WTO Members have been doing at the multilateral level.

At our 12th Ministerial Conference (MC12) last June, WTO Members agreed by consensus to extend until our next Ministerial Conference the longstanding moratorium on customs duties on electronic transmissions, which has been consistently but periodically renewed since 1998.  This issue does not get much limelight with the public at large.  But many businesses, large and small, view it as vital because it preserves a trade policy environment that is supportive of e-commerce in general, not just regarding duties, but also cutting non-tariff barriers and red tape.  Our Ministers must decide by MC13 in February 2024 whether they will continue this moratorium.

The disagreement between those who support the extension of the moratorium and those who do not relates to its scope and potential economic effects.  On the one hand, some developing countries consider the moratorium as limiting their ability to raise revenue as more physical products become digital — movies, books, or 3D-printable products.  Some studies estimate the amount of lost revenue between $280 million and $10 billion per year.  They also see the moratorium as perpetuating the digital divide.  But on the other hand, developed and many developing countries argue that any extra tariff revenue would be far outweighed by negative economic consequences that country would see in the form of higher prices and reduced consumption, which would slow down GDP growth and shrink tax revenues. They see more digital trade as a powerhouse tool for development.  Abandoning the moratorium may lead to regulatory fragmentation, with different countries following different approaches, which would be very costly for businesses, especially small ones.  A recent IMF study found that a value added tax is a preferrable policy instrument to border taxes on electronic transactions.

As we approach MC13, discussions will continue to address the gap between these two positions.

In line with their commitment at MC12, WTO Members have also reinvigorated the work programme on electronic commerce, a longstanding framework for Members’ deliberation on all trade-related issues relating to global e-commerce, particularly development-related issues. In particular, Members have been discussing the digital divide in concrete terms related to digital infrastructure, connectivity, affordability, and capacity building.

Our joint research with the World Bank suggests that improved access to technology would be particularly beneficial for women and MSMEs (38% of which are female-owned).  The International Telecommunication Union estimates that only 19% of women in LDCs and 50% in developing countries were connected to the Internet, compared to 86% in the developed world.​  Access to a smartphone, the Internet, and relevant digital skills can help women gain access to finance, start a business, sell products in new markets, and obtain or provide health and educational services.  And that in turn benefits their families and communities. Better Internet access has a multiplier effect on development, particularly as it enables leapfrogging other technologies already becoming obsolete.

Plurilateral initiatives

Efforts to update WTO rules on services and digital economy also take place through joint initiatives among groups of Members, or “coalitions of the willing”, in addition to our multilateral negotiations.  Groups of WTO Members are pursuing this initially plurilateral approach because they seek a depth and breadth of coverage that has proven elusive at the multilateral level, while hoping that all Members would eventually participate.

Before I describe these initiatives, I must note that some WTO Members do not support such arrangements or even the negotiations because they consider that the WTO should be engaged only in multilateral initiatives.  Supporters, however, point to the WTO’s founding documents to demonstrate that plurilateral agreements have always been part of the WTO architecture, they are often the only way forward on some issues, and they can lead to multilateral agreements in the future when the rest of the membership is ready.

There are three joint initiatives at the WTO, which are specifically aimed at developing new disciplines on services, e-commerce, and investment facilitation.

First, in 2021, 70 WTO Members representing over 92% of global services trade concluded negotiations on Services Domestic Regulation, a set of good regulatory practices that will lower business costs by making rules simpler and more transparent. Many services sectors are for good reason highly regulation-intensive and require service providers to obtain licenses, certifications, or permits to demonstrate their ability to supply the services in accordance with these regulations. Think of financial services, for example. But the administration of such regulations can be complex and non-transparent, making it difficult for foreign service providers to navigate the regulatory landscape.

The purpose of this initiative is to simplify authorization processes, cut red tape, and increase transparency and predictability for service providers, including MSMEs.  The WTO and the OECD estimate that these new rules will help reduce the costs of global services trade by more than $150 billion per year.

The initiative also marks the first time in the WTO’s history that a gender equality provision was included into the text of a WTO outcome.  Specifically, Members have committed to non-discrimination between men and women in their services regulations, paving the way for women’s economic empowerment through participation in services trade. We are particularly proud of this outcome.

I note that implementation of the domestic regulation agreement has been complicated by an objection by some Members to the submission of the updated services schedules, relating to the question of whether plurilateral initiatives are appropriate for WTO negotiations, as I mentioned earlier.  The Members are engaged in consultations, and we hope it will be resolved quickly.

second area of work in the WTO that has gained considerable attention these days is the ongoing plurilateral joint initiative on e-commerce.  Eighty-nine WTO Members, including many developing countries and a few LDCs, participate in this effort to develop baseline rules governing the global digital economy.  Participants are seeking to establish common disciplines to facilitate remote transactions and strengthen trust in digital markets. The disciplines discussed address both trade facilitative issues, such as e-signatures, on-line consumer protection, and paperless trade, as well as trade restrictive measures in the digital sphere, such as restrictions on cross-border data flows and data localisation. Participants have made substantive progress and are aiming to substantially conclude these negotiations by the end of the year.

It is noteworthy that Members participating in the initiative recognize the significance of ensuring that digital trade is inclusive as well as addressing the obstacles faced by developing and least developed countries seeking to benefit from the digital economy.  In this regard, the ‘E-commerce Capacity Building Framework’ launched by Australia, Japan, Singapore, and Switzerland is a key step to strengthen digital inclusion and to help harness the opportunities of digital trade.  The Framework will offer a wide range of technical assistance, training, and capacity building to support the participation of developing countries in the e-commerce negotiations.

Third, a few months ago, 110 of the WTO’s 164 members concluded negotiations on all the substantive provisions of an agreement on Investment Facilitation for Development. This deal would help developing Members in particular as they improve their investment climate and attract, retain, and expand foreign direct investment. The agreement will make governments’ investment-related measures more transparent and predictable by cutting red tape in investment-related administrative procedures and by ensuring developing countries receive the technical and capacity support they need to implement the new rules. The goal is to promote sustainable investment:  the agreement notably contains anti-corruption measures and provisions to encourage responsible business conduct.  Participants are now thinking how to incorporate the new agreement into the WTO architecture and are hoping to make headway in time for our Ministerial Conference in February. In this context, they are reaching out to all WTO Members, including non-participating Members.

In addition to these three initiatives, some industry associations are advocating to expand the coverage of the WTO Information Technology Agreement (ITA), a series of two plurilateral agreements that slash duties on high-tech goods, such as computers, mobile phones, and semiconductors. The value of products covered by the ITA reached $3 trillion in 2021. During the pandemic, dozens of products covered under the ITA2, such as pulse oximeters, saved lives. Furthermore, access to IT products and information and telecommunications infrastructure is paramount for the engagement of small businesses in e-commerce.  In other words, extending the scope of the ITA further could also spur trade in services as well as goods.

In addition to these initiatives, our Members are engaging in discussions regarding technology-related issues in various specialized committees.  For example, governments have been increasingly notifying the WTO’s Committee on Technical Barriers to Trade about their measures affecting digital products, e-commerce, and cybersecurity.  In fact, the level of interest to these topics is so high that the Committee has held thematic sessions on current challenges and best practices in some of these areas.

Technology and Green Transition

Let me now say a couple of words about the role of technology in the green transition. 

It is now widely recognized that trade, and the WTO as the guardian of multilateral trade rules, can be part of the solution to help achieve climate goals.

To transition to a low-carbon economy, countries need affordable access to advanced technologies.  Open trade plays a vital role in providing such access. Reducing barriers to trade in environmental goods and services would help facilitate the transfer and deployment of climate change mitigation and adaptation technologies. Wind turbines, solar panels, water heaters, hydropower turbines, and equipment for biogas production must move across borders as freely as possible if we want to achieve our climate goals.

Our WTO analysis suggests that eliminating tariffs and reducing non-tariff measures on some energy-related environmental goods could increase global exports in these products by 5% by 2030. Most importantly, this boost in the use of climate-friendly technologies could lead to a reduction of net carbon emissions by 0.6 %.

Trade in environmental goods goes hand in hand with environmental services. Installation and operation of clean technology is often complex and requires specific skills that can be difficult to source domestically. Removing barriers on environmental services, such as environmental engineering or soil conservation services, can also help reduce costs of projects that lower emissions.

Market opening in these sectors can also spur economic development by generating economic growth and employment.  For example, the rooftop installation cost of photovoltaic modules accounts for approximately 60% of the total cost — so a broad range of jobs can be created through tariff liberalization.  We are seeing an acceleration of new jobs, especially in Africa, in off-grid decentralized renewables, which also boosts employment in other sectors such as agro‑processing, health care, communications, and local commerce.

Given the WTO’s broad membership, which includes countries with different political systems and levels of development, we offer a unique forum for discussions on reducing barriers to environmental goods and services and facilitating international cooperation, which is crucial for the green transition.

Technology and trade frictions

My final point is that technology is also the source of many trade tensions today.  For many countries, technology is at the heart of foreign policy, national and economic security, and geopolitical frictions, which are becoming more profound.

In the last couple of years, we have witnessed attempts to “onshore”, “nearshore”, or “friend-shore” supply chains for sensitive technology, which has fuelled the de-globalization narrative.  Given the strains put on global supply chains first by the pandemic and then the war in Ukraine, the temptation to do business only with “friends” (however those are defined) is understandable, even if it increases costs a little — or even a lot.  But the consequences of taking this too far will be counterproductive — less resilience, more vulnerabilities, and greater exposure to shocks.  This is especially true given increasingly frequent and more intense natural and man-made disasters — such as extreme weather events and climate change, pandemic, and armed conflicts.

The simple fact is that not one single country or even a few countries can produce everything — or even most things — domestically.  The key to supply chain resilience is therefore more international cooperation and more diverse supply chains, not less.

Moreover, consider other unintended consequences of isolationism: our research at the WTO shows that decoupling of the global economy into two blocs instead of further liberalization would slash real income at the global level on average by 8.7%.  And the numbers for developing countries and LDCs are in double digits. The high cost of fragmentation shows that the pull toward globalization cannot, and should not, be ignored, despite pressures to become more isolationist and self-sufficient, particularly in the area of technology.

To conclude, let me reiterate that the future of globalisation will be determined by services and digitization, as we leap from an arithmetic increase in technology to an exponential one.  To make sure all are able to reap the benefits of this second surge of globalization, we need to make sure we have adequate rules regulating services and digital economy at the global level, that those rules work well for countries at every level of economic development.  And that’s where the WTO comes in.

Thank you for your attention.

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