Trade is in trouble. Can technology help?
Head, Sustainable Trade, World Economic Forum
- According to the World Trade Organization trade growth is set to slow sharply in 2023.
- Trade and investment are engines of growth that can be harnessed for sustainable development.
- We must explore ways to apply technology to improve trade in goods and services.
Trade growth is set to slow sharply in 2023, according to World Trade Organization (WTO) forecasts, as the global economy faces persistent inflation, high energy costs, monetary policy tightening, food and fertiliser shortages, and debt distress in developing countries. Amid these challenges, urgent climate action is needed to avoid even more distress.
Trade and investment are engines of growth that can be harnessed for sustainable development. But with these engines spluttering, it will be much harder to deliver the innovation, capital, know-how and jobs we need. What can we do to get trade – and investment – out of trouble to build a green, inclusive future?
Technology is often offered as a solution to global problems. Sceptics might argue that no amount of technology can address the major geopolitical risks facing trade and investment. Others might say that technology is actually a driver of fragmentation – witness the divisions over the governance of data flows, or the recent commercial conflict over green tech subsidies.
However, we know technology has already been a massive trade accelerator, and so perhaps it’s worth digging deeper. Growth in global flows of services and intangibles grew at nearly twice the rate of goods flows over the past two decades, underpinned by data movement, telecommunication advances, and new tech business models. In the year ahead policy-makers must explore ways to apply technology to improve trade in both goods and services.
We are at a tipping point where technologies are changing physical trade faster than ever. Artificial intelligence (AI), distributed ledger technology (DLT), 3D printing, smart sensors, and more are combined for more supply chain resilience, speedy border clearance, better risk management, and financial crime mitigation.
These developments could also be incredibly powerful for planet and social goals. For example, governments and consumers want to know imported products have not led to deforestation, or driven child labour. The EU, for example, recently agreed tighter controls on forest-linked commodity imports like palm oil, cacao, and soy, among others.
Product traceability enhanced by Internet of Things (IoT) devices, blockchain storage of transactions and increased transparency, and smarter algorithms for assessing risk, can help to meet these demands.
More collaboration is urgently needed though to reduce digital identity silos, increase system operability, and improve the regulatory environment. Very few trade agreements to date touch on the topic of digital identity – the Digital Economy Partnership Agreement (DEPA) and Singapore-Australia Digital Economy Agreement (SADEA) are frontrunners.
Another challenge business highlight is the uneven treatment of IoT devices used on containers by customs authorities. In some cases, these will be treated as a definite import, leading to substantial duties. Tackling these technical issues could really help trade move forward more efficiently and sustainably.
At the same time, technology is also vital for reducing the costs and accelerating services trade. According to the OECD, trade costs for financial, communication and business services fell between 30-60% between 2000-2019, with about half of these cost reductions linked to ICT and travel.
Interestingly, services provisions in trade agreements explain another 3-14% of the reductions, highlighting the need to combine innovation with policy collaboration. While services account for more than six out of 10 jobs, services trade costs are twice as high as those for goods, mostly linked to opaque regulations and cumbersome procedures.
Services traded through digital technologies in particular accelerated through COVID-19. Many digital services will be vital for climate action too. By some estimates, 20-25% of the emission reductions needed for a net-zero EU economy require some degree of digital enablement to work at scale and at an acceptable social cost. That includes things like remote control systems for smart heating, data aggregation on supply chain emissions or improving farming techniques through real-time weather, crop, and other analysis – often delivered across borders or combining inputs from multiple locations.
Just over a year ago, a group of 66 WTO Members – responsible for 90% of world services trade – struck a deal to reduce red tape on services trade. The deal focuses on greater transparency for business services compliance, creates more predictability around services authorisation requirements and encourages more impartial regulatory processes.
Stakeholders should advocate for more countries to join this deal, particularly in economies where the regulatory environment holds back innovative services deliver.
And more intergovernmental dialogue is sorely needed for sustainable digital services. Since 2020, European and G20 governments have introduced over 1,700 legal and regulatory requirements in digital sectors, and not always in a coordinated fashion. While regulation can serve important purposes, if designed in a trade restrictive way or implemented with limited transparency, the gains from services trade for growth, jobs and the environment risk being set-back.
Collaboration is the key to get technology applied correctly to unlock sustainable growth.