This week, Naples, Florida will play host to the 2019 NEMA Annual Meeting, an event that brings together the U.S. electroindustry C-Suite and select industry suppliers to discuss the megatrends impacting electrical and medical imaging manufacturers. The theme of this year’s meeting is “Securing Our Connected Future,” and discussions will focus on the challenges and opportunities arising from data-rich products and systems. One of the pivotal issues being highlighted is digital trade.
As the conference takes place, preparations are already underway at the World Trade Organization (WTO), and with dozens of WTO member representatives, to embark upon their next round of negotiations regarding the WTO Joint E-Commerce Initiative. The Initiative explores new rules to govern the “trade-related aspects of electronic commerce” [i] including data flows, privacy, cybersecurity, and customs duties.
What is Digital Trade?
As a quick primer, “electronic commerce” or “e-commerce” and “digital trade” are often used interchangeably. The Office of the United States Trade Representative (USTR) defines digital trade as “capturing not just the sale of consumer products on the Internet and the supply of online services, but also data flows that enable global value chains, services that enable smart manufacturing, and myriad other platforms and applications. Some portion of nearly every business is digitally enabled, and every industry leverages digital technology to compete internationally.”[ii]
Why is This Important?
Today, digital trade is contributing more to GDP than financial or merchandise flows and is growing on a global basis. Digitalization is not only creating new trade opportunities for firms to sell more products to more markets but is also increasing trade in goods and services across all sectors and allowing countries to draw greater benefits from trade agreements. In fact, the OECD estimates that ICT services trade increased 40% from 2010 to 2016.[iii] Further, global GDP growth is projected to increase by $450 billion each year due to digital flows.[iv] Analysts estimate that digital flows of goods, services, and finances will rise to $85 trillion by 2024.[v]
Whether we realize it or not, all companies, governments, and consumers living and operating in the digital economy rely upon digital trade. But, unlike trade in traditional hard goods and services, the rules governing digital trade in the global marketplace are not yet written. And until they are, we are all operating in an ungoverned space that limits our ability to realize the full potential of the digital era.
What are the Rules?
In general, new multilateral rules to govern trade have not been updated significantly since the arrival of the Internet and the digital economy. Indeed, a few bilateral and regional agreements have incorporated new rules in the form of digital trade chapters, but in global terms, the digital trade landscape continues to operate like the “Wild West”. And because the adoption of new rules requires the debate and review of multiple challenging topics, digital trade may be one of the most important and complex policy issues of our day. In addition to covering the traditional areas of predictable, free and fair trade, digital trade policy addresses fundamental questions about data, trust, and sovereignty.
Why is This Challenging?
The benefits of the digital era have not come without cost. While the economic benefits of digital trade cannot be questioned, the ubiquitous access to and exchange of data has given way to several legitimate debates and concerns about the access to and ownership of global citizens’ personal data. This has led to legitimate questions of who owns personal and non-personal data, how that data should be shared with companies and across national borders, and how privacy and security concerns around this data can be addressed. Furthermore, countries want to ensure that new rules governing global digital trade do not inadvertently prevent them from both protecting their citizens and realizing their own gains from the digital economy.
What is Emerging?
As a result, governments are responding with a myriad of public policies and regulations. According to the Organisation for Economic Cooperation and Development (OECD), government data regulations have steadily increased from zero in the early 1970s to presently over 200 independent regulations globally[vi]. What has emerged is essentially three approaches to data policy: 1) an open approach that allows for the free flow and use of data; 2) an approach that supports openness but with an acknowledgement that personal data belongs to citizens and that data privacy is a fundamental human right; and 3) an approach that restricts the use and flow of data and allows the state unfettered access to data. These data philosophies are manifesting in various proposals that will play out in the WTO e-commerce negotiations.
What Does Schneider Electric Support?
Over the past 15 years, we have undergone a transformation of our own, from pure electrical products – where we have a world leading franchise – to the world of connectivity enabled by digital transformation, the Internet of Things (IoT), and artificial intelligence (AI). We develop connected technologies that harness data to manage energy and processes in ways that are safe, reliable, efficient, and sustainable for the benefit of society.
International agreements on digital trade are important building blocks that inform how global businesses design solutions and conduct operations. They provide consistent rules and predictability that foster economic growth, establish guidelines for how companies can import and export digital products and services, and determine how these products and services can be architected to allow for the most efficient and effective delivery of services to consumers. At Schneider Electric, we support a global trading system that is open and addresses government and citizen security and privacy concerns through a foundation of trust. Specifically, we support the:
- Relief of customs duties on digital products, thereby reducing unnecessary costs on the delivery of digital products and services.
- Enablement of the free flow of cross-border data and we caution against data localization laws, which only increase data barriers to consumers.
- Adoption of risk-based and consensus-driven cybersecurity approaches that more effectively combat digital threats when compared to prescriptive and mandatory approaches that limit positive security outcomes.
- Establishment of rigorous and interoperable national legal frameworks that enhance the privacy and protection of personal data so that data may flow freely with trust.
- Preservation of corporate innovation through strong intellectual property protections that prohibit source code transfers as a condition for import, distribution, sale, or use, as well as ensuring robust patent lifespans and protections against counterfeit products.
How Should We Prepare for the Future?
We remain hopeful that the WTO e-commerce negotiations will bear fruit in the coming years, but we understand these negotiations will take time. We believe industry must be vocal in supporting the WTO’s efforts in this space, while simultaneously planning for the possibility that countries choose not to harmonize their approaches, which could lead to fragmentation and regionalization of digital trade policy. There is far too much to be gained together and too much lost through disharmony. For this reason, we are encouraged by the digital trade chapters of the USMCA and U.S.-Japan agreements, and we strongly praise the excellent work of the WTO to advance a plurilateral agreement on digital trade, potentially spanning across all WTO members. We fully support efforts to tackle public policy challenges in a multilateral setting so that the world’s trading partners, their citizens, and global society can arrive at an outcome that benefits us all.
[i] World Trade Organization. DG Azevêdo meets ministers in Davos: discussions focus on reform; progress on e-commerce. https://www.wto.org/english/news_e/news19_e/dgra_25jan19_e.htm, accessed October 31, 2019.
[ii] Office of the United States Trade Representative. 2018 Fact Sheet: Key Barriers to Digital Trade. https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/march/2018-fact-sheet-key-barriers-digital, accessed October 31, 2019.
[iii] Organisation for Economic Cooperation and Development. Trade in the Digital Era. https://www.oecd.org/going-digital/trade-in-the-digital-era.pdf, accessed October 31, 2019.
[iv] Organisation for Economic Cooperation and Development. Trade in the Digital Era. https://www.oecd.org/going-digital/trade-in-the-digital-era.pdf, accessed October 31, 2019.
[v] [v] Organisation for Economic Cooperation and Development. Trade in the Digital Era. https://www.oecd.org/going-digital/trade-in-the-digital-era.pdf, accessed October 31, 2019.
[vi] Organisation for Economic Cooperation and Development. Digital Trade. https://issuu.com/oecd.publishing/docs/digital_trade, accessed October 31, 2019.