Digitalization and trade
Queen’s Institute on Trade PolicyNovember 17-19
John DrummondHead of DivisionTrade in Services
HOW IS DIGITALIZATION CHANGING TRADE AND INVESTMENT?
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33Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
The digital revolution
Source: OECD
44Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Robotization
Source: International Federation of Robotics in OECD (2018)
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Robot
stock
(in tho
usands
)
World
Japan
China
United States
Korea
Germany
Italy
ChineseTaipeiFrance
Spain
Thailand
500
1000
1500
Robot stock among top 10 using economies, 2000-2016
55Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
• Rising number of small packages
• Changing business models
• New information industries (big data, quantum computing)
• Emerging technologies (Blockchain or 3D printing)
• Greater bundling of goods and services
Fundamental changes in what and how we trade
66Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Servicification: using, producing and selling services
Services inputs
Manufacturing firms use a higher number of services
inputs
Services activities within
manufacturing firms
There is more employment within manufacturing firms
in support service functions such as R&D,
design, logistics, marketing and sales
Services sold
bundled with
goods
Manufacturing firms increasingly sell services bundled with goods to
increase value
Intermediate consumption Production Output
Servitization
77Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
From mass consumption to mass customization
HOW IS DIGITALIZATION CHANGING THE GAINS FROM TRADE?
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99Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Digitization can increase the gains from tradeGains from technology-driven
productionMore efficient integration in
GVCs
Closer proximity to clients and better customization of products and services
More inclusive trade – new opportunities for smaller players
Easier access to global markets
Reduced trade costs
1010Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
SMEs are first to gain from removing barriers to cross-border services
0%
5%
10%
15%
20%
25%
30%
500,000 1 million 5 million 10 million 50 million 200 million
Firm Size
On cross-border exportsSpecialised and standardised services
Estimated additional tariff equivalent for SMEs compared to large firms of 400 million EUR or more
Additional trade cost of regulatory restrictions for SMEs
Source: Rouzet, D., S. Benz and F. Spinelli (2017), "Trading firms and trading costs in services: Firm-level analysis", OECD Trade Policy Papers, No. 210, OECD Publishing, Paris, https://doi.org/10.1787/b1c1a0e9-en.
11Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/trade | [email protected]
111111
Changes in share of income to intangibles by production stage, 2005-2015
11
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
TOTAL INPUTS FINAL PRODUCTION DISTRIBUTION
HOW IS DIGITALIZATION CHANGING BARRIERS TO TRADE?
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1313Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Data regulation is increasing
Note: Data protection regulations include different types of regulation relating to data transfers and local storage requirements. Numbers are affected by the way in which regulations are structured, as this varies by country; some countries may have a singleregulation covering a wide range of measures; others will have several different regulations covering, for example, restrictions on data flows for different types of data, and local storage requirements.
Source: Casalini and Lopez-Gonzalez (2019)
0
50
100
150
200
250
19721974
19781979
19811983
19851988
19901992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20112012
20132014
20152016
20172018
2019
Foreseen
Modifications Count of data regulation
1414Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Approaches to cross-border data flows
1515Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Approaches to cross-border data flows
• Absence of regulation on data flows, including privacy regulation.
• While data may flow unimpeded, absence of provisions on cross-border transfers may affect willingness of others to send data.
• Many LDCs
1616Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Approaches to cross-border data flows
• Approaches do not prohibit cross-border transfer of data nor require specific conditions to be fulfilled ex-ante BUT
• Provide for ex-post accountability for the data exporter if the data sent abroad is misused.
• e.g. firms send data but if something goes wrong they are legally accountable
1717Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Approaches to cross-border data flows
• Includes several sub-categories all relying on the notion of adequacy or equivalence as ex-ante condition for data transfer.
• and options available in the absence of adequacy (e.g.):
• Binding corporate rules,• Contractual clauses,• Consent…
• But differences on how adequacy is determined
A. Private sector evaluationor
B. Public sector determination
• Can include specific requirements on how data must be protected
1818Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Approaches to cross-border data flows
• Transfer also depends on public adequacy finding but• if not, authorisation subject to ad-hoc approval by
relevant public authority.
• Most restrictive approaches do not foresee provisions for adequacy. All transfers are subject to review by relevant authority.
• Often involves very specific types of data such as ‘health data’ but also ‘important data’.
1919Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
• Infrastructure and connectivity
• Electronic transactions
• Payment systems
• Intellectual property rights
• Other barriers
Barriers to digitally-enabled services (Digital STRI)
2020Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Open services policies matter
0
0.1
0.2
0.3
0.4
0.5
0.6
ARG AUS BRA CAN CHN DEU FRA GBR IDN IND ITA JPN KOR MEX RUS SAU TUR USA ZAF
Infrastructure Electronic_transactions Payment_systems Intellectual_property_rights
Other all_average stri_score2014
Digital STRI for G20 countries (2018)
2121Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Regulatory environment: key trading partners
0 1 2 3 4 5 6 7
Inefficient regulation on interconnection
Limitations on cross-border data flows: adequacy or equivalence
Certain data must be stored locally
Lack of online tax registration and declaration
National contract rules deviate from international rules
Lack of protection of confidential information
Discriminatory access to payment methods
Discriminatory treatment of foreigners for the protection of copyrights
Local presence requirements
Canada United States United Kingdom Germany Brazil China
2222Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
Regulatory trends
79%
21%
Nature of changes 2014-2018Tightening Liberalisation
0
2
4
6
8
10
12
2015 2016 2017 2018
Number of changes
Tightening Liberalisation
WHAT’S NEXT FOR RULES-BASED DIGITAL TRADE COOPERATION?
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2424Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
• …e-commerce negotiations?
• …WTO customs duty moratorium?
• …cross-border data flows?
• …services?
• …trade and tax?
What’s next for…
2525Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/tad | [email protected]
• Need new approaches to realize the potential benefits of digital trade.
• Think holistically: The benefits of the digital transformation for trade are contingent on a combination of factors spanning goods, services and digital connectivity.
• Think collectively: Digital infrastructures are born global, but they raise key challenges in a world where regulatory differences between countries remain.
• Apply basic principles: Transparency; non-discrimination; avoiding unnecessary trade restrictiveness; interoperability; technological neutrality.
Digital market openness
26Trade and Agriculture Directorate | Organisation for Economic Co-operation and Development (OECD) | www.oecd.org/trade | [email protected]
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