Surfing the digital wave: Developing enabling rules for digital trade

Surfing the digital wave

Digital technology is transforming everything about the way that we live, work and do business.  Trade is no exception.  But how to “surf the digital wave” successfully, rather than getting swept up in a digital tsunami, is challenging.   New Zealand is involved in two important new negotiations trying to develop trade-friendly digital rules to benefit Kiwi businesses and consumers.

We’re all digital now

“Digital trade” is about far more than simply exports of software or videogames: it takes in goods trade – think exports of milk to China – exported via large e-commerce platforms like Amazon and Alibaba, streaming services like Netflix, internet-based services like logistics or accounting, and even cloud computing.   Data flows – which underpin all digital trade – are now as crucial to the global economy as electricity or labour. 

New rules are needed to realise the promise of inclusive growth

Digital trade holds huge promise, including for groups that have struggled to succeed in traditional trade – it gives instant, low-cost, global reach to small businesses (which make up the bulk of the New Zealand business community), women entrepreneurs, Maori and regional communities which are otherwise confronted with challenges of distance, scale and cost.

However, technology and disruptive business models are outstripping regulation.   Existing global trade rules were agreed when the internet was in its infancy.  Many of those rules are not a comfortable fit for the digital age, especially for frontier technologies such as artificial intelligence, cloud computing and blockchain; e-commerce is straining existing infrastructure; and new technologies raise questions around governance, including how to safeguard privacy, consumer protection and cybersecurity in a trade-friendly way.  Countries are increasingly imposing restrictions on data flows, sometimes with legitimate objectives, but not always in a way that minimises negative impacts on trade – and sometimes for outright protectionist reasons.

“The new global economic reality is digital.  We need to move beyond being merely a cork on the ocean, and instead try to shape the optimal trade environment for Kiwi businesses.” 

Governments have turned to a patchwork of trade agreements to regulate aspects of digital trade.   The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which New Zealand is a founder, represents the high-water mark for trade-friendly rules, at least for the 11 participating countries.  But there is also a strong case for coordinated global policymaking in this area – particularly in this modern world of global value chains  Fragmented and overly-restrictive approaches risk creating a complex new regulatory “digital noodle bowl” for business.

Catching the wave: new negotiations towards international rules underway

It is accordingly very positive that New Zealand is taking part in two negotiations just getting underway to try to develop optimal cross-cutting digital trade rules.  

First, New Zealand and 76 other WTO members, representing a sizeable majority of the world’s digital economy players, have launched negotiations this year on the trade-related aspects of e-commerce.  A first round of talks took place in March and the second was held last week.   There are some very big issues that need to be resolved – notably around cross-border data flows, where some of the largest actors in the digital space, including the US, the EU and China, have pretty divergent approaches, and another (India) has yet to join the negotiations.   The process is likely to be a lengthy and challenging one.

More immediately, reflecting New Zealand’s long tradition of nimble, creative and visionary trade policy approaches, Minister of Trade and Economic Growth David Parker, along with his Singaporean and Chilean counterparts over the past weekend announced the launch of three-way negotiations on a new “Digital Economy Partnership Agreement”.    The DEPA process will seek to deepen and strengthen cooperation in digital areas, establish new trade rules and identify best practices for the digital age.   The outcome could eventually serve as a pathfinder to broader regional or global rules.

The new global economic reality is digital.   We need to move beyond being merely a cork on the ocean, and instead try to shape the optimal trade environment for Kiwi businesses.  Leveraging the full benefits of the digital age is fundamental to our sustained prosperity.  These two new negotiations are accordingly to be warmly welcomed. 

This post was prepared by NZIBF Associate Director Stephanie Honey.