Introduction

Executive Summary

Digital trade is transforming the international economy. It is changing the way goods and services are brought to market; the nature of products (for example, as many are digitized or hybridized with online features); the manner in which products are developed and produced (for example, via improved data resources and ongoing international collaboration); and the conduct of business operations. Highly digitally intensive services are rising as a share of the overall services export mix. Initially, this expansion was facilitated by light regulation in the international digital economy. However, with growth in this trade over the past two decades, it has come to the attention of regulators. Oversight has increased as regulators seek to respond in an appropriate manner to growing concerns about privacy, consumer protection, cybercrime, administrative transparency and facilitation, and national security matters, among other issues. But, in some cases, the result is an international regulatory patchwork of unnecessary complexity, inconsistent approaches, uncertainty or outright discrimination against foreign suppliers.

A review of recent economic literature underscores the case for addressing increases in digital trade restrictiveness, while tackling related challenges such as those around trust and data issues, two cross-cutting themes currently before trade negotiators. Composite indicators, such as those developed by the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD), highlight the extent to which cross-border digital trade remains constrained due to discrimination, regulatory misalignment and capacity limitations, among other impediments. New trade agreements aim to tackle some of these issues. Yet digital inclusiveness remains elusive, posing a challenge for social and economic development. It remains to be seen how effective current-generation trade agreements are in addressing the challenges. Moreover, some of the concerns (for example, postal reliability) go beyond the scope of traditional trade agreements to resolve and will require complementary policy measures.

Illustrative cases of five leading digital economies (Canada, the European Union, Japan, Singapore and the United States) offer insights into their efforts to promote development of a liberal, rulesbased framework for governance of digital trade. These economies have employed a multipronged, collaborative approach to advance the work toward an international governance framework for digital trade. They have pursued regional trade agreements (RTAs) addressing some relevant matters, although gaps remain. Provisions vary across the accords. Often, they aim to facilitate digital services trade, discipline some aspects (for example, by prohibiting imposition of customs duties on data transmissions), and promote best regulatory practices and cooperation. In some cases, they provide complementary liberalization measures such as with respect to domestic services regulation or digital economy inputs. Simultaneously, at the World Trade Organization (WTO), the case study economies have pursued with other members a broad work program and supported negotiations for an international accord on e-commerce. This plurilateral (opt-in) accord would focus on digital trade facilitation measures in particular. Such regional and multilateral initiatives may help to push back against some fragmentation risk in the international digital marketplace.

With respect to the case study economies, the analysis highlights a sample of six currentgeneration RTAs. The paper takes an early look at pre- and post-RTA developments for a small sample of products along certain corridors once an agreement is in place. The results of this illustrative exercise point to above-average growth in some preferential corridors, albeit with some variation. For example, in some cases, there is significant volatility or leads and lags in developments relative to the entry into force of the accords. As more experience is gained with these RTAs, further investigation will be needed to confirm the trade effects.

In light of these developments, and drawing on insights from the present analysis, the paper offers five policy recommendations:

→ Pursue multilateral action, including conclusion of the negotiations under way at the WTO for a plurilateral accord on e-commerce ahead of the next WTO Ministerial Conference in 2024.