Digital trade rules - where are we headed?

Digital trade has captured the imagination of policy makers, both domestic and international.While some argue that the present legal architecture is insufficient to address the internet of things, others argue that national priorities must prevail when pursuing the ecommerce agenda. For some global trade rules is a must. For others it is anathema.

Touching on this theme, Dani Rodrik, in his inimitable way, highlights the tensions that digital trade and data bring to the fore in international economic policy making. Writing in the Project Syndicate, he highlights the three core challenges of new digital developments - issue of national security wherein digital technologies are perceived as being able to impact internal domestic security, the issue of data privacy where some countries value the principle more than others and the issue of economics where large technology players benefit from first mover advantage.

The WTO is definitely not well placed to address these issues - but should it be the multilateral fora where digital trade rules should be negotiated? Do developing economies that are still at the base of the ladder agree to multilateral trade rules that enable technology companies of the developed world to dominate. What about consumers? Should they not benefit irrespective from where the service is provided?

So are global rules the answer? Should we harmonise rules on data localisation, cross border data flows and standards? Who would benefit. Dani Rodrik states:

The benefits of common rules are clear. In their absence, practices such as data localization, local cloud requirements, and discrimination in favor of national champions create economic inefficiencies insofar as they segment national markets. They reduce the gains from trade and prevent companies from reaping the benefits of scale. And governments face the constant threat that their regulations will be undermined by companies operating from jurisdictions with laxer rules.

But in a world where countries have different preferences, global rules – even when they are feasible – are inefficient in a broader sense. Any global order must balance the gains from trade (maximized when regulations are harmonized) against the gains from regulatory diversity (maximized when each national government is entirely free to do what it wants). If hyper-globalization has already proved brittle, it is in part because policymakers prioritized the gains from trade over the benefits of regulatory diversity. This mistake should not be repeated with new technologies.

So the answer lies in a minimalist global rule framework where core national interests are protected:

Global governance and multilateralism will often fail, for both good and bad reasons. The best we can expect is a regulatory patchwork, based on clear ground rules that help empower countries to pursue their core national interests without exporting their problems to others. Either we design this patchwork ourselves, or we will end up, willy-nilly, with a messy, less efficient, and more dangerous version.

But do exporters of such technologies agree that there needs to be minimal global trade rules. There is a belief that harmonisation is beneficial to the world at large. The debate in the coming years would be how economies view global trade rules in ecommerce - as factors enabling their integration and development or one that hinders there digital and industrial road map.