Trade, investment, and competition in the digital age: Trade and investment in the digital age

Event report

[Read more session reports and live updates from the OECD Going Digital Summit]

The session was moderated by Mr Ken Ash (Director for Trade and Agriculture, OECD) and started by highlighting the importance of market openness to embrace the digital trade era. Governments are trying to find a balance between security, safety, and regulatory frameworks to facilitate full integration in the digital economy. The focus then shifted to highlighting the main challenges confronting the reality of digital trade. Ms Marie-Gabrielle Ineichen-Fleisch (State Secretary for Economic Affairs and Chair of the OECD Global Strategy Group) said that she sees new barriers to market openness through imposing restrictive regulation by governments; the OECD is working on producing a digital trade restrictiveness index which would show what member countries are doing. On a national level, there could be legislations which impedes digital trade; a test was run in Switzerland and the main challenge was accepting digital signatures, which are not approved by legislation, and this slows down trade processes.

Ms Asako Ueno (Director, Multilateral Trade System Department, Ministry of Trade and Industry, Japan) touched upon how ensuring data flow is the main challenges to digital trade. Additionally, it is important to have the right balance between public policy objectives and other priorities such as privacy protection and security issues.

Mr Lenard Koschwitz (Senior Director, Allied for Startups) spoke about how to limit market restrictions when introducing local regulation, because the statistics show that companies are apprehensive about imposing new regulations. Another challenge is how to ensure small and medium-sized enterprises (SME’s), women, and people in remote areas can also benefit from digital trade; there is a need to invest in infrastructure to ensure their full integration.

Online platforms help entrepreneurs create, and help motivate start-ups to provide insight into the future of what could work. Digital trade is crucial for start-ups because it enables them to reach consumers globally and helps them define the best conditions in which they can grow. However, data borders are on the rise, and regulation is a challenge that limits the ability of start-ups to grow. Additionally, we also have to move on from thinking that start-ups always require assistance and think about how to involve them more in policy-making processes.

Mr Rory MacFarquhar (Director for Global Economic Policy, Google) stated that digital trade barriers are on the rise and that sometimes they are not entirely understood by governments. They can be unsuitable for addressing the issues at stake. He added that the opportunities brought by digital trade are not in the hands of companies like Google, but in SMEs functioning as a market enabler. He said that a challenge faced by Google is when certain regimes hold them liable for all the content posted on it by. He reckons that not having intermediary liability is what helped Google flourish as platform.

Mr Christophe Kiener (Head of Services Unit, Directorate-General for Trade, European Commission) confirmed that the rise of digital protectionism trend hinders digital trade. Therefore, we need to apply global rules to avoid fragmentation and unnecessary costs on businesses.

Ineichen-Fleisch elaborated on the international processes in place at the World Trade Organization (WTO). They have a long list of topics related to e-commerce which should be highlighted at the negotiations of the upcoming meeting of its 76 members. Discussions could revolve around electronic signatures, customs, contracts, privacy, security, IPRs and localisation, etc. This work will require access to the data that the OECD produces for the negotiators to be able to propose viable options.

Asaki stressed the importance of defining the scope of negotiations. Specific issues such as protecting the source code and algorithmic specifics will come to the surface in negotiations and could be potentially included in the TRIPs agreement.

Kiener briefly elaborated on the current preparations of the EU with regards to the upcoming negotiations on digital trade. The list of issues identified in the preparatory phase are quite similar to what was highlighted earlier. They are looking at how the existing agreement addresses these issues to ensure the adequacy of solutions. There is a need to maintain a high level of ambition to tackle digital protectionism and all partners will be involved in finding the right solution.

According to MacFarquhar, a successful trade agreement will need to take into account the interoperability of the Internet. Most countries are trying to solve the same issues regarding the Internet. A single rule applied at the national level does not affect the Internet as a platform, but it does affect small businesses that are having to fork out high expenses to cover legal obligations.

Koschwitz highlights that the ambition should match any rules in place to ensure that access to the markets is fair. It is really important to facilitate the task for small companies to be able operate without having to bear exorbitant expenses to benefit from digital trade opportunities. Koschwitz cautioned against applying the same rules SME’s are subject to start-ups because they discourage growth. On whether policy should focus on fair competition or transparency, Koschwitz said that  both concepts are ambiguous and very difficult to achieve for small companies trying to define their position in the market.

Kiener elaborated on the role of the WTO in establishing non-discriminatory and fair rules as basic principles that could foster digital trade activity. These rules will not necessarily be setting protection mechanisms in place for machinery, computer programmes, etc. The way the WTO addresses data flows and digital trade will not tackle the issue of privacy because it is beyond the remit of trade policy.

Ineichen-Fleisch highlighted the measures that countries could take to address privacy and security and proportionality in any future agreements to comply with a framework that all countries can decide upon.

The session went on to discuss the impact of the newly implemented General Data Protection Regulation (GDPR) on start-ups. Koschwitz discussed the statistics showing that the regulation will have chilling effects on small companies as they will employ less people and will attract less investments. It is crucial to be compliant, but we need to find ways in which companies can be ethical without reinforcing restrictive regulations such the GDPR.

According to MacFarquhar, market openness in the digital age means the ability for businesses to reach a worldwide scale including small ones. It is phenomenally empowering to communities to have the opportunity to work on products that can be sold anywhere in the world. This could be hindered by trade barriers and will eventually affect market openness.

Finally, the session highlighted the role that the OECD can play in helping digital trade processes, by developing a set of rules to address the challenges of a single economy, and which has been protected by trade rules for a long time. E-commerce negotiations are definitely a good step towards having a less restrictive trade environment – allowing small businesses to thrive. The OECD can also help by creating a space that will engage policy makers and the start-up community to come up with solutions that are more in tune with their needs. Moreover, the OECD can oversee the process of updating policies to match technological evolution.

By Hanane Boujemi