Digital Technologies and the Future of World Trade
By Roberto Azevêdo
World Trade Organisation
This article is the foreword to the World Trade Organization's World Trade Report 2018 and is reproduced with permission from the World Trade Organization.
Trade and technology are closely interlinked. From the invention of the wheel, to the railways, to the advent of containerization, technology has constantly played a key role in shaping the way we trade – and this phenomenon is accelerating like never before. We are living through an era of unprecedented technological change, and a series of innovations that leverage the internet could have a major impact. For example, the Internet of Things, artificial intelligence, 3D printing and Blockchain have the potential to profoundly transform the way we trade, who trades and what is traded.
These developments could unlock many opportunities for individuals, entrepreneurs and businesses around the world. However, this process is not automatic. Technological advances per se are not a guarantee of greater trade growth and economic integration. History shows that successfully managing the structural changes driven by technology is central to ensuring that everybody can benefit. Therefore, we need to understand how to harness these new technologies. This is key to ensuring that the trading system can promote growth, development and job creation, and helping in the effort to deliver the Sustainable Development Goals.
The WTO’s World Trade Report 2018 highlights the interplay between technology and trade. It looks at how digital technologies are transforming global commerce today, and at their implications in the years to come. This report provides a qualitative analysis of the changes that are underway, and attempts to quantify the extent to which global trade may be affected in the next 15 years.
The Report helps to illustrate some of the big changes that are already happening. For example, it shows how digital technologies are reshaping consumer habits. E-commerce is booming thanks to the widespread use of the internet and of internet- enabled devices which provide consumers with direct access to online markets. UNCTAD estimated the total value of global e-commerce transactions, both domestic and cross-border, at US$ 25 trillion in 2015. This represents an increase of around 56 per cent compared to 2013. Firms are also surfing this wave, as digital technologies allow for easier entry into markets and increased product diversity, making it easier for them to produce, promote and distribute their products at a lower cost.
The Report also shows the impact of technological advances in cutting trade costs. Between 1996 and 2014, international trade costs declined by 15 per cent. Technological innovation played an important role here, and it has the potential to do even more. Notwithstanding the current trade tensions, we predict that trade could grow yearly by 1.8 to 2 percentage points more until 2030 as a result of the falling trade costs, amounting to a cumulated growth of 31 to 34 percentage points over 15 years. The Report finds that the decline in trade costs can be especially beneficial for micro, small and medium-sized enterprises, and for firms from developing countries, if appropriate complementary policies are put in place and challenges related to technology diffusion and regulation are addressed. Our estimations foresee that, in such a scenario, developing countries’ share in global trade could grow from 46 per cent in 2015 to 57 per cent by 2030.
The advance of digital technologies can also bring about changes in the structure of trade. Beyond easing trade in goods, digital technologies can facilitate services trade and enable new services to emerge. The Report predicts that the share of services trade could grow from 21 per cent to 25 per cent by 2030. Other effects could include, for example, Blockchain helping smaller businesses to start trading by supporting them in building trust with partners around the world. 3D printing may help to democratize manufacturing by lowering the barriers to entry. More generally, these technologies could potentially lead to an expansion in global value chains, further shifting production activities to developing countries. Or we could see the opposite effect if it becomes more efficient to bring production activities back together in “smart” local factories than to offshore them.
Notwithstanding the benefits of digital technologies, they are also giving rise to a number of concerns. This includes market concentration, loss of privacy, security threats, the digital divide, and the question of whether digital technologies have really increased productivity. These are very important questions, which deserve the attention and action of the international community. We can’t simply leave the evolution of our technological future to chance, or trust it to market forces. We all have a duty to make this technological revolution a truly inclusive one.
Domestically, governments may need to look at how to tackle many of these challenges, including in areas such as investment in digital infrastructure and human capital, trade policy measures and regulation. International cooperation can also help governments derive more benefits from digital trade and help drive inclusion. At present, WTO members are trying to get to grips with these issues. The WTO framework, and in particular the GATS, is relevant for digital trade and WTO members have already taken certain steps to promote digital trade within the existing framework. In addition, discussions are ongoing among a large group of members regarding how members may want to respond to continued changes in the economy, and to ensure that everybody can participate and benefit from the digital economy.
Change is part of life. The question is not whether we like it, but rather how we choose to respond. Are we ready to rise to the challenges and seize the opportunities that this brave new world presents? I believe that this is the defining question facing governments around the world today. I hope this report will inform their response, and help to put inclusivity at the heart of these efforts. While there is no “one-size-fits-all” recipe, I am convinced that international cooperation will remain central to helping governments navigate these changes and to ensuring that digital technologies can help build a more open and inclusive trading system – now and for generations to come.