Digital Trade in the Time of COVID-19
by Neha Mishra
The COVID-19 outbreak has caused a systemic shock to global trade. The World Trade Organization (WTO ) has predicted that global trade will fall between 13% and 32% in 2020. In a period of few months, the COVID-19 pandemic has already significantly disrupted global supply chains, to the point of threatening advances in globalisation achieved in the last decade. Certain industries such as aviation and hospitality are projected to lose billions of dollars. Manufacturing sectors such as automotive and consumer electronics have seen an enormous slowdown. The demand for medicines, medical equipment and supplies, and essential consumer goods has increased disproportionately, leading to severe shortages across all countries and increasing number of trade-restrictive measures. This post however highlights a different story regarding the role, prospects, and vulnerabilities of digital trade during and after the COVID-19 pandemic.
To a great extent, digital trade has, at least so far, survived the ongoing COVID-19 pandemic. It has played a critical role in ensuring business continuity in several sectors and served important public and social functions. For instance, several service industries have continued their operations using digital technologies to coordinate businesses processes and corporate meetings. Similarly, universities and schools have moved their classes online. Governments have used smart digital technologies to identify and control epicentres of outbreaks in specific communities and regions (although as some experts argue this may raise privacy and other ethical concerns). Digital services such as online videoconferencing, video streaming, online learning, e-health and e-commerce platforms have seen sudden spikes in usage. A recent report from the WTO highlights the role of e-commerce and digital technologies in facilitating economic activities during the pandemic, despite the various disruptions to manufacturing and deliveries in the global supply chain. Such a scenario would not have been possible, even a few years ago. The need for an integrated and secure internet infrastructure, inclusive digital markets, and free cross-border flow of digital services has never been more evident.
Digital trade is likely to continue to grow during and after this pandemic, perhaps in a different form and to fulfil different customer priorities. Experts predict that like the previous financial crisis in 2008, the services sector is likely to be more resilient than the goods sector. Several public benefits of digital technologies during and after the COVID-19 pandemic are foreseeable. Different uses of digital technology could be envisaged to manage the ongoing crisis, such as using artificial robots to reduce the stress on public healthcare services and 3D printing as an alternative to conventional manufacturing of goods. Similarly, telemedicine and other e-health care services are emerging to be popular alternatives to conventional medical services. Despite the current projected decrease in employment, the gig economy is likely to remain strong in several sectors, as is evident from the increased demand for online delivery and education services. However, considerable uncertainty exists regarding the application of existing trade rules (especially WTO treaties) to cross-border trade in several of these modern digital technologies and services.
For digital trade to survive these turbulent times, governments must refrain from imposing unnecessary restrictions on data flows and trade in digital services, including unnecessary online censorship measures. Governments might also need to provide additional support to innovative micro-entrepreneurs who rely upon digital platforms and electronic payment services to create new digital products. Several countries impose data localisation measures that introduce inefficiency in the global digital supply chain and reduce choices available to consumers. In China, stringent control over cross-border data flows and online content was one of the key reasons for the slow dissemination of information during the initial spread of COVID-19.
The COVID-19 outbreak also reminds us of the vulnerabilities in the digital supply chain, such as privacy breaches, cybersecurity threats, consumer frauds, and online misinformation campaigns. Security experts have warned that the COVID-19 crisis is likely to increase cyber-threats in the health care system, malware attacks, and increased cyber-espionage for unauthorised access to medical data and research. The interconnectivity of the digital economy necessarily means that all countries participating in the global digital value chain are equally vulnerable to such threats; in other words, the impact of all cyber-vulnerabilities is global, not local. These vulnerabilities are especially dangerous during the current pandemic, when the world is primarily dependent on digital connectivity and governments are less prepared to ward off cyber-threats.
To address these emerging cyber-vulnerabilities, several governments have restricted the free flow of digital services, thereby adversely impacting digital trade. For instance, various security and privacy vulnerabilities were found in Zoom (a US-based company), an online videoconferencing service that has become extremely popular in the last few months. Consequently, Zoom has been restricted in several countries, including Taiwan, Germany and Singapore, and companies such as Google. Recently, India decided to impose a levy on all foreign e-commerce operators and suppliers. Similarly, in the midst of the pandemic, Indonesia passed a new law to impose value added taxes on intangible digital products sold on electronic platforms. Such kinds of measures affect business efficiency and will ultimately increase the costs incurred by end consumers. The increasing misinformation campaigns have also prompted several countries to censor online content, including regulating the use of VPNs. In a world where international consensus on fundamental internet policy issues is absent, resulting in diverging domestic laws on privacy and cybersecurity, such measures are expected. But the cost of such measures to digital trade is also obvious.
No magic formula exists to address the highly complex, multifaceted policy concerns emerging in digital trade. It is a challenge for both policymakers and technology businesses to balance the digital innovation needs during and after this pandemic with public policy concerns such as privacy, online content regulation, and cybersecurity. Further, accountability mechanisms in digital regulation are complex and involve not only technology companies but also governments. For instance, in addition to ensuring that technology companies develop privacy-compliant, ethical and secure technologies, governments must also be prepared to face greater scrutiny regarding how they deploy digital technologies for governance, including in fighting pandemics.
International trade law faces an uphill task of remaining relevant to a digital trade–driven world. I have previously written on the importance of developing a balanced digital trade law framework based on the complementarity of internet openness, privacy and cybersecurity. To achieve this complementarity, governments, the private sector and internet technical community must achieve a high-level consensus on important internet policy issues. Such consensus will help governments (despite differences in their respective regulatory systems) to build transparent and interoperable frameworks that can facilitate free and secure cross-border flows of data and digital trade. In another article (co-authored with Andrew Mitchell), we argue that digital trade reform must aim to a balance digital innovation and digital trust. In order to do so, we recommend a multilayered approach focused on reforming international trade rules and developing transnational collaboration on digital trade–related issues. It is unclear whether the vulnerabilities exposed by the pandemic will incentivise governments to work towards an open, interconnected, resilient and sustainable digital trade framework. Such initiatives will be crucial for economies to not only survive the COVID-19 pandemic but also recover in the post-COVID-19 world.