Information technology and e-commerce
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Can blockchain revolutionize international trade?
Trade has always been shaped by technological innovation. In recent times a new technology Blockchain has been greeted by many as the next big game-changer. Can Blockchain revolutionize international trade? This publication seeks to demystify the Blockchain phenomenon by providing a basic explanation of the technology. It analyses the relevance of this technology for international trade by reviewing how it is currently used or can be used in the various areas covered by WTO rules. In doing so it provides an insight into the extent to which this technology could affect cross-border trade in goods and services and intellectual property rights. It discusses the potential of Blockchain for reducing trade costs and enhancing supply chain transparency as well as the opportunities it provides for small-scale producers and companies. Finally it reviews various challenges that must be addressed before the technology can be used on a wide scale and have a significant impact on international trade.
Can Blockchain revolutionize international trade?
The number of headlines claiming that Blockchain can revolutionize various areas of international trade from trade finance to customs procedures and intellectual property are legion. The transparent decentralized and immutable nature of Blockchain has sparked the interest of private actors – and governments – to explore the potential of this technology to enhance the efficiency of trade processes and a myriad of proofs of concepts and pilot projects using Blockchain have been developed in virtually all areas of international trade.
E-commerce and Developing Country-SME Participation in Global Value Chains
Two far-reaching developments have increased the trade opportunities for SMEs in developing countries. Firstly the rise of the internet and advances in ICT have reduced trade-related information and communication costs. Secondly the international fragmentation of production has increased the opportunities for SMEs to specialize in narrow activities at various stages along the production chain.
Digital Connectivity & E-Commerce
Digital networks are an increasingly critical component of global trade. In 2017 the Global Review of Aid for Trade highlighted the importance of accessible and affordable connections for trade connectivity. Drawing extensively on information harvested in the Monitoring and Evaluation exercise in preparation for the Review this paper analyses aid for trade for digital connectivity and e-commerce.
Introduction
Over the last few decades the internet has entered every corner of our lives from social interactions to entertainment and work and has fundamentally reshaped our economies slashing the cost of acquiring and trading information. It has fuelled the digital revolution fundamentally changing the ways in which we communicate consume and produce and it has profoundly transformed international trade in terms of what we trade how we trade and who is trading.
The economics of how digital technologies impact trade
This section focuses on how new technologies are transforming international trade creating new opportunities for a more inclusive trading system and raising new challenges. The section opens with a discussion of how digital technologies affect international trade costs. This is followed by an assessment of how digital technologies change the nature of what is traded how we trade and who trades what. Finally the potential impact of important trends in technological development is quantified and long-term projections on international trade are made using the WTO Global Trade Model.
Towards a new digital era
This section describes the rise of digital technologies and identifies the technological forces that have helped propel their growth. It examines how digital technologies are changing the economy by giving rise to new markets goods and services and discusses some of the concerns that have arisen in parallel regarding privacy market concentration the impact on productivity and the digital divide. The section also discusses the methodological and data challenges involved in trying to measure the value of digital transactions and digital trade and provides estimates culled from international organizations and national authorities as well as financial reports from a number of well-known firms.
Acknowledgements and Disclaimer
The World Trade Report 2018 was prepared under the general responsibility of Xiaozhun Yi WTO Deputy Director-General and Robert Koopman Director of the Economic Research and Statistics Division. This year the Report was coordinated by Cosimo Beverelli and Emmanuelle Ganne. The authors of the Report are Marc Bacchetta Eddy Bekkers Cosimo Beverelli Emmanuelle Ganne John Hancock Mark Koulen Andreas Maurer José-Antonio Monteiro Coleman Nee Roberta Piermartini Stela Rubinova Viktor Stolzenburg Robert Teh and Ankai Xu (Economic Research and Statistics Division).
How do we prepare for the technology-induced reshaping of trade?
This section examines how international trade cooperation can help governments all over the world harness digital technologies and seize the new trading opportunities they will create for firms both large and small. Section D.1 summarizes the main opportunities and challenges that arise with the expansion of digital trade. Section D.2 provides examples of the policies that governments put in place to exploit these opportunities and to address these challenges. Section D.3 then considers whether and how international cooperation can help governments exploit the gains from digital trade cope with the challenges and at the same time achieve their public policy objectives now and in the future.
Foreword by the WTO Director-General
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.
Conclusions
The world trading system has always been shaped by technological progress. Not only is technology a determinant of trade costs but it also defines what products can be traded across borders and it affects patterns of comparative advantage.
World Trade Report 2018
Trade has always been shaped by technology but the rapid development of digital technologies in recent times has the potential to transform international trade profoundly in the years to come. The World Trade Report 2018 examines how digital technologies – and in particular the Internet of Things artificial intelligence 3D printing and Blockchain – affect trade costs the nature of what is traded and the composition of trade. It estimates how global trade may be affected by these technologies over the next 15 years.
The ITA Committee: 20 years of boosting trade in IT products
The ITA membership has continued to grow and now includes 53 participants representing 82 WTO members. It is expected that participation in the ITA will grow further in the near future.
The ITA and the international digital economy
Over the past 20 years the ITA has led to the wider use of new technology by cutting the costs of key ICT goods. The ITA expansion further opens up trade on 201 new-generation IT products and technology.
ITA: List of participants
The ITA currently has 53 participants representing 82 WTO members. The European Union is counted as one as is the customs union between Switzerland and Liechtenstein.
The effects of trade liberalization under the ITA
Since its entry into force in July 1997 the Information Technology Agreement (ITA) has eliminated tariffs on a range of information technology products with an annual value of US$ 1.7 trillion by 2015.
Key statistics and trends in ITA trade
Between 1996 and 2015 ITA world exports more than tripled reaching US$ 1.7 trillion and representing 15 per cent of total world manufactures exports exceeding shares of automotive products textiles and clothing and pharmaceuticals.
ITA expansion
Over the past 20 years the information and communications technology (ICT) sector has evolved dramatically. Many ICT products have undergone rapid technological developments with new products and production methods entering and transforming the marketplace.
Foreword by WTO Director-General Roberto Azevêdo
2017 marks the twentieth anniversary of the WTO's Information Technology Agreement (ITA). The ITA was a landmark deal for the global trading system not only because it was the first to be signed after the establishment of the WTO in 1995 but also because it has helped to support and facilitate the phenomenal growth of trade in the information technology sector.
20 Years of the Information Technology Agreement
Over the past 20 years the Information Technology Agreement (ITA) has increased worldwide access to high-tech goods such as computers mobile phones and semiconductors. It has also contributed to greater access to the Internet and the growth of the digital economy creating new opportunities for businesses and individuals in both developed and developing economies. Finalized at the first WTO Ministerial Conference in 1996 the ITA commits its participants to eliminating tariffs on a wide range of IT products with an annual value of approximately US$ 1.7 trillion. To mark the 20th anniversary of the ITA this publication analyses the impact of the ITA on its participants and on worldwide trade in IT products. It demonstrates how the Agreement has not only made high-tech products more affordable but has also helped to promote innovation and to support developing economies’ integration into global production networks. The publication also reviews new developments such as the landmark deal concluded in 2015 to eliminate tariffs on an additional 201 IT products valued at over $1.3 trillion per year. Finally it highlights what still needs to be done to meet the UN’s Sustainable Development Goal of providing universal and affordable access to the Internet so that the benefits of the digital revolution can be enjoyed by all.
Acknowledgements and Disclaimer
This publication was prepared by Xiaobing Tang and Roberta Lascari under the direction of Suja Rishikesh Mavroidis Director of the Market Access Division.
Understanding Supply Chain 4.0 and its potential impact on global value chains
The reorganization of supply chains using advanced technologies such as the Internet of Things (IoT) big data analytics and autonomous robotics is transforming the model of supply chain management from a linear one in which instructions flow from supplier to producer to distributor to consumer and back to a more integrated model in which information flows in an omnidirectional manner to the supply chain. While e-commerce is uniquely suited to many of these techniques they also hold the promise of improving efficiency in brick-and-mortar stores. These technologies are generating enormous benefits through reducing costs making production more responsive to consumer demand boosting employment (employment in supply chain sectors where such technologies are most likely to be applied has grown much more rapidly than in other supply chain sectors and in the economy as a whole) and saving consumers’ time. The impact of these technologies on the length of supply chains is uncertain: they may reduce the length of supply chains by encouraging the reshoring of manufacturing production to high-income economies thus reducing opportunities for developing countries to participate in GVCs or they may strengthen GVCs by reducing coordination and matching costs.
Trade, value chains and labor markets in advanced economies
Trade is a major source of employment. Nevertheless trade has recently been caught in the crossfire in discussions around the decline of manufacturing employment and the polarization of labor markets in advanced economies. In this chapter we examine what the academic literature has to say on the relationship between trade and labor markets with a specific focus on studies with a value chain perspective. We find that trade has only modest effects on aggregate employment and is unlikely to have been a major contributor to the decline of manufacturing. However the effects vary considerably across regions and individuals with different skill levels. This implies that policy has a central role to play in making sure that the gains from trade are shared evenly. Our findings highlight that a value chain perspective is important for assessing the impact of trade on labor markets. The emergence of value chains has strengthened linkages between sectors magnified trade’s impact on skill demand and requires novel trade statistics. Ignoring this leads to a biased view of trade and overestimates its role in the decline of manufacturing employment.
Foreword
There are different ways to analyze the global economy. One is to view it through the lens of growth and structural change in individual economies developed and developing. A second is to use the lens of global value chains (GVCs) the complex network structure of flows of goods services capital and technology across national borders. Both are useful and they are complementary to one another.
Executive summary
More than two-thirds of world trade occurs through global value chains (GVCs) in which production crosses at least one border and typically many borders before final assembly. The phenomenal growth in GVC-related trade has translated into significant economic growth in many countries across the globe over the last two decades fueled by reductions in transportation and communication costs and declining trade barriers. But at the same time it has contributed to distributional effects that mean that the benefits of trade have not always accrued to all which has at least in part been a driver in the backlash against globalization and the rise of protectionism and threats to global and regional trade agreements. In addition new technological developments such as robotics big data and the Internet of Things (IoT) are beginning to reshape and further transform GVCs. This second GVC development report takes stock of the recent evolution of GVC trade in light of these developments.
Improving the accounting frameworks for analyses of global value chains
The use of global input-output tables and the creation of Trade in Value-Added (TiVA) statistics has greatly improved our understanding of the fragmentation of global production through value chains. However their application requires a number of assumptions that in practice typically understate the degree of interconnectedness. TiVA estimates implicitly assume identical production functions across firms within an industry when in reality production functions differ considerably. Typically larger (and foreign-owned) firms tend to be more trade oriented than smaller (and domestically-owned) firms. As a result TiVA statistics underestimate the import content of exports for the economy as a whole a key indicator characterizing global production. Moreover TiVA analyses are based on basic price concepts which provide an appropriate view of production through value chains but are less well equipped to analyse consumption particularly as they exclude significant distribution margins (in particular retail and wholesale activities often including marketing activities and brands) which add value at the end of the chain. This can distort analyses using “smile curves” which show the distance from final demand of different sectors within value chains and in turn understate the scale of jobs supported by trade.
Technological progress, diffusion, and opportunities for developing countries: lessons from China
The nature of technology used in products plays a major role in determining the governance structure of value chains and the benefits of participation for developing countries. Standardization through breaking production into modules with a high degree of functional autonomy (limited mutual interference between modules) can dramatically reduce the amount of research and development (R&D) learning by doing and the number of complementary skills needed to produce a good. This greatly increases opportunities for developing country firms to participate in formerly capital-intensive industries through reducing entry costs into global value chains. However widespread access to standardized products with little ability to modify technical features can lead to an excessive supply of homogeneous products in a local market resulting in intense price competition and limited technology transfer. By contrast technology that facilitates scope for product modification and greater interaction with technology owners can help boost technology transfer and product upgrading by developing country firms. The chapter illustrates this interaction between changes in technology and opportunities for developing countries through developments in the automotive and mobile phone handset industries with a particular reference to China’s growth experience. It also finds that automation is likely to have only a limited impact on developing countries’ opportunities to participate in value chains through the offshoring of production by high-income countries at least in the short term.
The digital economy, GVCs and SMEs
Although small and medium-sized enterprises (SMEs) represent the vast majority of firms worldwide their participation in international trade remains limited relative to their share of overall economic activity and employment as compared to large firms. The rise of the digital economy could however open a range of new opportunities for small firms to play a more active role in global value chains (GVCs). This chapter reviews evidence of SME participation in international trade and production networks and looks at how the digitalization of our economies is already affecting or could affect future SME contributions to GVCs. New research by Lanz et al. (2018) finds evidence that digitally-connected SMEs in developing countries tend to import a higher share of their inputs than non-digitally-connected firms. Additionally it is shown that this positive digital effect is greater for SMEs than it is for large firms. The chapter reviews the various opportunities that the digital economy opens for SMEs especially in terms of cost reductions and the emergence of new business models but also discusses policy measures that could be taken to promote SME participation in GVCs. Indeed significant challenges remain for SMEs to enter GVCs some of which are exacerbated by the new digital economy. A holistic approach that combines investment in ICT infrastructure and human capital with trade policy measures and measures to improve the business environment access to finance and logistics and promote innovation and R&D is necessary. Improving the availability of data would also help to better understand and integrate SMEs in GVCs.
Acknowledgments
The Global Value Chains Development Report is a joint publication of the World Trade Organization (WTO) the Institute of Developing Economies (IDE–JETRO) the Organisation for Economic Co-operation and Development (OECD) the Research Center of Global Value Chains (RCGVC-UIBE) the World Bank Group and the China Development Research Foundation based on joint research efforts to better understand the ongoing development and evolution of global value chains and their implications for economic development.
Should high domestic value added in exports be an objective of policy?
Global value chains make it easier for developing countries to move away from export reliance on unprocessed primary products to become exporters of manufactures and services. Global value chains (GVCs) allow countries to specialize in a particular activity and join a global production network. As a developing country moves from export of primary products to export of manufactures and services via GVCs the ratio of domestic value added to gross export value tends to fall. Many developing country policy-makers worry about this trend and aspire to increase their value added contribution to exports. There are a number of reasons why this objective is not good policy. It may seem like simple math that a higher domestic value added share means more total value added exported and hence more GDP. But that simple idea ignores the reality that imported goods and services are a key support to a country’s competitiveness. The chapter documents this via the history of the successful East Asian industrializers as well as more recent evidence from Association of Southeast Asian Nations (ASEAN) economies. If a country artificially replaces key inputs with inferior domestic versions the end result is likely to be fewer gross exports and less not more total value added exports.
Global value chains and employment in developing economies
The emergence of global value chains – whereby goods that used to be produced within one country are now fragmented and distributed across global networks of production – has offered developing countries new opportunities to integrate into the global economy. This has also had fundamental impacts for workers in developing countries. The chapter shows that higher earnings and employment within sectors and firms is associated with GVC integration which also supports other spillovers that operate through labor markets. But it has also had distributional implications of where jobs go and the types of jobs they are. Jobs growth has occurred directly in the export sector as well as indirectly through linkages of exporting firms to domestic input-supplying firms. Employment creation and wage gains have been biased towards more skilled workers in developing countries which contrasts with the predictions of trade theory. The skill-biased nature of GVC trade is associated with increased complexity of global supply chains as well as increased use of skill-intensive inputs notably services. New emerging trends including automation and digitization may further determine how employment in developing countries will be affected by GVC trade in the future. The findings point to education as well as trade and labor policies as important factors for strengthening the GVC-labor relationship.
Recent patterns of global production and GVC participation
Taking advantage of a new accounting method to decompose GDP production into pure domestic production traditional trade simple and complex GVC activities this chapter examines recent trends in global value chain (GVC) activities across the world. Our main findings show that the pace of GVC activities picked up in 2017 after a period of slow down since 2012; intra-North American and intra-European GVC activities declined relative to inter-regional transactions due to higher penetration via Factory Asia but value chains still remain largely regional; China is increasingly playing an important role as both a supply and demand hub in traditional trade and simple GVC networks although the US and Germany are still the most important hubs in complex GVC networks; bilateral trade balances are significantly affected by the supply and demand of third countries; and net imports are no longer a proper measure of the impact of international trade on the domestic economy in the age of GVCs.
Global Value Chain Development Report 2019
This report takes stock of the evolution of global value chains (GVCs) in light of technological developments such as robotics big data and the Internet of Things. It discusses how these technologies are reshaping GVCs and examines the effect of these changes on labor markets in developed and developing economies and on supply chain management. The report discusses how technological developments are creating new opportunities for the participation of small and medium-sized enterprises in global value chains and reviews issues related to GVC measurement. The report is a follow-up to the first Global Value Chain Development Report which revealed the changing nature of international trade when analyzed in terms of value chains and value-added trade.
The ITA and innovation
The general-purpose nature of information technology (IT) means that its widespread use in other economic sectors helps induce organizational and technological innovation throughout the economy. Innovation in IT itself has a magnified effect on economic productivity.
The impact of the trade liberalization brought by the ITA
Participants in the Information Technology Agreement (ITA) significantly liberalized trade in information technology (IT) products by reducing the rates of both the bound (the maximum rate that a WTO member can legally levy on a certain product) and most-favoured nation applied tariffs (those applied in practice by governments).
The ITA Committee: 15 years of encouraging trade
The ITA Committee was established to oversee the implementation of the ITA including to review the product coverage consult on non-tariff barriers (NTBs) consider classification divergences and serve as a forum to work out disagreements between participants.
The road to the Information Technology Agreement
The Information Technology Agreement (ITA) was a landmark trade deal signed by 14 WTO members and states or separate customs territories in the process of acceding to the WTO in December 1996. Not only was it the first sectoral agreement to be successfully negotiated among developed and developing countries but it was also the first one to fully liberalize trade in a specific sector (with an estimated worth of US$ 500 billion a year) after the Uruguay Round.
Global production networks, electronic products and developing countries
Many manufactured goods are now produced with components sourced from several places around the world using international supply chains within global production networks (GPNs). This is particularly the case for most finished electronic products which are not “made in” a single country any more but are rather “made in the world”.
Foreword
Fifteen years ago 28 WTO members and acceding members overcame numerous political and technical obstacles and agreed to work together for the expansion of trade in information technology (IT) products through the Information Technology Agreement (ITA). This landmark agreement demonstrates not only that developed and developing countries can work together in a mutually beneficial manner but also that the WTO could serve as an effective forum to promote trade opening beyond what was achieved during the Uruguay Round.
15 Years of the Information Technology Agreement
The Information and Technology Agreement (ITA) was finalized at the first WTO Ministerial Conference in Singapore in 1996 committing its participants to completely eliminate duties on certain information technology products. In its 15 years the ITA has promoted affordable access to a wide range of technologies encouraging closer cooperation between developed and developing countries. As production networks become increasingly global the ITA will continue to facilitate the shift from products made in a specific country to “made in the world”. To mark the 15th anniversary of the ITA this publication charts the political and technical obstacles which were overcome during the creation of the Agreement and the issues which still need to be resolved. It details the establishment of the ITA Committee and how the Agreement is implemented and investigates the impact the ITA has had on trade liberalization and innovation. The publication also examines the effect information technology has had on global production networks and what this means for developing countries and the ITA.
A Quantitative Assessment of Electronic Commerce
This paper tries to assess quantitatively the role of electronic commerce in economic activity and in trade and tariff revenue collection. The share of value added that potentially lends itself to electronic trade represents around 30 percent of GDP most importantly distribution finance and business services. Electronic commerce is also likely to boost trade in many services sectors significantly. Despite the growing importance of electronic commerce for economic activity and trade tariff revenue loss from electronic commerce is likely to be minimal. Trade in potentially digitizable media goods which currently faces a tariff in some countries represents less than one percent of total world trade. The revenue collected on these products amounts to less than one percent of total tariff revenue in most countries. Even if some of this trade moved “online” tariff revenue loss would be only a very small share of tariff revenue.