18 February 2020

How the UK can pioneer digital free trade


Outside of the EU, it is vitally important that the UK develops a trade policy that is structured around the specific strengths of the British economy. One such strength is the trade in digital goods and services.

The government should therefore focus on and champion an area that is often overlooked in trade negotiations: – digital trade. Last Tuesday, the UK made a welcome statement confirming its intention to collaborate at the multilateral level in this sector; but given the limits of this forum – particularly at the moment – it will also need to look beyond the WTO and champion more radical plurilateral (multi nation) agendas, too.

Today, trade experts from across the remain/leave divide have come together with a Joint Statement urging the UK government to launch one such initiative. The Digital Economic Partnership Agreement (DEPA), is a new plurilateral digital trade agreement that has recently been signed between New Zealand, Chile and Singapore. It is the first trade agreement of its kind: created by like-minded countries dedicated specifically to building radically close relations in digital trade. The Joint Statement also urges the government to adopt the broader strategic approach to trade policy that conceived DEPA in the first place: “Concerted Open Pluralism”.

This approach should be pursued because it could have significant benefits for the UK economy. Services account for over 80% of the British economy, the highest of all G7 countries, and these services are becoming increasingly digitised. We are a services superpower and we are increasingly becoming a digital superpower as well.

But trade relations have not caught up. Services are not well covered in many existing trade agreements. In the digital age, the lack of any concerted international effort to keep markets open has meant that trade barriers have proliferated.

Instead of embracing the fact that the Internet is global by default, many countries have applied existing offline rules to the provision of digital services, which have resulted in balkanised markets and have stifled the global economic potential of digital trade.

As digital trade often shakes up existing and protected domestic markets, many countries are introducing new regulations designed to limit cross-border international trade. These include requirements to have an offline presence in the destination country, an obligation to keep data stored in the jurisdiction, lower e-commerce customs thresholds before tax is applied or by not accepting credit cards registered abroad.

In addition, since the failure of the Doha round of WTO talks, it is increasingly difficult to find an agreement that all WTO members will support. So far the WTO has not been able to host a framework for the modernisation of the global rules for digital trade.

This provides a significant opportunity for the UK because some countries do see the potential of digital trade and are natural allies in the quest to liberalise it. This is what led New Zealand, Singapore and Chile to develop DEPA.

Agreements like this are likely to provide the basis for future global agreements. DEPA is open to other WTO members and if enough join, it could eventually become the basis of a WTO deal on digital trade. By being involved at this stage it allows the UK to shape those rules at an early stage.

This would allow Britain to be at the forefront of global policy development of a sector which is likely will be the most important to the future success of the British economy, whilst also benefitting from the enhanced access it could bring to key services export markets.

DEPA tries to address many of the digital trade challenges by banning duties on digital imports, strengthening e-commerce and digital connectivity and creating interoperable e-payment systems. As privacy concerns are one of the major digital economy challenges and have the potential to create significant barriers to trade if countries adopt different positions, it includes provisions to establish common privacy principles. By agreeing to a series of core privacy principles that apply to all participants, the risk of market fragmentation can be avoided whilst ensuring privacy protections remain high.

The way in which DEPA has come into being should also be an inspiration for UK trade policy. New Zealand, in particular, has been a champion of the so-called Concerted Open Plurilateralism approach, which – as the Joint Statement explains – “relies on political entrepreneurship and economic diplomacy to build deep agreements between a few like-minded partners, but in such a way that they are sufficiently open to welcome other WTO members in future (should they meet the relevant standards)”.

DEPA is not the first agreement to be formed by this approach way: it is also the story of the CPTPP, the world’s gold standard FTA that includes 11 Pacific Rim countries including Canada, Australia, Japan and New Zealand; and more recently, also the Agreement on Climate Change, Trade and Sustainability (ACCTS).

Digital trade is the future, particularly for advanced economies like the UK. Where today an e-commerce sale may involve the physical shipping of a good around the world, in the near future it will mean the instant transmission of code that allows a good to be 3D printed in a home or a factory on the other side of the world. Traditional customs barriers, tariffs and quotas are not designed for this type of world. We need new types of agreements to ensure that this potential is not stifled. We have the technological ability to trade globally in an instant, to watch a TV programme or listen to music anywhere in the world. Yet often we are stopped from doing so.

This is not the natural state of the Internet. Additional measures have to be included to stop us accessing something in a particular country and this greatly reduces trade, increases costs and limits consumer choice.

DEPA is the first agreement that makes a serious attempt to bring trade policy into the digital era and to try to address some of these issues. It also reflects the growing use of plurilateral agreements. These are both in Britain’s interests and if even trade policy experts from both side of the remain/leave divide can agree, it is clear that this is a golden opportunity for the government.

Joining DEPA would be an initial signal of the UK’s commitment to an agile and cutting-edge trade policy strategy; it would provide Britain with a platform from which it can use its considerable expertise in digital issues to help drive a coherent global debate on digital policy; and it would offer significant economic advantages for the UK’s digital industries for years to come.

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Daniel Dalton is a Fellow of the IFT. Before serving as a Member of the European Parliament (2015-2017), he was a Policy Advisor on international trade