Free trade in tech helps economies grow (Reader Forum)
Over the past few decades, the liberalization of trade has allowed small and mid-sized enterprises to expand into global markets, while information communications technology (ICT) has become a key driver of global competitiveness, both for individual companies and for countries seeking to grow their economies.
Freeing up trade in ICT, therefore, delivers big benefits to developing countries, as described in Faster Customs and Faster Trade a recent paper by Huawei and the International Trade Center, a joint development agency of the United Nations and the World Trade Organization (WTO).
Trade in ICT-related goods and services has already received a significant boost from the Information Technology Agreement (ITA), a voluntary WTO accord that commits participants to eliminating tariffs on ICT products. The agreement took effect in 1997, and its benefits can be inferred from its burgeoning membership: from the original 29 countries that signed the ITA two decades ago, the number of signatory countries has grown to 82 this year. The economies of those countries now account for 97% of global trade in ICT products.
By lowering tariffs, the ITA has caused ICT exports to more than triple, from about US$500 billion in 1996 to $1.6 trillion in 2016. The value of trade covered by the agreement is now larger than global trade in textiles, clothing, iron and steel combined. This enhanced level of economic activity benefits companies around the world, especially those in emerging markets.
A second WTO accord, the Trade Facilitation Agreement (TFA), took effect Last February. Aimed at lowering costs by simplifying import-export procedures, it is designed, like its predecessor agreement, to help SMEs in developing countries. But since the TFA took effect last year, some signatories have failed to implement its terms – primarily developing countries that lack the funds and technical skills to update and automate their customs regimes.
This lag in implementation could impose significant opportunity costs; fully implementing the treaty, by contrast, would produce a range of benefits. For example, Huawei estimates that by putting TFA rules into full effect, countries could reduce customs clearance times by three days, saving millions of dollars. According to the OECD, implementing the terms of the TFA could reduce costs in low-income countries by 16.5%, in lower-middle-income countries by 17.4%, and in upper-middle-income countries by 14.6%.
Full implementation of TFA could deliver as much as US $1 trillion in global export gains. It could also help narrow the digital divide – the gap in digital capabilities between developed and less developed countries – by driving more widespread adoption of ICT throughout emerging markets.
To realize these gains, countries need to streamline regulations and automate procedures related to customs clearance. Examples include single-window systems that let trading partners fulfill customs requirements by submitting standardized documents at one location and electronic platforms that allow import taxes to be paid online.
To be sure, embracing these and other productivity-enhancing technologies involves risk. For example, using ICT to speed up customs clearance can lead to an increase in smuggling, since physically checking every container is more secure than performing automated scans. More technology can also result in increased levels of tax fraud.
But these risks, though important, can be managed. And they are minor compared to the broad-scale benefits that come with greater economic development, which countries risk losing if their trade regimes are inefficient and slow.
Tech companies can play a role in helping less-developed countries make better use of ICT and implement the TFA as quickly as possible. Among other things, they can partner with technical assistance agencies such as the International Trade Centre, or work directly with governments to make sure the agreement is implemented fully in countries where it will do the most good.
While global trade creates jobs and reduces poverty, trade in ICT will deliver even greater benefits in a digital economy that increasingly relies on 5G mobile broadband, cloud computing, and the Internet of Things. Policymakers, especially those seeking to develop their economies, should make ICT trade a priority. They should invest in customs automation and enhance their technical capabilities in a way that removes constraints and promotes more widespread adoption of digital technology. There are costs and some risks associated with this digital transformation, but the long-term benefits will be substantial.