WTO negotiations on e-commerce: Some myths busted
Far from gaining from the outcome of negotiations on e-commerce, developing countries would be required under WTO rules on e-commerce to act against their national interest and development priorities, warns Abhijit Das.
Myth 1: Developing countries have lots to gain from e-commerce, hence it is in their interest to negotiate binding rules on e-commerce.
Reality: Developing countries must distinguish between gains from e-commerce per se and the impact of WTO negotiations on e-commerce. Even without multilateral rules, the global e-commerce market, including cross-border e-commerce, has shown impressive growth. It is poised to grow at an even faster pace in the coming few years.
There is little in the proposals on e-commerce at the WTO which could impart significant additional momentum to an already dynamic market. On the other hand, the outcome of the negotiations is likely to prevent redistribution of gains from e-commerce in favour of the developing countries. Binding rules on e-commerce would also prevent developing countries from following a digital industrial policy to catch up with the developed world.
If negotiations on e-commerce are initiated at the WTO, then it is likely that some of the provisions on e-commerce and telecommunications as contained in the contentious Trans-Pacific Partnership (TPP) trade deal will form the basis of negotiations. The rules that are likely to emerge from the negotiations could require countries to adhere to the following: provide free flow of data, prohibit localisation of data and servers, prohibit any requirement for transfer of technology, mandate sharing of telecom infrastructure, non-discrimination in sale of spectrum etc.
These provisions are unlikely to significantly enhance cross-border e-commerce. Instead, they will result in reducing the cost of operations of the global digital giants and raise their revenue. This will also make it more difficult for a new firm in the digital business space in a developing country to establish and sustain itself.
The outcome of negotiations would require developing countries to give the raw material of the digital/information economy for free to global e-commerce giants, and would severely curtail the policy space of developing countries to nurture their domestic firms in the digital arena. On the other hand, the provisions are likely to mostly benefit the global e-commerce giants by limiting or eliminating competition from firms in developing countries and lowering the cost of their global operations.
Far from gaining from the outcome of negotiations on e-commerce, developing countries would be required under WTO rules on e-commerce to act against their own national interest and development priorities. Gains, if any, on this issue are likely to be extremely limited. It may thus not be in the interest of most developing countries to support negotiations on e-commerce.
Myth 2: If developing countries do not support WTO negotiations on e-commerce, then the world will move ahead and they will be left behind.
Reality: Participation in e-commerce and benefitting from it is entirely different from gaining from binding WTO rules on e-commerce. No doubt, developing countries have been gaining from e-commerce. But the outcome of negotiations would be against the interest of most developing countries.
As pointed out by academics Shamel Azmeh and Christopher Foster,1 in some of the key areas relevant to the digital economy, policy space exists for latecomers to implement 'digital industrial policy' to achieve technology catching-up with advanced economies. Many policy tools including 'data localisation requirements, internet filtering and technology transfer conditions' have been used to promote national digital firms. Azmeh and Foster conclude that the digital trade agenda of US digital firms could 'hinder the ability of catching-up countries to implement digital industrial policy in the future'.
The outcome of any WTO negotiations on e-commerce should be viewed from this perspective. Developing countries must not fall into the trap of believing that they would be left behind if they do not support the negotiations on rules on e-commerce. In fact, it is the WTO rules on e-commerce that will likely constrain them to fall further behind the developed countries.
Myth 3: If developing countries oppose negotiations on e-commerce, then the developed countries and other demandeurs will negotiate a plurilateral agreement on e-commerce.
Reality: Given the power of the WTO's dispute settlement mechanism, the developed countries would want to have rules on e-commerce within the WTO and not outside it. Developing countries must not believe the threat of the developed countries that they will negotiate rules on e-commerce outside the WTO. Even if the negotiations start in plurilateral mode, it would be difficult to conclude these negotiations unless most of the emerging economies are on board.
Further, the developed countries seek to target the existing, and progressively expanding, consumer base in the developing countries for e-commerce. If some of the larger developing countries do not join a plurilateral agreement, then one of the fundamental objectives of the developed countries in the negotiations would not be achieved. It is therefore unlikely that plurilateral negotiations on e-commerce would be an effective final option for the developed countries.
Myth 4: By participating in WTO negotiations on e-commerce, developing countries will be able to mould the negotiations according to their interests.
Reality: A common argument made by some countries is that by agreeing to initiate negotiations at the WTO, developing countries would be able to influence the outcome of the talks. In reality, this is just wishful thinking. In case negotiations commence, the final outcome would be almost entirely determined by the developed countries.
Developing countries have rarely, if ever, managed to exert substantial influence on core issues in the final outcome of multilateral trade negotiations. At best, they have managed to secure a few provisions affording them 'special and differential treatment'. If the developing countries do manage to push their negotiating agenda and the negotiations start going against the core interests of the developed countries, the developed countries would just walk away from the negotiating table and not conclude the negotiations (as was the case on agriculture in the Doha Round talks). It is thus a mere illusion that developing countries would be able to mould the substantive outcome of negotiations on e-commerce in accordance with their own national interests.
Myth 5: Negotiations on e-commerce would benefit the micro, small and medium enterprises (MSMEs) in developing countries.
Reality: Some literature is now available2 documenting how the MSMEs are adversely affected by business practices of giant platform owners who are also e-retailers, including:
a) Vertical integration in retail and physical delivery may enable the platform owners/giant e-retailers to leverage cross-sector advantages in ways that are potentially anti-competitive.
b) Platform owners/giant e-retailers have opportunities to abuse cross-market advantages and foreclose rivals.
c) Since the platform owners/giant e-retailers command a large share of e-commerce traffic, many smaller merchants find it necessary to use their sites to draw buyers, despite the small merchants and e-retailers being competitors.
d) One platform owner/giant e-retailer seems to use its marketplace 'as a vast laboratory to spot new products to sell, test sales of potential new goods, and exert more control over pricing'.
e) One platform owner/giant e-retailer 'uses sales data from outside merchants to make purchasing decisions in order to undercut them on price'.
f) One platform owner/giant e-retailer gives its own items prominent placement under a given search, disadvantaging small merchants.
g) In some instances, a platform owner/giant e-retailer has responded to popular third-party products by producing them itself, thereby adversely affecting MSME producers and traders.
In a nutshell, a platform owner/giant e-retailer is exploiting the fact that some of its customers are also its rivals. Writing in the Yale Law Journal,3 Lina Khan identifies three sources of this power: '(1) its dominance as a platform, which effectively necessitates that independent merchants use its site; (2) its vertical integration - namely, the fact that it both sells goods as a retailer and hosts sales by others as a marketplace; and (3) its ability to amass swaths of data, by virtue of being an internet company. Notably, it is this last factor - its control over data - that heightens the anticompetitive potential of the first two.'
Given the power of platform owners/giant e-retailers over MSME producers and traders, it is unlikely that the outcome of negotiations will in any manner change this existing reality. It may therefore not be correct to assert that MSMEs would benefit significantly from the outcome of negotiations on e-commerce.
Abhijit Das is Head of the Centre for WTO Studies at the Indian Institute of Foreign Trade in New Delhi.
1. Shamel Azmeh and Christopher Foster (2016). 'The TPP and the digital trade agenda: Digital industrial policy and Silicon Valley's influence on new trade agreements'. International Development Working Paper Series No. 16-175. London School of Economics and Political Science.
2. See, for example: (i) Olivia LaVecchia and Stacy Mitchell (2016). 'Amazon's Stranglehold: How the Company's Tightening Grip Is Stifling Competition, Eroding Jobs, and Threatening Communities'. Institute for Local Self-Reliance; and (ii) Lina Khan (2017). 'Amazon's Antitrust Paradox'. Yale Law Journal, Vol. 126, No. 3.
3. Lina Khan (2017). 'Amazon's Antitrust Paradox'. Yale Law Journal, Vol. 126, No. 3.
*Third World Resurgence No. 324/325, August/September 2017, pp 28-29