MC11 e-commerce battle lines drawn across three camps

Stepping up negotiations on e-commerce at the WTO would only jeopardize whatever progress developing countries have made in digital industrialization, cautions Parminder Jeet Singh.

NEW DELHI: The battle lines on e-commerce at the WTO’s eleventh Ministerial Conference (MC11) at Buenos Aires are now drawn across three camps.

The first camp comprises those who want to advance the global digital business and economy model with unhindered data flows and little or no technology and data regulation. This model was shaped in and by the US, and its key tenets are represented in the Digital Dozen document of the US and in the Trans-Pacific Partnership (TPP) accord’s e-commerce chapter. At the WTO, however, it is currently entities like the EU and Japan that are its leading proponents.

(The US position under the Trump administration appears rather ambiguous, and it is not clear whether it is in favour, promoting it, opposing it, or keeping quiet and allowing others to push and then reap the benefits. – SUNS)

The second camp is made up of most African countries (as the Africa Group in the WTO) and India. This group want a standstill on e-commerce at MC11. They seek to continue e-commerce discussions as per the existing 1998 mandate within relevant WTO bodies with a view to examining its nexus with existing WTO agreements in areas of trade in goods, trade in services and intellectual property, and its relationship with development.

The third camp is a group of some developing countries like Malaysia, Thailand, Nigeria and Bangladesh which are keen to explore how the WTO can help them with the “global digital trade opportunity”. Although perhaps without being quite clear what the opportunity is or what the WTO can do to help them with it, these countries want faster movement on e-commerce, but without yet opting directly for a working party in the WTO that can begin laying the ground for negotiations on trade rules as demanded by the EU and others.

This “middle camp” seeks elevation of the e-commerce discussions in the WTO from the relevant subsidiary bodies to a horizontal level, in the WTO General Council, and also a likely special mandate for the WTO Director-General to facilitate proactive movements in this area.

Implicit in these positions is recognition of e-commerce as a special new area, or a “new issue” in WTO parlance, beyond its location vis-a-vis existing agreements. Such a speeding up of e-commerce-related processes in the WTO will then set up the conditions for commencing trade negotiations in this area. (China is supporting this “middle position” but its context and reasons are unique and not discussed in this article.)

Dangerous position

It is in this “middle position” that the danger lies.

Every WTO Ministerial Conference tries to achieve some substantial outcomes, with the WTO Director-General and the host country having a special interest in this, along with those with actual stakes in particular outcomes. As such, there is a fear that, in these closing days of efforts towards concrete outcomes at MC11, acceptance of the above “middle position” will be sought as a compromise from those currently resisting it.

There is some danger that those now resisting may give in because: (1) developing countries already have internal divisions on this issue; and (2) unlike issues like agriculture and fisheries subsidies, there is no immediate concrete problem that will be faced by anyone in agreeing to the “middle position.”

It is therefore important to understand fully the immense problems that are contained in this “middle position” and that will face developing countries and hobble them and their future.

Countries promoting this position are those that have some existing foothold in the IT/software space. Most of them also have emerging digital start-ups that promise openings towards a strong digital economy. (India is similarly placed but has been wise to see through the trap towards which such self-image may lead. However, this also makes India relatively more susceptible to making a last-minute compromise on the “middle position”, which needs to be guarded against.)

Two things are important to understand for those developing countries that are championing e-commerce at the WTO.

The first is that the digital industry is fundamentally different from the IT and software industry. These countries have been participating in global value chains of the IT/software industry or aspire to do so. IT and software are core technical services that follow global templates. Digital services, on the other hand, are data-based services of a non-technical kind, though they employ software as their infrastructure. And data, unlike software templates, is essentially local, as arising from real people, social interactions, machines and other artefacts and the natural environment. These data-based digital services cater to “physical” traditional sectors, from shopping and transportation to education, health and agriculture.

Comparative advantages and business models in IT and digital areas are very different from one another. WTO e-commerce discussions have very little to do with the IT/software industry and global technology flows. They have everything to do with the digital industry and data flows – data being the central resource of the digital industry.

Some limited data flows that may be involved in traditional IT/software services (or traditional business process outsourcing) are such data whose ownership is never in question. But new-age digital companies collect data from “outside” sources, which they do not own, and often transport them beyond national borders. This renders the ownership of such data, and the economic value arising from it, very unclear.

This data and value outflow is happening as much from the “middle position” countries as from other developing countries. In fact, due to the relatively greater digital maturity of some of them, the outflow of data and digital value is much more in their case than for less digitally mature countries.

What triggers the interest of the “middle position” countries in getting on with e-commerce discussions at the WTO is the fact that they have a budding digital start-up industry that they set great store by. However, the second important point that these countries need to note is that precisely because they already have a budding digital industry with a potentially bright future, they have most to lose from WTO-based digital trade liberalization.

Any movement to ease the entry into, and domination of, their markets by global digital business will simply destroy their nascent digital industry. Those countries which do not yet have such a domestic industry are actually correspondingly less endangered at the current juncture.

There is nothing that global discussions, negotiations or agreements can do to strengthen the budding digital industry of this “middle group” of countries. On the contrary, the fear of considerable harm is much more real. What these countries need instead are sound digital industrial policies that can lead to the building of a strong domestic digital industry, employing their native strengths (strengths which are now wrongly pulling them towards WTO-based e-commerce discussions).

These countries can also explore regional markets based on such strengths. But if indeed a Thailand or Nigeria is thinking that its companies will outdo an Uber or Alibaba globally, on third-country turf, it really needs to do a detailed examination of the global digital industry and its business models. It will be good enough for now if their digital start-ups can compete with US and Chinese digital corporations even within their own borders. They should really be focussing on this more immediate problem, paying heed to the ominous writing on the wall that is emerging in this respect.

The writing on the wall

We are in the early days of a digital start-up chimera. But it won’t take long to realize that domestic digital start-ups in all these countries are going to require some level of protection and support locally, rather than trade agreements that would enable US and Chinese digital corporations to come marching in and take over all the digital space.

India has as good a position in terms of a digital industry as any of these countries, if not better. Indian digital companies, many of them with over $1 billion valuation, recently got together to form a lobbying group to advocate for policy support to ensure that homegrown digital companies dominate the local Internet market. This is a sector that till very recently had been a big proponent of liberalization and globalization. Such a drastic shift on their part is extremely instructive. These very new developments in India are a screaming warning to other developing countries that have built some mass of a domestic digital industry or aspire to do so.

The CEO of an Indian e-commerce company in competition with Amazon observed: “A significant amount of capital is being dumped in India to win market share. We should create a digital economy. But not by creating an unfair playing field for local companies against those companies coming from other countries.” (See http://www.money control.com/news/business/startup/founders-of-flipkart-ola-makemytrip-to-launch-a-nationalist-lobby-group-2400289.html)

And the CEO of the Indian competitor to Uber has this to add: “What’s happening in ... our industries [is that] there is narrative of innovation that non-Indian companies espouse but the real fight is on capital, not innovation. The markets are being distorted by capital.” (Seehttp://economictimes.indiatimes. com/articleshow/55862027.cms?utm_ source=contentofinterest&utm_medium= text&utm_campaign=cppst).

This may be taken as an advance notice for other developing countries trying to further digital industrialization and support their digital start-ups. If this is happening in India, which has one of the most advanced domestic digital industries in the developing world outside China, it is easy to see it coming for others as well. Promoting e-commerce at the WTO would simply bring that apocalypse closer and render the damage irreversible.

Delegates often mention the homily that there can be no harm in talking things over, and that this applies to e-commerce at the WTO as well. However, initiating discussion on e-commerce as a new issue in the WTO under horizontal arrangements, and with possible new mandates for the WTO staff, would simply take developing countries towards traps that they should be very familiar with.

Whether it is trade in agricultural goods, trade-related intellectual property or almost any other area, the North was allowed to develop the initial frameworks and concepts when Southern countries could not yet properly articulate their interests. Once the initial vocabulary and ground rules are set, they are difficult to change in any fundamental way. Post facto “development agendas” have not helped much, because they have to manoeuvre in the limited space that is available within entrenched dominant frameworks.

We are now in the same situation with e-commerce, and in great danger of repeating the problematic history of ceding the initial framework-making to the North. The digital leaders know their digital business game well. They have mapped out the digital geo-economic future and have assiduously been working on global concepts and frameworks that anchor these. In this regard, developing countries are still groping in the dark.

Hoping that it is WTO discussions that will provide developing countries further clarity in this area will be in vain. Trade governance venues like the WTO are for hard-nosed bargains. Developing countries will need to develop their understanding of digital business, its geo-economics and different possible governance frameworks at other fora. And then come well-prepared to the WTO.

The United Nations Conference on Trade and Development (UNCTAD) has recently become active in the area of e-commerce and development, though it needs to nuance its understanding and frameworks in this regard. But that is the right kind of space in which to do such initial work.

Meanwhile, a standstill must be ensured at the WTO. The existing mandate gives enough space for all the initial discussion that may be necessary in this area. We need not get into new processes and new definitions at the WTO. To repeat, they are even more dangerous to those countries that have already commenced digital industrialization, some of which ironically are the ones that are promoting the elevation of the e-commerce agenda at the WTO.

E-transactions

E-transaction infrastructure is a different matter. The “middle position” countries apparently look to possible gains like improved and easier cross-border e-transactions that could help their digital industry. First of all, however, as argued, they really need to assess the competitiveness of their digital companies outside their borders vis-a-vis US and Chinese global corporations. We have seen little positive evidence from India, for instance, in this regard. Domestic digital companies are increasingly being nudged out even within India’s borders. The same is the case in the countries pushing the “middle position”, which they should take note of. Their global competitiveness will not improve with improved global e-transactions and reduced digital regulatory space for nations. It will improve if their domestic industry can first develop sufficient strength within their borders.

This is the model that China followed, as the only challenger to the US’ global digital hegemony. Northern countries like to speak of “evidence” – this is the only evidence we have of a successful digital industrialization other than in the first mover, the US. Developing countries (other than China) should therefore not be trying to help global digital corporations further decimate their incipient digital industry by promoting e-commerce at the WTO.

They should first develop infrastructure for e-transactions, and other digital infrastructure, within their borders. This has to be done as private as well as public infrastructure, as India has been doing. Such infrastructure in developed countries is in any case very good, if the plan is to improve e-trade with them (for which, as discussed, favourable conditions do not exist for developing-country businesses).

And for promoting such trade with peer developing countries, this has to be done by building a strong domestic industry and then promoting regional markets that can provide some space and good prospects for developing-country digital businesses. The EU is promoting its regional Digital Single Market. Exchanging best practices on e-transaction infrastructure, including the role of the public sector in its development, among developing countries and with Northern countries, is the way to go.

These arguments have been made in light of the currently limited global prospects of developing countries’ digital industry – one which centres on data to provide new digital services. And if some countries promoting e-commerce at the WTO think that it will transform their manufacturing, trading or other services sectors, the outlook is as doubtful. These countries need first to have digital industrial policies to develop a robust domestic digital sector serving their manufacturing, services, trade and other sectors.

Promoting e-commerce at the WTO is a disastrous recipe that will decimate the digital gains that these countries have been making, and enable global corporations from the two global digital leaders to take control of all aspects of their economy.

It is strange that e-commerce is sold in the name of micro, small and medium-sized enterprises (MSMEs) and small traders, mostly even without asking them. Major associations of small businesses in India like the Bhartiya Udyog Vyapar Mandal, which is an apex body of around 1,700 associations, have opposed global liberalization of e-commerce through the WTO.

Let us not repeat history, and in a few decades be ruing that around 2017-18 a few digital leaders in the North plus China shaped the e-commerce agenda and frameworks at the WTO and developing countries were too uninformed at the time to protect their interests.

As is advised in the game of cricket, if you do not know the pitch conditions, play defence. It would not help to analyze the game and the conditions after you get out. Developing countries have often found themselves in such a position. With regard to e-commerce, they can still avoid this fate. (SUNS8586)   

Parminder Jeet Singh is an Indian civil society activist working with IT For Change and an expert on information technology and digital/Internet governance issues. He can be reached at Parminder.js@itforchange.net.

Third World Economics, Issue No. 651/652, 16 October – 15 November 2017, pp13-15