Trade rules suited to VHS tapes in the era of cloud computing
Few would deny the transformative impact the digital economy has had on business and world affairs in the past fifteen years. In the mid-1990s, a majority of people had not heard of the internet; online streaming (let alone DVDs) were not yet invented; software was still distributed on 3.5 inch floppy disks that were neither floppy or round, while today, everything from content to operating systems is delivered online.
Few would deny the transformative impact the digital economy has had on business and world affairs in the past fifteen years. In the mid 1990s, a majority of people had not heard of the internet; online streaming (let alone DVDs) were not yet invented; software was still distributed on 3.5 inch floppy disks that were neither floppy or round, while today, everything from content to operating systems is delivered online.
Perhaps policymakers could be forgiven for not keeping up with this pace. But the latest trade agreement to open up new market opportunities was signed exactly fifteen years ago, missing out on these developments entirely, including the internet: the IT Agreement (ITA) was signed in the World Trade Organization (WTO) when tariffs on VHS tapes were still an important political issue, and these rules still continue to apply in the age of cloud computing. Since then, China has also joined the WTO and leapfrogged ahead of the US on technology exports as well as number of users online; the focus of ICT trade has also moved from shipping gadgets to online services – and India is today world’s largest exporter of ICT services. It was therefore not the emerging economies, but the EU who kept the negotiations in the freezer as it tried to protect its domestic market for low-end consumer electronics.
It is perhaps a gross understatement to say that the lack of progress has rendered the WTO obsolete for the market players in the Cloud. Businesses turned their attention to bilateral trade deals (such as the recent FTAs with Korea) or new regional accords such as TPP, or the ideas for a new Digital Single Market. However, these endeavours will not improve access to markets like China or India, and risk balkanising the Cloud under an endless number of local rules. So the trade negotiators are now once again eyeing the WTO, now that the EU has finally given up its defensive interests and looks set to put the digital economy on the top of its agenda.
My recent ECIPE working paper outlines the elements that are necessary for the digital economy – on goods, services, infrastructure and competences:
- WTO members should commit to removing tariffs on all ICT products and components traded today and in the future. For this, they need to make broader commitments on a category basis (e.g. phones, computers with parts) rather than tediously adding each individual product as it is invented.
- Members should also agree to recognise and accept international standards to the furthest extent possible.
- There must be new rules for the free flow of information to liberalise trade in online services, software applications and apps with rules that bind governments to act transparently and without disproportionate discrimination.
- Online barriers are usually enforced through licensing requirements, data privacy rules, intermediary liability or local infrastructure requirements. A group of leading ICT firms (including Microsoft) and NFTC just published their priorities and how to address regulatory barriers affecting ICT trade today.
- Temporary movement of workers is a sensitive affair, but less so in the ICT sector than in others – unlike doctors or lawyers, qualifications are market-driven and certified by individual firms rather than governments; the “stolen jobs” argument is practically non-existent. Intra-corporate transfers and ambitious quotas for foreign ICT workers are demanded by business on all sides, and should replace bureaucratic red tape.
Earlier this year, the EU and the US agreed to a set of key principles for the ICT sector and agreed to jointly work for these principles in trade talks. There’s a WTO ministerial conference in mid-December, and perhaps it’s about time that Messrs Kirk and De Gucht, US Trade Rep and European Trade Commissioner respectively, had a chat about how to catch up on those fifteen years. My assistant is now desperately going through every shop in Brussels for floppy disks so we can send out our suggestions in a format that policymakers are familiar with.
From time to time, this section features blogs by outside parties unrelated to Microsoft on digital policy issues. We are pleased to be able to offer our readers these external contributions, and grateful to the contributors for their time and thoughts. Their contents are purely the reflections of the author and do not necessarily reflect Microsoft policy positions.
Hosuk Lee-Makiyama is co-director of European Centre of International Political Economy (ECIPE) in Brussels