September 13, 2020
Categorized: Digital Trade | IBM Policy Lab
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COVID-19 has created unprecedented disruptions in the global economy, the full impact of which will not become clear for years to come. Companies of all sizes are grappling with how to conduct business, reach customers, and maintain supply chain operations in the face of national lockdowns and travel restrictions. Individuals have had to self-isolate and alter their most intimate and personal interactions with family members and friends to meet quarantine and social distancing requirements. And governments are rethinking how to resolve manufacturing and supply chain vulnerabilities, jumpstart economic growth, and deliver essential services, such as education and healthcare, without risking the well-being of their citizens.
The result is that this pandemic has accelerated what was already well underway – the digitization of the global economy. Increased Internet access and data flows were fuelling this transformation long before the present crisis. Before the pandemic, cross-border data flows made a bigger contribution to global GDP than trade in manufactured goods. But today, virtual engagement and interactions have become the new norm. Between the start of the COVID-19 crisis and May of this year, demand for broadband communication services increased at a record pace, with some operators reporting a 60 percent increase in Internet traffic compared to before the crisis.
Digital Trade Vulnerabilities and Data Sovereignty
Paradoxically, even as the Internet and cross border data flows have become more essential, there are increasing calls for “data sovereignty,” mirroring renewed criticism of free trade and globalization. Concerns by governments and individuals about the safety, security, and use of data, underscores the urgent need for new approaches to engender trust and confidence in the digital economy.
Trade agreements are an essential component in this effort. Indeed, facilitating digital trade and ensuring a safe and secure data economy are not mutually exclusive. For the past decade, negotiators have made significant progress in developing new trade provisions to facilitate cross-border data flows and protect underlying intellectual property, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the US-Japan Digital Trade Agreement, the Digital Economy Partnership Agreement, and the US-Mexico-Canada Agreement.
In parallel, there are renewed efforts to enhance cybersecurity, privacy, and data protection cooperation between governments and the private sector, such as the Data Free Flows with Trust Initiative launched by Prime Minister Shinzo Abe at the 2019 G-20. As a result, digital trade has become a central feature of efforts by negotiators and regulators to meet the challenges and opportunities of a data-driven global economy.
A Post-COVID Digital Trade Agenda
In this context, the European Commission’s consultation for a renewed trade strategy comes at a pivotal moment. European policymakers have the opportunity to develop the digital trade “rules of the road” that will govern the post-COVID global economy. To support this consultation, the IBM Policy Lab is recommending digital trade principles designed to strike the balance between safeguarding innovation and engendering trust. These principles draw on both existing disciplines enshrined in recent agreements and new concepts related to emerging technologies, such as 5G.
Central to any digital trade agenda should be three core principles:
- Enable the Free Flow of Data: As global digital integration accelerates, companies of all sizes must be able to move data securely across borders to maintain operations, reach customers, and compete. Trade agreements must include specific provisions protecting (1) the movement of data across borders and (2) the ability of companies to operate without requiring them to use local infrastructure or build expensive and redundant data centers.
- Protect Source Code and Algorithms: As data-driven solutions, such as Artificial Intelligence (AI), become more ubiquitous, trade agreements must prohibit Parties from requiring companies to hand over source code and algorithms as a condition for accessing the market.
- Ensure technology choice and encourage open digital architectures: Companies of all sizes should be able to utilize the technology that works best and suits their needs. The use of closed architectures prevents interoperability and diminishes competition, limiting the ability of companies to benefit from the most cost-effective, secure, and innovative technologies. Trade agreements should protect technology choice and encourage the widespread use of open architectures to drive innovation in key technologies, including cloud computing, AI and 5G telecommunications.
While it is impossible to predict what the future holds, it is clear that data-driven technologies are becoming more essential to our daily life and work. Leadership from policymakers and trade negotiators in developing the next generation of digital trade principles will help ensure these technologies are used responsibly and with clear purpose. This example can set standards for future bilateral and multilateral agreements that will create the environment of trust essential for the digital economy to deliver growth, innovation, and prosperity.
 Open architectures are design specifications for hardware or software components that any manufacturer or developer can use to develop components that can easily interoperate with components developed by other manufacturers and developers.
Michael DiPaula-Coyle, Director, International Trade Policy
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