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Report

Supporting The Internet as a Platform for International Trade

Joshua P. Meltzer

EXECUTIVE SUMMARY

This paper is about the potential of the Internet as
a platform for international trade. A traditional
understanding of the impact of the Internet on commerce
is derived from the dot.com experience of the
1990s, where Internet companies such as Pets.com
and Amazon sold goods online. Since then, the impact
of the Internet on commerce has grown and changed.
Certainly, the ability to sell goods online remains important.
However, the key development is that the
Internet is no longer only a digital storefront. Instead,
the Internet as described in this working paper is a
platform for businesses to sell to customers domestically
and overseas, and is a business input that increases
productivity and the ability of businesses to
compete. Understanding the Internet as a platform
for trade highlights its broad economic potential. It
emphasizes how the commercial opportunities are
no longer limited to Internet companies, but are now
available for businesses in all sectors of the economy,
from manufacturing to services. Moreover, the global
nature of the Internet means that these opportunities
are no longer limited to domestic markets, but are embraced
wherever Internet access is available.

international tradeSignificantly, the Internet is creating new opportunities
for small and medium-sized enterprises (SMEs)
and for businesses in developing countries to engage
in international trade and become part of the global
economy. By providing opportunities to access business
inputs such as cheaper telecommunications,
strategic information on overseas markets, legal and
consulting services, and cloud computing, SMEs and
developing country firms are now more than ever able
to become globally competitive. With a website, these
firms can now engage internationally, reaching customers
and communicating with suppliers all across
the world.

It is this potential that the Internet holds for SMEs
and developing country firms that is most important.
However, changing the locus of opportunity that the
Internet provides from being mainly limited to big U.S.
companies to include firms of all sizes, across all economic
sectors, and in all countries is what is critically
needed.

At the same time, there are a range of restrictions that
are hindering the Internet’s ability from fully serving
as a platform for international trade. These barriers
stretch across the entire Internet-enabled commerce
chain. They include limits on Internet access, particularly
in developing countries, where digital access is
30 percent compared with approximately 80 percent
in the developed world. Barriers to cross-border data
flows are critical to the operation of the Internet as a
platform for international trade, whether this is downloading
music or movies, accessing services online, or
enabling businesses to use data internally to manage
global production networks, conduct analytics or perform
secure international payments. Market access
restrictions on selling goods and services online and
delivering goods purchased online are traditional trade
barriers and the rising costs of these barriers hinder
new opportunities for SMEs and developing country
firms in particular. Risks to consumers from using the
Internet also act as trade barriers. These consumer
risks include different consumer protection laws across
jurisdictions and a lack of cost effective and timely
dispute settlement options. Finally, access to least
cost transportation services is especially important as
the type of international trade being enabled by the
Internet is increasingly in low value, high volume products.
This makes low cost and timely delivery of goods a
key ingredient for Internet-enabled international trade.

New rules are needed to respond to the new international trade opportunities created by the Internet.

This paper also proposes how international trade laws
and policies can be reformed to respond to these barriers. Despite the difficulties in concluding the
World Trade Organization Doha Round, the WTO remains
a place where some progress on trade and
Internet issues can be made. For instance, at the
2013 Bali ministerial meeting, WTO member countries
agreed to further the work program on the interaction
between e-commerce and trade. This is an important
opportunity to clarify how the Internet can benefit
the entire WTO membership. WTO members also concluded
a trade facilitation agreement at this meeting,
which should reduce some of the costs of moving
goods across borders and help Internet-enabled trade
once the agreement is implemented. Existing WTO
rules can address some of the market access barriers
to digital trade and this paper analyzes how these
rules should be reformed and updated. Finally, updating
the WTO Information Technology Agreement
would also reduce the costs of developing Internet
networks and the devices used to access the Internet.

At the same time, new rules are needed to respond
to the new international trade opportunities created
by the Internet. Here the focus should be on getting
the rules right in the large trade negotiations that are
currently underway, in particular, the Trans Pacific
Partnership, the Transatlantic Trade and Investment
Partnership, and the Trade in Services Agreement.
This includes rules that promote competition in the
telecommunications sector to reduce the costs of
Internet access, developing an intellectual property
framework that offers a balance between the enforcement
of IP rights and appropriate limitations
and exceptions for Internet service providers, rules
that facilitate international payment options, and a
dispute settlement system that responds to the needs
of SMEs engaging in international trade in low value
goods. Lastly, while progress on trade facilitation
moved forward in the WTO , further trade liberalization
and reform of the transportation sector would deliver
important gains, and should incorporate agreement
on de minimis levels and provide a level playing field
when competing with monopolist postal operators.

Note: This paper was updated on March 12, 2015 to accurately display Figure 3, which was earlier incorrect due to a design error.

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