The de-globalizing effect of e-commerce

Global facilitation bodies haven't kept pace with digital trade, meaning e-commerce isn't as connective as it seems

By: Eric Johnson
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Photo: Dusit / Shutterstock.com
   So here’s a question: if someone asked you whether global e-commerce was increasing or decreasing globalization, what would your answer be?
   I suspect the vast majority of people would say it has increased globalization. A small merchant in India can sell directly to a buyer in Europe. A major global manufacturer in the United States can sell directly to someone in a village in Africa with a smartphone.
   The business-to-business possibilities are also vast. Enterprises of all sizes can transact with each other online: big to small, small to big, and ever permutation in between.
   But, a well-respected trade authority said the picture most have of unfettered global access to goods and services online is not exactly accurate.
   “Far from the lawless high seas to which it has been likened, the internet has become subject to a myriad of overlapping jurisdictions and conflicting obligations,” Hosuk Lee-Makiyama, director of the European Centre for International Political Economy, wrote in a recent piece for International Trade Forum, the quarterly publication of the International Trade Centre.
   “Domestic laws are routinely enforced extraterritorially on trading activities that takes place overseas. Similarly, Europe’s privacy laws apply globally and forbid businesses in other countries to touch the personal information of European citizens: An Indian site developer, a Kenyan craftsman or a Thai tailor collecting the user preferences of European customers is likely to be in violation of EU law.”
   Lee-Makiyama argument is that global trade regulators and facilitators, by not keeping pace with the evolutionary speed of digital trade, has “opened a backdoor” for countries to avoid keeping to their commitments at the regional and WTO level.
   In other words, by not keeping up with the impact of e-commerce, plurilateral trade bodies have ceded the regulation of such commerce to individual countries. Some of those nations are interest in the free flow of information and fostering their economies through reducing trade burdens. Other nations, however, are interested in the control of digital content and commerce.
   It’s not hard to parse which countries are which.
   “Trade on the internet is increasingly fragmented by government measures designed to disrupt open exchange of data,” wrote Lee-Makiyama, a Brussels-based trade attorney who specializes in trade diplomacy, EU-Far East relations and the digital economy. “To date, at least 36 jurisdictions have banned moving bits and bytes across borders – most of them enacted in the last five years, through measures commonly referred to as ‘data localization.’”

Trade on the internet is increasingly fragmented by government measures designed to disrupt open exchange of data.

   To be clear, it seems as though Lee-Makiyama is saying that some digital trade will be hampered by online barriers designed explicitly to hamper trade. But he’s also suggesting that digital trade could be adversely impacted by more broad or seemingly unconnected censorship initiatives.
   “Online censorship is prevalent for various political or illegal content in many countries, but blocking also occurs for harmless and apolitical content,” he wrote. “In the absence of effective antitrust rules, private entities could hamper trade. Telecoms operators could deny network access for foreign web services or outsourcing enterprises by imposing unfair commercial terms or by slowing down traffic. Since the trading system is now so closely interlinked with the internet, they are likely go down together.”
   This impacts services disproportionately because a higher proportion of services are procured online than goods.
   “At least half of all trade in services is supplied via the internet,” he wrote. “Even trade in traditional of offline services – typically outsourcing business, consultancy services, or logistics – can be severely hampered through data localization and other regulatory requirements.
   Lee-Makiyama seems most concerned about how future trade agreements deal with this issue. He cited the now scuttled Trans-Pacific Partnership (TPP) as a deal that most effectively dealt with these issues. Other looming regional and multilateral agreements, not so much.
   “Most of the coming preferential agreements are likely to contain more carve-outs than the WTO rules they were supposed to improve upon – not least in Regional Comprehensive Economic Partnership (RCEP) or in the EU-Japan trade agreement and other pending European foreign trade agreements.”
   RCEP is a potential agreement that includes the ASEAN nations and all the nations with which the ASEAN bloc has existing free trade agreements.
   More broadly, there are big questions about whether the WTO has the ability to lead the charge on e-commerce, both in terms of regulation and facilitation.
   “This also raises the question whether new digital trade rules can be conceived at the WTO,” he wrote. “Relatively well-crafted proposals may be on the table in Geneva, but still beg the question: can the WTO membership – the same governments that cannot agree on non-tariff measures for electrical insulation – agree on e-commerce?”
   Lee-Makiyama ended his treatise on an ominous note.
   “Ironically, while technology is often said to make globalization inevitable, the risk of de-globalization actually gets worse the more people and products are digitalized.”