The New Agreement on Electronic Commerce updates The World Trade Organisation Rulebook for the 21st Century

WTO credibility with the global business community is salvaged. Despite much media focus on worrisome protectionist and isolationist trends, a new and constructive era of global trade governance has quietly begun.

Innovation and rapid technological advancements, with broad uptake by individuals and businesses alike, propelled the digital economy to more than 15 percent of global GDP in 2023, having grown 2.5 times faster over the previous 10 years than the GDP of the physical world. One recent forecast suggests that the digital economy will approach USD17 trillion by 2028.

Global trade transactions are shifting online, with both business-to-business and business-to-consumer online marketplaces gaining widespread popularity. Digital adoption surged during the pandemic and shows no signs of slowing.  The OECD estimates global digital trade as having already reached around USD5 trillion by 2020 . In the goods sector, e-commerce accounted for nearly 20 percent of global retail sales last year, up from 7 percent in 2015 and projected to approach 25 percent by next year.  In the services sector, digital delivery via electronic transmission is similarly fast becoming the business norm, digitally delivered services trade recording a fourfold increase in value from 2005 to 2022.

Against that backdrop, for the last five years the governments of Australia, Singapore, and Japan have jointly championed negotiations in Geneva to pioneer a first ever framework of global benchmark trade rules to govern digital trade.  With a critical mass of over 80  participants,  the text of the Agreement on Electronic Commerce was finalised and published on Friday, 26 July. 

Current consultations and ongoing election processes mean that a handful of additional negotiating participants, including the USA and Indonesia, are not able to sign on yet; but all WTO members are urged to join as soon as they are ready.

After a 15 percent increase in restrictions on trade in digital services  over the last decade  the new E-Commerce Agreement is very good news for business.

Businesses of all sizes, especially smaller ones, can now look forward to reductions in trade costs from a gradual easing of constraints on global digital interoperability, such as easier use of e–invoicing, e-authentication and e-payments, and greater efficiency in complying with consumer protection and cybersecurity regulations.  The benefits are elaborated in a useful business background primer from the UK government.

Initial OECD estimates indicate that this global agreement could deliver an improvement in global digital market openness in the order of 30 percent.

The new rules will reduce the cost and complexity of international commerce while also supporting trust and security for consumers. Importantly, the deal includes a permanent and binding commitment that international electronic transmissions (including digital content) will remain free of customs duties in all WTO members joining this deal. We look forward to a strong demonstration effect from this outcome, which to date has eluded WTO Ministers at the multilateral level

This deal is a major milestone for the WTO.  Without this deal, the WTO was stuck in the 20^th Century with an outdated rulebook which was designed chiefly for businesses engaged in merchandise trade and traditional modes of services supply and not sufficiently up to date on modern business models, environmental sustainability and the boom in digital trade.

A coherent global digital regulatory landscape, achievable over time as more and more WTO members sign on to the new rules, stands to benefit small and medium businesses as much as, if not more than, large technology companies. E-commerce has allowed small businesses, including sole traders in knowledge-intensive services industries without sufficient scale for a physical presence in multiple jurisdictions, to also access global markets. Small and medium businesses are disproportionately affected by divergent regulatory obligations across borders, such as data localisation and authentication requirements as well as complex data privacy and data security regulations.

The Agreement’s timing is critical.  It encourages international digital regulatory cooperation in fields such as privacy and cybersecurity, as well as the development and adoption of international digital standards in emerging areas such as generative AI.  Along with rules to facilitate digital trade, these are the vital elements needed to start the process of winding back a decade of digital market fragmentation.  The WTO E-Commerce deal is pro-trade and pro-innovation, while recognising the need to build public trust in the digital economy.

There can be no question that this deal is a standout success that bucks the recent global trends: it demonstrates a shared belief among its members that while technology and domestic regulation evolve in tandem, the development of common and interoperable cross-border standards, rather than trade restrictions, is the most efficient way of achieving the delicate balance between trade and non-trade objectives.

With the EU and Singapore separately concluding a bilateral Digital Trade Agreement on the very same day, a truly global process of reducing digital regulatory divergence has begun.

This could not have happened without the dedicated global leadership displayed by Asia Pacific players to launch the WTO into the Digital Age.  As the Asian Development Bank  points out, the Asian region has experienced the strongest sustained growth in digital services trade.  But the fact is that traders everywhere, in all sectors of the economy, will benefit from this deal. 

It is meanwhile incumbent upon all governments signing on to ensure that domestic regulation governing the digital economy is consistent with the goals and objectives of the new rules. Only then will the productivity and innovation gains be realised, benefitting all consumers and businesses and bringing much-needed economic growth.

Jane Drake-Brockman, Visiting Fellow, Institute for International Trade

Holly Dorber Australian Services Roundtable

Jason Lee, Singapore Business Federation

Patrick Chua, Asia Pacific Services Coalition

John Cooke, The City UK

Pascal Kerneis, European Services Forum

The views expressed here are the author’s, and do not necessarily represent the views of the Institute for International Trade.