Digital trade governance: The UK’s approach

Digital technologies have affected international trade relations and what is traded across borders, giving rise to digital trade. Digital trade has become an important part of international trade discussions, requiring specific policies and measures at different regulatory levels. Together these are referred to as digital trade governance.

Good digital trade governance aims to enable cross-border trade, innovation and market access in the digital economy. However, digital technologies are constantly evolving while regulators are still assessing their effect on trade. Digital trade poses challenges because of the different interests and approaches taken by countries in regulating this new area of trade and the speed of new developments.

The UK has negotiated some of the most advanced international rules on digital trade, such as the ones in the UK-Singapore Digital Economy Agreement. The UK approach prioritises open sharing of data, cooperation in regulating emerging digital technologies, digital facilitation of trade, and innovation. The goal is to balance the benefits of digital trade for UK businesses and the economy with the need to protect consumer rights, privacy and competitive fairness.

Countries in the World Trade Organization (WTO) aim to establish global rules to remove regulatory differences and enable a fair, secure and open environment for digital trade. This is the goal of the WTO’s joint initiative on e-commerce, although not all the WTO membership support it and not all the relevant issues have been agreed on yet.

What is digital trade?

Digital trade can have different definitions, but it is generally understood to be digitally ordered and/or digitally delivered trade. This includes trade in e‑commerce platforms, cloud computing, transferring data, and the purchase of digital products like software and media on streaming platforms.

Digital trade relies on the development of digital technologies (PDF), internet infrastructure and technology supporting the easy transfer of data. It also depends on policies that support cross-border digital transactions and restrain potential harm. The fast-paced expansion of digital trade has led to the need for targeted governance to address challenges specific to this form of trade, such as new cooperation initiatives regarding emerging technologies.

The importance of digital trade for the digital economy

The digital economy encompasses all economic activities that produce information and communication technologies (ICT) goods and services and are enabled by the use of such ICT products. Digital trade plays an important role in the digital economy, affecting gross domestic product (GDP) growth, productivity, and international trade relationships. The digital economy also supports the increase in digital trade flows as businesses increasingly use digital technology.

For example, companies are adopting cloud services, e-commerce platforms and data-powered products to make their operations more efficient, reduce costs, and enable access to global markets. This particularly benefits micro, small and medium-sized enterprises (MSMEs).

Digital trade can bring a greater variety of products and services, often at reduced costs, for consumers across the globe than non-digital trade (for example, because the costs of delivering digital products to a consumer are lower than for physical products). It can also drive innovation, for example, by supporting the development and global distribution of new technologies, such as artificial intelligence (AI) tools.

However, some have argued that despite the expansion of digital trade, not all people globally have equal and fair access to digital technologies so that all can benefit from them. This involves bridging the digital divide (the uneven distribution of and access to digital technologies) by, for example, building digital capabilities and expertise and investing in digital infrastructure in places where access to digital trade is low.

What are the main issues related to digital trade?

Digital trade has created many regulatory challenges, including:

• data governance: cross-border data flows, essential to digital trade, raise concerns over data privacy. Governments can implement regulations for data protection that may limit data transfers across borders. Data governance seeks to promote interoperability among different systems and trust in how data is transferred, managed and used.
• artificial intelligence (AI): AI has been increasingly incorporated into products, from refrigerators to consultancy services, to improve their performance and functionalities. AI can also facilitate trade by improving logistics and building resilient supply chains. However, AI can make accountability difficult, and is socially and ethically controversial. Governments are considering how to support AI development while addressing its risks.
• source code and algorithms: software is also a component of many products and used to structure, simplify and promote digital trade. Software builds on source code and algorithms that are written and developed by programmers. Source code is protected as intellectual property. Rules aim to uphold intellectual property rights, banning mandatory disclosure of source code to gain market access. However, source code and algorithms may lead to discriminatory and abusive practices that hurt competition and consumers.
• digital markets and competition: the domination of so-called ‘Big Tech’ companies in digital markets can result in abusive practices such as self-preference and monopolisation of data used to train and improve their products. This can make it hard for new companies to enter the market and can limit consumers’ freedom to choose the goods or services they purchase.
• digitally facilitating trade: digital technologies can facilitate elements of traditional trade transactions, such as contracts, signatures and payments. Many domestic legal systems, including the UK’s, allow for electronic contracts and online payments. One example of regulation is the Electronic Trade Documents Act. Countries seek to promote coordination and recognition of these rules and practices by their trade partners in trade agreements.
• diverging regulatory standards: all the above-listed issues highlight that the lack of international regulatory cooperation makes compliance costly and more difficult for businesses operating internationally. This has consequences for digital trade. The issues listed above also show that coordination is important for addressing broader interests such as fairness, trust, privacy, ethical concerns and consumer protection.

What is the UK’s approach to digital trade?

The UK recognises the importance of digital trade for its growth, given its valuable technology sector (PDF) and the importance of services in its economy. Following Brexit, the UK has tried to establish itself as a digital trade leader through policy innovation and by concluding trade agreements with significant digital components. The UK Government aims to create internal regulations and help set international standards for digital trade.

Some of the trade agreements with specific digital trade provisions ratified by the UK include those with Japan, Australia and New Zealand. The UK has also formally acceded to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These agreements aim to reduce trade barriers for digital businesses and promote cross-border data flows while maintaining domestic data protection standards.

In addition, the UK has concluded agreements with Singapore and Ukraine which exclusively focus on the digital economy. These are considered to contain high-standard rules and deep coverage (PDF) of digital trade issues.

Digital trade and the WTO

Countries in the World Trade Organization (WTO) are negotiating specific rules for digital trade, though progress has been gradual.

Discussions started in 1998, resulting in the WTO’s moratorium on customs duties for electronic transmissions. This moratorium allows electronically transmitted products to cross borders without the need to pay customs duties. The moratorium was approved provisionally, which means that WTO members must renew it regularly. In recent years, opposition to the moratorium has increased for several reasons, but primarily because developing countries have claimed it results in revenue loss.

As digital trade increases, some WTO members have identified the need to create a comprehensive and binding digital trade framework. The WTO’s joint initiative on e-commerce, launched in 2017, brings together over 90 countries, including the UK, in negotiations to create a global framework for digital trade. This initiative covers areas like enabling digital trade, trust and transparency.

The joint initiative on e-commerce is a step towards a global approach to digital trade. However, challenges persist because many countries differ on issues like data protection and localisation and some oppose having multilateral rules on digital trade in the WTO.