Here’s semi-mythical classical sage Lao Tzu, with some poetic advice to authorities who long to fix things. Sometimes they’re not broken, and are best left as is:
“Those who would gain all under heaven by tampering with it — I have seen that they do not succeed. Those that tamper with it, harm it. Those that grab at it, lose it.”
Prosaic modern economists occasionally echo him, with the unexciting but sometimes correct advice: “Don’t just do something, stand there.”
As the World Trade Organization (WTO) prepares for its 13th Ministerial Conference late in February, both the ancient sage and the modern wonks are offering very good (if also very modest) advice on the most modern of all technologies: the internet and the world’s digital economy. If the WTO members take heed, they will help growth and development in lower-income countries, and simultaneously help the Biden administration achieve its goal of a more “inclusive” trading system that does more to create opportunities for the small and the less powerful “empowering small businesses to enter the market, grow, and compete.”
THE MORATORIUM AND THE DIGITAL ECONOMY 1989-2023
The WTO’s 164 members have some significant calls to make this month, on an array of agenda topics ranging from fishery subsidies to agricultural stockpiling, intellectual property, and — not least — whether to extend their quartercentury-old pledge for “duty-free cyberspace.” This policy, more technically if clunkily termed a “moratorium on application of tariffs to crossborder electronic transmissions,” represents a 25-year-old consensus — always temporary but regularly renewed at each WTO Ministerial meeting — which helped to create and continues to underpin the modern global digital economy. If they renew it, no WTO member would need to change policy. Rather, they would simply continue to refrain from grabbing and tampering, while focusing their energy on issues in need of activist policy, from privacy protection to cybersecurity and action against disinformation. This commitment, simply by avoiding unintentional harm, would allow the digital economy to continue the natural growth that has helped hundreds of thousands of small businesses, and an uncountable but very large number of individuals, enter the global economy and find new ways to realize dreams and earn incomes.
The “moratorium,” however, is under some stress and criticism, mainly from left-populist NGOs and a few large developing-country governments. Their argument, fundamentally, is that the moratorium prevents taxation of data flows and therefore deprives developing-country governments of some tax revenue. But abandoning the moratorium would be a sad mistake, for global growth, for innovation, and for the governments who, in focusing on potential tax revenues (which, see below, are quite modest), are losing sight of their much larger growth and development opportunities. And it would be a sad mistake for the Biden administration’s hope for a more ‘inclusive’ trading system that offers more opportunity for small businesses and marginalized communities. Duty-free cyberspace remains critical to all these things, and the WTO members should enthusiastically endorse it once again. By way of context, the WTO’s “moratorium” dates to the late 1990s — the era just after the launch of the World Wide Web — and originates in prescient American thinking about the Internet’s potential future growth. Developed in that world of 150 million mostly American, European, and Japanese internet users, their hypotheses and projections look very good a quarter-century later. Here for example is that era’s U.S. Trade Representative, Charlene Barshefsky, explaining the early U.S. agenda in 1999:
“Moving on from the foundational commitment we won from the WTO members in 1998 on the principle of “dutyfree cyber-space” — that is, ensuring that electronic transmissions over the Internet remain free from tariffs — we are moving on to a longer-term work program. Its goals include ensuring that our trading partners avoid measures that unduly restrict development of electronic commerce; ensuring that WTO rules do not discriminate against new technologies and methods of trade; according to proper application of WTO rules to trade in digital products; and ensuring full protection of intellectual property rights on the Net. At the same time, we are working with individual trading partners on a series of related questions — for example, on privacy issues where we have worked closely with the European Union to create a model that both protects consumer privacy and prevents unnecessary barriers to transatlantic economic commerce.”
Her list of topics remains strikingly current. Some of the issues she cites still raise complex questions within the United States and are still politically contested both within countries and between large trading economies and technological powers. Technical debates over copyright continue to animate thinkers and lawyers in Silicon Valley and Hollywood, for example; likewise, the U.S. and the European Union still argue over privacy while working to preserve cross-Atlantic data flows. But two things seem clear.
One, the “foundational” moratorium on tariffing electronic transmissions remains at the heart of digital policy. In pleasing contrast to many trade agreements, it is a short one-sentence commitment in plain English. (Or plain French, or plain Spanish — the other two official WTO languages.) The actual texts of its first 14-word iteration, and the slightly longer renewals in 2019 and 2022, read like this:
“Members will continue their current practice of not imposing customs duties on electronic transmissions.” (Original moratorium in 1998)
“Members agree to maintain the current practice of not imposing customs duties on electronic transmissions until the 12th Ministerial Conference.” (2019 renewal)
“We agree to maintain the current practice of not imposing customs duties on electronic transmissions until MC13, which should ordinarily be held by 31 December 2023. Should MC13 be delayed beyond 31 March 2024, the moratorium will expire on that date unless Ministers or the General Council take a decision to extend.” (2022 renewal)
And two, in practical terms it continues to work. Over this quarter-century of not grabbing and not tampering:
World Internet Population Up by More Than 5 Billion: As governments have “stood there,” the world’s Internet user population has grown from 150 million to 5.5 billion, or from about 4% to 60% of humanity.
Over 1000-Fold Rise in Data Transmission: Transmissions of data over the Internet, estimated at 100 quadrillion bytes in 2000 by Cisco Systems in its fondly remembered “Visual Networking Index,” rose to 93 quintillion in 2017 — nearly 1,000-fold — before the Cisco statisticians gave up trying.
U.S. Domestic E-Commerce Up by $35 Trillion: The level of e-commerce within the United States has grown from the $700 billion Ambassador. Barshefsky noted in her speech (as estimated by the Commerce Department) to $36 trillion, a figure now about 30% greater than the U.S.’ $26 trillion GDP. Internationally no such figures exist, but the WTO’s most recent annual statistical summary, World Trade Statistics 2023, points to a single form of electronic commerce — digitally enabled trade in services — as the most dynamic element of 21st-century trade:
“Looking back through the entire pandemic period, computer services were the most dynamic sector in services trade, with global exports in 2022 worth 44% more than their value in 2019. Digitally delivered services — that is, services provided via computer networks, from streaming games to remote consulting services — are an emerging source of growth, accounting for 54% of global services exports in 2022, and 12% of total global trade in goods and services.”
New Industries Steadily Emerging: The moratorium has facilitated this by keeping the cost of data transfer low, enabling not only growth, but also the transformation of existing industries, and the creation of entirely new ones: “influencers,” social media, telemedicine, and distance education; or, alternatively, digital services integrated in manufactured goods from cars and medical technology to rice-planting machines and smartphones.
SMALL BUSINESS AND THE ‘DEMOCRATIZATION’ OF TRADE
The picture of trading firms has also changed noticeably and to the benefit of the smaller and less advantaged: digital technologies lower the costs of entry to the trading world for everyone, but disproportionately for small firms and individuals.
In-depth reviews of the challenges American SMEs (small and medium-sized enterprises) face in international trade done by the U.S. International Trade Commission in 2010 suggest obvious reasons why these businesses (and by extension individual entrepreneurs) would, relatively speaking, find special value in lowcost Internet access. They report particular challenges, for example, in finding overseas customers, navigating required customs documentation, securing payment, and managing returns. Large firms traditionally open overseas offices that settle these problems; small ones, except in special cases such as family firms with relatives in two or more countries, can’t. The smaller ones, with new access to low-cost email, data analytics, and social media, should be able to use digital technologies to (at least in part) compensate for this disadvantage.
Edward Gresser is Vice President and Director for Trade and Global Markets of the Progressive Policy Institute. Before joining PPI in October 2021, he served as Assistant U.S. Trade Representative for Trade Policy and Economics, and concurrently as Chair of the U.S. government’s interagency Trade Policy Staff Committee.
Malena Dailey is the Director of Technology Policy with the Progressive Policy Institute, where she works on issues relating to social media and the internet and technology sector.
To read the introduction as it is posted on Progressive Policy Institute’s website, click here.
To read the full report published by the Progressive Policy Institute, click here.