Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative - INTERNATIONAL TRADE WORKING PAPER
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ISSN 2413-3175
2021/10
INTERNATIONAL TRADE WORKING PAPER
Digital Reboot: The Case for
a Newly Invigorated Aid for
Digital Trade Initiative
Simon LaceyInternational Trade Working Paper 2021/10
ISSN 2413-3175
© Commonwealth Secretariat 2021
By Simon Lacey
This paper was commissioned by the Commonwealth Secretariat and was authored by Simon
Lacey of the Institute for International Trade at the University of Adelaide, with valuable research
support by Ziyaad Nazir Ebrahim, a doctoral student at the Institute. The author would also like
to thank Michael Roberts and Lee Tuthill, both of the WTO Secretariat, who were instrumental
in providing invaluable feedback on an earlier draft of this paper.
Please cite this paper as: Lacey, S (2021), Digital Reboot: The Case for a Newly Invigorated
Aid for Digital Trade Initiative, International Trade Working Paper 2021/10, Commonwealth
Secretariat, London.
The International Trade Working Paper series promptly documents and disseminates
reviews, analytical work and think-pieces to facilitate the exchange of ideas and to stimulate
debates and discussions on issues that are of interest to developing countries in general and
Commonwealth members in particular. The issues considered in the papers may be evolving
in nature, leading to further work and refinement at a later stage. The views expressed here
are those of the author(s) and do not necessarily represent those of the Commonwealth
Secretariat.
For more information contact the Series Editor: Dr Brendan Vickers,
b.vickers@commonwealth.int.
Abstract
Aid for Trade (AfT), first launched in 2005, has come a long way over the last fifteen years and has
undeniably made an important contribution to overcoming the many constraints holding devel-
oping countries back from greater participation in international trade, and thus from reaping
many of its benefits. This paper first examines which AfT initiatives have sought to enable greater
participation by developing countries in digital trade specifically, while also seeking to distil some
of the more valuable lessons learned in this process. By way of four case studies it examines some
recent successes of Digital AfT initiatives, including one that addresses connectivity infrastructure
gaps and another that involves efforts to raise digital skills in order to support entrepreneurship
in the e-commerce sector. The paper concludes by first advocating for the adoption of a greater
focus on the digital dimension in the conceptualisation and implementation of AfT initiatives –
proposing the launch of a new Aid for Digital Trade agenda in order to update the original AfT
approach – and then outlining a number of specific ways in which this could and should happen.
JEL Classifications: F35, O14, O19, L81
Keywords: Aid for Digital Trade, Aid for Trade, digital trade, e-commerce, entrepreneurshipInternational Trade Working Paper 2021/10 3
Contents
Executive Summary 5
1. A Brief Introduction and Overview of Aid for Trade 6
2. The Digital Dimension in International Trade 8
3. The ‘Why’ of Taking Aid for Trade Digital 13
4. Giving the Aid for Digital Trade Agenda Legs 16
Annex 1. Data on Aid for Trade Disbursements 21
Annex 2. Case Studies on Aid for Digital Trade 25
Notes 29
References 314 Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative
Abbreviations and Acronyms
ADB Asian Development Bank
AfCFTA African Continental Free Trade Area
AfT Aid for Trade
CPTPP Comprehensive Pact for a Trans-Pacific Partnership
DDA Doha Development Agenda
DE4A Digital Economy for Africa (an initiative of the Word Bank Group)
DFAT Department of Foreign Affairs and Trade (Australia)
EU European Union
GATT General Agreement on Tariffs and Trade
IDB Inter-American Development Bank
ISP Internet Service Provider
LDC Least Developed Country
OECD Organization for Economic Cooperation and Development
OTT Over the top (i.e. on top of existing communication network services)
SOE State-Owned Enterprise
SSA Sub-Saharan Africa
UNECA United Nations Economic Commission for Africa
USMCA United States, Mexico, Canada Agreement
USTR United States Trade Representative
WBG World Bank Group
WTO World Trade OrganizationInternational Trade Working Paper 2021/10 5
Executive Summary
Aid for Trade (AfT) is now a well-established rethink of the AfT agenda and a relaunch of this
initiative that enjoys broad support across the important initiative as Aid for Digital Trade.
trade and development community, with many This is not to give credence to the notion that
success stories globally. Initially launched as digital technologies are themselves any kind of
an extension of efforts to mainstream trade, its panacea, or to deny the fact that they come with
focus has evolved in lockstep with better and risks as well as opportunities. However, failure to
deeper insights on the impediments to trade strongly emphasise the need for developing and
that exist and how they work. least developing countries to embrace and lever-
Since 2017 at the very latest, a discernible age these technologies – and to do so now – risks
shift has taken place in the AfT community, forfeiting this unique moment in history, as the
with an increased emphasis on interventions whole world prepares to ‘build back better’.
targeted to support the ability of developing This report is structured in four sections
and least developed countries to engage in digi- and contains two annexes. Section 1 discusses
tal trade. This shift coincided with the realisa- the evolution of the AfT agenda, including its
tion that the digital and analogue economies already tentative turn to digital, and some of
were rapidly converging to simply become ‘the the gaps that exist in the data on AfT flows.
economy’ and that if developing countries did Section 2 discusses some of the ways in which
not embrace these new technologies, their firms digital technologies are already having a pro-
and citizens would fall further behind those in found impact on international trade, as well as
advanced industrialised countries. The shift to ongoing efforts to negotiate new trade rules for
digital also coincided with the realisation that the digital economy, and finally explores the dig-
embracing these technologies could likewise ital promise of trade and development. Section
support and expedite efforts to achieve other 3 argues the case for a substantial pivot towards
related policy objectives, such as reducing the digital and for recasting AfT as the Aid for
‘thickness’ of borders (by reducing trade costs), Digital Trade initiative. Finally, Section 4 pro-
boosting inclusion of women and youth in the poses several ways in which this could be done
economy, and improving economic governance in the context of current and ongoing initiatives
more generally. at the WTO and elsewhere, where trade negoti-
This shift was then given new impetus and ators from developed and developing countries
heightened urgency by the seismic structural sit at the same table. The report is followed by
changes brought about by COVID-19 and the two annexes. The first is a technical annex that
challenges countries now face in first overcom- lays out some of our findings when looking at
ing the health crisis and then embarking on the available data on AfT to Commonwealth
economic recovery. The trend towards wider countries. The second contains a series of case
adoption of digital technologies is something studies from development assistance initiatives
that policy-makers in developing and least targeting improvements in digital technologies
developing countries, and the development in developing countries to support their inte-
community more broadly, are now irrevoca- gration into the digital economy, and thus their
bly committed to, which calls for a profound ability to engage in digital trade.6 Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative
1. A Brief Introduction and Overview of Aid for Trade
The Evolution of Aid for Trade e-commerce and e-readiness starting to become
prominent (OECD/WTO 2017, p.23). By this
Aid for Trade (AfT) was launched in 2005 at
time, the importance of digital trade was becom-
the 6th WTO Ministerial Conference in Hong
ing increasingly clear to the world at large, and
Kong, China. What distinguished AfT from
the development community in particular, not
other longstanding efforts to address concerns
least because e-commerce or digital trade chap-
by developing and least developed countries
ters began featuring in an increasing number of
about the multilateral trading system, was that
bilateral, regional and mega-regional free trade
it focused on addressing a wide array of (pre-
agreements (FTAs).
dominantly) supply-side constraints that pre-
vented these countries from participating more
The ‘Digital’ in Aid for Trade Today
actively in international trade flows.1 As it was,
AfT was part of a continuing effort to ‘main- In the early years of the AfT initiative, specific
stream’ trade into overseas development assis- interventions attributable to anything resem-
tance (ODA), i.e. embed trade policy and trade bling today’s digital economy (the next chapter
policy reforms into ongoing efforts by donor explores this concept in more detail) were largely
countries to promote economic development limited to efforts to build network communica-
outcomes in recipient countries. tions infrastructure or were firmly embedded
Over the years, the AfT agenda has gradu- in customs modernisation efforts.2 Other inter-
ally evolved as a clearer picture has emerged ventions, such as one targeting the digitisation
on what kind of ODA activities work best to of business registration procedures in Malawi,
support the objectives of the AfT agenda. In took place in the context of broader reforms
its earlier manifestations, AfT focused largely seeking improvements in the business climate
on stocktaking and benchmarking as it sought more generally.3 With time, and the shift in focus
to identify what kind of interventions had the to reducing trade costs (particularly in the con-
greatest impact or were the most favoured by text of implementing trade facilitation reforms),
both recipients and donors. Starting in 2013, a more emphasis was laid on the benefits of digi-
pronounced shift in emphasis took place, with tising various import processes and procedures,
the AfT agenda changing focus to help recipi- again in the context of customs modernisation
ent countries connect to value chains, as devel- and the establishment of Single Window facili-
opment thinking caught up with the dominant ties. The rise of e-commerce also began to gain
reality of geographically fragmented and dis- recognition in the AfT literature, as a catalyst
persed production processes prevalent across for more inclusive growth with respect to both
a wide range of manufacturing sectors, from small and medium-sized enterprises (SMEs)
textiles to consumer electronics. This shift in and women’s economic empowerment.4
focus drove the AfT community to explore the As alluded to above, by 2017, with the the-
main barriers preventing firms in developing matic emphasis of the AfT monitoring and
countries from connecting with value chains evaluation exercise that took place that year
and thus a renewed emphasis on reducing the fixed firmly on the benefits of online connectiv-
‘thickness’ of borders and improving business ity and the developmental promise of the digi-
environments (OECD/WTO, 2013, pp. 22, 24). tal economy, the ‘digital’ in AfT could be said to
This shift in emphasis was further refined in the have finally arrived and was arguably itself on
context of the 2015 Global Review, with a new the way to being mainstreamed. In fact, many
onus on using AfT to support governments of the so-called case stories published in the
and policy-makers in developing countries to context of the 2017 review display one or more
reduce the economic burden on their own firms elements of supporting online connectivity or
and consumers by lowering trade costs (OECD/ promoting some aspect of digital inclusiveness;
WTO, 2015, p. 23). for example, the Samoa submarine cable proj-
2017 saw the AfT agenda pivot significantly ect,5 or the review of e-commerce legislation
towards an important turning point with issues harmonisation in the Economic Community of
such as connectivity, the digital economy, West African States.6International Trade Working Paper 2021/10 7
Today, even a cursory look at the landscape for productive capacity-building could include
of ongoing, planned or recently completed AfT support for e-commerce start-ups or training
interventions shows this trend has not abated and workshops for entrepreneurs on e-commerce.
that both donors and their development partners Trade-related adjustment could include sup-
are aware of the gains to be had by both promot- port for those affected by domestic policy
ing connectivity and getting more businesses reforms undertaken to build digital capacity
and consumers online – for example, USAID’s that then made analogue resources redundant,
Digital Frontiers programme, which includes or that required reskilling of these resources
support to the African Union Commission on (such as the adoption of paperless trade and
digital trade issues in the context of the African e-customs platforms). ‘Other trade-related
Continental Free Trade Area (AfCFTA).7 needs’ is a catch-all category that likewise could
encompass myriad forms of AfT assistance tar-
A Data-centric Analysis of Aid for Trade geted specifically at upgrading capabilities for
digital trade, such as a programme aiming to
Disbursements
bring the unbanked into the formal economy
Based on OECD Credit Reporting Data, we by launching an e-wallet scheme. However, the
tracked expenditures on ICT (Credit Reporting way in which the OECD Credit Reporting Data
System (CRS) Code 22040) across all develop- is compiled – and this is the most complete data
ing country members of the Commonwealth in set we found – does not further disaggregate
the years 2017–18, assuming these to be good disbursements based on their specific uses, so
sample years where the attention of the donor that, apart from the general category of ICT, we
community was the greatest on the impor- cannot ascertain the true extent to which AfT
tance of helping recipient countries to bridge resources are going towards upgrading digital
the digital divide. Our findings are shown and capabilities.
broken down in greater detail in Annex 1 of Nevertheless, our findings – set out in
this report. This approach does not claim to more detail in Annex 1 – show how much
provide a comprehensive overview of all ODA various Commonwealth countries received
disbursements aimed at improving develop- under the ICT heading over the years 2017–
ing countries’ capacities in digital trade – far 18, which allows the reader to gauge where
from it, in fact. Indeed, in the OECD Credit donors’ priorities lay. For example, developing
Reporting Data, 22040, ICT is the only CRS Commonwealth countries in the Caribbean/
code that provides a reasonable proxy for the Americas region received considerably less
assistance developed countries are providing to than their peers in Africa, Asia and the Pacific,
developing countries. If anything, our efforts in with most of these countries receiving no dis-
this regard demonstrate just how difficult it is to bursements for ICT in 2017 and some also
arrive at a comprehensive overview of targeted receiving nothing in 2018.8 Africa, the largest
support provided to developing countries to region, with no fewer than 19 different recipi-
strengthen their ability to connect with digital ent countries comprising the Commonwealth’s
value chains. To do so would require an exten- membership, recorded by far the largest dis-
sive exercise in forensic accounting, which is bursements for ICT in both 2017 and 2018, at
beyond the scope of this study. USD 36.3 and 31.38 million respectively.9
Looking at the categories into which vari- Our findings also show the main source of
ous forms of AfT support have been classified AfT funding for ICT for each region, which
since the 2005 Task Force undertook this task, again allows readers to gauge the priorities of
it is clear to see how almost every one of these different donors. Surprisingly, the World Bank
categories could include some form of targeted Group’s International Development Association
assistance aimed at raising digital capabilities. (IDA) is by far the largest contributor across all
For example, technical assistance for trade regions, in all cases, by a considerable margin.10
policy and regulations could include support Development Assistance Committee (DAC)
for the adoption of new legislation allowing for members perform unevenly across regions and
electronic authentication and e-signatures in years. For example, in 2017 DAC members pro-
domestic legal transactions. Trade-related infra- vided 10.5 per cent of the total AfT funding for
structure support can and often does encom- ICT, rising to 16.1 per cent in 2018. But in the
pass telecommunications networks. Assistance Commonwealth Pacific, only New Zealand and8 Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative
Australia (both DAC members) provided any upgrade their telecommunications networks,
share of these disbursements, at 2.7 per cent cloud computing infrastructure, e-commerce
and 1.3 per cent respectively.11 and mobile payments systems, and on the other
Apart from the data shortcomings identi- hand also supports Chinese technology export-
fied above, the OECD reporting lacks cover- ers to gain footholds or increase market share in
age of targeted support provided outside of recipient countries (Arcesati 2020). How much
ODA flows, with the Bill and Melinda Gates of this aid could and should be allocated to AfT
Foundation being just one example of a pri- assistance to improve digital trade capabilities
vate non-profit providing significant fund- is a significant question that the current study
ing for expanding access to financial services leaves unaddressed.
for the poor via digital payment technologies The next chapter discusses the digital dimen-
(Daniel, 2020). Another example of a big gap in sion in international trade – both in terms of
the data (a ‘known unknown’) are big develop- the technologies themselves and the way digital
ment assistance projects, such as China’s Digital trade issues have been taken up in trade negoti-
Silk Road, which on the one hand engenders ations and trade agreements – and the promises
targeted support for recipient countries to digital trade holds for development.
2. The Digital Dimension in International Trade
This chapter discusses how digital trade has to the point of becoming ‘one intertwined and
been defined by those most actively engaged inseparable singularity’ (Lacey, 2017b, p. 2).
either in trying to measure this phenomenon Another way to think about the digital econ-
or in crafting trade rules to govern the digital omy is in terms of its various constituent parts,
economy, including intergovernmental organ- segments and actors (see Figure 1), that is, by
isations and governments negotiating FTAs. It examining the ecosystem of players and how
also discusses the links between digital trade they each contribute to forming, maintaining
and development to set the stage for the next and advancing the online world. At the most
chapter, on why AfT must be repurposed to basic level is the underlying infrastructure.12
become Aid for Digital Trade. This comprises various hardware elements
that are largely invisible to the vast majority
of users, including but not limited to ‘optical
The Digital Economy and Digital
fibre, coaxial cables, switches, signal ampli-
Value Chains fiers, servers, data centres, satellites, wireless
When contemplating what constitutes the digi- base stations, mobile telephone towers, anten-
tal economy, one possible approach is to focus nas, routers modems, range extenders’ and the
on the notion of online connectivity. Whether or like (Lacey 2017b, p.4). On top of the infra-
not an activity is done partially or wholly online structure layer is a range of services and their
or is facilitated by some process or capability that respective providers, each of which is subject
runs or exists online, is one way to delimit the to a certain hierarchy. At the base of this hier-
digital economy from its analogue predecessor. archy are those providing communication ser-
However, even this approach runs into prob- vices – those who invest in, build and maintain
lems when one considers that in most advanced communications networks and charge users a
economies, and in a growing share of develop- fee for the privilege of using them. These actors
ing economies, an increasing share of payment are, for the most part, either telcos, cable com-
transactions involve some element of online pay- panies or internet services providers (ISPs).13
ment processing – every time we buy something They generally operate in oligopolistic mar-
and use a card or a mobile payment solution, we ket environments and have varying degrees of
participate in the digital economy. This example market power given the capital intensiveness of
simply serves to underscore the fact that the this business, which creates a significant barrier
online and offline economies are already mas- to entry. However, this layer is not generally
sively complementary and are fast converging where most of the economic gains are to be hadInternational Trade Working Paper 2021/10 9
Figure 1. The various segments of the modern digital economy, simplified
Infrast ruct ure Devices/ Term inals
Various hardware elements,
Hardware interface where the
including but not limited to
infrastructure layer,
optical fibre, coaxial cables,
communications services and
switches, signal amplifiers,
OTT value generators coalesce,
servers, data centres, satellites,
in the form of a computer,
wireless base stations, mobile
laptop, smartphone, sensor,
telephone towers, antennas,
onboard navigation device etc.
routers, modems, and range
extenders.
Users
Services (OTT)
Often the end-point of most
Those providing communication
online functionality but also the
services, providers of various
provider of much of the data on
kinds of digital services from the
which the whole digital economy
very visible and profitable to the
runs. Can be both individuals,
many small and largely unknown
groups of users, or a
entrepreneurs providing either
business/organization.
B2B or B2C services via the
internet or mobile networks.
Source: Author’s illustration.
in this hierarchy – that honour goes to the so- or she is in the offline economy. The user is
called OTT (over the top) providers of various often the target of most of this functionality
digital services. At the most visible level these but is also the provider of much of the data on
are companies, such as Amazon, Facebook, which the whole digital economy runs.16 As
Google, Netflix and others, that have built mas- mentioned previously, the user is often also a
sive income streams on top of digital business business, since businesses use and consume
models, but there are also many unseen and a whole range of digital goods and services,
unsung entrepreneurs operating in this space, such as cloud computing services (Gartner,
providing either B2B or B2C services and being 2020).
remunerated at varying levels.14 Although the digital economy has been
A further constituent element of the digital prone to unacceptable levels of market concen-
economy is the device layer – the terminals tration in some segments (particularly online
where the infrastructure layer, communica- advertising, which is dominated by Google and
tions services and OTT value generators con- Facebook), there remain many points along
verge to provide the user experience at the the digital value chain that allow for chal-
ultimate endpoint, namely the user herself lenge by small and scrappy upstarts, includ-
(often also a business). The devices layer was ing SMEs in developing countries looking to
traditionally dominated by a few highly vis- either expand the geographic footprint of their
ible consumer electronics firms, such as Apple own customer base, or to source inputs cross-
or Samsung, but in the era of Big Data and border to better contest their local market.
Internet of Things (IoT), devices are increas- This is the case for e-commerce retailer Direct
ingly being placed on everything (particularly Fresh of Bangladesh,17 and showcases the real
in the form of sensors) so that many more economic development potential of the digital
players have joined this layer of the digital economy, which is discussed in more detail
economy, providing functionality that goes later in this chapter.
considerably beyond satisfying the needs and
tastes of consumers and reaching deep into the
The Role of ‘Digital Trade’
heart of industrial design and production pro-
cesses across almost every economic sector.15 When describing the digital economy under
Finally, the user is yet another constitu- the previous heading, we sought to keep
ent element of the digital economy, just as he things simple by focusing on the element10 Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative
of online connectivity as the key factor that The digital currency M-PESA, which has
defines a given transaction as belonging in the become a poster child for pathbreaking African
digital realm. In terms of determining what digital innovation, was without doubt an
constitutes digital trade, we would argue that exciting development, albeit not one which
keeping things simple is again helpful, so that originally demonstrated any overarching cross-
the key element here can be whether or not a border characteristics, since it was initially a
given digital transaction exudes a cross-border solely domestic payment platform, launched by
element. The absence of such a feature would Safaricom in 2007, that operated over Kenya’s
imply that this is a purely domestic transac- local 2G networks. However, over the years,
tion and thus not one of interest to those Safaricom has partnered with international
studying or seeking policy insights in the area mobile operators such as Vodafone (itself
of international trade. However, this approach a 40 per cent owner of Safaricom at the time
can also lead to results that fail to capture any M-PESA was launched) and MTN to expand
cross-border elements of a given transaction the digital currency’s reach into other markets,
and thus fail to categorise and record it as an as well as entering into arrangements with vari-
instance of international digital trade (see ous online payment processors, such as PayPal,
Figure 2 for a possible typology of digital trade Western Union, MoneyGram and AliExpress,
transactions). to become the vehicle of choice for the Kenyan
Extrapolating this construct to some of the diaspora to transfer money or pay bills back
larger players in the digital economy demon- home.19 In fact M-PESA may well be one of the
strates how useful it is for delimiting the purely most successful case studies of Aid for Digital
domestic from the international. The example Trade since it emerged from a 2000 pilot proj-
given previously, of businesses contracting ect that was funded by the UK Government’s
cloud computing services, describes a digital Department for International Development
transaction that may or may not include any as part of its Financial Deepening Challenge
number of cross-border elements.18 Another Fund.20
example was that of the Bangladeshi online Different intergovernmental organisa-
grocery delivery store. This looks like a simple tions have made various attempts to deter-
domestic and local e-commerce venture, except mine the scope of digital trade. For example,
that one of the founders was a US citizen and as part of its Measuring Digital Trade efforts,
much of the produce sold on the platform is the International Monetary Fund, together
sourced from third-country markets, again with the OECD, define digital trade as ‘all
providing the cross-border element necessary cross-border transactions that are either digi-
to define ‘digital trade’. tally ordered (i.e., cross-border e-commerce),
Figure 2. A typology of digital trade
Cross-border trade in ICT goods and services
01
Example(s): A customer orders a version of a particular
smartphone that is only available in one single overseas market.
A customer subscribes to an online file storage service.
Digital goods
02
Example(s): A customer orders an e-book online and
downloads it to his tablet. A customer downloads a new data
visualization app and purchases a subscription.
Digital trade Digitally ordered goods
03
typology Example(s): A customer orders a custom-made shirt online
which is delivered to his home address.
Digitally ordered services
04
Example(s): A customer uses a mobile app to purchase
and arrange delivery of a pizza from her local pizzeria.
Digitally delivered services
05 Example(s): A podcaster contracts a sound engineer to edit his
sound recordings using an online freelancing platform and
downloads the finished audio-file from the same platform.International Trade Working Paper 2021/10 11
digitally facilitated (by platforms), or digi- The regular updates provided by the WTO
tally delivered’.21 The OECD for its part, con- on the progress of these negotiations shows
cedes that there is ‘a growing consensus that the kind of disciplines that are being contem-
it encompasses digitally enabled transactions plated and where some degree of consensus
of trade in goods and services that can either can be perceived to exist among the 86 mem-
be digitally or physically delivered, and that bers participating in these talks at the time of
involve consumers, firms, and governments’. writing. These include rules on unsolicited
In taking this approach, the OECD dismisses email (spam), source code, open government
the need for any cross-border element. By data, trade facilitation in goods, services mar-
the same token the OECD places less empha- ket access, electronic signatures and authen-
sis on the concept of online connectivity and tication, and online consumer protection.24
greater weight on the movement of data as the Given what has already been included within
defining element of what makes a given trans- the scope of various e-commerce and digital
action digital. For all intents and purposes, trade chapters of recent bilateral, regional and
whether one focuses on online connectivity mega-regional FTAs (see below), this assort-
or the movement of data is largely irrelevant ment of potential treaty provisions is not sur-
since they are two sides of the same symbi- prising. There is also still ample opportunity
otic coin; without online connectivity, no data for developing countries participating in these
can be moved between different ecosystem talks to extract concessions and commitments
players, and without data there is no intrinsic of a developmental nature from their developed
value to either the connectivity infrastructure negotiating partners, and this is, in fact, a mat-
or the terminal devices they connect with.22 ter of the highest importance for developing
It is also worth noting that different institu- countries and something this report will return
tions, researchers or stakeholders do not and to in the final chapter.
will not necessarily need one single definition. In addition to ongoing talks at the WTO
Indeed, their working definition will depend between many members, a significant num-
on what aspect of e-commerce or cross-border ber of FTAs have already seen a set of bench-
trade they wish to focus on for the purposes of marks established with relation to disciplines
their work. This fact implies that the search for on how to govern digital trade. The Trans-
one overarching and all-encompassing defini- Pacific Partnership, which, after the US with-
tion of what constitutes ‘digital trade’ that will drawal from the completed agreement in
satisfy everyone, may be doomed to fail from January 2017, become the Comprehensive
the outset. and Progressive Agreement for Trans-Pacific
Partnership (CPTPP), was the first FTA to con-
Trade Rules to Govern the Digital tain binding treaty provisions on a set of com-
mitments specifically negotiated with a view
Economy
to addressing the needs of companies and (to
From the very earliest days the WTO opted to a slightly lesser extent) citizens in the global
address what, in 1998, was the fast-growing digital economy.25 This agreement did a lot to
phenomenon of electronic commerce,23 and codify the existing status quo representing the
agreed to a working definition of e-commerce balance of outcomes between what big digital
as ‘the production, distribution, marketing, business was asking for and what governments
sale or delivery of goods and services by elec- were willing to acquiesce to in terms of bind-
tronic means’ (World Trade Organization, ing constraints on regulatory interventions
1998, 1.3). However, efforts to launch formal in the digital economy.26 It has since been fol-
negotiations on e-commerce at the multilat- lowed by other initiatives, such as the digital
eral level were continuously stymied, until in trade chapter of the United States, Mexico,
January 2019 a large group of some 76 WTO Canada Agreement (USMCA), the Digital
members, comprising both developed and Economy Agreement between Singapore and
developing countries, announced their inten- Australia, and the Digital Economy Partnership
tion to launch what amounted to plurilateral Agreement between Singapore, Chile and
negotiations on trade-related aspects of elec- New Zealand, as well as – to a less ambi-
tronic commerce (World Trade Organization, tious degree – the Regional Comprehensive
2019). Economic Partnership Agreement (RCEP).12 Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative
All these agreements contain explicit provi- countries in their economic growth trajec-
sions on electronic commerce or digital trade tories.31 These arguments are well known: by
and generally tackle these issues through a hier- engaging in trade, firms in developing coun-
archy of normative statements that range from: tries can gain access to larger markets for their
1) binding with few to no exceptions or carve- products, while consumers and firms benefit
outs; to 2) binding but subject to exceptions and from a larger range of cheaper and better prod-
carve-outs; to 3) non-binding best-endeavour ucts and inputs (including services). Trade
undertakings. also exposes consumers and firms in develop-
What is apparent is that the commitments ing countries to more modern technologies,
governments have shown themselves willing to again giving rise to consumer and producer
enter into under these agreements demonstrate surpluses. Even the more modern iterations
that consensus on a number of legislative and of these arguments, as manifested in the focus
regulatory rule-making areas belonging to the on lowering trade costs and connecting with
digital economy exists in areas where govern- value chains, is to a large degree about allow-
ments are already working together in other ing consumers and producers in developing
intergovernmental forums or that do not call countries to reap the gains from trade as tradi-
for them to sacrifice very much policy space or tionally conceived.
regulatory sovereignty. Examples from both the This is likewise true in the context of the dig-
CPTPP and RCEP include paperless trading,27 ital economy. Many of the initiatives we have
electronic authentication and electronic sig- seen on issues like the digital divide (such as
natures,28 domestic regulatory framework for the International Telecommunication Union’s
electronic transactions,29 and unsolicited com- (ITU) Broadband Commission for Sustainable
mercial electronic messages (spam).30 Development) or the digital skills and regu-
Although all this activity takes place in the lation gap (UNCTAD’s eTrade Readiness
context of dedicated working groups or coali- Assessments) are aimed at creating frame-
tions of FTA partners, all countries, developed work conditions or enabling environments
and developing, need to be clear about an that would better position developing coun-
important reality inherent to both the digital tries to reap the benefits of digital trade. These
economy and digital trade, regardless of their benefits include lower barriers to entry and
degree of active participation in these rule- operating costs than many bricks-and-mortar
making processes. This is that many areas of businesses, less exposure to the dictates of eco-
legislative or regulatory activity that are likely nomic geography, lower trade costs for digital
to impact the rights of individuals buying or products than for conventional tangibles, mini-
selling, or the market access interests of firms mal to non-existent transport costs for digital
operating in the digital economy, and which products, obviation of the need to obtain trade
involve a sufficiently strong nexus to an ele- finance for products that are digitally traded,
ment of cross-border trade, are likely to fall greater market transparency and smaller infor-
within the ever-expanding purview of digital mation asymmetries, and many more simi-
trade rules. Given the increasing degree of both lar such advantages (we discuss these in more
complementarity and convergence between the detail in the next chapter under the heading
offline and online economies, governments can The Gains from Digital Trade).
quickly find themselves wading into the area of Another useful starting point for thinking
digital trade, even when regulating matters they about the development dimension of digital
believe are exclusively subject to domestic law, trade are the seven issues specifically spelled out
such as consumer rights, privacy, liability, taxa- by the Friends of E-Commerce for Development
tion or labour rights. (FED) which met in 2017 in Geneva and articu-
lated a consensus position in anticipation of the
fact that WTO negotiations on e-commerce
Digital Trade and Development
were no longer an issue of ‘if ’ but rather ‘when’
Conventionally, the development dimension (Ismail, 2020 p. 12). The FED comprised ten
of international trade has focused most of its developing countries (six of which were from
attention on a number of areas, including – Latin America)32 and highlighted the following
at the most fundamental level – allowing issues as being key development concerns to be
the gains from trade to support developing addressed under the impending e-commerceInternational Trade Working Paper 2021/10 13
negotiations: the identification of strategies for financing is about inclusiveness. Ultimately,
e-commerce readiness; access to ICT infrastruc- and similarly to the broader debates we have
ture and services; trade logistics and trade facili- long had in the context of trade and develop-
tation; e-payment solutions; legal certainty and ment, the digital trade for development agenda
regulatory frameworks; capacity-building and is about levelling the playing field for consum-
technical assistance; and access to financing. ers and firms (but especially firms) between
Many of these issues fit neatly into the para- developing and developed countries, not neces-
digms already discussed above. For example, sarily in the spirit of equality of outcomes, but
e-commerce readiness, access to ICT infra- rather equality of opportunities.
structure and services, capacity-building and In the next section of this report, we discuss
technical assistance all relate to efforts to bridge why contemporary and especially future AfT
the digital divide and close the digital skills activities and initiatives must pivot to better
gap. Trade logistics and trade facilitation, as reflect the realities imposed by the convergence
well as e-payment solutions and legal certainty/ taking place between offline and online busi-
regulatory frameworks correlate strongly with ness models. In the fourth and final chapter we
the issue of reducing trade costs. Access to present several proposals for how to do just this.
3. The ‘Why’ of Taking Aid for Trade Digital
In this chapter we make the case for why ODA internet and related technologies, such as big
in general but AfT in particular must pursue a data analytics, cloud computing and machine
‘digital first’ strategy – namely because this is learning.34
where the greatest impact can be achieved in the Societies have also accrued other benefits
shortest period of time with the most efficient more broadly, thanks to the technological
allocation of scarce development resources. developments of the last quarter of a century
related to online connectivity and digitisa-
tion. These are linked to the relative ease of
The Economic and Other Benefits of
sharing information and organising online,
Digital Transformation which has boosted civil society in numerous
It can help to think about the economic benefits ways and empowered governments to improve
of increased uptake of ICT and digital tools at service delivery and participatory governance
several levels. At the most basic level (so-called across a range of areas.35 Similarly, these tech-
first-order economic benefits), there are the nologies have been found to have had a signifi-
direct results of the economic activities inher- cant impact on reducing corruption, thereby
ent to building the network infrastructure and contributing to better governance in those
getting consumers and firms online, including societies that embrace their adoption and
but not limited to ‘manufacturing and selling implementation in government (Adam and
the equipment, its purchase (and any credit Fazekas, 2018).
financing involved) as well as the installation The obvious danger here is to view these
work, drilling, ducting, deploying and testing technologies and their ubiquitous application
of the equipment’ (Lacey, 2017b, p.2). as a kind of panacea, which obviously they
Then there is a whole set of much more sig- are not. We discuss some of the downsides of
nificant second-order effects, including all the the internet economy that have emerged, and
economic activity that takes place on top of their implications for developing countries in
the network and device layers and the value the context of digital trade, later in this chap-
generation inherent to this activity.33 At yet ter, under the heading The Dangers of Falling
another level, and given the nature of online Behind. Suffice to say, however, that these tech-
connectivity as a general-purpose technology, nologies clearly bring many benefits to the
are the many productivity and other efficiency economy and society, meaning that govern-
gains that have accompanied the growth of the ments everywhere need to be deeply involved14 Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative
in conceptualising and implementing ways to communicating with potential distribution
connect the greatest number of their people partners; and many similar impediments.36
and firms with these technologies.
Confronting Economic Realities
The Gains from Digital Trade
One of the most compelling reasons for focus-
There are various benefits promised by the ing the AfT agenda on digital empowerment
technological advancements that have come is, of course, because the offline and online
with online connectivity and digitisation. economies continue to converge. As firms in
Suominem boldly posits that they are ‘helping developed countries increasingly adopt these
us close in on the Holy Grail of world trade: technologies and leverage the efficiencies they
seamless integration and automation of the bring, firms in developing countries that fail to
informational, financial and physical sup- do the same will be put at an even greater rela-
ply chains that undergird trade transactions’ tive disadvantage than currently. This is essen-
(Suominem, 2019, p.17). In its essence, digi- tially about levelling the playing field and goes
tal trade is about the adoption of technolo- to the heart of the original mandate of the AfT
gies that help to reduce costs and eliminate initiative.
inefficiencies. As such, it represents a next The internet economy and related technolo-
logical step in the long historical arc of world gies are not only here to stay but constantly
trade, which has always been about find- evolve as their uptake expands and both the
ing new, more efficient, more innovative and pools of data and their intrinsic network effects
more cost-effective ways of connecting and continue to grow. The longer developing coun-
contesting geographically dispersed markets tries delay their digital transformation, and
(Bernstein, 2008). the longer firms in developing countries fail
Because the gains from going digital are as to adopt business models and tools that lever-
compelling in international trade as they are age these technologies in their production and
in so many other areas of human interaction export processes, the greater and more insur-
and commerce, it stands to reason that any ini- mountable the gap between developed and
tiative aimed at supporting developing coun- developing country firms is sure to become.
tries in their efforts to integrate more closely This is yet another compelling argument affirm-
into the global trading system must likewise ing the need for the AfT agenda to pivot deci-
embrace these trends. From its very inception, sively towards initiatives aimed at empowering
AfT has first and foremost been concerned governments, citizens and firms in developing
with addressing the constraints that develop- countries to go digital, and to do so without
ing countries face in connecting with global further delay. As the ancient Chinese proverb
trade and investment flows. It therefore stands exhorts: the best time to plant a tree was 20
to reason that when such constraints represent years ago; the next best time is today.37
impediments to the broader and deeper adop-
tion of digital technologies by people and firms
The Dangers of Falling Behind
in the developing world, then AfT efforts must
focus on addressing these same constraints In addition to the dangers outlined above are
accordingly. the additional risks inherent to the digital econ-
In fact, many of the inefficiencies and bloated omy that are slowly becoming more apparent
cost structures that hold firms in develop- as a number of unfavourable trends begin to
ing countries back from competing at greater assert themselves. As research by the OECD
scale in regional and global value chains are and others has pointed out, the gains from digi-
more than amenable to digitally enabled solu- tal adoption are accrued unevenly and tend to
tions, particularly when they involve overcom- be disproportionately captured by a few leading
ing information deficits; reducing transaction firms (OECD, 2019). We can see this anecdot-
costs; navigating complex procedural con- ally in the emergence and subsequent domi-
straints associated with export and import nance of a small handful of mega-corporations
regulations; proving identity, product origin or in the digital economy and their unhealthy
financial viability; obtaining short-term financ- tendency to swallow competing firms or relent-
ing arrangements; identifying, contacting and lessly drive them out of markets. For example,International Trade Working Paper 2021/10 15
the rise of Facebook essentially heralded the so successful for virtually every nation that has
end of a number of other existing social net- faithfully followed them. By this we mean the
work platforms, such as Hi5, Friendster and steady and relentless upward trajectory from
MySpace, in the second half of the 2000s,38 and subsistence agriculture to productive farming
the company has been relentless in acquiring or to low-skilled and then high-skilled manufac-
copying competing firms.39 Similarly, the many turing, and ultimately to the high-value added
competing search engines that existed in the activities that constitute both upper ends of the
early 2000s, such as Lycos, Yahoo, Alta Vista so-called smile curve (highly skilled services
Excite, Ask Jeeves, InfoSeek and WebCrawler, and intellectual property). In both farming and
were all largely relegated to the dustbin of early manufacturing, the advent of automation and
internet history with the advent of Google, IoT technologies is driving a wedge between the
which has continuously innovated and in doing very low- and very high-skilled labour inputs,
so cemented its dominant position at the heart further exacerbating the opportunity cost of
of much of the online functionality we use every the skills gap (Lacey, 2020a, p.7). The ability of
day, from search, email, navigation and transla- nascent manufacturing sectors in developing
tion to news, online advertising and even smart countries to absorb large amounts of surplus
homes.40 Although these are primarily prob- and unskilled labour from the countryside is
lems of competition policy, the inherent power greatly diminished in an era where this labour
asymmetries underlying these imbalances also must compete with robots in the automated fac-
demonstrate an important development dimen- tories and IoT-enabled manufacturing systems
sion, since the vast majority of the value cap- of more advanced countries.
tured in the digital economy today is accrued
by firms in advanced industrialised countries
The Optimal Forum for Progress
and a small handful of large middle-income
developing countries, with smaller developing AfT, as conceived and implemented from its
countries and least developed countries (LDCs) earliest days, has been about donor countries
almost entirely excluded. working together with their development part-
This is referred to (among other things) as ners to identify and formulate strategies for
a winner-takes-all dynamic and appears to be overcoming constraints to greater participation
particularly prevalent in the digital economy by developing countries in the world trading
(Moore and Tambini, 2018). This phenomenon system. As such it represents almost an ideal
also bodes ill for the developing world since forum for doing the same to overcome con-
it may very well serve to exacerbate existing straints faced by developing countries in par-
inequalities between rich and poor nations: ticipating more successfully in the global digital
between those with developed digital econo- economy. The AfT initiative is characterised
mies and those trying to catch up. The power by a spirit of partnership and cooperation for
asymmetries that the underlying network mutual benefit and structured as a dialogue
effects inherent to the digital economy seem between equals, without the inevitable ten-
to reinforce could – if left unchecked – r ender sions that permeate trade negotiations, or talks
firms in developing countries irreparably dis- on debt relief or hastily convened conferences
advantaged and unable to dislodge compet- on emergency stop-gap financing. It is perhaps
ing developed-country firms from entrenched uniquely suited as a forum to discuss the long-
market positions captured as the latter continue term needs of developing countries in gear-
to win the race to go digital. This is yet another ing up for the digital economic realities of the
compelling argument for AfT to support devel- future.
oping countries more fully in their trade-related In addition to the underlying dynamics that
digital transformations. make AfT such a suitable forum, there is also
Yet another important risk factor that fur- the sheer breadth and depth of technical exper-
ther underlines the importance for develop- tise and development resources that the institu-
ing countries and LDCs to move quickly and tional players supporting AfT bring to bear. Led
assertively in embracing the technologies of the by the WTO – the pre-eminent global forum
modern digital economy is the fact that many on all matters of international trade – and sup-
of them may be conspiring to close the tradi- ported by organisations with deep-rooted tech-
tional development pathways that have proven nical expertise in matters of regulatory reform16 Digital Reboot: The Case for a Newly Invigorated Aid for Digital Trade Initiative
and development, such as the OECD and the failing to ensure widespread and trustworthy
World Bank respectively, there is simply no digital access and effective use risks deepening
better forum for the multifaceted complexities inequalities, and may hinder countries’ efforts
of these issues to be addressed with a view to to emerge stronger from the pandemic’ (OECD,
achieving tangible development outcomes for 2020). This is especially true as international
the global trading system. These institutions are travel continues to stagnate and as policy-
joined by the regional development banks that makers in many countries cast around for new
possess intricate knowledge of the constraints ways to support economic recovery, particu-
faced by the developing economies they oversee larly for SMEs (Clarke, 2020). The technology
in their respective regions. sector is one of the few sectors that has not only
weathered the global pandemic but flourished,
and again, sadly, the lion’s share of the value
COVID-19 and the Recovery as
captured has been accrued by firms in advanced
Catalysts for Acceleration industrialised countries (Waters, 2021).
Finally, as countries struggle to emerge from This section has sought to rally arguments as
the ravages of the COVID-19 pandemic, at dif- to why now, more than ever, the AfT initiative
fering speeds and with new outbreaks continu- must pivot decisively towards supporting gov-
ing to disrupt the best laid plans for a return ernments, firms and consumers in developing
to normality, the long-term importance of countries, to embark upon a far-reaching and
online connectivity and digital business models comprehensive campaign of digital transforma-
has become even more evident. As the OECD tion. The next and final chapter of this report
has noted: ‘[faced] with a future where jobs, offers some specific policy recommendations on
education, health, government services and how to leverage the AfT agenda to do just this,
even social interactions may be more depen- essentially by transforming this agenda itself into
dent on digital technologies than ever before, one focused on Aid for Digital Trade.
4. Giving the Aid for Digital Trade Agenda Legs
This section discusses several ways in which embraced. In fact, failing to do so is likely to
the AfT community could and should pivot exacerbate existing digital divides within and
towards a newly invigorated Aid for Digital between countries, going beyond only impact-
Trade agenda. We begin by discussing the need ing firms to affect individuals/consumers, and
to mainstream digital into efforts to harness this can be seen in many aspects of daily life,
trade for development outcomes, before mov- such as access to education, health care, ser-
ing on to a discussion of various policy actions vices provided by governments and the private
through which this can be implemented. sector, and job opportunities. The rest of this
chapter discusses several policy areas where
Mainstreaming Digital into Trade and this promises to have the most dramatic effects.
Development
Infrastructure
Whereas the early 2000s saw the advent of main-
streaming trade into the development agendas Here the numbers really speak for themselves.
of the donor community and policy-makers Data published in early 2021 show that just over
in developing countries, the degree to which 40 per cent of the world’s population were still
online and digital technologies have come to without access to the internet as of October 2020,
dominate so many facets of economic life calls meaning they live in a world bereft of all the
for a new focus on mainstreaming online con- productivity and lifestyle-enhancing changes
nectivity and digital adoption into the AfT ushered in by this technology (Johnson, 2021).
agenda. This is even more compelling given the A group of scholars working under the auspices
many development gains that have already been of the T-20 writing in a 2017 policy brief to the
proven to follow when digital transformation is G20, then being hosted by Germany, identifiedInternational Trade Working Paper 2021/10 17
what needs to be done to connect the uncon- infrastructure lenders, such as regional devel-
nected (Shenglin et al., 2017, p. 5). This group – opment banks.42
like industry experts generally – breaks down
the challenges into four distinct geographically
Focusing on Digital Skills and Adoption
designated segments, namely: 1) first mile; 2)
middle mile; 3) last mile; and 4) the invisible The World Bank, arguably the biggest donor
mile. Beyond the challenges of network build- in the ICT space as our data has revealed (see
out are also a range of policy issues that impact Annex 1), has developed a set of conceptual
access to and pricing of this infrastructure and hierarchies that can help to structure practi-
the services that run on top of it (International cal approaches to raising digital skills in devel-
Telecommunications Union, 2020). Each stage oping countries.43 At the base of their Digital
of bringing connectivity to users and firms Skills Pyramid (see Figure 3), the World Bank
requires a different set of policy interventions, Group (WBG) identifies simple Digital User
the vast majority of which lend themselves rela- Skills comprising ‘skills required for the effec-
tively easily to capacity-building and technical tive use of ICT tools, systems and devices to
assistance under various AfT and other similar support non-ICT functions, including the use
policy support programmes. of the internet, applications and software’. At
For example, improving access conditions the top of this pyramid are e-business skills,
and stimulating infrastructure build-out for the defined as ‘business skills+technology skills:
middle mile requires ‘liberalising the market being able to identify how digital technologies
for building and operating backbone networks, can create new business opportunities, new
encouraging open access to the incumbent’s business models, or new ways of doing existing
network, requiring all major infrastructure pro- business’. In a similar and related exercise, the
grammes (such as roads, railways, pipelines and WBG differentiates the digital skills needed to
energy distribution) to include provision for an participate in ‘technology-intensive occupa-
optical fibre link, setting up internet exchange tions’ on the one hand, such as those requiring
points and creating local caches for frequently professional digital skills (engineers, doctors,
used content’ (Shenglin et al., 2017). Except for skilled technicians), versus those requiring
the last two elements on this list, which actually advanced digital skills in areas like Artificial
require building physical infrastructure, all the Intelligence and Big Data (post-graduates and
other interventions can largely be achieved by scientists), and on the other hand distinguish-
the proverbial stroke of a regulator’s pen.41 Even ing ‘technology-based informal sector occu-
overcoming the financial constraints incumbent pations’ such as those requiring core digital
on building internet exchange points and local skills (secondary-school leavers and under-
data centres can be achieved through various graduates) versus those requiring only basic
combinations of vendor and export financing digital literacy (school students, out-of-school
or preferential lending from the usual cohort of youth).
Figure 3. Conceptual hierarchies for thinking about digital skills by the WBG
Digital skills pyramid
Skills for the digital economy
e-Business skills Te
Theoretical knowledge and analytical skills
hnc
o
Business skills + technology skills: being able oc log
cu y in
pa te
to identify how digital technologies can create Advanced tio ns
n i
Professional s ve
new business opportunities, new business digital skills
(AI, Big data...)
digital skills Te
c
models, or new ways of doing existing Engineers,
hn
se olog
post-graduates cto y b
business scientists doctors, r o as
skilled cc ed
up in
Digital specialist skills technicians at for
ion m
s al
Skills required for researching, developing, Core digital skills
Secondary school leavers/
designing, producing, installing, managing, and undergraduates
maintaining ICT tools and systems
Basic digital literacy
Digital user skills School students/out-of
Skills required for the effective use of ICT school youth
tools, systems, and devices to support non-lCT
functions, incl. the use of internet,
applications, and software Technological skills and competencies
Source: Kelly (2019) based on WBG’s Entrepreneurship in the Digital Economy Report (2017).You can also read
