Fixing yesterdays policies for tomorrows trade

28 February 2019 | Janos Ferencz and Javier Lopez Gonzalez

In the 1989 cinema classic, Back to the Future II, Marty McFly jumps forward in time from 1985 to 2015. He eventually finds himself in the Cafe80’s, a nostalgic diner where robot garçons modelled after 1980’s celebrities welcome guests, listen and respond to voice commands, and deliver orders.

In the real 2015, and even more so in recent years, technological developments such as artificial intelligence (AI) have pushed the envelope far beyond digital orders at restaurants and fast-food chains. Basic machine learning algorithms, the essence behind AI, draw on large volumes of data to empower services and manufacturing industries at every step of the value chain – which often relies on information crossing borders. AI technologies improve the efficiency of production, help analyse consumers’ tastes and preferences in real time, enable virtual sales and autonomous customer services in markets around the world, and so much more.

Roads? Where we’re going, we need services.

As with many facets of the digital transformation, services are the backbone of new technologies like artificial intelligence. Algorithms, software and computer engineering are the “brain” behind AI, while telecommunications services ensure that information flows rapidly and reliably through digital networks. Even many “offline” services are now becoming digitally-enabled, often in combination with the use of AI: contemporary ride hailing services (while not yet airborne) use algorithms to better price rides and control demand in the face of limited supply, and music streaming services (replacing the Cafe80s jukebox) rely on machine learning to automate recommendations.

However, global trade rules have been slow to catch up to technological developments, and emerging trade barriers risk curtailing some of the benefits of digitalisation. Barriers to trade in services that underpin technologies like artificial intelligence constitute barriers to the use of AI itself.

Great Scott, it’s the digital STRI!

Comparable and comprehensive information on regulations affecting digital transactions is, however, scarce. The OECD Digital Services Trade Restrictiveness Index (Digital STRI) aims to fill this gap by mapping the cross-cutting regulatory environment for services traded over digital networks across 46 countries, offering new insights into the complex regulatory environment faced by businesses today. It comes as no surprise that governments around the world take very different approaches to regulating the digital domain.

Some of the main policy challenges revealed in the Digital STRI include ensuring that regulations enable (rather than hinder) high-speed interconnections among communications networks and that they promote a competitive market for telecommunications providers; which in turn, could incentivise investment in faster and more reliable networks.

So, what does this thing run on… data?

While the time-travelling airborne DeLorean ran on household waste, digital trade and new technologies run on data. Balanced policies governing cross-border data transfers and local storage requirements are therefore essential. But the ubiquitous exchange of data across borders has raised concerns ranging from safeguarding privacy to protecting security and intellectual property. Recent OECD work reveals that this has led to a rising number of measures restricting the movement of data or requiring that data is stored locally. These measures are likely to affect trade and innovation.

The challenge moving forward is to find a balance between meeting important regulatory objectives – such as privacy protection – and creating a policy environment that allows businesses and consumers to reap the benefits of a global internet. As artificial intelligence and machine learning continue to transform digital trade, we urgently need more international regulatory co-operation to create a policy environment where digital trade can thrive.

In the end, we can only speculate what the future would look like should Marty McFly travel a hundred years into the future. He could well find that AI-driven technology has transformed commerce, eradicated poverty, and improved the well-being of society as a whole. Who knows, he may even find that the elusive HoverBoard has become a reality. What he should not find, however, are trade regulations frozen in a time capsule of the past.

Services trade

Services are a major part of the global economy, generating more than two-thirds of global gross domestic product (GDP), attracting over three-quarters of foreign direct investment in advanced economies, employing the most workers, and creating most new jobs globally.

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Digital trade

The digital transformation has reduced the costs of engaging in international trade, facilitated the co-ordination of global value chains (GVCs), helped diffuse ideas and technologies, and connected a greater number of businesses and consumers globally.

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