The architecture for today’s rules-based trading system was largely the result of the creation of the General Agreement on Tariffs and Trade (GATT) in the late 1940s, which reduced tariffs and provided basic rules to facilitate the nondiscriminatory trade of goods across borders. Although it is far from perfect, since then, the system has worked relatively well. As a result of multiple rounds of multilateral negotiations, new rules were written and more countries joined the system. However, with the rise of the internet and digital transactions, a new rules-based regime is now necessary to facilitate the continued expansion of trade and to confront the challenges of the 21st century.
In the mid 1990s, the completion of the Uruguay Round of negotiations was the last major advancement in the multilateral rules-based regime. Its most significant achievement was the transformation of the GATT rules and system into today’s World Trade Organization (WTO). In so doing, it also modernized the GATT system by adding new disciplines including trade-in-services, investment and intellectual property. It also created a more effective dispute settlement system. However, one missed opportunity in the process was the failure to create a basic framework for commerce done over the Internet. Such an omission was understandable given that the digital revolution was in its infancy at the time.
Today, however, the internet has fundamentally reshaped commerce. Explosive growth in digital technologies has expanded opportunities for businesses and consumers. It has also reduced transaction costs, enabled specialization and expanded markets—much in the same way trade liberalization after World War II did. In fact, a recent WTO study estimated that “e-commerce transactions totaled $27.7 trillion (USD), of which $23.9 trillion was business-to-business.” This is an enormous figure, but further growth is threatened by digital industrial policies and protectionism that aim to erect walls around global commerce. For this reason, the time has come to establish strong, market-oriented rules that allow digital trade and e-commerce to expand to meet the demands of the 21st century.
The good news is that, in the coming years, U.S. policymakers and trade negotiators will have ample opportunities to push for forward-looking rules to govern digital trade. Moreover, as part of the recently completed United States-Mexico- Canada Agreement (USCMA), the three parties agreed on a strong set of digital trade rules that provide a worthwhile template for future negotiations, including those at the WTO.
Since the collapse of the Doha Round, large-scale efforts to further liberalize trade have stalled, which has pushed countries into regional and bilateral trade negotiations outside the WTO framework. At the World Economic Forum’s 2019 confab in Davos, Switzerland, 76 WTO members, including the United States, the European Union, Japan and China, announced they would begin negotiating new rules for e-commerce. As many question whether the WTO can serve as an indispensable forum for liberalization, the e-commerce issue presents an opportunity for members to rise to the current challenges facing the rules-based system in the same way previous generations of trade negotiations and policymakers rose to the challenges of their time. In light of this, the present brief will lay out concrete recommendations for policymakers and trade negotiators to consider as they begin negotiating at the WTO and in future bilateral and regional free-trade agreement negotiations.
