If and when the agreement comes into force, it will represent the first set of global ground rules for digital trade.

A statement released by the three co-convenors of the so-called ‘joint statement initiative’ – Australia, Japan and Singapore – confirmed that participants had “achieved a stabilised text”.

The new agreement “recognise[s] the importance of global electronic commerce and the opportunities it creates for inclusive trade and development, and the important role of the WTO in promoting open, transparent, non-discriminatory and predictable regulatory environments in facilitating electronic commerce,” the co-convenors said.

“The agreement is set to benefit consumers and businesses involved in digital trade, especially MSMEs. It will also play a pivotal role in supporting digital transformation among participating members,” their joint statement adds.

United States wants stronger security exceptions

Nine of the 91 participants in the negotiations – including the United States – declined to be associated with the declaration.

A footnote stated that “due to ongoing domestic consultations and considerations, this statement is circulated on behalf of joint statement initiative participants, except for Brazil, Colombia, El Salvador, Guatemala, Indonesia, Paraguay, Taiwan, Türkiye and United States”.

The US government said the text released today represented “an important step forward for the WTO in a sector of growing importance to the global economy while demonstrating the supportive role that JSIs can play in revitalizing the WTO’s negotiating function”.

But it added: “As the United States has repeatedly communicated to the co-convenors and participants, the current text falls short and more work is needed, including with respect to the essential security exception”.

“We look forward to working with interested members in finding solutions to all remaining issues and moving the negotiation to a timely conclusion.”

Dissenters focus on permanent ban on import duties on e-commerce transactions

The other eight dissenters primarily have issues with the article which commits its signatories to a permanent ban on the imposition of import duties on digital transactions.

This clause is subject to a review five years after the agreement enters into force. But the text of the agreement may only be amended by unanimity: this makes a reversal of the commitment not to impose duties highly unlikely in practice.

Countries such as Indonesia, Brazil and Türkiye have repeatedly expressed concerns about being compelled to give up the option of applying import duties on digital products.

A global moratorium on the imposition of duties on digital products has been in force since 1998 and renewed at the WTO every two years.

The future of the moratorium hangs in the balance. At the MC13 ministerial conference in February, WTO members said deal will lapse in 2026 unless extended by unanimity once again.

The threat of a lapse gives added significance to a plurilateral commitment by a group of WTO members who encompass between them around 90% of global digital trade to keep digital cross-border transactions duty-free.

What’s in the agreement

The ‘Agreement on Electronic Commerce’ as it is now officially called, runs to 38 articles, plus a two-page annex on telecommunication services.

The provisions are classified under five broad themes.

Enabling electronic commerce: This section includes provisions on maintenance of an electronic transactions framework, electronic authentication and e-signatures, electronic contracts, electronic invoicing, paperless trading, the creation of ‘single windows’ for data submission, and electronic payments.

Openness and electronic commerce: This part includes an article banning customs duties on electronic transmissions, as well as provisions on open government data and access to the internet.

Trust and electronic commerce: This section includes articles on online consumer protection, unsolicited commercial messages (i.e. ‘spam’), and personal data protection.

Transparency, development and cooperation: This part contains articles on each of these three themes in turn. The article on development specifies that developing countries and LDCs may have a grace period of up to 7 years to implement provisions which they may find tricky, and that financial support should be made available to them.

Telecommunications: The agreement states that “each party shall ensure that its telecommunications regulatory authority does not hold a financial interest or maintain an operating or management role in a supplier of public telecommunications networks and services”.

The accord consists of a number of firm legal commitments interspersed with looser expressions of intent. The word ‘endeavour’ appears 32 times in the text, while the word ‘encourage’ makes 11 appearances.

In many cases – such as personal data protection – the agreement does little more than require participant countries to apply and maintain legislation to govern this topic.

Attempts to reach agreement on basic principles to govern such regimes foundered in the negotiations, given the very differing approaches taken in jurisdictions such as the EU and US.

Nevertheless, even the minimalist principles set out in the accord are viewed by most observers of being of value, given that some of the developing countries involved in the negotiations do not currently have such regimes in place.

Review within two years

The agreement is designed to grow and evolve, in recognition of the rapidly-developing digital trade environment.

Signatories are due to review of the agreement “no later than two years after the date of entry into force of this agreement, and periodically thereafter,” the text says.

“Taking into account the evolving nature of electronic commerce and digital technology, and recognizing the importance of establishing global rules for electronic commerce […] the parties recognize that further negotiations may include outstanding issues […].”

This gives the participants the option of returning to questions which were left out of the final agreement because of failure to reach consensus.

These include provisions relating to data transfers, localisation of data storage, or transfers of source code.

India likely to oppose incorporation into WTO law-book

The agreement would be governed by the general WTO dispute settlement process, which would give the non-optional elements of the accord some teeth.

But access to dispute settlement will be dependent on whether or not the agreement is ultimately incorporated into the WTO’s treaty architecture, as its proponents would like.

Earlier this week, a small group of countries led by India and South Africa blocked a second attempt to have a similar plurilateral agreement, covering investment facilitation, accepted as a full WTO agreement.

The objections of these two countries – who were not among the 91 participants in the talks – are expected to extend equally to the new e-commerce agreement.

Governments and business welcome deal

The deal has nevertheless been welcomed by governments around the world, and by business organisations.

The European Commission said it “proudly supports” what it described as “the first-ever set of global digital trade rules”, while the UK government said that “global adoption of digital customs systems, processes and documents could significantly grow the UK economy”.

The Global Services Coalition and Asia Pacific Services Coalition said that the deal “will be the defining 21st century moment for the multilateral trading system and not a minute too soon for global economic development, MSME revival and jobs growth.”

“Today’s announcement demonstrates that the WTO negotiating function can deliver through a plurilateral process,” said Annette Meijer, president of the European Services Forum.

“This deal has the potential to deliver benefits for European businesses in every sector of the economy and to reduce the cost and complexity of international commerce and support trust and security for European consumers” added Pascal Kerneis, the Forum’s managing director.

To read the full article as it was published by Borderlex, click here.

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Restoring a fully and properly functioning WTO dispute settlement system

Since December 2019, the Appellate Body – the second instance of the WTO’s dispute settlement body– has been paralysed, after the United States (US) repeatedly blocked the nomination of new judges to review appeals of first-instance panel reports. In line with the MC12 mandate to restore a functioning dispute settlement system by 2024, WTO members have held informal negotiations on two separate tracks: one that has led to a draft consolidated text on issues other than the appeal mechanism, and another for the debate on the appeal mechanism that as of January 2024 was still focused on ‘the identification of certain concepts that could offer a solution to this critical issue’. Speaking for the Appellate Body’s main critics, US Trade Representative Katherine Tai, at the G20 Summit in India in August 2023, stated that the ongoing new and constructive process of reforming the WTO’s dispute settlement function ‘requires a fundamental rethink’ with a view to ending ‘the practice of judicial rule making’, among other things. She emphasised that the US had tabled 30 ideas, including on the appeal mechanism. At a US think-tank event in September 2023, she specified key points of the US position, e.g. the need for appropriate alternatives to litigation (leading by example, the US recently resolved all its trade disputes with India through methods other than litigation), an end to ‘judicial overreach’, for WTO members’ policy space to be restored, to allow them to regulate on climate-change issues and non-market practices, and for members to remain free in their legitimate national-security judgements. Some commentators do not expect a breakthrough at MC13, since the 2024 deadline coincides with the US presidential election year, in which repairing a system that in the US is perceived by both Democrats and Republicans as having allowed the ‘China shock’ that eliminated millions of US jobs would politically be very challenging for the Biden administration.

Complementing the Agreement on Fisheries Subsidies

MC12 ended with the adoption of a multilateral Agreement on Fisheries Subsidies that prohibits support for illegal, unreported and unregulated (IUU) fishing, bans support for fishing overfished stocks, and ends subsidies for fishing on the unregulated high seas. WTO members have since negotiated a ‘second wave’ of disciplines eliminating fisheries subsidies that contribute to overcapacity and overfishing. In January 2024, they held a ‘Fish month’based on the latestendorsed draft text, with the aim of transmitting a clean text to ministers at MC13. Experts have stressed that WTO members continue to diverge on a wide range of topics, including on the details of exemptions for developing countries. Acceptances from two-thirds of WTO members are required for the Agreement to enter into force. By January 2024, 55 WTO members, i.e. roughly one-third of the WTO membership, had transmitted their instruments of acceptance.

Incorporating the Investment Facilitation Agreement into WTO legal architecture

In July 2023, a subset of more than 110WTO members finalised negotiations on a plurilateral Investment Facilitation Agreement aimed at eliminating red tape that hampers investment. They opted for a plurilateral negotiating format to develop new WTO rules as a way of overcoming deadlock if consensus is elusive. The talks were launched under a 2017 Joint Statement Initiative after the failure of multilateral trade negotiations on a range of topics under the 2001 Doha Development Round. The 118 countries have since sought to incorporate the agreement, whose benefits would accrue to all WTO members under the most favoured nation principle, into the WTO legal architecture as an ‘Annex4 agreement’. This requires consensus from all 164 current WTO members, some of which, including India and South Africa, are strongly opposed to such a move. They argue that only rules negotiated by all WTO members should be added to the WTO rulebook. Only 9%of WTO members have never participated in a WTO plurilateral deal.

Extending the e-commerce moratorium

Since MC2 in 1998, WTO members have regularly extended the moratorium on the imposition of customs duties to electronic transmissions as part of the work programme on e-commerce, while the definition of ‘electronic transmissions’ as well as the moratorium’s scope and impact have remained controversial. Absent an MC13 decision to extend it, the moratorium will expire automatically in March 2024. The related debate at MC13 could yet again pit developed countries such as the EU and the US, which support the moratorium, against developing countries such as India and South Africa, which call for ending it. The latter have long claimed that, adding to the growing digital divide between developed and developing countries, the moratorium prevents developing countries from taking advantage of the growing imports of electronic transmissions. However, the US has argued that, as some studies have shown, a decrease in digital trade resulting from ending the moratorium would lead to a bigger economic loss for developing countries than potential foregone customs revenue. According to a 2023 Organization for Economic Co-operation and Development (OECD) study, the cost of terminating the moratorium would be considerable. A 2023 International Monetary Fund (IMF)report emphasises other methods of revenue collection resulting from digital trade. As of December 2023, differences among WTO members on the moratorium’s future persist, ‘including the need for more discussions on its definition, scope and impact

Extending the TRIPS waiver for COVID-19 vaccines to diagnostics and therapeutics

At MC12, WTO members endorsed a five-year waiver for intellectual property (IP) protection under the WTO agreement on trade-related aspects of intellectual property rights (TRIPS),to enable developing countries to manufacture and distribute COVID-19 vaccines. WTO members also mandated a decision within six months on a potential extension of this waiver to the production and supply of COVID-19 diagnostics and therapeutics, as requested by India, South Africa and some 63other WTO members. The debate in the WTO seems to have entered an impasse. US lobby groups as well as lawmakers have pressed the Biden administration to oppose a waiver extension. The former are concerned that the extension could stifle medical research, the latter that it ‘could outsource to foreign countries advanced manufacturing and research jobs that should exist in the United States’. A 2023 US International Trade Commission report states that ‘the wide disparity among countries in their ability to access COVID-19 diagnostics and therapeutics is the result of multiple factors, including access to IP, prices and affordability, regulatory approvals, healthcare infrastructure, and the healthcare priorities of governments’. The EU’s December 2023 statement to the WTO General Council on the follow-up to MC12 issues notes’ that little progress has been made in this complex discussion and the positions of Members remain far apart’

To access information about the document and read the “At a Glance” section as it was published by European Parliamentary Research Service, click here.

To read the full document, click here.

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• Trade in the CPTPP region has largely paralleled the members’ trade flows with the rest of the world. The main beneficiary appears to be Vietnam—at least in the sense that after it ratified the CPTPP, Vietnam has notably expanded its trade in goods, and its inbound investment has been solid, despite the Covid-19 pandemic. This can be a positive signal to other Southeast Asian countries that are considering CPTPP membership, such as the Philippines, Indonesia, and Thailand. Japan and Singapore have led the region’s trade in digitally deliverable services, also a key sector for potential CPTPP members and services export superstars such as the Philippines, South Korea, and the United Kingdom.

• The CPTPP matters for its users: member country firms that export to the CPTPP region find the CPTPP’s market access, services liberalization, and e-commerce provisions beneficial to their businesses. E-commerce provisions are facilitating online sellers: of micro and small online seller-exporters, 73 percent find the provisions of the CPTPP that ensure free data transfer across borders as somewhat or very beneficial, some 66 percent find the CPTPP’s ban on server localization to be beneficial, and 61 percent find the agreement’s liberalizing trade in services to be important. The benefits are even greater for midsize and large firms. Firms also highlight as beneficial the CPTPP’s provisions that commit members to protecting the consumer against unwanted spam and shielding consumers’ privacy.

• The CPTPP has garnered interest and formal applications from several non-members seeking to join an agreement that includes high-quality e-commerce provisions with some of their main trading partners. Especially for some of the Southeast Asian countries, accession to the CPTPP could also help kick-start and lock in domestic digital regulatory reforms. As a major development, both China and Taiwan formally applied to the CPTPP in September.

• Preliminary econometric evidence shows that trade agreements, such as the CPTPP, that have robust and binding e-commerce chapters in addition to goods and services chapters indeed have value in promoting trade in goods and services, as well as digitally deliverable services, among the member countries. Of course, as the number of comprehensive agreements with e-commerce chapters is still small and these agreements are nascent, further research will be needed in the next two to three years to further dissect the value added of digital trade provisions in trade agreements.

• The CPTPP is nascent, and much of its life has been marred by the Covid-19 crisis. At the same time, the agreement could not be timelier, precisely because high-quality e‑commerce provisions help promote small business recovery through e-commerce; surveys time and again show that over the course of the Covid-19 pandemic, firms that sell online have outperformed firms that do not sell online.

CPTPP members certainly appear to agree that the agreement’s e-commerce provisions create new value in their trade relations. In its August 2021 meeting, the CPTPP Commission decided to form a Committee on Electronic Commerce to facilitate continued discussion on the implementation and operation of the e-commerce chapter. The new committee is tasked to “position the CPTPP to play a central role in global rulemaking in this field.” The members agreed to assess the CPTPP’s impacts on themselves.

To read the full report from the Center for Strategic and International Studies, please click here.

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By controlling large volumes of data, officials believe they can gain economic advantage in the digital economy and be better positioned to counter the market power of the giant platforms. But advocates of data sovereignty may be misguided. Researchers cannot yet ascertain if economics of scale and scope in data will yield competitive advantage. However, the hoarding of data by nations or firms may reduce data generativity and the public benefits of data analysis.

In this essay, Professor Susan Ariel Aaronson of George Washington University provides an overview of data governance and trade, and the defensive reactions of governments around the world as data becomes more central in today’s economy – and how trade agreements may facilitate rather than limit restrictions.

To read the full report from the Hinrich Foundation, please click here. 

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The main question addressed in this essay is, what is the likely evolution of supply chains and international trade in the medium to long run after the COVID-19 pandemic? In other words, once the global economy recovers from the cyclical downturn, are there likely to be permanent changes in global trade? Will these create a more difficult environment for development? What policies at the national and international level can mitigate effects that harm development? These are naturally highly speculative 48 questions, but by thinking of them now, we can potentially mitigate the worst long-run effects of this crisis on development.

To view the original report from Brookings Institute please visit here

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The impact of the crisis has not been consistent across sectors or geographies, of course. Travel and entertainment, which had been among the most advanced e-commerce sectors, was hit particularly hard and faces an uncertain path to recovery. Payments providers in regions that have lagged in digitization, meanwhile, in many cases possess greater potential for revenue increases in the new environment. On the other hand, a protracted period of low interest rates, which began before the current crisis, will pressure payments revenues, as will a persistent slowdown in economic activity.

This is the context in which we release our annual report on the global payments industry. As always, these insights are informed by McKinsey’s Global Payments Map and by continuing dialogue with practitioners throughout the payments ecosystem.

Given the impact of the changes and challenges in 2020, however, we are taking a different lens to our analysis, focusing more on the current moment and on the future, than on examining past growth. Our first chapter briefly tells the story of 2019—a solid year with broad-based revenue growth—but focuses primarily on current developments and takes a forward-looking view of the payments landscape. It also details the actions we believe payments providers will need to take to weather the pandemic and position themselves for the “next normal.”

Our “now-cast” analysis of 2020 paints a contrast between the first and second halves of the year— namely, an estimated 22 percent payments revenue decline in the first half will be softened somewhat by stronger performance in the second half. Still, we expect full-year 2020 global payments revenue to be roughly 7 percent lower than it was in 2019—a $140-billion decline roughly equal to recent years’ annual gains, and 11 to 13 percent below our prepandemic projection. Beyond this, in some countries and segments, the likely sustained increase in digital penetration could result in a recovery of revenue pools to levels matching our pre-COVID-19 expectations for 2021.

In following chapters, we explore four areas of payments we consider critical to achieving success in the context of accelerated change. Like many aspects of payments, the merchant-acquiring business was already undergoing significant transformation. Consolidation had driven scale economy imperatives, and non-bank market entrants were gaining inroads with underserved verticals. Our experts detail the need to redefine acquiring offerings to encompass a full suite of value-added services extending well beyond payments settlement—including fraud controls and cart optimization for the fast-growing e-commerce segment. In a separate chapter we look at the specific opportunity for small- and medium-size enterprises, a segment that has historically been expensive to serve for large incumbents, but which has been the focus of many fintech attackers and is well overdue for a closer look.

Supply chain finance has long been considered to be a source of untapped value, but unlike other payments sectors, has struggled to develop enough momentum to address its structural challenges.

Given an expected increased focus on working capital, a step change in digital adoption at scale, and the potential geographic re-shuffling of roughly $4 trillion of cross-border supply chain spending in the next five years—the value embedded in supply chain finance will become even more attractive. The question is whether it will be enough to spur a long anticipated transformation.

Finally, in this overview of global payments, we look at a challenge many established payments providers are facing—the need to transform the operating model to meet the growing imperatives for efficiency, scale, modularity (e.g., Payments-as a-Service), and global interoperability. With many banks likely unwilling to commit the hundreds of millions of investment dollars needed to modernize existing payments infrastructure, we outline various paths worth considering before more focused players can establish an insurmountable advantage.

We hope you find the insights in these pages thought-provoking and valuable as you navigate these uncertain times.

To download the full report, please click here.

Alessio Botta is the Leader of the Europe Payments Practice at McKinsey & Company. 

Philip Bruno is the Co-leader of the North America Payments Practice at McKinsey & Company.

Reet Chaudhuri is the Leader of the Asia Payments Practice at McKinsey & Company.

Marie-Claude Nadeau is the Co-leader of the North America Payments Practice at McKinsey & Company.

Gustavo Tayar is the Leader of the Latin America Payments Practice at McKinsey & Company.

Carlos Trascasa is the Leader of the Global Payments Practice at McKinsey & Company.

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The CARICOM comprises small open economies dependent on trade. Prior to the pandemic, the region’s economies have been underperforming – recording below average annual GDP growth rates, running continuous trade deficits, and acquiring unsustainable levels of public debt. With the economic fallout from COVID-19, the region’s economic growth projections appear even more dismal. Apart from the unsustainable debt levels, the limited economic, trade and foreign direct investment diversification further complicate the region’s recovery. However, trade remains a viable avenue for COVID-19 economic recovery. In the short run, trade recovery strategies can manage disruption and strengthen critical sectors. In the medium to long-term, trade policy can be used to sustainably build economic resilience and diversification.

This Document highlights the shortcomings of the region that have been exposed by COVID-19 and examines the role of trade policy in the region’s COVID-19 economic recovery across five broad areas, namely,: (i) Innovation and Industrial Policy, (ii) Agricultural Development and Food Security, (iii) E-commerce, (iv) MSME Development and Export Activity and (v) Investment Facilitation for Development. The SRC considers these to be core areas on which the future of the Caribbean’s development should be hinged.

To read the full report, please click here.

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