The fourth industrial revolution (4IR) is eroding traditional barriers to trade. Consumers are increasingly turning to digital channels to make purchases and as a result, there has been an unprecedented rise of online marketplaces and an on-demand economy that has created an entirely new industry based on digital customer experience. Indeed, according to the Global Unified Commerce Forecast, by 2022, more than 17% of B2C sales around the world will occur online. As a result, the value of the global digital-commerce transactions market is expected to grow by more than 22% CAGR by 2022 reaching $5.8 trillion.
These evolving market conditions, facilitated by 4IR technologies, are putting significant pressure on governments to make sure their trade policies remain relevant to protect competitiveness on a global stage.
Historically, trade policies have taken the form of trade agreements, national laws, standard and policy documents. For example, in 2017, the World Trade Organization (WTO)’s ‘Trade Facilitation Agreement (TFA)’ came into force, setting requirements for governments to use technology that facilitated an environment that allowed “easier trade” and greater transparency. Yet, implementation of the agreement for businesses in Less Developed Countries (LDCs) led to trade costs equivalent to a 219 per cent tariff, an unsustainable amount for many, many businesses. This lack of clarity in the rules at a domestic level and the web of policies at the international level make it difficult for these companies from LDCs to effectively connect into local and global value chains, despite their potential. It also means many businesses are not taking advantage of existing market advantages and potential for inclusive trade, causing economies to miss out on growth opportunities.
To respond to the changing world, a new form of legislation is required; one that utilises new technology to deliver trade policy that allows flexibility in a changing marketplace whilst promoting inclusive trade. The London School of Economics have termed this new policy paradigm “trade policy 3.0”.
‘Trade Policy 3.0’ allows access to digital versions of trade rules that create a universal mechanism for determining calculations and automating payments in both domestic and cross-border trade contexts. It facilitates a digital leap in policy that can help to achieve greater market transparency, automated compliance and the reduction of barriers to small firms, such as knowledge requirements and excessive transaction costs, making trade simpler and fairer for those wishing to participate.
‘Trade Policy 3.0’ allows agreements to be accessible to any computer system connected to the internet, and allows trade rules to be queried, fetched and delivered via SMS in support of paper-based compliance. As a result, the defining characteristic of ‘Trade Policy 3.0’ is the possibility of an “internet of rules” (IoR); ‘a networked repository of executable forms of rules written in computer language.’
The IoR has the potential to streamline commerce, allowing sellers and consumers to trade at prices, and on terms, that they understand and agree on, placing businesses – big and small – on equal footing from the start. It allows businesses from countries with complex and disparate trade laws to circumnavigate their complexity and instead, access simple, legible, fit for purpose policies that create and enable trade across legal and commercial systems.
There is also an important legal basis for expressing rules in digital form. According to Xalgorithms, ‘Trade Policy 3.0’ and an IoR would allow; “authorities to treat validated table-oriented algorithms as de jure official translations for the automated deployment of computational rules of commerce.” This is because the IoR permits private rules to be published securely online, in the cloud, bringing together disparate legal and technological systems in an automated policy written in computer language that can be transferred across networks.
Indeed, as well as providing clarity, Xalgorithms explain that ‘Trade Policy 3.0’ through the IoR avoids the need for capital investment by end-users, making it accessible for micro and small businesses in any country, yet it allows “benefits to be realised in pace with market comprehension, technical interoperability and legal due diligence.”
Such is the potential of the IoR that it could apply to commercial law on a global scale, transforming regulation and governance fit for the 4IR, facilitating free trade on many levels, not just trade.
According to the United Nations Conference of Trade and Development (UNCTAD), “digitalisation will create opportunities for entrepreneurs and businesses, and bring benefits to consumers.” Therefore, by considering ways to simplify trade and reduce barriers to entry, it will become possible to welcome businesses from all over the world, including those from LDCs, into the global economy. Indeed, allowing digital technology to enhance government delivery of trade policy could help contribute to the achievement of the United Nation’s 17 Sustainable Development Goals - driving prosperity on a global level, helping to reduce poverty and empowering entrepreneurs from wherever they live.
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