Advances in technology and trade policy have the potential to reshape the trading landscape for the better
In a recent article for the LSE Business Review, I introduced the classification of “trade policy 3.0” and the emergent “Internet of Rules” (IoR): a networked repository of executable forms of rules written in computer language.
The distinctive character of trade policy 3.0 is that, in addition to “writing down the rules” of trade in natural language (trade policy 1.0) and use of “single window systems” that replicate paper-based delivery in the digital realm (trade policy 2.0), countries are able to publish computational rules to the Internet in a standard way.
Access to digitally executable versions of rules can help businesses by creating a universal mechanism for determining calculations and automating payments in domestic and cross-border contexts. Rules in this form may be accessible to, and function with, any computer system (e.g. public single windows, private e-commerce platforms, logistics, banking and telecommunications).
Unlike its name would suggest, the ubiquity of the Internet of Rules is not predicated on Internet access. Via backend systems connected to the Internet, a cellular network can support rules to be queried, fetched and delivered via SMS in support of paper-based compliance.
Rules automation can help lower or eliminate market barriers, including capability requirements and/or excessive transaction costs. This makes trade more inclusive. Near universal access to the rules of commerce could have a profound impact and enable small businesses, especially those located in the least developed countries (LDCs), to better participate in trade.
THE TRADE FACILITATION AGREEMENT EFFECT
The Trade Facilitation Agreement (TFA) entered into force in 2017 and the majority of World Trade Organization (WTO) members are on a path towards “trade policy 2.0.”
The TFA sets new requirements for governments to use technology to create an environment for “easier trade” and greater transparency. The agreement creates new, non-binding, obligations for governments to establish national single window systems to enable traders to submit regulatory compliance documents in a digital environment.
Work toward the realisation of the TFA is pushing the version history of trade policy closer to 2.0 at the global level. Yet, implementation of the agreement is of most concern for businesses in LDCs: the WTO estimates that trade costs for businesses in LDCs are equivalent to a 219 percent tariff.
In addition, it may take more than a decade to realize the benefits of TFA implementation. Projections of the benefits derived from implementing the agreement will depend on the trade-enabling technologies adopted by national governments.
DIGITALIZATION, TRADE POLICY, AND DEVELOPMENT
Broadly, according to UNCTAD, “digitalization will create opportunities for entrepreneurs and businesses, and bring benefits to consumers.” There also seems to be a consensus that government delivery of trade policy - the rules on commercial interactions across borders - could be enhanced by digital technology.
The current “version history” of trade policy creates costs for governments, businesses and consumers and does not yield the developmental impact promised by trade liberalisation. In reality, the analog format of “written rules” creates transaction costs for commercial activity in, and across, each country of the world.
Trade policies are mostly codified in natural language. Yet, in many countries, the process of sorting out “what are the rules?” and their codification – 1.0 in the version history of trade policy – is still ongoing. International organizations, like the World Bank, are supporting governments in undertaking the important work to clarify the rules amongst numerous ministries and “sets” of rules. However, differences in natural languages and legal systems still create barriers when considering the functionality of trade policy 1.0 for business.
Now, there is a chance to piggyback on current efforts to create transparency by not only gathering/codifying the rules of trade in natural language, but also expressing the equivalents in digital form and publishing them online.
Through an open source trade digitalization project, Xalgo4Trade, Xalgorithms Alliance has developed the necessary components to enable an IoR. As the governments of LDCs clarify their rules and establish new trade facilitation systems, there is an opportunity to build an “Internet of Rules for all” and streamline global commerce.