Small States are the ones that comparatively can benefit the most from e-commerce, since their limited domestic market size and geographic barriers create higher-than-usual trade barriers*. Recent research shows that e-commerce has the potential to reduce trade costs by two thirds, in comparison to normal transactions.
Small States have the potential of leveraging e-commerce to improve accessibility to customers, markets and trade information, all of which play a key role in development. In order to take advantage of the potential e-commerce offers, Small States will need to consider how to prioritise the policy and regulatory environment to favour digital transformation of the economy, as well as participate in a multilateral rules-based system
Small States and developing countries need first to act on the domestic front across a wide range of policy areas. Surprisingly few countries have an e-commerce strategy, and even less have linkages between e-commerce and their national export strategy. Countries should create the necessary supply-side conditions for IT-based activities, including the infrastructure necessary for smooth functioning of the internet, an appropriate telecommunications policy, a reliable energy sector, a financial system allowing for e-banking and e-payments, and last but not least, a modern education system accessible by all. Furthermore, an enabling legal framework also needs to be established in order to protect intellectual property rights, ensure contracts are enforced and guarantee standards.
Small States, through active participation in the WTO negotiations on e-commerce, can leverage the opportunities provided by predictable global trade rules and disciplines in e-commerce. Small States should seek the inclusion of S&D treatment in any outcome of the negotiations, through the categorisation of commitments, in line with the recent experience of the WTO Trade Facilitation Agreement (TFA). Small States with offensive interests should continue seeking further market access under mode 1 in particular for service industries that can be digitally traded within the context of GATS. The Doha Round is the opportune time to revise the offensive interests in key markets of interest to Small States.
Beyond the negotiations in progress, those Small States who may be potentially competitive in ICT exports, and that are not signatories to the Information Technology Agreement (ITA) could explore the costs versus benefits of signing it, given in particular the expected emphasis to be placed on expanding the Agreement. An alternative could also be to unilaterally lower the applied tariffs on goods covered by the ITA, while maintaining the policy space (maintaining bound tariff rates fixed).
By Paul Baker, CEO of International Economics Ltd.
*This piece is inspired by a position paper produced by Paul Baker for the Commonwealth Secretariat entitled ‘The Implications of Potential Multilateral Rules on E-Commerce for Commonwealth Small States’ Development Objectives’.