'There are more opportunities for digital trade in services'

Dr Rupa Chanda was a Professor of Economics at IIM Bangalore since 1997 to 2021. Prior to joining IIMB, she was an Economist at the International Monetary Fund (IMF) in Washington. Currently she is serving as a Director of Trade, Investment and Innovation Division at UN Economic and Social Commission for Asia and the Pacific (UNESCAP). Recently she was in Dhaka. On the sidelines of her official events, she talked to Asjadul Kibria on the potential for cross-border paperless trade and various challenges associated with rapidly expanding digital trade. Here are the excerpts of the interview

FE: The UN Economic and Social Commission for Asia and the Pacific (ESCAP) initiated the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific (CPTA) eight years ago and the treaty came into force in 2021. So far only 13 countries, including Bangladesh, have become the parties. Do you think it is a slow progress or other countries in the region are yet to realise the benefit of the agreement?

Rupa Chanda: As you have said the CPTA came into force only three years ago and so it is expected that more countries will join the agreement once they have understood the long-term benefits of the agreement and are more prepared to accede. The CPTA is basically a framework agreement, which means it provides principles and guidelines for engaging in paperless trade. The aim of the agreement is to accelerate the implementation of digital trade facilitation measures. It is the responsibility of the parties who join the agreement to decide on the modalities for implementing the agreement and to come up with specific measures and pilot initiatives. It is to be noted that the objective of the CPTA is to enable trade to take place through electronic exchange of trade-related data and documents across the borders.

There are various benefits to joining the agreement. First, it is a United Nations (UN) treaty which means that is an intergovernmental agreement which gives all member countries a chance to participate on equal terms. So, small island developing states (SIDS), least developed countries (LDCs) and land-locked developing countries (LLDCs) can participate in equal measure as the advanced developing as well as developed nations. Second, it provides a more efficient way to advance trade digitalization. The alternative is for countries to enter into bilateral agreements on trade digitalisation, which is time consuming, slow, and inefficient and can result in asymmetries in negotiations. Under a common UN endorsed framework, countries can move faster and in an efficient manner to design necessary rules, regulations and standards that are mutually acceptable. This also helps the countries to extend cooperation more easily to each other, through sub-regional and plurilateral groupings. Third, countries in need can avail the various technical assistance and capacity building support available under this Framework Agreement through donor countries such as the Republic of Korea as well as benefit from the expertise of our partner organisations such as the International Chamber of Commerce (ICC) and Asian Development Bank (ADB) to name some.

FE: The World Trade Organization (WTO) Trade Facilitation Agreement (TFA) is already there which is a multilateral and binding agreement. One of the core objectives of the TFA is to boost digitalisation of trade through electronic or paperless customs proceedings. In that case, how will another global deal like CPTA be useful?

Rupa Chanda: WTO TFA mainly focuses on traditional trade facilitation measures like publication and availability of trade and customs related information like fees and charges, release and clearance of goods, establishment of a National Single Window. But the CPTA goes beyond and is targeted at facilitating cross-border paperless trade.

The CPTA underscores the need for cross-border paperless trade and through the harmonisation of standards and procedures among the parties. The agreement is actually complementary to the TFA and can support the implementation of the WTO agreement. It can be termed as TFA-plus as it focuses on the cross-border dimension of trade facilitation, which is a natural corollary to national trade facilitation measures and their implementation as the ultimate aim is to make trade more streamlined and efficient across borders. A key feature of CPTA is the electronic exchange of trade-related data among the countries. Again, the agreement leaves it to the parties to decide which documents, which processes parties would like to prioritize for discussion and possible harmonisation. Thus, parties have a lot of autonomy to decide what works best in their interests and what they deem feasible to implement given their national priorities and circumstances.

FE: Many experts are now arguing that it is time to prepare a new rulebook in WTO to support the rapid growing digital trade. What is your view on this connection?

Rupa Chanda: Let me first clarify that there is a difference between digital trade and paperless trade or digitalisation of trade. To put it simply, digital trade is ICT-enabled trade in goods and services where products and services are delivered both physically and electronically. On the other hand, paperless trade or digitalisation of trade means completing the procedures of trade like customs clearance through digital or electronic avenue to reduce trade cost and moving from paper-based to electronic trade documents. Key to this is mutual recognition and associated legal frameworks for exchanging trade-related documents and information electronically across national boundaries.

Now, digital trade is a vast area which is expanding very rapidly due to advancements in technology and innovation. So, it also becomes difficult for policymakers and regulators to keep pace which these changes. The discussions to frame new multilateral rules and regulations on digital trade are ongoing, such as under the Joint Statement Initiative (JSI) though the negotiations have been difficult for a variety of reasons. So, a plurilateral agreement may be workable in the near future.

FE: Data is key in digital trade and there is growing concern on data privacy and data protection. How to address the concern?

Rupa Chanda: Yes, data is key. At present, different countries are working in different ways to devise rules and regulations for data protection and data preservation. The problem is that this is resulting in regulatory fragmentation. And there are resulting inefficiencies and costs associated with many of these regulations. For example, data localisation requirements will require companies have to keep their data in local servers in addition to keeping the data in international or foreign servers. This may discourage many multinational companies from investing in developing countries where such a rule is applicable as it would mean fragmenting data storage. For smaller companies, this will make it harder and costlier to do business that involves cross border data flows to other countries.

FE: It is said that the digital trade is more on trade in services than trade in goods. In that case, do the countries need to more focus on trade in services?

Rupa Chanda: Yes, there are more opportunities for digital trade in services. This is in fact growing very rapidly. This is because more and more activities, especially business services, can be delivered digitally. Another important aspect of services is that they are embedded in goods trade, what is called servicification of manufacturing. The smiley curve shows that the manufacturing value chain has services from end to end, from research and development (R&D) and design in the initial stages to logistics, distribution, finance, and communication services in the middle, and sales and marketing services at the end.

FE: As you know that Bangladesh is set to be graduated from the LDC category by 2026. One key strategy to overcome the post-graduation challenge is signing free trade agreements (FTA) with major trade partners to retain market access. But the country is yet to sign any BFTA so far. What are the major barriers to do so, according to your observation?

Rupa Chanda: Entering into FTAs requires skilful and hectic negotiations. This is more so today when FTAs go beyond goods to cover many other areas including services, investment, intellectual property rights (IPRs), government procurement, e-commerce, data, and many sustainable development related provisions, among others. So FTA negotiations require strong domestic capacity to understand these issues, assess the country’s offensive and defensive interests, and domestic preparedness. The country needs to be ready to reciprocate by reducing tariffs and other trade barriers for the partner countries. Tariff reductions can be problematic where import duties constitute an important source of revenue for the country, as in the case of Bangladesh. Tariff liberalisation also means opening the gate for more foreign products, which can raise concerns among domestic producers. When I heard that your country had expressed interest to join Regional Comprehensive Economic Partnership (RCEP) I was wondering whether Bangladesh is ready to face import competition from competitive suppliers in RCEP, at a time when it is graduating and will be losing its preferences for key exports. One needs to see to what extent the market access gains and global value chain integration prospects made possible by membership in RCEP would be able to offset the loss of preferences and the export diversification needs resulting from LDC graduation. Extensive stakeholder consultations are needed and evidence-based assessment is needed of the strengths and weaknesses of various sectors.

FE: The 9th Global Review of Aid for Trade (AfT) took place at WTO headquarters in Geneva last month. How effective the initiative is for the developing countries like Bangladesh?

Rupa Chanda: Aid for trade is an important instrument for developing countries as well as LDCs to strengthen their trade capacity, diversify exports, and increase competitiveness. Further, it can be used to support the implementation of trade facilitation measures.

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