Trade Rules and the Digital Economy...Colin Giles, Tommi Laine-Ylijoki, Joe Kelly, Walter Jennings,...

Huawei ❘ Trade Rules and the Digital Economy

i

Trade Rules and theDigital Economy

October 2017

A White Paper


iii

ABSTRACT

This White Paper examines trends and needs in the global digital economy, and the emerging set ofinternational trade agreement rules currently under negotiation to govern world trade in the digitaleconomy. It seeks to define the needs of the global economy, the requirements to service those needsby the global ICT industry, and the position of Huawei as a leading ICT company operating in over 170countries and providing goods and services along almost the entire length of the global digital valuechain. It recommends that non-discrimination, open markets, and fair competition should be fundamentalrules for the global digital economy, whereas any exception to these rules should be adopted subject tothe principles of transparency, proportionality, necessity, and multi-stakeholder consultation.

ACKNOWLEDGEMENTS

This White Paper is the result of a major project by the Trade Facilitation and Market Access (TFMA) teamwithin Huawei Technologies, inspired by the vision of James K. Lockett, Vice President of Trade Facilitationand Market Access (TFMA) at Huawei Technologies to stake out Huawei’s views on the pivotal issue of thetrade rules for the digital economy. With contributions from numerous colleagues, its principal author isSimon Lacey, also at TFMA Huawei Technologies, who researched and prepared an initial andcomprehensive draft and has also edited the manuscript through its various stages. Simon’s tirelesscommitment to this complex and evolving topic is reflected from beginning to end in this White Paper.It has been written under the overall supervision and direction of Madame Chen Lifang, President of PACDat Huawei Technologies and Mr. Zhang Jiangang (Victor) and his predecessor Pang Jimin, President ofGovernment Affairs, also at Huawei Technologies. Other members of the TFMA team have also contributedextensive comments and edits, and thanks must go to Alessandro Marongiu, Zhang Shige, Hu Zhengguoand Professor Sheng Jianming for their input and feedback while preparing the initial manuscript and onmany procedural and technical issues in the process of bringing the White Paper to fruition. The TFMAteam would also like to thank a number of individuals within Huawei who took time out of their busyschedules to sit and share of their valuable insights and experience, including in particular Paul Scanlan,Colin Giles, Tommi Laine-Ylijoki, Joe Kelly, Walter Jennings, Han Feung, Ting Ka Lun (Allen), Sameer Malik,Zou Wenyu (Kitty) and Allan Yap. This White Paper has also benefitted enormously from the many valuableinsights and inputs received from Hosuk Lee-Makiyama, Martina Francesca Ferracane, and Erik van derMarel, with whom the TFMA team worked at the end of the process to supplement our research and addsome value in terms of economic analysis, case studies as well as with graphical inserts. Hosuk’sfar-reaching and highly insightful expertise on the subject matter proved extremely valuable. JamesLockett and Simon Lacey “field tested” some of our preliminary findings at a number of internationalsymposia throughout the months the White Paper was being prepared and in this context we would liketo thank Harsha Singh and Michitaka Nakatomi for comments on an earlier paper for the E-15 initiativewhich helped our thinking, and we must thank Usman Ahmed from Paypal, Marcos Vaena of theInternational Trade Center in Geneva and Pierre Sauvé of the World Trade Institute for their valuablecontributions as part of our panel session at the 2016 WTO Public Forum which helped our thinking toevolve further on these issues. We would also like to thank the team of Huawei translators who workedon the Chinese version of this White Paper and provided invaluable assistance in also making the Englishversion a much better document. In this regard, it was in particular the skills of Miss Gong Jing that provedinvaluable to the whole project. Finally we would like to thank Joy Tan, President of the CorporateCommunications Department for her invaluable guidance. As always any shortcomings, errors or omissionsin this White Paper are solely those of the lead author.


v

TABLE OF CONTENTS

Page

Abstract ................................................................................................................................................................................. iii

Acknowledgements .......................................................................................................................................................... iii

Executive Summary .......................................................................................................................................................... ix

Abbreviations ...................................................................................................................................................................... xi

Chapter One | Defining the Digital Economy and Digital trade...................................................................... 1

1.1. Introductory Remarks .......................................................................................................................................... 21.1.1. Rethinking the Scope of the Digital Economy ............................................................................. 21.1.2. Defining Digital Trade ............................................................................................................................ 21.1.3. The Digital Economy and Economic Growth ................................................................................ 2

1.2. Some Preliminary Insights on the Digital Economy ................................................................................. 31.2.1. Infrastructure ............................................................................................................................................. 41.2.2. Services ....................................................................................................................................................... 51.2.3. Platforms and Ecosystems ................................................................................................................... 61.2.4. Devices ........................................................................................................................................................ 8

1.3. Some Preliminary Insights on Digital Trade ................................................................................................ 101.3.1. How Digitalization is Transforming Trade ...................................................................................... 101.3.2. Trade in Goods in the Digital Economy .......................................................................................... 111.3.3. Trade in Services in the Digital Economy....................................................................................... 121.3.4. Trade-Related Intellectual Property Rights in the Digital Economy .................................... 131.3.5. The End of “Silofication” ........................................................................................................................ 141.3.6. The Development Dimension ............................................................................................................ 15

1.4. Global and Industry Trends in the Face of the Digital Economy ......................................................... 161.4.1. Ubiquitous Connectivity and Convergence .................................................................................. 161.4.2. More Data on More People and Things .......................................................................................... 171.4.3. Known Unknowns and the Future of the Digital Economy .................................................... 181.4.4. Investment in the Pipe for Future Growth and Economic Development .......................... 19

1.5. Key Points for this Chapter ................................................................................................................................. 21

Chapter Two | Huawei’s Place in the Digital Economy ........................................................................................ 23

2.1. The Benefits of Digitization ............................................................................................................................... 242.1.1. Societal and Economic Benefits ......................................................................................................... 242.1.2. Digitization, Innovation and Productivity Gains .......................................................................... 242.1.3. Digitization and Inclusiveness ............................................................................................................ 26

2.2. Huawei’s Interests in the Digital Economy ................................................................................................... 272.2.1. Building a Better Connected World: Huawei and the Digital Divide ................................... 272.2.2. Customer-Centricity as Core Value ................................................................................................... 272.2.3. Huawei’s Guiding Principles and our Approach to International Trade ............................. 28

2.3. Huawei’s Activities and their Place in the Digital Economy .................................................................. 282.3.1. The Carrier Network Business Group ............................................................................................... 292.3.2. The Enterprise Business Group .......................................................................................................... 292.3.3. The Consumer Business Group .......................................................................................................... 302.3.4. Other Company Stakeholders ............................................................................................................ 31


vi

2.4. Huawei as an Emerging Global ICT Leader .................................................................................................. 312.4.1. A China-Based Multinational on a Global Stage ......................................................................... 312.4.2. A Voice Non-Often Heard ..................................................................................................................... 312.4.3. An Industry Leader in Waiting ............................................................................................................ 31


Chapter Three | Emerging Policy and Regulatory Trends .................................................................................. 33

3.1. Different Policy Objectives and Approaches............................................................................................... 343.1.1. Light Touch Approaches ....................................................................................................................... 343.1.2. Interventionist Approaches ................................................................................................................. 363.1.3. Digitization, Economic Policy and Industrial Development .................................................... 373.1.4. Celebrating Complexity and the Need for an Overarching Digital Strategy .................... 37

3.2. Different Impacts and Implications of Different Policy Interventions ............................................... 383.2.1. Vulnerability of Digital Trade to Different Regulatory Interventions ................................... 383.2.2. The Importance of the Technology Industry as Policy Advocate ......................................... 403.2.3. The Obvious Benefits of Investment in Communications Networks ................................... 403.2.4. Giving the Digital Economy the Space It Needs to Foster Innovation ............................... 42

3.3. Finding a Consensus on what Works ............................................................................................................. 423.3.1. Broad Consensus on Policy Interventions ..................................................................................... 433.3.2. The Implications of International Rule-Making ........................................................................... 433.3.3. Consensus on the Need to Bridge the Digital Divide ............................................................... 44


Chapter Four | International Trade Rule Making for the Digital Economy .................................................. 47

4.1. Existing and Emerging Global and Regional Rules Framework ........................................................... 484.1.1. Existing WTO Rules on Trade in Services ........................................................................................ 484.1.2. New initiatives in the WTO | Post-Nairobi and ITA2 ................................................................... 494.1.3. Trans-Pacific Partnership Agreement (TPP) ................................................................................... 504.1.4. Trade in Services Agreement and the Transatlantic Trade and Investment

Partnership ................................................................................................................................................. 514.1.5. Regional Comprehensive Economic Partnership (RCEP) ......................................................... 524.1.6. APEC Initiatives on the Digital Economy and Privacy ............................................................... 524.1.7. OECD on Privacy, Trans-border Flow of Personal Data and the Internet Economy ....... 534.1.8. The Future of Digital Trade Rules ...................................................................................................... 544.1.9. Trade Policy-Making in an Uncertain Future ................................................................................ 544.1.10. The Road to Buenos Aires and MC11 .............................................................................................. 554.1.11. UNCTAD and e-Trade for All ................................................................................................................ 58

4.2. Substantive and Procedural Rules ................................................................................................................... 594.2.1. Transparency and Notification Obligations ................................................................................... 594.2.2. Elimination of Customs Duties on Digitally Traded Products ................................................ 594.2.3. Obligations on Free Flow of Information ....................................................................................... 604.2.4. Forced Data Localization ...................................................................................................................... 614.2.5. Mandatory Disclosure of Source Code ............................................................................................ 624.2.6. Privacy and Protection of Personal Data ........................................................................................ 624.2.7. Legislative Framework Obligations to Facilitate E-commerce ............................................... 62

TABLE OF CONTENTS (continued)

Page


vii

4.2.8. Technical Standards and Conformity Assessment Procedures .............................................. 634.2.9. Specific Commitments on Trade in Services ................................................................................. 644.2.10. Intellectual Property Rights ................................................................................................................. 64

4.3. The Dynamics Driving New Rules for the Digital Economy .................................................................. 654.3.1 Past Current and Future Negotiating Fora ..................................................................................... 654.3.2 Regulatory Divergence within FTAs ................................................................................................. 664.3.3 Interests and Interest Groups ............................................................................................................. 674.3.4 Regulatory Autonomy, Industrial Policy and the Risk of Fragmentation ........................... 684.3.5 Crafting Digital Trade Rules in the Service of Development .................................................. 68

4.4 Key Points for this Chapter ................................................................................................................................. 71

Chapter Five | A Vision for an Optimal Trade Regime for the Digital Economy ........................................ 73

5.1. Huawei’s Position on International Trade ..................................................................................................... 745.1.1. Open Cooperation .................................................................................................................................. 745.1.2. Fair and Open Competition ................................................................................................................. 755.1.3. Respect for Intellectual Property Rights ......................................................................................... 765.1.4. Minimizing the North-South Divide by Focusing on Strengths and Value ....................... 77

5.2. What Makes the Digital Economy so Special and Why are Special Trade Rules Needed? ........ 785.2.1. The Role of Commercial Middlemen: The End of Conventional Intermediation ............ 785.2.2. Diminishing Information Asymmetries ........................................................................................... 805.2.3. The Long-Awaited Level Playing Field ............................................................................................ 81

5.3. Emerging Consensus and Remaining Differences .................................................................................... 835.3.1. Low-Hanging Fruit and Quick Wins .................................................................................................. 835.3.2. Policy Areas of Ongoing Contention ............................................................................................... 845.3.3. The Need for Narrowly Formulated Exceptions Clauses .......................................................... 85

5.4 Key Points for this Chapter ................................................................................................................................. 87

Chapter Six | Findings and Conclusions .................................................................................................................... 89

6.1. Huawei’s thought leadership is timely .......................................................................................................... 906.2. These new trade rules will impact Huawei’s interests ............................................................................. 906.3. Huawei should be part of the conversation ................................................................................................ 906.4. Huawei has much to contribute to this dialogue ..................................................................................... 916.5. Huawei’s interests are broadly aligned with the rest of the global ICT industry .......................... 916.6. We all win in a world where the internet is global, open and accessible ........................................ 916.7. Governments must and will remain the arbiters of the public policy exception ......................... 916.8. National security is vital but cannot be used to justify every policy intervention....................... 926.9. Regardless of who exercises leadership, these rules ultimately belong in the WTO ................... 92

References and Further Reading ................................................................................................................................. 93

TABLE OF CONTENTS (continued)

Page


viii

LIST OF FIGURES

Page

Figure 1.1 First- and second-level economic impacts of investing in connectivityinfrastructure ............................................................................................................................................. 3

Figure 1.2 The digital economy: Infrastructure, services, platforms/ecosystems and devices ........ 4Figure 1.3 Innovation and disruption due to digitization and online connectivity ........................... 7Figure 1.4 Trade in digital goods as a percentage of global trade, 2000-2016 .................................... 12Figure 1.5 Growth of cross-border supply of services, 2007-2012 ............................................................ 12Figure 1.6 World’s offline population by country ............................................................................................. 16Figure 1.7 Internet Protocol Traffic per month, 1990-2015 .......................................................................... 17Figure 1.8 Four segments of connectivity infrastructure .............................................................................. 20Figure 2.1 Productivity benefits brought forward by the digital economy: EU productivity

gains ............................................................................................................................................................. 24Figure 2.2 Three ways in which digitization revolutionizes productivity ............................................... 25Figure 2.3 Domestic digital divides among different demographic groups ......................................... 26Figure 2.4 Huawei’s place in the digital economy ........................................................................................... 29Figure 3.1 Different regulatory objectives and approaches ........................................................................ 34Figure 3.2 Number of countries with a national broadband plan ............................................................. 36Figure 3.3 Vulnerability of digital trade: Illustration of potential barriers .............................................. 39Figure 3.4 Types of discriminatory digital trade measures and number of occurrences in

global trade ............................................................................................................................................... 40Figure 3.5 Value of connectivity used as an input in production .............................................................. 41Figure 3.6 Estimated ICT penetration levels (2016) by region .................................................................... 45Figure 4.1 Original 12 negotiating parties to the TPP .................................................................................... 50Figure 4.2 Overlapping trade agreement negotiations in 2016 ................................................................. 51Figure 4.3 Geographical coverage of RCEP ........................................................................................................ 52Figure 4.4 Geographical coverage of APEC ........................................................................................................ 53Figure 4.5 Geographical coverage of OECD ....................................................................................................... 53Figure 4.6 Mapping exercise conducted by Canada, Chile, Columbia, Côte d’Ivoire, the EU,

Korea, Mexico, Paraguay and Singapore as part of the July 2016 Review of theWTO Work Program on Electronic Commerce. ............................................................................ 57

Figure 4.7 Rise in data localization measures .................................................................................................... 61Figure 4.8 Losses from data localization measures ......................................................................................... 61Figure 4.9 Summary of TPP e-commerce chapter commitments .............................................................. 63Figure 4.10 Regulatory divergence in digital trade across FTAs ................................................................... 66Figure 4.11 Crafting digital trade rules in the service of development ..................................................... 69Figure 5.1 Global imports and Exports of ITA products ................................................................................ 74Figure 5.2 Comparison of company patent filings (2014) ............................................................................ 76Figure 5.3 Geography of cross-border investments in design development and testing (DDT)

within the Global South, 2003-2014 ................................................................................................ 78Figure 5.4 Estimated online payment transactions in China in USD billions (2016) .......................... 80


ix

EXECUTIVE SUMMARY

This White Paper on Trade Rules for the Digital Economy represents a first attempt by Huawei, as anemerging ICT industry leader, to exercise thought leadership in a relatively new area of internationalrule-making. The current set of international trade rules largely predates the internet era of the last twodecades. An update of the “analogue rules” to bring them into the digital age is long overdue but has runinto some unexpected headwinds as of late. Our White Paper is an attempt to express our views on howwe see the current debates surrounding new trade rules, with the hope of making a modest contributionto producing outcomes that would guarantee future decades of the breathtaking growth we have seenin the digital economy and the unleashing of pent-up innovation, as well as the seizing of manifoldopportunities as millions have become empowered in the developing world to set themselves free frompoverty.

The first Chapter of our White Paper defines the digital economy as the range of goods, products, servicesand solutions that have emerged and continue to emerge in direct relation to online connectivity. Thisdefinition admittedly covers a broad value chain ranging from the hardware and equipment constitutingthe backbone infrastructure of telecommunications networks, to the devices, particularly smart phones,tablets, wearables, computers and other terminals used in order to get and stay online. This definition alsocomprises the various services, solutions and applications that have emerged to meet the many needsthat users place on the internet and the whole online ecosystem, including digital products and servicessuch as software and e-books. In laying out this definition, we will look beyond the narrow confines offocusing simply on e-commerce, but rather examine how digitalization has transformed international tradeacross borders: Chapter 1 looks to define and elucidate the emergence of modern day digitalized globalvalue chains that are having a disruptive and transformative effect on both the way businesses operateas well as how consumers acquire and use products, services and information.

Chapter 2 of our White Paper examines Huawei’s place in the digital economy. Across all of its threebusiness groups, we occupy a unique place in the digital economy in terms of product coverage, but alsoin terms of our geographical footprint, since we operate in both very underdeveloped as well as verytechnologically advanced markets. With regard to our core carrier business, we are responsible for buildingthe underlying network infrastructure (pipe) that allows the digital economy to function in the first place.When it comes to our enterprise business, we provide a range of new services and solutions that leveragethe power of cloud computing and remotely serviced platforms, such as in the area of digital customs,or our many Smart City solutions. Finally in our devices business, where we are contesting globalsmartphone, tablet and wearables markets, we operate as a seller of the terminals with which usersinterface with the digital economy in order to purchase and/or consume the services, solutions, productsand information that the digital economy offers. As such, we are potentially vulnerable to changes in theunderlying legal, regulatory and policy regimes that govern the many stages of the digital value chain.Chapter 2 discusses several ways in which new and existing trade and investment rules affect differentaspects of our business.

Chapter 3 focuses on the underlying legal and regulatory environment in which companies like Huaweioperate. As in many other fields of the law, the current rules are struggling to keep pace with technologicaldevelopments and the quick pace of innovation that characterizes the technology sector in particular.Many countries are enacting rules and setting up regulatory regimes that have a direct impact on thedigital economy. Whether it be with the objective of better protecting the data privacy of their citizens,beefing up national law enforcement capabilities in the face of increasing cyber-security threats, or in thehope of kick-starting their own domestic ICT industries, governments in many countries, both developedand developing are becoming increasingly interventionist in this sector. Chapter 3 analyzes a number ofthese policy and regulatory trends and discusses how they fit into the broader international consensus


x

that has emerged over the last two decades with respect to global internet governance and rules on thedigital economy.

Chapter 4 of our White Paper focuses on the existing and emerging set of multilateral and preferentialtrade rules that currently or may soon govern the digital economy. International rules for digital tradecurrently exist in a legal framework put in place before the advent of the internet era, so that we currentlylive in a world of “analog rules” for a digital age. As in most policy areas, international rule-making tendsto lag behind domestic legislative and regulatory responses to the needs of the digital economy. Thisdisconnect is something that had begun to be addressed in a series of free trade agreement negotiations,particularly the Trans-Pacific Partnership (TPP) Agreement and the Trans-Atlantic Trade and InvestmentPartnership (TTIP) – both of which face an uncertain future at the time of writing. International tradeagreement texts that relate directly to the digital economy are also emerging in the context of the Tradein Services Agreement (TiSA) negotiations proceeding on the sidelines of the WTO, as well as in thecontext of the ASEAN+6 Regional Economic Partnership (RCEP) negotiations. In addition to theseinitiatives, work has been completed at the WTO to update the 1997 Information Technology Agreement(ITA) to bring a whole range of new products within its scope and the ITA Committee at the WTO is nowseen as a key way of advancing liberalization of a whole range of non-tariff barriers (NTBs) that effect tradein IT products. Finally, other initiatives on the protection of data and on privacy that are taking placebetween the United States and the European Union, as well as earlier work in the OECD and APEC, promiseto set new standards that will affect the cross-border transfer of personal information and as such haveimportant ramifications for the digital economy. Chapter 4 of our White Paper explains the current rulesframework, and addresses some of these processes and the substantive rules that are emerging in thiscontext, while also looking forward to the next WTO Ministerial Conference in Buenos Aires in December2017 and what a reinvigorated WTO Work Program on E-commerce may look like.

Chapter 5, the final chapter in our White Paper, outlines what an optimal framework for the digitaleconomy could look like, namely one that is characterized by a level playing field and non-discriminatoryaccess to commercial opportunities in a spirit of fair and open competition. It also addresses theimportance of global investment rules and trade in achieving the goal of bridging the digital divide. Itthen discusses how the domestic policy frameworks and corresponding international trade agreementrules can be formulated and implemented in such a way that both meets reasonable regulatory objectivesand does not act as a disguised restriction on international trade, or in a manner which unfairly favors oneset of (domestic) industry players at the expense of another. This Chapter discusses the potential benefitsof rules that enable innovation, that encourage deployment of ICT solutions in order to bridge existingdigital divides, that promote technology neutrality, an open internet, as well as flexible and compliantapproaches to increasing domestic value-add requirements. Finally this Chapter makes a set of compellingpolicy and economic arguments in favor of the positions taken.

We hope our White Paper will make a constructive and welcome contribution to the debate at a timewhen the openness of the digital economy that we have all become accustomed to could be under threatand at a time when the positive welfare enhancing effects of trade and investment liberalization we haveall benefitted from under the post WWII economic order has started to be challenged in much of thedeveloped world.


xi

ABBREVIATIONS

3D Three dimensional (mostly used in the context of printing tangible objects)

B2B Business to Business (e-commerce transactions)

B2C Business to Consumer (e-commerce transactions)

ASEAN Association of South East Asian Nations

APEC Asian Pacific Economic Cooperation

AT&T American Telephone and Telegraph Company

BT British Telecom (British telecommunications provider)

CD Compact Disc

CBG Consumer Business Group (Huawei Technologies Co., Ltd.)

CNBG Carrier Network Business Group (Huawei Technologies Co., Ltd.)

DDT Design development and testing

DVD Digital Video Disk

e-commerce Electronic commerce

EBG Enterprise Business Group (Huawei Technologies Co., Ltd.)

ECC United Nations Convention on the Use of Electronic Communications in InternationalContracts

ECIPE European Center for International Political Economy

EMT Executive Management Team (Huawei Technologies Co., Ltd.)

epub EPUB is an e-book file format with the extension “.epub” that can be downloaded andread on devices like smartphones, tablets, computers, or e-readers.

EU European Union

eWTP Electronic World Trade Platform

fintech Financial technology

FTA Free Trade Agreement

G20 An international forum for the governments and central bank governors from 20 majoreconomies

GATT WTO General Agreement on Tariffs and Trade

GATS WTO General Agreement on Trade in Services

GDP Gross Domestic Product

ICT Information and Communications Technology

IoT Internet of Things

IP Intellectual Property

IPRs Intellectual Property Rights

ISP Internet Service Providers

ITA WTO Information Technology Agreement 1995

ITA2 2015 update to the ITA

ITU International Communications Union

MFN Most-Favored Nation

M-PESA Kenyan mobile payments platform

MLEC 1996 UNCITRAL Model Law on Electronic Commerce


xii

MTN Mobile Telephone Network (South African telecommunications provider)

NTBs Non-tariff barriers

NTM Non-tariff measure

OECD Organization of Economic Cooperation and Development

OS Operating system

OTT Over the Top

PACD Public Affairs and Communications Department (Huawei Technologies Co. Ltd.)

PDF Portable Document Format

RCEP Regional Comprehensive Economic Partnership

RGF Really Good Friends (a negotiating group at the WTO)

SAP Systems, Applications, Products (German software company)

SDGs United Nations Sustainable Development Goals

SMEs Small and Medium-sized Enterprises

TBT Technical Barriers to Trade

TFMA Trade Facilitation and Market Access (Huawei Technologies Co. Ltd.)

TiSA Trade in Services Agreement

TPP Trans-Pacific Partnership

TRIPS WTO Agreement on Trade-Related Intellectual Property Rights

TTIP Trans-Atlantic Trade and Investment Partnership

ULL Unbundling of the Local Loop

UNCITRAL The United Nations Commission on International Trade Law

UNCTAD United Nations Conference on Trade and Development

UNESCAP United Nations Economic and Social Committee for Asia and the Pacific

UK United Kingdom

U.S. United States of America

WIPO World Intellectual Property Organization

WTO World Trade Organization

Chapter One | Defining the Digital Economy and Digital Trade

1

CHAPTER ONE | DEFINING THE DIGITAL ECONOMY AND DIGITAL TRADE

In this White Paper we define the digital economy as the range of goods, products, services and solutionsthat have emerged and continue to emerge in direct relation to online connectivity. This definitionadmittedly covers a broadly defined value chain ranging from the hardware and equipment constitutingthe backbone infrastructure of the internet, to the devices, particularly smart phones, tablets, wearables,computers and other terminals that users avail themselves of in order to get and stay online. Thisdefinition also comprises the various services, solutions and applications that have emerged to meet themultitude of needs that users place on the internet and the whole online ecosystem, including digitalproducts and services such as software, e-books and music downloads. In laying out this definition, welook beyond the narrow confines of focusing simply on e-commerce, and how digitalization has changedinternational trade across borders, to define and elucidate the emergence of modern day digitalized globalvalue chains that are having a disruptive and transformative effect on both the way businesses operateas well as how consumers acquire and use products, services and information.

1.1. Introductory Remarks .......................................................................................................................................... 21.1.1. Rethinking the Scope of the Digital Economy ............................................................................. 21.1.2. Defining Digital Trade ............................................................................................................................ 21.1.3. The Digital Economy and Economic Growth ................................................................................ 2

1.2. Some Preliminary Insights on the Digital Economy ................................................................................. 31.2.1. Infrastructure ............................................................................................................................................. 41.2.2. Services ....................................................................................................................................................... 51.2.3. Platforms and Ecosystems ................................................................................................................... 61.2.4. Devices ........................................................................................................................................................ 8

1.3. Some Preliminary Insights on Digital Trade ................................................................................................ 101.3.1. How Digitalization is Transforming Trade ...................................................................................... 101.3.2. Trade in Goods in the Digital Economy .......................................................................................... 111.3.3. Trade in Services in the Digital Economy....................................................................................... 121.3.4. Trade-Related Intellectual Property Rights in the Digital Economy .................................... 131.3.5. The End of “Silofication” ........................................................................................................................ 141.3.6. The Development Dimension ............................................................................................................ 15

1.4. Global and Industry Trends in the Shadow of the Digital Economy.................................................. 161.4.1. Ubiquitous Connectivity and Convergence .................................................................................. 161.4.2. More Data about More People and Things ................................................................................... 171.4.3. Known Unknowns and the Future of the Digital Economy .................................................... 181.4.4. Investment in the Pipe for Future Growth and Economic Development .......................... 19

1.5. Key Points from this Chapter ............................................................................................................................. 21

Huawei |Trade Rules and the Digital Economy | A White Paper

2

1.1.1. Rethinking the Scope of the DigitalEconomy

Defining the digital economy can be a difficulttask given that the scale of convergence betweenthe digital and the real world is so extensive andhappening at such a rapid pace. Any attempt todistinguish between the real economy and thedigital economy will become increasingly futileover time, since the so-called real economy andthe digital economy are converging to becomeone intertwined and inseparable singularity, asthe distinction between the offline and onlineeconomy becomes increasingly blurred.

For the purposes of this White Paper, we havechosen to define the concept Digital Economy infairly broad terms because of its growingimportance and its increasing encroachment onthe “real economy”.

purposes of this White Paper we must likewisemove beyond a narrow focus on e-commerce, inorder to capture as much of the economic activitythat takes place on the back of and in connectionwith the digital economy. Accordingly, we definethe term “digital trade” as follows:

1.1. Introductory Remarks

We discuss this definition in more detail below.However, it should be obvious that the keycharacteristic inherent to the digital economy isits reliance on and link with internet connectivityor online access. The invention and massadoption of the internet in the 1990s is arguablythe single most important event in making thedigital economy a part of almost everybody’sdaily lives and is what triggered the evolution ofthe digital age we now find ourselves at the verybeginning of.

However, this definition focuses on thosetechnologies that enable digitalization and theproducts, services and solutions that make thetechnologies function – whereas the scope ofthe trade that is affected and enriched bydigitalization is even broader.

1.1.2. Defining Digital Trade

This leads us to our definition of digital trade. Justas we seek to define the digital economy for the

In other words, what is actually defined as digitaltrade also includes anything that enables and isenabled by digitalization. These definitions matterfirst as a way of delimiting and clarifying thescope of this White Paper, but also because, as theimportance, ubiquity and centrality of the digitaleconomy grows, so too does the difficulty inclearly delimiting the digital economy from thereal economy as they steadily continue toconverge with one another.

1.1.3. The Digital Economy and EconomicGrowth

Much has been written over the last two decadesabout the role of ICT, digitization and the internetin supporting economic growth in industrialcountries and fostering economic development indeveloping countries. On the economic growthside, the consensus among economists seems togravitate towards differentiating between theso-called “first level” effects on the one hand andsecondary or indirect positive effects on the other(Figure 1.1). The first of these are the direct resultof increased investment in the underlyinginfrastructure and the economic activity thisentails, such as manufacturing and selling theequipment, its purchase (and any credit financinginvolved), as well as any installation work, drilling,ducting, deploying and testing of the equipment.The secondary and ultimately more importanteconomic growth effects that stem from thealignment of technological advancements in ICT,digitization and online connectivity are generallyattributed to their combined role in offeringplatforms for the provision of a whole range of

The DigitalEconomyDefined

The ecosystem comprising goods,products, services, platforms andsolutions that are either instrumentalto or avail themselves of onlineconnectivity.

The cross-border supply ofgoods, products, services andsolutions that are instrumentalto or avail themselves of onlineconnectivity.

Digital TradeDefined


3

conventional and new services. These servicesrange from telecommunications to those thatnobody had previously really thought of providingand/or consuming online (ride-sharing to nameone, purchasing and listening to music to nameanother).

The economic growth effects of the interneteconomy are also attributed to the ability of thistechnology to collect, store, and disseminate anunprecedented amount of information to aninconceivably large number of people: notmillions, but billions. The transfer of knowledgeinherent to this process and the various ways inwhich all this information is put to productive useis an important pillar of the productivity growthwe have seen in all major industrialized countriesover the last two decades. Much of this informationand all of its potential users were of course “outthere” before the advent of the internet economyand the arrival of the digital age. But theconvergence of powerful, relatively inexpensiveand ubiquitous ICT technologies (a supercomputerin everybody’s pocket) with fast, reliable and

affordable internet access (particularly mobilebroadband), has exponentially ramped-up andaccelerated the possible transactions, applicationsand thus potential opportunities for which allthis information can be put to some kind ofeconomically rewarding or intrinsically valuableuse by all these billions of actors.

Finally, because the internet is a so-called “generalpurpose technology”, its potential (similar toelectricity in another age), to increase bothefficiency and welfare, and to transform how andwhere economic activity is organized, it is notsurprising that it has been a big part of theeconomic growth stories of many countries overthe last two decades. Related to these trends arealso the increased transparency, lower transactioncosts, and ultimately greater competition that ICTtechnologies and online connectivity have beenproven to foster. Although these have proven tobe very disruptive for some established actors,these new technologies have also brought withthem many new growth opportunities for bothlegacy players and new market entrants.

Figure 1.1: First- and second-level economic impacts of investing in connectivity infrastructure

Source: Huawei

1.2. Some Preliminary Insights on the Digital Economy

The digital economy is characterized by the factthat it often defies the neat classification intoproduct categories that the world has becomeaccustomed to when dealing with the realeconomy. Digitalization is affecting almost allareas of our economy and society, openingopportunities for new services, products and

business models, and transforming the way inwhich consumers and businesses interact withone another. The impossibility to easilycompartmentalize the different products andsolutions on offer in the digital economy is oneof its core strengths, but also one of the thingsthat has most often confused governments


4

and regulators when contemplating policyinterventions on how best to harness it for theirown objectives. In this chapter we set the sceneas to why the digital economy is so important

and then focus on a number of items which arecritical when analyzing the digital economy. Theyinclude infrastructure, services, platforms anddevices (Figure 1.2).

Figure 1.2: The digital economy: Infrastructure, services, platforms/ecosystems and devices

Source: Huawei

1.2.1. Infrastructure

The infrastructure required to power the digitaleconomy largely consists of telecommunicationsnetworks and the underlying backboneequipment such as optical fiber, coaxial cables,switches, signal amplifiers, servers, data centers,satellites, wireless base stations, mobile telephonetowers, antennas, routers, modems, rangeextenders and other “hard” infrastructureelements that bring connectivity to our homes,offices and devices (discussed in a separatesection below). Except for those in the industry,these elements are largely invisible to most users,unless of course connectivity is disrupted or lost,in which case its absence is suddenly sorelyfelt by all. Telecommunications networks havebeen subject to a number of path-breakingtechnological innovations over the last fewdecades, whereby we have moved from analogtelecommunications networks that “only” carriedvoice or audiovisual radio signals, to the presentdigital age of broadband internet communication

networks that carry huge and ever-increasingamounts of data at increasingly faster speeds.

The infrastructure side of the digital economy ismade up of a few large equipment vendors thatwork closely with carriers, as well as thousands ofsmaller players manufacturing and sellingindividual equipment components such as cables,antennas, tubing etc. Industry consolidation andvertical integration are ongoing trends, but so isa high degree of fragmentation along differentparts of the ICT industry value chain, since manyelements are low-cost (and low value-add),so that they have become cheaply and easilytradable commodities. Apart from large equipmentvendors like Huawei, the infrastructure spaceis populated by a number of importantstakeholders. The most important are arguably1) carriers who invest in, build and operatethe telecommunications networks, therebyproviding communications services to users and;2) governments, who issue operating licenses,manage spectrum allocation and regulate their


5

respective telecommunications sectors moregenerally. Other important stakeholders in termsof infrastructure are standard-setting bodies, which includeinternational organizationssuch as the InternationalTelecommunications Union (orITU), but which also compriseindustry players from theprivate sector who cometogether to agree on standards for such thingsas electromagnetic compatibility (EMC) orinteroperability of different communicationstechnologies.

1.2.2. Services

The provision of services is the whole reasonthe infrastructure described above is builtand operated. Telecommunications servicespreviously just meant voice calls (and before thatthe provision of telegraph and telex services).These services have since morphed to firstinclude fax communications (now barely used)and then later email services. They nowencompass the provision of broadband internetconnectivity which is used to transmit and receiveall kinds of data, from voice, to audio, to text, toimages and video. The services side of the digitaleconomy has experienced explosive growth onthe back of the internet connectivity providedby telecommunications networks. Whereasthe services offerings of telecommunicationsnetworks traditionally comprised the transmissionof voice signals, telex, fax messages, and latershort-message-system (SMS) texts, the trendmore recently is for all kinds of content to bedownloaded and uploaded over the top of thesenetworks (leading to the distinction between OTTservices suppliers and traditional carrieroperators), as we have moved from fixed localarea network (LAN) connections (usually todesktop or portable computers) to a world ofmobile wireless connectivity (directly to handhelddevices such as smartphones, tablets orwearables). This has had profound implications forthe kinds of services that are now provided andconsumed in the digital economy. We now usevarious services in the digital economy to engagein all kinds of transactions that used to involve

going to a brick and mortar store. Examplesof online services include booking and paying

for airline tickets, paying ourcredit card and utilities bills,buying groceries, browsingfor and purchasing booksand magazines. Other servicesthat have been enabled orvastly facilitated by the digitaleconomy include hailing and

paying for a taxi or other local transport services,renting out a spare bedroom or vacant residentialspace, finding, booking and paying for someoneto come and clean your house or apartment,finding and making reservations at a restaurantas well as reading and writing online reviewsabout one’s dining experience. In fact, newservices are constantly being conceived andoffered by entrepreneurs and innovators in thedigital economy, so that there are very few limitsto the kinds of services that can be bought andsold online.

The biggest players in the services space areagain telecommunications companies, who investin, build, operate and lease access to theircommunications networks. Across the differentservices sectors that have emerged over the topof these networks and in the space created by thedigital economy, we see other important players,such as banks and financial services providerswho were some of the earliest and mostenthusiastic adopters of the many possibilitiesonline banking services offered (fintech). Anotherset of important players that have emerged in thedigital economy are search engines and emailproviders. Yahoo! is an example of a companythat emerged quickly in the early days of theinternet to provide email and search engineservices to subscribers and quickly evolved tobecome an important platform before itsimportance dwindled with the emergence ofother big platforms such as Google or Facebook(discussed in more detail in the next section).Other big players on the services side of thedigital economy are of course softwarecompanies and app developers, the mostfamous of the former being Microsoft, whichquickly seized on the game-changing nature ofinternet connectivity and began bundling its

We now use various servicesin the digital economy toengage in all kinds oftransactions that used toinvolve going to a brick andmortar store.


6

browsing application Internet Explorer with allsubsequent versions of its Windows software.But other behemoths in cloud computing,enterprise software and services have alsoemerged such as IBM (already a big player inoffice computing systems even before the adventof the digital economy), Oracle and SAP, all ofwhich provide back-office processing software tobusiness users, as well as companies such asSymantec and McAfee, which emerged to provideantivirus software, primarily to corporates andend-users. Finally, worth mentioning in thiscontext are companies such as Amazon, Uber andAirbnb which have emerged as very large andsuccessful companies across different parts ofthe digital services economy (the last two in theso-called peer-to-peer or sharing economy),providing different services to millions ofconsumers and leading the way as pioneers intheir respective services sectors.

1.2.3. Platforms and Ecosystems

This space in the digital economy has arguablyonly emerged thanks to the rise of multi-deviceconnectivity, meaning we now connect to theinternet with at least two devices and in somecases more. It is also a space that has opened upas the range of services provided in the digitaleconomy has expanded, allowing all-in-one ormulti-pallet solution providers to emerge. Thus,where we used to only connect to the internetusing either our desktop or portable computers,a simple and largely binary choice had to bemade between Microsoft’s Windows or Apple.Today, different platforms and ecosystems (ofapps and digital content) have emerged to tryand capture as much of users’ online activityacross as many devices as possible.

Often these platforms started out as somethingmuch more modest such as a search engine (inthe case of Google) or a social network (in thecase of Facebook), before expanding intosomething considerably more all-encompassing.Today, it is increasingly recognized by analystsand observers that successfully future-proofing abusiness model in the internet economy eithermeans evolving to become a major platform orpartnering with one of these platforms to reach

as many users as possible. These platforms orecosystems comprise both operating systems,app economies, as well as interaction,communication and content spaces to whichusers turn for a plurality of their online needs.Many of them have incorporated software anddigital content products (e-books, music andvideo) that used to be goods in their previousincarnations when they were supplied on CDs,video tapes, cartridges and floppy disks. Suchproducts form a special subset that are neithergoods nor services, often denoted by tradeexperts as digital products.

As mentioned above, Google started out as asearch engine and was so successful that by 2006the word had become a verb, the use of whichwas so ubiquitous that it had been entered intodictionaries in most of the English-speakingworld. At the time of writing, Google has eightdifferent products that over a billion users use ona regular basis, namely: Search, Gmail, YouTube,Android, Chrome, Maps, Translate as well as itsapp and media store, Google Play. This makesGoogle a company that knows an incredibleamount about its users (the other company inthis situation being Facebook, discussed below),positioning it very strategically to anticipate andinfluence future trends. Google has so far made anumber of attempts to move into the devicesspace, with its Pixel smartphone, as well asprototype wearables such as Google Glass (nowdiscontinued for consumers but increasinglybeing taken up as an augmented realitytechnology for industrial applications). Anotherexample is Google Daydream (a set of virtualreality goggles), as well as Google Home(a speaker that allows users to activate and usea range of connected electronic devices by voicecommands). Google has also been at the forefrontof technological innovation on a number offronts, particularly autonomous vehicles andmore recently artificial intelligence. In much of theworld, Google is an indispensable part of billions’of users’ daily forays into the online world and thedigital economy.

Apple started out as a computer maker thatintroduced a number of breakthroughs, first indesktop computing (Macintosh) and then later in


7

portable computers (MacBook), portable musicplayers (iPod), and mobile phones (iPhone).Apple is credited with single-handedly inventingtablets (iPad). Apple also developed softwareto run on its computersindependently of the MicrosoftWindows platform with which itcompeted head-to-head formany years and continues todo so across a narrow range ofproductivity applications aswell as competing with theAndroid operating system from Google forsmartphones with its own iOS. When Applestarted selling its iPod music players, itsimultaneously moved into the business of musicdownloads with its iTunes store, whichrevolutionized the way many in the worldpurchase and listen to music and had far-reaching and hugely disruptive effects for therecord-label industry (Figure 1.3). Apple TVprovided similar functionality in terms of videocontent (streamable movies and television series),but by the time it came along content ownershad already started to adapt to the new reality ofon-demand video (thanks to players like Netflix),so that Apple’s entry into this market was lessdisruptive on the whole as it had first been with

its iPod player and iTunes music downloads.Nowadays, Apple is not just a provider of devices,applications and content services, but havealso integrated all its services with personalized

cloud services accessible allits devices. The iPhone wasanother technological break-through that gave rise to awhole new wave of innovationand firmly planted Apple in thecenter of a hugely importantonline ecosystem thanks to its

iOS App Store. Apple iOS apps can now bedownloaded and used to consume almost anyservice in the digital economy.

When Mark Zuckerberg started Facebook hearguably wasn’t really sure what he wanted to dowith the website. It was really little more than justan online manifestation of the college yearbook,with photos of Harvard classmates includingsome information on them. From these humblebeginnings, Facebook quickly expanded to otherIvy League institutions, then to all US universities,all universities worldwide (it was initiallynecessary to have an “.edu” email address toregister) before then being opened to literallyanyone to register anywhere in the world,

Figure 1.3: Innovation and disruption due to digitization and online connectivity

Source: Huawei

Today, different platformsand ecosystems haveemerged to try and captureas much of users’ onlineactivity across as manydevices as possible.


8

provided they had an email address. Facebookquickly became the social network of choice,putting other existing sitessuch as Myspace, Hi5 andothers largely out of business.Today, after an IPO andphenomenal growth in termsof speed and user-base,Facebook is more than justa social network, and offersitself as a platform forcommunications (FacebookMessenger and WhatsApp thatit acquired in 2014), for userauthentication with third-partywebsites, for interactions with old, existing andnew connections, as an online gaming vendor,and – most importantly – as an advertisingplatform. Facebook has also become the primarysource of news on current events for a largenumber of its users, with many traditional newsorganizations paying Facebook to run theircontent in its newsfeed, alongside updates fromusers’ online friends.

WeChat or Weixin ( ), which means “microletter” in Chinese) started out as a relatively lateentrant to the world of instant messaging, but ithas grown, innovated and conquered for itself animportant part of the digital economy in China.The company is now arguably one of the mostinnovative, comprehensively cross-cutting anddominant platforms and ecosystems in China and,at the time of writing, is considerably ahead of allof its non-Chinese peers and rivals on manymetrics. WeChat is now a platform by means ofwhich one can communicate with friends andcolleagues, send them photos or videos, pay bills,order and pay for taxis and other transportservices, buy railway tickets, order and pay forhome or office delivery of meals, buy movietickets, stream and watch videos, advertise anddistribute coupons and promotions, as well as payfor any good or service in the millions of storesequipped with the necessary barcode readers, orto provide payment to anybody for any serviceprovided they also have a WeChat account thathas been enabled to accept and make onlinepayments. One can also use WeChat to transfermoney to other WeChat users either as a gift

(in the form of a virtual red envelope) or in orderto settle a debt. In fact, almost any service

that can be provided andconsumed online can beaccessed from within the app,which in many ways isbecoming so ubiquitousand comprehensive that aChinese user would not needto use his or her phone’sinternet browser anymore,or any of the other stand-alone apps on his or hersmartphone. In this way,WeChat has actually started

to “displace” the internet and the app economyper se (in that it serves as an all-encompassingplatform on top of the network connectivityprovided for and by the internet). WeChat doesthis in a variety of ways, but mostly by partneringwith online providers of the many services justmentioned and allowing them to use themessaging platform and app directly to plug intheir own functionality and content. In this way,said service providers have access to billionsof users and WeChat becomes the platformand ecosystem of choice for users (a genuine“win-win”). Users also benefit because they don’tneed to keep abreast of the latest offerings in theapp world, or download new apps if they don’twant to. WeChat can provide almost all thefunctionality they need from their devices whenit comes to the online world and the digitaleconomy.

1.2.4. Devices

The devices segment of the digital economy iswhere the user or consumer interfaces with thewhole range of goods, services and solutions onoffer to him or her online. This part of the digitaleconomy is about getting people staring at theirscreens and using the functionality offered bytheir devices to consume, interact, use andengage, either with other users, with sellers,service providers or in fact any of the many otherstakeholders in the digital economy. Devices area crucial aspect of the digital economy but not allthe big players described above sell their owndevices, although of course all of them make sure

WeChat is now arguably oneof the most innovative,comprehensively cross-cutting and dominantplatforms and ecosystemsin China and, at the time ofwriting, is considerablyahead of all of its non-Chinese peers and rivals onmany metrics.


9

that what they offer can be accessed by almostany devices. Below we first discuss desktop andportable computers, before discussing tablets,detachable tablets, smartphones and finallywearables.

Desktop computers are where the devices spacestarted in the 1980s and where most onlineactivity was primarily centered in the early yearsof the internet (in the 1990s) because of the needto plug into a fixed line connection. Onceportable computers became affordable and easyenough to carry and once wireless networksbecame more widespread,portable computers also startedto become widely used toconnect to the internet. Thebiggest manufacturers in thedesktop and portable computersegments in the 1990s and2000s included names such asApple, Dell, Compaq, HewlettPackard, IBM, Fujitsu, Acer, Sony,Toshiba and many others.Today, the biggest names inportable computers wouldhave to include brands such as Apple, Sony,Samsung, Lenovo, HP, Dell, Asus, Microsoft (whoonly recently moved into this space from beingpurely a software company), Acer, and Toshiba.

Tablets were something that were arguablyinvented only when Apple introduced its firstiPad in 2010. Since then, tablets have become amainstay of the devices space with manycompanies quickly following suit and producingtheir own versions of this predominantly “lean-back” device, meaning it is first and foremost forthe consumption of content rather than intendedto be a productivity device. The leading names inthe tablet space today would have to includebrands such as Apple, Samsung, Google (whichrecently started selling its own tablets), Sony,Nexus and Huawei. Because of their limitations asproductivity devices, a new generation of tabletswith detachable keyboards was launched, firstby Microsoft, and subsequently by Apple, withothers such as Google, Sony, HP, and Huawei allopting to follow with their own detachabletablets. These devices have to a great extent

presaged the very likely direction the industry isheaded, namely away from portable (laptop)computers and towards hybrid devices that workequally effectively as both lean-back and lean-forward devices.

Smartphones are now the most commonterminals used by people to connect with eachother and the internet and thus they are arguablythe most important of the various devices in thedigital economy. Smartphone-uptake has been onthe rise for several years now, with marketsaturation rates quickly being approached in

most developed countries.The potential of thesmartphone to essentially“put a supercomputer ineveryone’s pocket” has notbeen overlooked by many inthe industry so that thesmartphone is increasinglybecoming the focus ofvarious stakeholders’ effortsin the digital economy whendeveloping goods, services,solutions and platforms by

means of which to engage with consumers andbusinesses. There are many players in thesmartphone space, but the largest, mostinnovative and influential at the time of writingare Apple, Samsung, and Huawei, with a wide fieldof “runners-up” such as Xiaomi, Oppo, Sony, HTC,LG, and Lenovo. Smartphones generally tend tocome within a recognized range of product sizeswith another subset of larger smartphones alsoemerging in recent years for those users whoprefer to use their phones as lean-back deviceswith larger screens. These so-called “phablets”represent hybrid devices between smartphonesand miniature tablets, with the major players inthis space being Samsung, Apple (who onlyrecently started to compete in this segment), andHuawei.

Wearables – particularly smart watches – haverecently become an increasingly contested spacein the devices segment, with many brands vyingfor more and more market share as consumersincreasingly turn to these gadgets as fashion andlifestyle accessories. This is an area with

The devices space is aboutgetting people staring attheir screens and usingthe functionality offered bytheir devices to consume,interact, use and engagewith other users, sellers,service providers or any ofthe many other stakeholdersin the digital economy.


10

admittedly a lot of growth potential and wherefuture trends are still difficult to predict. Thelargest players in this space are Apple, which hada respectable degree of success when it launchedits Apple Watch in 2014, as well as Samsung,Motorola, Huawei, Sony, Asus,LG and (Swiss watchmaker)Tag Heuer.

Other important connecteddevices include smart TVs,gaming consoles, virtualreality goggles, set-topmedia devices and homespeakers with interactivetechnology, all of which areset to play an increasingly important role in thedevices space, especially as these technologiescontinue to evolve and take up their place amongmore conventional and widely-adopted devices.These are only few examples of the wide range ofdevices that are being connected today to theinternet. This mass transformation of everyday

objects into smart connected devices has givenrise to the phenomenon of the internet ofthings (IoT): a network of connected objects thatare able to collect and exchange data withouthuman intervention.

However, the real impact ofinternet and connectivityis less eye-catching thanthe latest wearables. Theindustrial use of internet andhigh-speed mobile networks,through so-called machine-to-machine communicationtaking place betweenmachinery, installations and

various measuring equipment allows for complexreal-time information used to effectively planproduction and maintenance. This could becontrolling traffic, optimizing energy productionor just sending out an alert that the local vendingmachine has run out of a particular item.

The smartphone is increasinglybecoming the primary focusof various stakeholders’ effortsin the digital economy whendeveloping goods, services,solutions and platforms bymeans of which to engage withconsumers and businesses.

1.3. Some Preliminary Insights on Digital Trade

1.3.1. How Digitalization is TransformingTrade

To recall the definition provided above, digitaltrade for the purpose of the present White Paperis defined as “the cross-border provision of goods,products, services and solutions that areinstrumental to or avail themselves of internetconnectivity”. Although trade in goods has beenthe predominant form of international trade formillennia, its role in the digital economy isarguably waning. Trade in goods still dominates interms of both the underlying infrastructureneeded in order to provide online connectivity aswell as with respect to the manifold devicesneeded to translate this connectivity into usefulapplications for businesses and consumers. Butbetween these two spaces, most activity takesplace in the realm of services, or hybrid digitalproducts, and thanks to the protection affordedby intellectual property rights, all of which isdiscussed below. The last part of this sectiondiscusses the fact that the compartmentalizedtreatment of trade in terms of goods, services and

IP is quickly becoming obsolete in the digitaleconomy.

Traditionally, the economic rationale forinternational trade has been as a means toexpand and seek business opportunities beyondthe home market. This narrative of market access,i.e., exporting and tapping into economic growthoverseas, remains a central part of internationaltrade. In 2016, global e-commerce sales exceededUS$1tn in turnover, yet was still growing at 20%per year. If e-commerce was a country, it would bethe GDP of Australia or Russia, yet growing threetimes faster than the Chinese economy.

Whereas trade has historically focused on goods– items shipped in crates and barrels –technology and globalization has made otherparts of the economy tradable, with onlineservices and content (such as music and video)being the main examples. This increasedtradability of services and goods has in turnbecome a catalyzer for further productivityimprovements: As an increasing variety of goods


11

and services become available to the economy,markets start to function better, allowingeveryone to be more productive.

This in turns allow businesses and countries tospecialize in what they are good at producing –to cultivate their comparative advantage. Aseconomic actors focus on their specialties, whilstimporting goods, services and competences fromothers, economies are now collaborating ata scale never before seen. The digital economyhas led to a new level of inclusiveness in globaltrade. This exchange also takes place at a muchmore granular and practical level – on the level ofindividual businesses. Digitalization opens newmarkets, which allows an efficient firm to expand,reap greater economies of scale – by enablingthem to scale locally, regionally, or even globallyand in doing so, allows them to use their existingresources more efficiently.

The ability to scale creates economic synergieswith the productivity increases unleashed bynew technologies. These forces of trade andtechnology may not be entirely new –intercontinental flights and maritime containertransport were innovations of their time – but theimpact of the digital economy brought down thecost of engaging in trade for a larger group thanever before, with benefits reaching a much widergroup of people, much smaller-sized companies,and covering more sectors of the economy thanever before – in other words, more people reapthe benefits from digitalization and access newmarkets than through previous innovations intrade.

In this context, the use of online platforms playsa key role in this success story of exporting newproducts and reaching new markets: Onlineplatforms provide export opportunities for thesmallest firms to export their products to far-reaching markets without investing in localdistributors and sales offices. The near-zeromarginal cost of exporting has allowed evenmicro and small enterprises in developingcountries to evolve into multinational enterprises,into so-called “micro-multinationals”. Consumerconfidence in foreign suppliers has also increasedthanks to more information being available andthanks to the near-zero costs of market research

online, with diminishing “information asymmetries”as a result.

In sum, digital trade brings more opportunitiesfor developing and emerging countries than inindustrialized and developed countries. In recentyears (and especially since the introduction of themobile internet), developing countries have leap-frogged into e-commerce, generating higherincomes and catching up with the industrializedworld at a faster pace than ever before. Obviously,new services, platforms and apps make physicaldistances, capital investments and physicalpresence less relevant. Even traditional goodstrade has become facilitated as the sales process– from customization, quality assurance topayments – has been digitalized and available atextremely low costs, though they may not alwaysbe interoperable between different countries.

1.3.2. Trade in Goods in the Digital Economy

Whereas trade in digital goods used to bedominated by infrastructure, computers andelectronic devices between OECD countries (so-called “north to north” trade) until the mid-1990s,trade in goods is now equally dominated bysouth-south trade, between developing countriesand emerging economies. Here, China plays acentral role in making digitalization a realistic andaffordable proposition for the non-industrializedeconomies.

Goods trade is not only expanding geographically.Electronics, processors and computers are findingtheir way into almost every type of product.For example, more than half of the value ofa passenger car is derived from various on-boardelectronics and software components. Thenumber of digital goods available in the market isincreasing constantly and many more will bedeveloped with the adoption of IoT technologies,smart homes and other concurrent trends.Figure 1.4 shows how trade in digital goods hasbeen increasing over the last 20 years:

To be sure, global trade rules affect trade in goodsin a multitude of ways. Despite international tradeagreements like the Information TechnologyAgreement (ITA), traditional trade restrictions –such as tariffs, rules of origin and customs


12

clearance procedures – still hamper trade to someextent. However, the focus has shifted towardsregulatory non-tariff measures (NTMs), such asdivergences in technical standards or marketrules that are applied inside a country, rather thanat the border. It may be self-evident, but tradebarriers imposed on goods still matter.

Digital products that used to be sold as goodssuch as music (in the form of records or CDs) andmovies (in the form of video tapes or DVDs) arenow transmitted digitally, or have been convertedlike many books (e.g., PDF, Kindle, epub) intodownloadable media. There are two overlookedangles regarding trade in such products. Firstly,the digitalization of physical goods intointangibles inevitably begs the question – shouldthey be subject to tariffs as if they were physicalgoods if they are transferred across borders, i.e.,downloaded, from overseas? The rules of theWorld Trade Organization (WTO) and other majortrade agreements are still inconclusive. Theclassification of digital products has a majorimplication on trade rules for 3D printing andother future technologies, as even physicalproducts become downloadable.

Secondly, some of the biggest names that haveemerged in the internet economy, such asAmazon, eBay, and Alibaba, are primarilyconcerned with the old-fashioned business ofselling and shipping goods to buyers. These

players have been able to leverage the manyadvantages that online connectivity provides tooffer more goods, to more buyers, at massivelyenhanced economies of scale, and at considerablyless cost than legacy “brick and mortar”wholesalers or retailers. Thus, trade in goods is stilla central concern for the digital economy, and willcontinue to be so for the foreseeable future, sincenot everything people consume, and not everycomponent that manufacturers input into aproduct can be reduced to binary code or a seriesof “zeros” and “ones”.

1.3.3. Trade in Services in the DigitalEconomy

The cross-border supply of services, known intrade-policy parlance as “mode 1”, has quiteunderstandably experienced enormous growthwith the advent of the internet and has thus beena primary driver of the digital economy. Cross-border data flows are often described inostentatious terms like “the life blood of theeconomy”, or “the new oil” – and such descriptionsare by no means hyperbolic.

As shown in Figure 1.5, growth in the cross-border supply of services has been increasingsteadily and has bounced back to a higher levelafter the global financial crisis. This reflects one ofthe interesting features of trade in digital services:they are more crisis-resilient compared to goods.Globally available digital services become lessprone to the fluctuations that occur in localdemand. Also, with an annual growth rate of 4.5%

Figure 1.4: Trade in digital goods as a percentageof global trade, 2000-2016

Source: ECIPE; WITS, WDI. Note: Digital goods are definedhere based on ECIPE, 2011.

Figure 1.5: Growth of cross-border supplyof services, 2007-2012

Source: ECIPE; World Bank TIS database; OECD

2 500

2 000

1 500

1 000

500

ITA

go

od

s in

mln

Year

1995 2000 2005 2010 2015

1995 2000 2005 2010 2015 2012

Tota

l wo

rld

wid

e cr

oss

-bo

rder

tra

de,

i.e. M

od

e 1

(bln

USD

)

4 600

4 400

4 200

4 000

3 800

3 600


13

in services trade, service-driven businesses tendto be more resilient overall as they becomea daily habit of users, as well as a necessity ofbusinesses as a day-to-day production input. Inconclusion, data makes our economies moreresilient to economic crises.

The digital economy has also given rise toservices that did not exist before, or if they didexist, were in much more primitive (analog) forms.According to UNCTAD, half of all global trade inservices is enabled by ICT and connectivity:Traditional services like banking, travel, telecomsand professional services can no longer besupplied without a connected device. Butconnectivity has also spawned a new category ofservices including car-sharing services like Zipcar,crowd-funding platforms like Indigogo or high-frequency trading. Some of these services can betraded internationally (e.g., supplying storage onthe cloud) and thus frequently are traded,whereas some are inherently local or domestic innature. For example, using an online app to booka cleaner to come and clean your apartment, orlegally downloading a song is contingent ondomestic copyright.

But for many services that are now traded in thedigital economy, the existence of internationalborders is largely irrelevant – the mostinternationalized services in the digital economyare arguably those that can be providedcompletely online, such as online advertising,online retail, and back-office business processingservices. The trade rules that have evolved togovern international trade in services (discussedin more detail separately in Chapter Four of thisWhite Paper) generally focus on the terms andconditions subject to which foreign serviceproviders will be given access to domestic servicemarkets (market access) as well as any limitationsthe host government wishes to maintain in termsof national treatment, i.e., the right to treatdomestic service providers more favorably incomparison to those foreign service suppliersgranted market access. International trade rulesgoverning services also recognize and addressthe fact that services markets tend to be heavilyregulated. These rules try to set some standardsfor regulatory interventions in terms of minimum

requirements on transparency, predictability andconsultation with the affected industry.

The two “elephants in the room” when it comes totrade in services in the digital economy aretelecommunications services and financialservices. This is because without some sort ofderegulated and liberalized set of rules governingtelecommunications services we simply wouldnot have much of the underlying backboneinfrastructure for internet connectivity, thusrendering the digital economy defunct. Thenegative impact on digital trade from burdensometelecoms regulations shows that properlyfunctioning telecoms and financial servicesmarkets, governed by proportionate rules isa necessity for digital trade. Free trade in such“core” services – and not just connectivity – is ofcrucial importance for inclusive digital trade.

The importance of financial services to the digitaleconomy resides primarily in the online paymentsspace, where banks, card-issuers and to a morelimited extent online payment platforms likePayPal or Alipay play an essential role in allowingpeople to pay for the internationally tradedservices they consume over the internet. It’s awell-known fact among international tradeeconomists and lawyers that the multilateral setof rules we have today governing trade inservices, the General Agreement on Trade inServices, was largely concluded at the behest andon the insistence of big telecommunications andfinancial services suppliers lobbying very hard fortheir adoption during the Uruguay Round(particularly AT&T, American Express, and Travelers– later taken over by Citibank). In the digital age,the importance of these sectors has only growngiven their role as enablers for so much of theother economic activity that takes place in thedigital economy.

1.3.4. Trade-Related Intellectual PropertyRights in the Digital Economy

As might be expected, intellectual property rightsplay a big role in the digital economy at manylevels. Patents are important in terms of ICTequipment and devices, and are often the sourceof bitter litigation (but also fruitful cooperation)


14

among some of the biggest names in theinfrastructure and devices space. Much of theservices that are provided across borders alsocontain a large amount of proprietary informationand intellectual property, and this is reflected inthe costing and thus the prices that are chargedfor these services. In addition to this, much of thecontent that is traded digitally, whether in theform of video, reading matter (books, magazines),video games, or music, is subject to national andinternational copyright, which more often thannot can act as a serious constraint on the (legal)cross-border trade in these products. Many retailservices, such as online pharmacies to name avery prominent example, run afoul of domesticIP laws in the markets where their customersreside, which again acts as aconstraint on trade in thedigital economy in goods andservices protected by IPRs.

1.3.5. The End of“Silofication”

Up until now, much of thethinking on digital trade andhow international rulesshould be conceived toregulate digital trade hasfollowed in the well-troddenpathways already establishedfor regulating trade and negotiating tradeand investment liberalization in other sectors.This is understandable but can be somewhatunfortunate, since typically the officials thatshow up at meetings to negotiate on rules forthe digital economy are almost invariablytelecommunications regulators who have a verynarrow negotiating mandate and also may notbe fully briefed on other relevant areas ofsubstantive expertise that are of intrinsicimportance to the digital economy as a whole(services, IP, technical regulations and productstandards etc.). This can lead to a fragmentedapproach that can be detrimental to, rather thansupportive of, international trade in digitalproducts. Think about for example the on-demand streaming services for audiovisual mediaavailable in markets like the United States. Thetechnology certainly exists to export these

services to the whole world, and there is nodoubt that the demand is there with viewers inmany countries eager to consume this contentany way they can. However, restrictions incopyright that have not kept pace with theavailable technological developments effectivelystop such exports from taking place legally. This isjust one of many examples where the “silofication”of trade rules leads to sub-optimal outcomes(here in the form of demand and supply gaps)for both consumers and suppliers in the digitaleconomy.

Advocacy in favor of a more “holistic” andhorizontal approach to digital trade policyfollows a general trend towards breaking silos.

World trade is increasinglycollaborative, with globalsupply chains in which inputsare collected globally – or asthe WTO puts it: things areno longer made in China,United States or Brazil, but“made in the world”. In fact,intermediate input trade ingoods and services represents56% and 73% respectively oftrade flows in goods andservices. Global value chainsare highly sensitive to tradecosts which are to a great

extent alleviated by the internet. But it is likely notenough. On the contrary, looking at recentlynegotiated trade agreements, they include manymore items than just traditional trade barriers ingoods or services – but also horizontal rules anddisciplines common to both, breaking the silos.The negotiation of future trade rules in accordancewith the old silos appears increasingly obsoletewhen confronted with the possibilities of a futurereplete with connected cars, or the realm of theInternet of Things and smart grids. Or imagine anot-to-distant-future where all these technologiescan and will work together with a smart watchunlocking a connected car that is interlinked withsmart traffic lights in a smart city. It is doubtfulthat the still very prevalent silo-based format usedto negotiate new trade rules and disciplines is wellsuited to the future on offer by the convergenceand widespread adoption of these technologies.

For many services that arenow traded in the digitaleconomy, the existence ofinternational borders is largelyirrelevant – the most inter-nationalized services in thedigital economy are arguablythose that can be providedcompletely online, such asonline advertising, online retail,and back-office businessprocessing services.


15

Many observers have noted that we seem poisedon the verge of the fourth industrial revolution.The industrial revolution kicked off with theadvent of mechanical production in the 18th

century, enabled by water and steam power. Thesecond industrial revolution is placed at thebeginning of the 20th century with the rise ofmass production powered by electricity – oftenassociated with industrialists like Henry Ford andFrederick Taylor. The third industrial revolutionstarting in the 1970s saw the widespreadadoption of electronics and IT on themanufacturing floor resulting in the automationof production, which paved the way for thecurrent fourth industrial revolution, enabledby ubiquitous connectivity and the rise of “bigdata”. The fourth industrialrevolution has broughtalong new concepts such asautonomous robotics, 3Dprinting, cloud computing,the Internet of Things andsensor technologies todrive a paradigm shift inmanufacturing. This new eraof industrial productionbuilds on the concept of cyber-physical systems.A profound interaction between the real and thevirtual worlds, which sits at the core of themanufacturing process. The concept of Industry4.0 relies on the central role of machines inunderstanding and interacting autonomouslywith the physical world and is paving the way tomany opportunities in terms of smarter industrialprocesses, new business models and thedevelopment of new services embedded inproducts. This transformation in the industryis a clear example of how the real economyand the digital economy are becomingincreasingly difficult to separate from one another(convergence).

In conclusion, the policy boundaries betweenproducts, ideas and services have become veryblurred. And this convergence has already pavedthe way for the so-called “servicification” ofmanufacturing. Just to take one example fromHuawei’s own industry, the portfolio of cloudapplication services with the delivery of platforms(PaaS), infrastructure (IaaS) and software as aservice (SaaS) are examples of servification of a

manufacturing industry. In this example, traderules for the cloud will follow suit, as trade incloud necessitates bridging the gap between thetrade rules for goods, services and intellectualproperty.

1.3.6. The Development Dimension

We discussed the linkages between the digitaleconomy and economic growth above at thestart of this chapter. This section seeks to providesome insights into the correspondingrelationships between the digital economy andeconomic development.

The determinants of long-run economic growthcapable of transforming developing countries

to industrialized advancedeconomies have beendiscussed for many decadesand in fact still continue to beso with some contention. Ourpurpose here is not to revisitthis debate but rather topoint out some of the ways inwhich ICT and digitizationcan contribute to improving

socio-economic outcomes for the poor.

We pointed out above the very powerful role ICTand online connectivity have played in theaggregation and dissemination of informationand the impact this has had on productivity andcompetition in developed countries. Fordeveloping countries the value of thesetechnologies lies primarily in their role inmitigating information asymmetries between thepoor and the wealthy, but also in theircontribution to bringing the poor closer toregional and global supply chains.

Most observers who have studied how country-level improvements to a nation’s regional andinternational connectivity rankings are achievedseem to point out that there are three areaswhere governments must act in order to seenotable gains. The first of these is ensuring thatthe required telecommunications infrastructure isbuilt and making sure that it reaches as manypeople as possible (city-dwellers as well as ruralpopulations) and provides enough of the rightkind of connectivity (fixed or mobile broadband,

World trade is increasinglycollaborative, with globalsupply chains in which inputsare collected globally – or asthe WTO puts it: things are nolonger made in China, UnitedStates or Brazil, but ‘made inthe world’


16

2G, 3G or 4G networks). The second area wheregovernments must make appropriately balancedpolicy interventions is on the pricing side. Thisentails making online connectivity and access tothe digital economy as affordable as possible foras many users as possible, while also ensuringthat those who have invested in the underlyinginfrastructure and borne the cost of doing so(usually operators) can recoup their investmentsand make enough of a profit in order to continueinvesting in the future. This is a tricky policybalance to achieve but is best done by ensuringthat the market for internet services iscompetitive and not fraught with unnecessaryrisks. Finally the third piece of the puzzle thatmost observers point to are policies to promotedigital inclusion and ensure that the greatestnumber of people across all age and demographicgroups have the highest possible degree ofdigital literacy.

However too many people still lack access toonline connectivity and are essentially denied anymeaningful way to participate in the digitaleconomy or reap any of its “digital dividends”

(Figure 1.6). This is something that manystakeholders from both the public and privatesectors (including Huawei) are working very hardto address and will be discussed in more detailbelow.

Figure 1.6: World’s offline population by country

Source: World Bank World Development Report 2016“Digital Dividends” 2016

This first Chapter of our White Paper on TradeRules and the Digital Economy is intended toserve as a primer and to set the context for theremaining sections of this report, which will focuson Huawei ’s place in the digital economy(Chapter Two), what policies governments arestarting to enact to regulate the digital economyand their (intended and unintended) effectson international trade (Chapter Three), whatinternational rules are starting to emerge toconfront some of these policies (Chapter Four),and finally the kind of optimum internationaltrade policy and regulatory frameworks manyactors in the digital economy feel would allow allparticipants to benefit the most from theopportunities it provides and the potential itholds (Chapter Five). Below, and for the rest ofthis Chapter, we discuss some major trendsunfolding in the shadow of the digital economy,an understanding of which is important for anyreader of this White Paper.

1.4.1. Ubiquitous Connectivity andConvergence

Although many countries, regions and people onthe planet are still sadly underserviced when itcomes to broadband internet penetration oreven any kind of reasonably high-speed access toland-based or wireless internet, it is undeniablytrue that in many countries, both developed anddeveloping, the trend is heading very quicklytowards internet connectivity becoming anindispensable necessity to the daily lives ofpeople and the smooth functioning of all kind ofbusinesses, both big and small. Because of thisreality, people are coming to expect that they canget online anytime and from anywhere, and dowhatever they need to do online from any device,which means they expect ubiquitous connectivityand seamless functionality across all platforms.This is something that carriers have to beconscious of when building networks and

1.4. Global and Industry Trends in the Face of the Digital Economy


17

1995 2000 2005 2010 2015 2012Year

IP t

raff

ic B

P/m

on

th (

1 00

0)

80

60

40

20

0

providing connectivity, and it is something thatthose offering services over the internet also haveto be acutely aware of when designing theiraccess portals (homepages, apps etc.) and onlinepayment modalities (credit card, PayPal etc.). It islikewise something that device makers have totake into account, particularly when designingphones and wearables. This has added a newdimension to the traditional notion of theUniversal Service Obligation, since today manycitizens are increasingly coming to expect thattheir governments ensure they can be online allthe time, and from any place.

Convergence is another important trend alludedto above which should be reiterated in brief here.The distinction between the digital world (whathappens online) and the real world (whathappens in the 4-dimensional physical world ofspace and time), is increasingly converging as thedigital world provides new and innovative waysof increasing productivity in the economy as wellas enriching the lives of consumers, therebyboosting both GDP and enhancing personalwelfare. Clear examples are the products in thefield of IoT which make use of the internet toconnect equipment to controlling and monitoringplatforms that collect data but also provideservices and support, including inter aliahealthcare devices for monitoring and self-care.The recent advancements and roll-out of moreadvanced and significantly less expensive virtualand augmented reality devices and platforms willonly further enhance this trend. This hasimportant implications for how we regulate thedigital economy as well as how we establish rulesto govern digital trade. Any policies or rules thatseek to maintain the status quo and uphold theincreasingly artificial walls between the digitaland the real economies will only be a hindranceto innovation and will undermine the potentialfor the digital economy to continue deliveringeconomic growth as well as the massive societalbenefits it has brought over the last threedecades to the majority of the world’s users

1.4.2. More Data on More People and Things

Because an ever-growing number of people areusing connected devices to meet an increasingnumber of needs and wants in an expanding

range of daily activities, more and more data isbeing generated. The volume of data being usedin economies around the globe has grown at anextremely rapid pace, as shown in Figure 1.7.Until the early 2000s, the volume of dataexchanged was quite limited, but it massivelyincreased halfway in the 2000s and it is expectedto continue increasing even more so in the nearto medium term future. According to McKinsey,while flows of goods and finance have lostmomentum, the amount of cross-borderbandwidth being used has grown 45 times largersince 2005. Moreover, data flows are projected togrow by another nine times in the next five yearsas digital flows of commerce, information,searches, video, communication, and intra-company traffic continue to surge. Soaring cross-border data flows now generate more economicvalue than traditional flows of traded goods.Global flows generate economic growth primarilyby raising productivity and countries benefit fromboth inflows and outflows. In total, data flowsare estimated to have boosted current globalGDP by roughly US$2.8 trillion. This presents bothchallenges and potential benefits. For those whocan successfully mine and exploit this data forcommercial gain, the possibilities are almostlimitless. For others, this growing flood of datarepresents massive storage and processingheadaches that must be resolved in order tocomply with various laws and regulations onprivacy and record-keeping. The two biggestcompanies in the digital economy, Google andFacebook are arguably the two companies that

Figure 1.7: Internet Protocol Traffic per month,1990-2015

Source: ECIPE


18

have the most information about their users, andthis fact, and their skillful exploitation of thisinformation in various ways has a lot to do withthe massive stock market valuations thesecompanies enjoy. Data is now widely recognizedby all market participants and observers for thevaluable commodity that it is and will continueto be. How governments regulate the use,sharing and transfer of thisinformation (particularlyacross borders) has and willcontinue to have a profoundeffect on how the digitaleconomy evolves, sincethese regulations directlyaffect how companiesorganize themselves, theirrelationships with customersand suppliers, and how theycan exploit any datacollected in advancementof their own corporateobjectives. This is a policy space that isincreasingly starting to be specifically addressedin trade agreements (see Chapter Four), and manycompanies (including Huawei) need to havecarefully thought through their positions andobjectives when it comes to rules governing theuse, sharing and transfer of data.

In addition to the massive amounts of datacreated by people that is constantly beinggenerated, we are on the cusp of a new era wherenot just people, but also things (appliances,machines, household items) can and will beconnected to the internet for the purpose ofsharing various bits of information that willfurther optimize supply chains, smooth productionflows, improve inventory management systems,and enhance customer relations. This will createquantities of data well in excess of anything wehave experienced until now, since we are nolonger talking about the potential of connecting6 billion users to the internet, but rather manymore billions of things. Experts predict that therewill be around 50 billion objects connected by2020, with already more objects being connectedtoday then the number of people on the planet.This will be made possible mainly by theincreasing spread of sensors. The Word Economic

Forum predicts that as many as 1 trillionnetworked sensors will be embedded in theworld around us by 2022, with this numbergrowing to 45 trillion in the next 20 years.

This creates both challenges and potentialbenefits for many of the digital economy ’sstakeholders, not least for a company like Huawei

that provides the pipethrough which all this datamoves, as well as thehardware and software bymeans of which all of thisdata will be stored andprocessed. Many of theregulatory issues that arise inthe context of personal datawill equally affect how theInternet of Things is allowedto develop and the impact ithas on economic growth andwelfare.

1.4.3. Known Unknowns and the Future ofthe Digital Economy

Perhaps the most exciting thing about the digitaleconomy is that although a large number ofexperts spend a lot of time trying to predict thenext big trends, nobody really knows for certainin which directions and what opportunities thedigital economy will open up in the next five, tenor even twenty years. Certainly 5 to 6 years agovery few people could have predicted theimportance that the sharing economy wouldhave today, with global brands like Uber andAirbnb, as well as important national brands likeZipcar having quickly established themselves intheir respective market segments. The same istrue today, with technologies like augmented andvirtual reality, artificial intelligence, 3D printingand blockchain technology, which are promisingto give rise to new business models, services andproducts that will drive value and job creationand be a source of continued economic growthand prosperity worldwide. But the fact remainsthat nobody really knows what the future willbring for the digital economy and this hasimplications for domestic policy formulation andinternational rule-making. Regulatory frameworks

Policymakers need to strike adelicate balance betweenlight-touch interventions andforward-looking regulatoryactivism which is not alwayseasy to achieve, but this taskcan be rendered a lot easier ifthe private sector and civilsociety can be coopted intothese efforts in an inclusiveand transparent way.


19

and international rules must remain flexibleenough so that innovation can continue to occurand entrepreneurs can continue to develop newand desirable products, services and solutions. Atthe same time, a total absence of regulation canalso be damaging, as we have seen in the contextof commercial drones or autonomous vehicles. Inthese areas, the technology has existed for severalyears but, at the time of writing, remainsconstrained by a lack of proper domesticregulation in most countries. This has had aprofound chilling effect on the roll-out of thesetechnologies. The same is true of online andmobile payment platforms, some of which workrelatively well in a limited number of domesticmarket contexts, but have nothing like the reachand functionality of credit cards when it comesto facilitating payments for the cross border tradein goods and services. Policymakers need tostrike a delicate balance between light-touchinterventions and forward-looking regulatoryactivism which is not always easy to achieve, butthis task can be rendered a lot easier if the privatesector and civil society can be coopted into theseefforts in an inclusive and transparent way.

1.4.4. Investment in the Pipe for FutureGrowth and Economic Development

Provided that a number of demand sideconditions have been met (not least of which is acertain degree of digital literacy on the part ofthe intended beneficiaries), investment innetwork infrastructure can have the same impacton rural poverty and national competitivenessthat building similar public infrastructure projectslike modern roads, ports, and airports has. Herewe discuss the importance of this infrastructureas the first of several enabling elements tobridging the digital divide and promotinginclusive access to the digital economy in thecontext of supporting economic development.

Many different actors – both public and private –operate along various parts of the digital valuechain and in different policy spaces. Differentregulatory and legislative interventions will havean impact on the supply side aspects ofimproving the availability of online access (and itsquality, accessibility and affordability). Industry

experts tend to differentiate between fourinfrastructure segments (Figure 1.8): (1) the firstmile, i.e. the installations and equipment that linknational networks to the World Wide Web andthat typically consist of either cable landingstations or satellite antennas; (2) the middle mile,which consists of the national backboneinfrastructure that comprises fixed-line networks(backhaul), fiber-optic cables or copper wires, datacenters, mobile base stations and otherequipment; (3) the last mile, otherwise referred toas the “local loop” comprises the final leg of atelecommunications network that typicallyterminates in the home or in a building whereend users live or work, or on a handheld wirelessdevice being operated by the user in the case ofmobile broadband; and finally (4) the invisiblemile, which consists mainly of spectrum andother invisible elements of the connectivityinfrastructure ecosystem.

Rather than just being a simple issue of money,different policy interventions can spur andfacilitate investment in each of these four areas.For the first mile for example, the regulatoryregime governing the acquisition and operationof satellite dishes and the competitive conditionsthat apply to international gateways and landingstations will dictate the degree of interest thatprivate sector actors will have in deploying andmanaging this critical infrastructure. For themiddle mile the competitive environment is alsovery important, with the role of the regulatorbeing to find the right balance between ensuringcompetition while also ensuring that those whodo take on the risk of investing in and operatinginfrastructure see a commensurate return on theirinvestments. But there are also other policyinstruments that governments have at theirdisposal to increase the attractiveness ofinvesting in the build-out of infrastructure,including subsidies, co-financing arrangementsand reducing the cost of importing equipmentand components (import tariffs and other tradecosts). Governments can also require by law thatany digging done for transport or energyinfrastructure (roads, railways, gas or electricitypipelines) also provide for optical fiber to be laidat the same. For the last mile, governmentintervention that encourages and incentivizes the


20

owners of network assets to cooperate withcompeting providers or even those providingdifferent services over the same infrastructure(inter-modal competition) is one option regulatorshave to raise the attractiveness of this segment.Governments can also provide grants to homeowners to upgrade their legacy copper wiringand replace it with optical fiber (so-called Fiber tothe Home or FTTH), or provide tax or otherincentives for building developers to future-prooftheir projects by laying fiber to the building(FTTB). Finally for the invisible mile, the manyways in which spectrum is governed constitutethe primary levers by which governments canencourage investment and optimize the use ofthis scarce resource. Particularly ensuring thatmore of it is made available at prices that makeits exploitation commercially viable is somethingthat governments should prioritize. Otherimportant ways in which governments canregulate in this space is to ensure that access tospectrum is provided on competitive terms, thatessential fixed assets are shared among operators,while finally allowing those who purchasespectrum to resell it without too many restrictionsor conditions being imposed upon doing so.

Of course, money is not irrelevant when it comesto encouraging the necessary investment in thisspace, since building and operating a national

broadband network almost always comes witha high price-tag. The cost of doing so dependson various factors such as a country ’s size,topography, the density and geographicdispersion of population centers and of coursethe level of ambition of the governmentcommissioning the construction of the network(and issuing licenses to operate or use it).However it must also be said that money isprobably the least difficult of all the problemsthat national governments face when formulatingplans to develop their national broadbandinfrastructure, since in most cases these networksultimately pay for themselves. Operators can ofcourse charge users for connectivity anddepending on how much governments chargefor licenses and spectrum, there will almostalways be a viable business case to be made foroperators to get into this space.

Ultimately the onus is on governments to providethe necessary framework conditions that willmake investing in and operating broadbandnetwork infrastructure interesting for domesticand international investors. The domesticbusiness and legal environments play animportant role here, which may sound dauntingbut which are nevertheless areas of domesticpolicy firmly within the control of nationalgovernments.

Figure 1.8: Four segments of connectivity infrastructure

Source: Huawei


21

1.5. Key Points for this Chapter

The next Chapter discusses Huawei’s place across a very broad swathe of the digital economy.

01

02

03

04

The current focus of international trade rules and negotiations for the digitaleconomy is predominantly on e-commerce. Although these rules are

important, the rapidly expanding scope of the digital economy requires thatnegotiations take a more holistic approach to better reflect the full range

of issues relevant to the ICT industry and the internet economy valuechain.

The digital economy is quickly just becoming “the economy” since we are inthe midst of full-scale convergence between the real economy and thedigital economy. This trend must also be reflected in approaches toformulating rules for the digital economy.

The role of the digital economy in raising productivity, spurring innovationand supporting economic development is an important one that

policymakers and regulators can foster in various ways.

Infrastructure is an important part of the digital economy and here also thereare various ways that policymakers and regulators can make investment inthe four segments that comprise a country’s critical network infrastructuremore attractive to investors, thereby giving a huge boost to theirchances of participating meaningfully in the digital economy.

Chapter Two | Huawei’s Place in the Digital Economy

23

CHAPTER TWO | HUAWEI’S PLACE IN THE DIGITAL ECONOMY

Across all of our three business groups, we occupy a unique place in the digital economy in terms ofproduct coverage, but also in terms of our geographical footprint, since we operate in both moreunderdeveloped as well as highly technologically advanced markets. With regard to our core carriernetwork business, we are responsible for building the underlying network infrastructure (pipe) that allowsthe digital economy to function in the first place. When it comes to our enterprise business, we providea range of new services and solutions that leverage the many advantages of the digital economy toovercome the physical constraints of the real world by harnessing the power of cloud computing andremotely serviced platforms, such as in the area of digital customs, or our many Smart City solutions.Finally in our devices business, where we are contesting global smartphone, tablet and wearables markets,we operate as a manufacturer and seller of the terminals with which users interface with the digitaleconomy, availing themselves of the services, solutions, products and information that the digital economyprovides. As such, we are potentially vulnerable to changes in the underlying legal, regulatory and policyregimes that govern the many stages of the digital value chain. This section will discuss the many waysnew and existing trade and investment rules affect different aspects of our business across the threebusiness units.

2.1. The Benefits of Digitization ............................................................................................................................... 242.1.1. Societal and Economic Benefits ......................................................................................................... 242.1.2. Digitization, Innovation and Productivity Gains .......................................................................... 242.1.3. Digitization and Inclusiveness ............................................................................................................ 26

2.2. Huawei’s Interests in the Digital Economy ................................................................................................... 272.2.1. Building a Better Connected World: Huawei and the Digital Divide ................................... 272.2.2. Customer-Centricity as Guiding Principle ...................................................................................... 272.2.3. Huawei’s Core Values and our Approach to International Trade .......................................... 28

2.3. Huawei’s Activities and their Place in the Digital Economy .................................................................. 282.3.1. The Carrier Network Business Group ............................................................................................... 292.3.2. The Enterprise Business Group .......................................................................................................... 292.3.3. The Consumer Business Group .......................................................................................................... 302.3.4. Other Company Stakeholders ............................................................................................................ 31

2.4. Huawei as an Emerging Global ICT Leader .................................................................................................. 312.4.1. A China-Based Multinational on a Global Stage ......................................................................... 312.4.2. A Voice Non-Often Heard ..................................................................................................................... 312.4.3. An Industry Leader in Waiting ............................................................................................................ 31



24

2.1.1. Societal and Economic Benefits

The rapid dissemination of digital technologiesamongst users and businesses has brought manybenefits to the global economy, and createdmany new ways for people to pursue variousopportunities or improve their living standardsregardless of their physical location. By way ofexample, traders in Tanzania and India usesmartphones to sell their products globally,although they still lack a fixed phone-line or abank account. They have access to up-to-datemarket information even though they may notown a television.

The benefits to society of digitalization for bothusers, as well as businesses may seem self-evident. Daily use by consumers can be translateddirectly into an economic value: For example, theuse of Skype on a typical day saves more thanUS$150 million worldwide for its users; the use ofe-commerce platforms (e.g. Amazon or Alibaba)for consumer purchases generates savings ofsimilar scale, measured in billions annually. Thisconsumer surplus constitutes a tangible benefitfor millions of internet users but remains largelyunaccounted for in national GDP or internationaltrade statistics.

Similarly, digitalized processes lower the costs ofoperations and improve efficiency for businesses.The use of cloud computing and virtual networkscreates value by facilitating cross-border businessbut also by simply obviating the need to buy,own and operate dedicated servers on a givenbusiness’s premises. In almost every sector ofthe industry, collaborative and digitalizedentrepreneurs are challenging traditional, costlierbusiness models. As Figure 2.1 below shows, theproductivity gains from digitalization can varysignificantly across different sectors. In Europe, thecomputer and software sectors have experiencedvast improvements in productivity thatoutperform other (less digitized) services, hereexemplified by traditional B2B services.

2.1.2. Digitization, Innovation andProductivity Gains

In Chapter 1 we discussed some of the linksbetween digitization and economic growth. Inthis section we focus more narrowly on some ofthe ways in which ICT in general and digitizationin particular have spurred productivity gains forworkers and businesses. This trend is mostpronounced in firms in advanced industrializedcountries, since these countries have higheradoption rates, higher digital literacy levels, andhave seen firms invest more in the goods, servicesand intellectual property that comprises thedigital economy. But also in middle-incomedeveloping countries and LDCs, the transformativeeffects of digitization are readily apparent, even ifthey have not achieved the levels of uptake andadoption experienced in many industrializedcountries.

Some observers argue that we are only at thebeginning of a new age of sweeping innovationand massive productivity breakthroughs, arguingthat it was only 30 years after the generalpurpose technology of electricity was adoptedthat we saw corresponding leaps in innovation inmany advanced industrialized countries. Theseobservers (like Erik Brynjolfsson and Andrew

2.1. The Benefits of Digitization

Figure 2.1: Productivity benefits brought forwardby the digital economy: EU productivity gains

Source: ECIPE; World Bank WDR; EUKLEMS

1.4

1.3

1.2

1.1

1.0

0.9

1995 2000 2005 2010

Business services Computer/Software services


25

Instant ReplicationDigitization allows for instant and perfect replication at zero marginal cost, while also allowing for the rapid and almost effortless dissemination of new digital products, ideas and knowledge.

Exponential GrowthImprovements and growth is taking place at an exponential rate in areas such as computing power and miniaturization, but also the powerful network effects of the online world allow for exponential scalability.

CombinatorialEach new breakthrough advancement lays the ground the next set of innovative is combining “old” and technologies in ways nobody previously imagined

McAfee of the Massachusetts Institute ofTechnology or Klaus Schwab of the WorldEconomic Forum), argue that the innovation weare experiencing today thanks to breakthroughsin technology (particularly ICT, digitization andconnectivity) will be such powerful andall-encompassing agents of unprecedentedupheavals and transformation because of threeessential characteristics (Figure 2.2). Firstlydigitization allows for instant and perfectreplication at zero marginal cost, while alsoallowing for the rapid and almost effortlessdissemination of new digital products, ideas andknowledge. Second is the exponential nature ofimprovements and growth we are seeing in thedigital economy, as computing power increases atexponential growth rates and as powerful networkeffects are unleashed thanks to technologies likethe internet and the platforms and user-groupsthat operate on top of it. Third is the combinatorialnature of today’s technological innovation, as eachbreakthrough and advancement lays the groundfor the next set of innovative ideas, combiningold and new technologies in ways that hadpreviously seemed unimaginable (such as usingcommercially available and inexpensive drones tofulfill online e-commerce orders).

Across different sectors the productivityenhancing effects of ICT and digitization are clear.

In agriculture even poor farmers in developingcountries can leverage these technologies to gainbetter insights into meteorological conditions, aswell as other factors such as soil and waterquality, thereby boosting yields, but also to betterunderstand price variations on local and regionalmarkets, which allows them to maximize profits.Slightly more advanced applications allow forirrigation systems to be linked with powerfulcloud computing platforms that combine andprocess data from different sources includingsatellite weather information, hydroponics know-how and which determine – via proprietaryalgorithms – how much water (and fertilizer) todispense and when (smart farming).

In manufacturing, the productivity gains of newdigital technologies is also readily apparent,From automation and remote or cloud-assistedmanagement of production, to 3D printing, toaugmented reality being used on factory floors orin sectors such as oil and gas, these technologiesare quickly revolutionizing the ways so manyindustries operate, boosting efficiency andmaking what was previously back-breaking anddangerous work easier and safer. Also, butparticularly in the services sector we have seendigitization and the adoption of ICT completelytransform and to a large degree also disrupttraditional industries from banking to travel toeducation and health.

Figure 2.2: Three ways in which digitization revolutionizes productivity

Source: Huawei (based on research by Erik Brynjolfsson and Andrew McAfee of MIT)


26

25

20

15

10

5

0

Ind

ivid

ual

s w

ith

inte

rnet

acc

ess

(%)

Bottom40%

Upper60%

Mature(45+)

Young(15-24)

Rural Urban Women Men

Incomedistribution(household)

Age Location Gender

Although many have benefited enormously fromthese changes, the new digital age has alsoresulted in some disruption to labor markets andthe fact remains that billions of people across theworld in developed and developing countries arestill unable to reap the benefits of thesetransformative technologies.

2.1.3. Digitization and Inclusiveness

Although the transformations wrought by ICTand digitization that many of us have witnessedduring our lifetimes have been nothing short ofphenomenal, the sad fact is that far too manypeople in the world are still unable to access ahigh-speed internet connection and/or leveragethe many potential benefits that thesetechnologies hold for them. The World Bank’s2016 World Development Report “DigitalDividends” contains some of the most recentstatistics: almost 6 billion people still do not haveaccess to high-speed internet; nearly 60 percentof the world’s population are still offline and areunable to participate “in any meaningful way” inthe digital economy. Clearly the digital divide isstill a very real constraint in terms of access toinfrastructure. But infrastructure constraints arenot just a problem in developing countries.Even in some advanced industrial economieswith significant rural populations living ingeographically isolated areas, like the UnitedStates, Australia or Canada, providing access tohigh-speed networks on affordable terms isa very daunting challenge.

Just as daunting a problem in terms ofinclusiveness is the generational gap betweenthose that grew up with easy access and a greatdegree of familiarity with these technologies(“Millennials”) and those whose learning curvehas been much steeper (the baby boomers andto a certain extent also Generation X). Even in thedeveloped world, many of those born before1980 reached adulthood and entered the laborforce before the advent and widespread adoptionof these new technologies, and so they wereforced to work harder and be more proactive inorder to acquire and maintain the same skills thattheir younger colleagues seemed to acquire

almost effortlessly. Digital literacy campaignstargeting the aged have had some success, butmany have still been left behind. This problem iseven more acute in poorer developing countries(see Figure 2.3) where infrastructure constraintsplay a greater role and where digital literacycampaigns are beyond the limited fiscal reach ofgovernments and must defer to more pressingpolicy priorities.

Figure 2.3: Domestic digital divides amongdifferent demographic groups

Source: World Bank World Development Report 2016“Digital Dividends”

Nevertheless, the many success stories ofincreased inclusiveness, especially in theinternational trade literature, are irrefutableevidence that these technologies – once theybecome available and traditionally marginalizedsegments of the population learn to use them –can be just as transformative to the lives of thosein developing countries as they have been toproductivity and welfare in developed countries.The well-known and often-recounted story of thetransformative effect that M-Pesa has had on theentire monetary system in Kenya and theemergence of so-called Taobao villages acrossrural China are testaments to the transformativeimpact these technologies can have and the waythey can and do promote inclusiveness for manyin traditionally marginalized demographicsegments.


27

2.2.1. Building a Better Connected World:Huawei and the Digital Divide

There is strong economic evidence thatdigitalization amongst users and businessescontributes strongly to key economic indicatorssuch as labor productivity, as well as per capitaGDP and even correlate closely with achievingthe Sustainable Development Goals. Digital tradeis only just starting to bridge the income gapbetween different parts of the world. Poorercountries still face a digital challenge, attributableto inadequate digital infrastructure as well as“soft” factors such as proper market institutionsand regulations to support and facilitate thedigital economy.

Many people across the world are stillunderserviced. This is evident from statistics onthe availability of affordable high-speed, fixed-lineor wireless internet. It is more than twice as likelythat upper income earners in Africa will haveonline access compared to the bottom half; theaccess differentials between urban and rural areasare more than two-to-one. The generational andgender gaps in the African digital economy arestill apparent, although it is undeniable that beingconnected to communications networks isbecoming an indispensable necessity for peopleeverywhere.

Nevertheless, new opportunities to participate inglobal value chains are not created automaticallyin a vacuum. The benefits of digital trade arereaped thanks to a framework of global and localenabling factors that allow people everywhereto capitalize on the opportunities created bythese technologies. Here is where our marketproposition fits into the digital trade agenda – asan enabling factor for all countries and people,fueled by digital entrepreneurship. HuaweiTechnologies Co., Ltd. is a relatively new companyin what is essentially an established industry,although some of the products or markets inwhich we operate have not existed for that long.We have emerged from humble beginnings as areseller of cheap switches, to become one of a

small handful of leading telecommunicationsequipment vendors as well as one of the topthree smartphone makers globally. We havecharted our own course throughout the company’sshort history and, thanks to close collaborationwith partners in the telecommunications andother industries, we have emerged as one of themost innovative players across all of ourbusinesses and product lines.

2.2.2. Customer-Centricity as Core Value

As the newly emerging international consensuson how governments can regulate digital tradetakes shape, Huawei’s own interests and thepositions we take with respect to these rules willnot arise or be upheld in a vacuum. First andforemost, we will stand with our customers – thatis to say our interests in this new area of rule-making will be strongly aligned with those of ourcustomers across the company’s three businessgroups. Be that as it may, articulating a clear andconcise set of messages with respect to each ofthe trends, needs, and new international tradeagreement obligations emerging to governdigital trade is not as straightforward as it may atfirst appear, since we as a company are activeacross such a broad swathe of the digitaleconomy, so that different business groups withinthe company may harbor different interests andconcerns relating to their respective customersand with regard to the various rules starting totake shape as the new and prevailing internationalconsensus on digital trade begins to emerge.

At Huawei we have an established tradition ofworking very closely with our customers to formmutually beneficial relationships that in the pasthave culminated in a number of breakthroughsbenefitting the entire ICT industry. This dynamiccontinues to prevail today, with the companyworking hand in glove with industry partners,governments, standards organizations, suppliersand customers. As we at Huawei begin toarticulate our position on the new set of rulesemerging to govern the digital economy we willtake into consideration the possible implications

2.2. Huawei’s Interests in the Digital Economy


28

these rules may have, not only on our corebusiness interests, but also on the businessmodels and strategic interest of our manypartners and the industry as a whole.

2.2.3. Huawei’s Guiding Principles and ourApproach to International Trade

At Huawei we operate in accordance with anumber of established guiding principles whenit comes to international trade. These principlesemphasize values such as openness andcollaboration, as well as an overarching imperativeto comply with all relevantand applicable laws andregulations. These principlesmust also guide thecompany as we formulateour response to the newand evolving internationaltrade and investment rulesintended to govern digitaltrade. We are committedto openness and faircompetition and believethese are the cornerstonesof the market economy. It has always been ourfirmly-held conviction that openness, competitionand collaboration are the underlying drivers ofgrowth and development. These convictionsapply in equal measure to digital trade. Whererule-making for the digital economy ininternational trade agreements is conducive topromoting open and fair competition, fosteringinnovation, is supportive of openness and

promises to improve cooperation, then we will befully supportive of such rules.

At Huawei we take our role and responsibilitiesas an emerging industry leader very seriously.We recognize that the spirit of openness andcollaboration that have characterized andunderpinned the massive growth of the internetand the digital economy over the last two anda half decades is something that all stakeholderson both the supply and demand sides havea genuine interest in preserving, as well as beingin the best interests of governments and

regulators alike. As such,we will continue toadvocate in favor ofpolicy frameworks andrules that are broadlysupportive of opennessand that rewardcollaboration betweendifferent stakeholdersboth within and outsideof the industry. Be that asit may, at Huawei welikewise recognize the

sovereignty of governments to regulate withintheir own borders and in the interests of theircitizens within the parameters of internationallyagreed principles, so that we will always complywith these regulations, even if doing so imposesadditional costs on our business. We viewcompliance as one of our core business interestsand not as something we can simply choose toopt in or out of.

Huawei recognizes that the spiritof openness and collaborationthat have characterized andunderpinned the massive growthof the internet and the digitaleconomy over the last two anda half decades is something thatall stakeholders on both the supplyand demand sides have a genuineinterest in preserving.

2.3. Huawei’s Activities and their Place in the Digital Economy

This section provides some insights in non-technical terms as to how Huawei’s differentbusiness groups engage with and contribute tothe digital economy at various points along thedigital value chain (Figure 2.4). The discussionbegins with the company’s traditional line ofbusiness, our relationships with those firms thatbuild and operate telecommunications networksfor the transfer of voice, text and data traffic tonetwork customers, who are either businesses,governments or consumers. This section then

discuss the company’s enterprise business, whichworks with both public and private sectorcustomers to optimize the use and operation ofboth publicly and privately owned infrastructurethough the use of cloud services and dataanalytics. Finally, this section discusses thecompany’s newest area of business, consumerdevices and wearables. In all cases, our baselineassessment is clear: we favor openness, faircompetition and technology neutrality.


29

A globally active companyoperating in over 170 markets

makes for a truly global footprint

Network infrastructure

Cloud computing

Consumer devices

• Fiber-optic cable• Data centers• High-speed switches• Mobile base stations• Modems and routers

• Data management services• Smart city solutions• Traffic management solutions• Smart metering for utilities• Smart home solutions• Connected and autonomous

vehicles

• Smart phones, tablets andhybrids

• Watches and wearables• Virtual reality headsets• Set-top boxes

2.3.1. The Carrier Network Business Group

The Carrier Network Business Group (CNBG) isone of Huawei’s three business groups, and as thename suggests, it is primarily involved in themanufacture and sale of communicationsnetwork equipment and solutions. The mostimportant customers of this group include top-tier carriers such as Vodafone, Telefonica, MTN,China Mobile, Telenor and Deutsche Telekom. Forseveral years, we have been moving away frombeing mainly an equipment vendor to being anend-to-end ICT solutions provider as we help ourcarrier customers implement their digitaltransformation strategies. Our CNBG also providesconsulting and systems integration services toour carrier customers to help them transform toexperience-driven operations for their subscribersand to restructure their existing networkinfrastructure to better support their digitalbusiness offerings. We have provided data centerintegration services for 255 cloud data centersand helped carriers smoothly consolidate andmigrate large-scale data centers across vastgeographic areas and oceans. Our carrier businesshas also made notable inroads into the cloudcomputing business, where we work with more

than half of the world’s top-tier carriers to providestorage, server and cloud computing products.We were also selected by Deutsche Telekom to bea partner under its public cloud strategy. Ourcarrier business is inevitably impacted by newinternational trade rules on such issues as tariffs(a number of which have been eliminated forproducts manufactured and sold by Huaweithanks to the updated WTO InformationTechnology Agreement), as well as any rules thatmake it easier to import and supply componentsor equipment, such as those on conformityassessment procedures or electromagneticcompatibility. In addition to this, trade rulesthat provide for greater transparency andpredictability in heavily regulated sectors liketelecoms will also have a positive impact on ourbusiness and any commercial interests of ourcustomers.

2.3.2. The Enterprise Business Group

Our Enterprise Business Group (EBG) has a related,but slightly divergent set of interests. EnterpriseBG’s customers consist of a diverse range ofpublic and private sector entities such asmunicipal governments (to whom we provide

Figure 2.4: Huawei’s place in the digital economy

Source: Huawei


30

Smart City solutions), financial services providers(particularly banks and insurance companies), aswell as operators in the transportation andenergy sectors. Our Enterprise BG works withcustomers to provide cloud computing and BigData solutions to help streamline processes andachieve efficiency gains across a range ofdifferent industry verticals. In the transport sectorwe have developed and implemented solutionsthat allow our customers (including legacyrailway operators) to transition from conventionalradio-reliant communications to broadband-based railway operationsand communicationssystems. In the energysector, Enterprise BGworks predominantly inthe area of providingSmart Grid solutions thatallow power producersand distributors (but alsoindustrial-scale users) tobetter monitor and metertheir energy consumptionneeds (again achieving efficiency gains). OurSmart Metering solutions are also used in the oilindustry as well as by water utilities to help bettermanage and optimize flow-times. These are justsome of the examples of the way our EnterpriseBG operates across digital value chains to meetthe needs of our customers in the real world.

Many other examples exist where cloud-basedand remotely accessible applications suggestthemselves as obvious solutions, such as in theeducation sector and in the area of broadcastmedia. As a Huawei Business Group, Enterprise BGcertainly has a direct interest in the digital traderules currently being negotiated on issues such asdata localization, mandatory source codedisclosure, encryption, compatibility of privacyregimes and the cross-border flow of information.Our Enterprise BG also has a very real interest inthe scope and interpretation of public policy andnational security exceptions that might limit thecompany’s freedom of action in countries thatapply these exceptions very broadly. On the otherhand, because we partner so closely withgovernments in providing these services andimplementing these solutions, we will not want to

be on the wrong side of any advocacy that seeksto overly limit their regulatory autonomy orpolicy space beyond what is necessary for us tooperate as a legitimate business. This requiresa bit of a balancing act for Huawei, as it does forother industry actors.

The world of cloud computing, in which we haveour sights set on becoming an industry leader, isone area of the company ’s business that willinevitably be impacted by the newly emerginginternational trade rules on such issues as privacy,

data localization and freemovement of information.It is equally possiblethat different customersmay take a differentiatedstance on some of theseissues. For us, the rightoutcomes will achievea balance between theneeds of business for pre-dictability and transparencyon the one hand, and the

needs of governments to ensure that recognizedpublic policy imperatives are upheld in a mannerthat is minimally trade-distorting, and by meansof interventions that are proportional to andeffective in achieving their purported regulatoryobjectives.

2.3.3. The Consumer Business Group

Finally our Consumer Business Group (CBG)interacts with and sells smartphones, wearablesand tablets to consumers directly, as well asoffering some aspects of the mobile appsplatforms that power them. Our ConsumerBusiness Group has only emerged very recentlyas a force but has moved quickly to establishitself as a serious contender across almost all ofthe devices it sells. Our smart phones andwatches in particular are very popular and areexpected to continue their impressive salesgrowth in many markets. This places Huawei atthe cutting edge of the consumer technologyindustry and will force us to confront the sameissues that other smart phone manufacturers arecurrently facing in the area of privacy, encryption,and cooperation with domestic law enforcement

The world of cloud computing, inwhich Huawei has its sights set onbecoming an industry leader, is onearea of the company’s businessthat will inevitably be impacted bythe newly emerging internationaltrade rules on such issues asprivacy, data localization and freemovement of information.


31

authorities. In addition to this, we have a very realinterest in a number of the new trade disciplinesemerging in areas such as conformity assessmentprocedures, electromagnetic compatibility, privacy,non-discriminatory treatment of digital products,online consumer protection, data localization,unsolicited commercial electronic messages andthe mandatory disclosure of source code.

2.3.4. Other Company Stakeholders

Other parts of Huawei such as Legal Affairs (whodeal extensively with intellectual property rights)and Supply Chain (concerned with logistics, tariffs,non-tariff barriers and customs clearanceprocedures), Corporate Communications andMedia (both concerned with external messaging)will also have interests that affect their areas of

competency with respect to the new generationof trade rules and the emerging consensus onthese rules that are beginning to take shape. Theexecutive management team, particularly thethree rotating CEOs and members of the Boardhave already given some indication of where thecompany is likely to position itself in respect tothe emerging reality of new internationalregulatory disciplines. The messaging has beenpragmatic and consistent. We favor openness, weadvocate for fair competition, and we favortechnology neutrality. We are also a company thatstands by our customers when formulating andadvocating positions in this and any other area ofpolicy debate. Finally we are a company that putslegal and regulatory compliance front and centerof all of our strategic decision-making and day-to-day operations.

2.4. Huawei as an Emerging Global ICT Leader

2.4.1. A China-Based Multinational ona Global Stage

Huawei is still something of a unicorn for boththe world and even for China itself, given that weare and always have been a privately-heldChinese company. Unlike almost any otherChinese company one can think of, Huawei hasachieved unprecedented geographical reach,operating in 170 countries and territories andcomprising employees from over 170 nations. Weare a China-based multinational, which very fewother companies with similar origins can claim tobe. In addition to this, we are a wholly-ownedprivate undertaking, with ownership residingexclusively with our (Chinese) employees. Thismakes us a very unique entity in the corporatelandscape of the modern Chinese economy. Wehave recently assumed a hard-won place amongestablished industry giants like Ericsson, Cisco,Nokia, Alcatel Lucent, and HP. We are also aleading consumer technology company amongthe ranks of Apple and Samsung. Finally we areone of the first China-based multinationals tohave done this on the strength of our ownorganic growth, rather than through acquiring anestablished international brand or by enteringinto a joint venture with another global industryleader.

2.4.2. A Voice Non-Often Heard

Perhaps because it has emerged so quickly,Huawei is still an unfamiliar presence to manyboth inside and outside the industry. Huawei hasgone to great lengths to distance itself from theimage that many have falsely tried to pin on it,namely that of a corporate extension of ChineseState interests. Accordingly, Huawei has taken abackseat in policy debates and public advocacy,preferring instead to work quietly behind thescenes with industry partners and tradeassociations. This is true both at home andabroad. The very visible policy engagement thatlarge corporate interests practice in the West,and particularly in the United States, wherecompanies are not shy about lobbying theirgovernments in pursuit of their own interests, isnot always common in Asia and is somethingHuawei has also refrained from engaging in toovisibly to date.

2.4.3. An Industry Leader in Waiting

Given our sheer size and the pace at which wecontinue to grow, it remains to be seen whetherthe “walking softly” approach will continue to befeasible for Huawei. Regardless of the approachtaken, we need to be acutely aware of the


32

implications of favoring one policy approach overanother. As we get larger, it will be impossible toplease everyone, so our positions on the stateof the industry, government policies affectingthe digital economy and the evolution ofinternational trade rules for the digital economy

must look beyond the short-term, and be clearlyconceived and properly articulated. Industryleadership is not just about winning, it is alsoabout shouldering responsibilities, and this issomething our management of Huawei is acutelyaware of.


The next Chapter discusses the emerging regulatory and legislative landscape as policymakerscontemplate different interventions in the digital economy in the pursuit of various objectives.

01

02

03

04

Huawei’s unique position across a very broad spectrum of the digitaleconomy is a strength but also involves risks for potential misalignments

between the interests of different stakeholders within the company,as well as our customers.

Whether you agree or not that humanity is on the cusp of a newrevolution in the way we use and benefit from digital and ICTtechnologies, the productivity enhancing effects of these technologiesare clear and readily apparent.

Threr are still too many people on the planet without access to thesebreakthrough technologies and too many people being left behind as

the digital age advances rapidly in both developed and developingcountries.

Huawei in typical of other ICT suppliers facing inconsistencies anduncertainties. These will tend to stifle innovation and deploymentof solutions, such that the ICT industry’s position must be articulatedin a way that plays to our core values and guiding principles.

Chapter Three | Emerging Policy and Regulatory Trends

33

CHAPTER THREE | EMERGING POLICY AND REGULATORY TRENDS

The underlying legal and regulatory environment in which companies like Huawei operate is strugglingto keep pace with technological developments and the quick pace of innovation that characterizes thissector. Many countries are enacting rules and setting up regulatory regimes that have a direct impact onthe digital economy. Whether it be with the objective of better protecting the data privacy of their citizens,beefing up national law enforcement capabilities in the face of increasing cyber-security threats, or in thehope of kick-starting their own domestic ICT industries, governments in many countries, both developedand developing are becoming increasingly interventionist in this sector. This section will analyze a numberof these policy and regulatory trends and discuss how they fit into the broader international consensusthat has emerged over the last two decades with respect to global internet governance and rules on thedigital economy.

3.1. Different Policy Objectives and Approaches............................................................................................... 343.1.1. Light Touch Approaches ....................................................................................................................... 343.1.2. Interventionist Approaches ................................................................................................................. 363.1.3. Digitization, Economic Policy and Industrial Development .................................................... 373.1.4. Celebrating Complexity and the Need for an Overarching Digital Strategy .................... 37

3.2. Different Impacts and Implications of Different Policy Interventions ............................................... 383.2.1. Vulnerability of Digital Trade to Different Regulatory Interventions ................................... 383.2.2. The Importance of the Technology Industry as Policy Advocate ......................................... 403.2.3. The Obvious Benefits of Investment in Communications Networks ................................... 403.2.4. Giving the Digital Economy the Space It Needs to Foster Innovation ............................... 42

3.3. Finding a Consensus on what Works ............................................................................................................. 423.3.1. Broad Consensus on Policy Interventions ..................................................................................... 433.3.2. The Implications of International Rule-Making ........................................................................... 433.3.3. Consensus on the Need to Bridge the Digital Divide ............................................................... 44



34

Stimulatecompetition

Protect existingjobs

Promote economic development

Increase the size of the formal

economy

Bridge thedigital divide

Fosterinnovation

Stimulate economic growth

Diversify the economy

Promote market contestability

Create newjobs

Promote digital inclusiveness

Enable inclusive trade

Kick-start domestic ICT

industry

Prevent base-erosion and

profit-shifting

Attractinvestment

Objectives

Approaches

Light touchapproaches

Generally favored by advanced

industrial countries where the digital

economy is already very ubiquitous.

Interventionistapproaches

Generally chosen by developing countries with

prominent national security concerns or development

agendas.

IndustrialPolicy

Generally chosen by middle-income

developing countries with their

own ambitious plans for the digital

economy.

Executiveagency activism

This can be in the form of lawsuits to

reign in tax privileges,

competition investigations or

other actions.

Tax breaks/incentives

These can be used to either attract investment or

encourage local content, but often

also lead to market distortions.

As is often the case, legislation and regulationhave consistently been a couple of steps behindwhen it comes to the internet economy, andmany observers credit the enormous growth inthe early years of the digital economy as being inpart due to the wide-spread absence of regulatoryconstraints. Today things are very different. As

Figure 3.1 tries to encapsulate, today governmentseven in developed countries exercise varyingdegrees of policy intervention or regulatoryoversight to govern online activities and thebroader digital economy. This section discusses anumber of these policy and regulatory trends andtheir implications for the global ICT industry.

3.1. Different Policy Objectives and Approaches

Figure 3.1: Different regulatory objectives and approaches

Source: Huawei

3.1.1. Light Touch Approaches

Some governments quickly recognized thepotential of the internet and related technologicaladvancements for promoting their countries asknowledge economies and for significant andwidely-felt improvements in productivity. Thesegovernments were also cautious of any policy orregulatory interventions that could underminethis growth potential. This is certainly the case ofthe United States as early as 1997, when PresidentClinton and Vice President Al Gore released theirFramework for Global Electronic Commerce(exhorting governments to “adopt a non-regulatory, market-oriented approach toelectronic commerce”) and the United Kingdom,

which in 2002 adopted a set of E-Policy Principlesthat encouraged policymakers to think verycarefully about any regulatory action theyintended to take and its implications one-commerce. In this context, it is also very relevantthat the internet economy took off immediatelyfollowing and – many have argued – as a directresult of the large-scale and far-reachingderegulation of the telecommunications sectorthat many governments initiated, starting withthe United States and the United Kingdom, butwhich quickly spread to almost all countriesdeveloped and developing.

The European Union, for its part has taken a moreambiguous approach towards the digital


35

economy in terms of lawmaking and regulatoryresponses, due in part to the varied interests andapproaches of its different Member States, butalso due to the imperative to balance differentand sometimes competing policy objectives. The2015 Digital Single Market initiative appears onits face to embody a forward-looking andambitious vision of what Europe could become inthe internet space. But this initiative must bebalanced against what amount to very strict EUrules on the cross-border transfer of personaldata, as well as a more recent statement ofobjections by the European Commission to clawback what it construes to be unlawful tax benefitsafforded by Ireland to Apple, and alleged abusesof dominance by Google over its Android OS.Many observers believe these actions are justthe first of potentially several similar casesagainst other technologygiants who benefitted fromsimilar arrangements, namelyFacebook and Amazon toname just two.

Another reason the EU’sposition is less clear-cut thanthat of the U.S. when it comes to the digitaleconomy is because except for a few isolatedoutliers such as Skype (now owned by Microsoft),SAP and Spotify, the EU has so far failed toproduce very many globally active players in theinternet economy, although it has produced arange of international leading tele-communicationsproviders (Telenor, Orange, Vodafone, DeutscheTelekom, BT) as well as some leading equipmentmakers (Ericsson and Nokia). Nevertheless,European multinationals are dependent onconnectivity to export services as well as operatetheir subsidiaries and manage HR, inventory andoverheads efficiently.

Today, globally-active technology companies,especially those from exporting countries like theUnited States, typically continue to advocate infavor of light-touch regulatory approaches thatseek to limit governments in their capacity tointervene in the digital economy, particularly inways that might constrain the development ofnew and innovative products, services andbusiness models. This is an approach that has also

found expression in how governments andregulatory authorities in some countries havereacted to the emergence of new services.

For example, when it comes to services such asAirbnb and Uber, the EU Commission releasedguidelines on the sharing economy urgingregulators in the 28 Member States to only banservices as a last resort. Policy analysis by theEuropean Commission on the subject hasextolled the virtues of approaches that aregenerally supportive of the efficiency gains,increased competition and wider range of choicesthat the sharing economy provides to businessesand consumers, while simultaneously recognizingthe need to mitigate the economic downsidesand disruptions the emergence of these newbusiness models have had on the traditional

industries they displace(being the hotel and taxicab industry in the case ofAirbnb and Uber respectively).A light-touch approach inmost market economies alsorequires that intermediariessuch as telecoms operators,

managed services and platforms cannot be heldliable for user transgressions committed throughthe use of their services, provided they actas “mere conduits” that transmit content. Thiswas the main principle of the EU E-CommerceDirective, but also finds expression in the UnitedStates in the Digital Millennium Copyright Act,and many other laws in the area of hate speech,tax avoidance or copyright infringement.

A light-touch approach does not hold innovationand conduits accountable, and does not seek toregulate ex ante. The light-touch approach hasalso generally been endorsed in multilateralregulatory best-practices clubs like the OECD andAPEC. Documents like the 2008 Seoul Declarationon the Future of the Internet Economy (signed by39 countries, both OECD members and non-members alike) and the 2011 OECD CouncilRecommendation on Principles for Internet PolicyMaking, both favor approaches characterized byless rather than more direct policy interventionsand explicitly call for policies that promote andprotect the free flow of information, an open and

The light-touch approach hasalso generally been endorsedin multilateral regulatory best-practices clubs like the OECDand APEC.


36

interconnected internet, the cross-border deliveryof services, inclusive (multi-stakeholder) internetpolicy formulation processes, and that encouragetransparency, fair process, and accountability.

As early as 2002, APEC was making joint policydeclarations with regard to the digital economystating that it should be able to “flourish in aliberal and open trade environment”, and thatwhere domestic policy objectives do requireregulatory interventions, these should be“transparent, non-discriminatory and leastrestrictive on trade”.

3.1.2. Interventionist Approaches

Over the years, the importance of the digitaleconomy has become increasingly apparent andhas become the focus of regulatory action andpolicy interventions by different governments,either with the objective of suppressing certainonline activities or seeking to encourage thedevelopment of economic sectors linked to thedigital economy. Different governments havereached for different regulatory tools dependingon their objectives. Censorship, which manygovernments of all ideological bents havepracticed in various forms for centuries, is alsowidely used on the internet, for a variety of policyreasons. Likewise, many governments, even liberaldemocracies have contemplated and in many

instances also implemented blanket banson certain social media sites fearing theirsusceptibility for abuse in organizing massdemonstrations and thereby fermenting socialunrest.

Other interventions are focused on increasingaccess to the digital economy or making suchaccess easier, faster, more ubiquitous and cheaper.Many governments long ago enacted differentpolicies to boost the role played by the digitaleconomy in their national economies, recognizingthe many societal benefits but also efficiency andproductivity gains resulting from the increaseduse of ICT and online systems. Korea, Japan andSingapore were early proponents of these kindsof plans, with the United States, Australia andmany others also adopting national broadbandplans slightly later. Among the more than 150countries with a clearly formulated nationalbroadband plan (Figure 3.2), views on whatexactly is the desired level of governmentintervention have tended to differ. Somegovernments have chosen to actively becomeinvolved in building networks (for exampleAustralia), whereas others espoused an approachwhereby the role of governments should belimited to establishing and overseeing theunderlying institutions (particularly markets) sothat the digital economy can thrive (for examplethe United States).

Figure 3.2: Number of countries with a national broadband plan

Source: ITU

160

140

120

100

80

60

40

20

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of Countries with Broadband Plans, 2006-2016

3138

5364

102

123133 134 140

148 151


37

Industrial planners are still grappling with howdigitalization is transforming the economy. In anera of global and digitalizedsupply chains, where data isan increasingly importantinput, digital protectionismcan be self-defeating. Theeffectiveness of the post-war model for industrialpolicy in Asia and Europe,i.e. fostering nationalchampions in manufacturingthrough protectionism and state aid, can bequestionable in an era of global supply chainsand a digital economy that largely ignores theexistence of national borders.

3.1.3. Digitization, Economic Policy andIndustrial Development

Many governments were very quick to seize onthe potential of the digital economy to advancespecific areas of economic policy. In the UnitedStates, the 2010 National Broadband Plan wasactually conceived as part of the 2009 TroublesAssets and Relief Program (TARP) legislation thatsought to provide massive economic stimulus toa national economy reeling from the effects ofthe 2008 Global Financial Crisis.

In Europe also, the Digital Single Market strategy,launched in 2015, has among other things, theexplicit aim of boosting economic growth(adding up to 450 billion per year to the EUeconomy) and creating hundreds of thousands ofnew jobs. It purports to do this by focusing onthree policy areas or pillars, namely: (1) improvingaccess to digital goods and services; (2) creatingthe right online environment (by enactingappropriate rules); and (3) promoting full use ofthe possibilities afforded by digitization (essentiallyraising digital literacy among Europe’s people andbusinesses).

In the developing world we have seen similarpolicy initiatives. Take Digital India, for example,launched in 2015 under the leadership of PrimeMinister Narendra Modi. Its vision is to “transformIndia into a digitally empowered society andknowledge economy”, focusing again on three

pillars” (1) infrastructure and making the interneta basic utility available to everyone; (2) governance

and availability of onlineservices; (3) the digitalempowerment of India’scitizens.

Different approaches havebeen taken under thevarious governmentinitiatives to boost therole the digital economycan play in supporting

and sustaining the many economic policy goals itis increasingly being called upon to fulfil. Whatone typically sees is varying levels of governmentintervention, either directly or indirectly acrossthe three main areas or pillars of internet policy(availability of infrastructure, affordability ofaccess, and widespread adoption). These days,most governments recognize that the sort ofsweeping changes needed on both the supplyand demand sides can only be achieved if bothpublic and private sector actors work together,with each leveraging their own important andoften complementary strengths.

3.1.4. Celebrating Complexity and the Needfor an Overarching Digital Strategy

Policymakers everywhere are now aware of thepotential of the digital economy as an agent forchange and of the sector’s potential for increasedcompetitiveness and inclusive economic growth.However, they continue to disagree about whichinterventions are likely to be conducive toamplifying the positive benefits of the digitaleconomy and which interventions could bepotentially damaging to it. This is becausemany policymakers still lack a sophisticatedunderstanding of how the digital economy reallyworks, which is where the technology industrymust help to inform governments of the possibleimplications of different policy choices. The digitaleconomy, like the global economy, is a complexecosystem of interconnected and mutuallyreinforcing actors and systems. Seeking to haveany positive impact on it at all, or rather seekingto harness it for the benefit of a given territory oreconomic sector requires not just a single action

Many of the policy interventionsrequired to increase participationin the digital economy will beoutside the remit of those directlyresponsible for governmentpolicies on the digital economy aswell as beyond the timeline of anysitting government.


38

but rather a range of well thought-out policyinterventions, some of which may take years tobear fruit. In particular the development of thekinds of skills typically needed to kick-start andmaintain a position in the knowledge economytakes a multi-pronged policy approach over manyyears before showing any results.

Many of the policy interventions required toincrease participation in the digital economy willbe outside the remit of those directly responsiblefor government policies on the digital economyas well as beyond the timeline of any sittinggovernment. This is the reason why overarchingstrategies on how to harness the digital economy

should be both top-down (meaning from thehighest levels of political leadership), and multi-stakeholder (involving input from all parts of theindustry both foreign and domestic), as well asbeing bottom-up (meaning with the needs ofusers and small businesses taking a prominentposition in terms of the formulation of policypriorities). Any individual regulatory action thatseeks to constrain or dictate terms to digitaleconomy stakeholders should ideally be inaccordance with such overarching strategies,lest they merely serve to promote the interestsof a narrow set of industry actors who havesucceeded in capturing regulatory institutions inorder to advance their own policy agendas.

3.2. Different Impacts and Implications of Different Policy Interventions

Like in any other sector, different policyinterventions can have varying impacts andimplications on the digital economy, some positiveand some more ambiguous. In this section wediscuss some of the upsides and potentialdownsides of different regulatory actions, but webegin by focusing on the importance of thetechnology industry in educating policymakersand informing good policy.

3.2.1. Vulnerability of Digital Trade toDifferent Regulatory Interventions

In the analytical discussion on impedimentsagainst digital trade, it is important to bear inmind that the taxonomy and the impact ofdisruptive digital trade are different from moretraditional trade barriers on conventional goodsand services trade. Firstly, the digital economy ismore vulnerable to disruptions due to its manyinterlinkages between devices, infrastructure,services, apps and technology. Complexity inproduction due to historically unprecedentedlevels of supply-chain fragmentation rendersinternational trade vulnerable to being blocked atan equally unprecedented number of potentialchoke-points. This is illustrated in Figure 3.3,which depicts how digital trade barriers couldprecipitate disruptions at various points along thedigital value-chain. Potential sources ofdiscrimination can be found as early as the

production phase, continuing through to marketaccess (typically at the border). Other traderestrictions may be inside the target market,which is typical of many horizontal, regulatorybarriers. Finally, certain digital trade barriers donot discriminate between producers of the goodor suppliers of the service, but rather betweenbuyers and users in their ecosystems, for instanceby limiting their use (such as what users mayaccess or download) in a discriminatory manner.

Secondly, unlike tariffs that increase the cost ofexporting to a given market (thereby making animported product incrementally less competitivevis-à-vis the domestic like product or a potentialsubstitute product of domestic origin), manydigital trade measures are prohibitive in a binary,“all or nothing” manner – they either permit trade,or they ban it. For example, a discriminatorytechnical regulation, or a mandate to use acertain technology (e.g. encryption standard,mapping service on a smartphone or tablet)make exporting impossible. Likewise adiscriminatory requirement to surrender sourcecode in a public procurement tender can make itprohibitively expensive for a foreign supplier toparticipate, since the downside risks and potentialcommercial disadvantages of surrenderingproprietary information could massivelyoutweigh the potential profits to be made if it isawarded the tender contract.


39

However, this is not to say that tariffs no longermatter post-ITA: There are still tariffs on a broadrange of products, in particular inputs used in themanufacturing process. These are often so-callednuisance tariffs, but there are also tariff peaksof up to 35% on ICT goods in certain very largeand important markets. Rapid advances intechnological change have also given rise tosome problematic classification issues giventhat trade commitments and classifications arenot updated at the same pace. For example,commonsense would argue that a tablet computeris equivalent to a laptop: Yet from a strictlylegalistic perspective, the harmonized system oftariff schedules defines portable laptops (morespecifically HS847130) as portable machines witha physical keyboard, which tablets obviously lack.

The vulnerability of global value chains todisruption at the hand of various regulatoryinterventions has granted considerable leverageto governments who now find themselvesequipped with the ability to surgically disruptdigital trade – effectively giving them a “killswitch” on trade in an enormously wide range ofitems. Moreover, discriminatory measures in the

digital economy are not only enacted on thebasis of whether the producer is foreign ordomestic, but also by differentiating betweenonline and offline transactions. For example, ane-book may be taxed differently from a physicalpublication on paper; items that may be availablefor sale in a brick and mortar store may bebanned from being sold on the internet.

Figure 3.4 shows the result of an audit ofthirteen trade policy areas that are relevant to thedigital economy and where trade restrictivemeasures have an impact on digital trade, eitherbecause they distinguish between foreign versusdomestic; or online versus digital. The sampleconsists of 65 countries from all regions, and of allsizes, income levels and models of economicgovernance, which indicates that restrictions oncross-border data flows (e.g., discriminatoryprivacy policies, data localization) are by far themost common type of barrier. In the next Chapter(Chapter Four) we examine some substantiverules that trade negotiators are grappling with inan attempt to both maintain openness in thedigital economy and balance such opennessagainst a range of other policy objectives.

Figure 3.3: Vulnerability of digital trade: Illustration of potential barriers

Source: ECIPE

• Legal injunction granted ondesigns and SEPs

• Lack of protection of trade secrets

IPRs• Unable to fly in experts, consultants• Requirement to have local

management

Business mobility• Some OS under anti-trust

investigation

Competition, antitrust• Forced local taxation on cross-

border downloads of digitalproducts (content) sold in theecosystem

Taxation on users

• Discriminatory subsidies for R&D

Subsidies• Declared unfit for use by govt.

officials unless tablet is madelocally or source code is handedover to government

Govt. procurement• Devices, operator they connect to,

pre-installed social media apps maynot be covered by liability limitations

Intermediary liability• Limits on purchases (value, of

devices, electronics via globale-commerce sites

E-retail

• Posed by some governments onSmart devices

Local content requirements • Foreign manufacturer banned from

acquiring a video service intendedto be integrated into the tablet OS

Investment restrictions• Device user data, app data

forcefully localized

Restrictive data privacy

• Globally pre-installed mapping orVoIP apps forbidden

Content access limitations

• Some customs do not recognizetablets as a laptops (duty freeunder ITA) since they lackkeyboards

Tariffs & licensing• Encryption on device or email

protocol may be market standardsbut forbidden by local policing laws

Standards

Examples of: Goods trade barriers Cross border data flow barriers General/horizontal barriers

Production Market access Inside the market Users/ecosystem


40

1000 200 300 400 500

445

160

159

146

137

112

102

84

76

69

67

64

50

Data policies

Online sales and transactions

Tariffs and Trade Defence

IPR

Foreign investment

Business mobility

Public procurement

Competition policy

Taxation & Subsidies

Content access

Intermediary liability

Standards

Quantitative Trade Restrictions

3.2.2. The Importance of the TechnologyIndustry as Policy Advocate

Today, the importance of the online andtechnology sectors is beyond doubt and widelyrecognized as key drivers of growth, job creation,upward social mobility, and productivityimprovements. Technology companies have longfound their voice and organized themselvesinto influential trade associations that advocatevocally and assertively on policy and regulatoryissues that affect the industry. Major technologycompanies in many countries have direct andprivileged access to the very highest levels ofpolitical power which certainly was not the casewhen industry start-ups like Hewlett Packard orApple first began putting Silicon Valley on themap. Social media is a big part of companies’corporate communications strategies and alsofigures prominently in political campaigns bycandidates seeking election to public office atall levels in a growing number of countries.Technology companies and the ICT industry havebecome influential policy advocates and they areincreasingly playing an important role in settingnational economic agendas in many countries.

When technology companies join together underthe umbrella of a trade association or otherindustry groups, they can become a force forenlightened and informed policy advocacy,although this is generally only true provided theyhave open membership requirements that

promote inclusiveness and welcome a broadrange of industry actors, including consumergroups. Other influential players in this spacecome from grass-roots organizations whichadvocate primarily in favor of consumers andusers on a wide range of internet-relatedissues, such as privacy, cybersecurity, and netneutrality. Moreover, given the public interest indigitalization, the debate has also led to alliancesbeing forged between different technologyindustry associations, SMEs, traditional industriesand consumer groups. This is most apparent inthe European context where start-up alliances,traditional service industries and the technologyindustry have often formed coalitions to supportdigital free trade.

Through these various avenues of influence,individual actors working within the context ofindustry associations can have a significantimpact at the national level, with their views andpriorities then feeding into national positions thatare subsequently championed at internationalmeetings of organizations such as the OECD,APEC, the ITU, the WTO, as well as being reflectedin the positions taken by one or more parties tointernational trade negotiations.

3.2.3. The Obvious Benefits of Investment inCommunications Networks

By now, a large body of research hasdemonstrated the economic and social benefitsof building better communications infrastructureand of making this infrastructure as universallyaccessible as possible, as well as broadlyaffordable. Any disagreements on this point, ifthey do exist, tend to focus on who should pay tobuild these networks and how quickly any capitalinvestments made to build them can and shouldbe recouped. A small number of governments,recognizing the public-good nature and generalwelfare-enhancing effects inherent to internetconnectivity, have shouldered the burden ofbuilding the backbone infrastructure themselves,whereas others have “allowed” the incumbentoperator to assume this burden whilesimultaneously requiring it to lease circuits andspectrum to internet service providers orcompeting mobile operators. In yet other

Figure 3.4: Types of discriminatory digital trademeasures and number of occurrences in

global trade

Source: ECIPE Digital Trade Estimates


41

countries, it is new-entrant network operatorsthat have been tasked with rolling out thecountry’s communications infrastructure as partof the conditions of their operating licenses. Theincumbent or the new-entrant network operatorcan recoup its investment by such leasingarrangements as well as by the revenues it earnsdirectly from customers. Given the size of theinvestments made in building, maintaining andupgrading this infrastructure, as well ascompetition from service providers that engagedirectly with customers over the top of thisinfrastructure (so-called OTT providers), as well asthe prices paid at spectrum auctions, someoperators have complained that their return oninvestment is extremely low – whereas thepressure for operators to pay out dividends toshareholders remains high. This dynamic canundermine incentives for network operators tocontinue investing in the underlying infrastructure,which can have potentially negative effects onintra-sector competition between operators andOTTs (i.e., infrastructure competition) as well asthe whole digital economy ecosystem.

These problems are exacerbated by the fact thatthe telecommunications industry is characterizedby high barriers to entry, as well as a restrictivetrade and investment climate, so that it lendsitself easily to duopolistic or oligopolistic modelsof competition that can undermine the efforts ofregulators to prosecute operators that seem toengage in anti-competitive behavior. This ispotentially a dangerous evolution given thatcompetition is a key driver for investment, as isevident from the data available in countries withderegulated markets. For example, in the EU, thedeployment of FTTH/B has so far been mostextensive in the countries where there is alreadystrong physical access competition on theexisting networks, for instance in Portugal, France,Netherlands, Germany and Italy, where the marketshares of alternative operators have been around50%, based on unbundling of the local loop (ULL).Similar trends have been observed in the U.S.,Japan and Korea, where fiber roll-out was precededby strong service-based access competition on thebroadband market, encouraged by mandatoryunbundling of all segments of the existingnetworks, including both cables and local loops.

As a general matter, the tension between theneed to continually increase investment innetwork infrastructure and the desire to havecompetitive online digital ecosystems is a delicatebalance with which many governments are stillgrappling. Figure 3.5 shows how connectivityand online software make up for almost 5%of the inputs used in producing machinery –exceeding the importance of energy and labour.In other words, stable prices and access tothe latest technology are fundamental tocompetitiveness in many sectors, includingindustrial manufacturing. Competitive marketsare not about picking winners through publicinvestments and state aid. Competitiveness in thenew economy comes from quickly tapping intoideas and technology in other countries, andusing them to build your own success stories.

Figure 3.5: Value of connectivity used asan input in production

Source: ECIPE

0% 5% 10% 15% 20% 25% 30% 35%

TelecomsBusiness servicesFinancial services

Machinery, electronicsConsumer servicesTrade, distribution

UtilitiesTransports

ConstructionOther Manufacturing

Minerals, petroleum, gasMotor vehicles

Foods, agricultureClothing & textiles

Since the events of 9/11 in the United States andother similar attacks by likeminded groups inmany other places, both developed anddeveloping countries have seen national securityconcerns take up a new and more central role indictating policy responses to the digital economyin addition to simply supporting and promotingit as an engine of economic growth. These effortshave become even more acute since therevelations of Edward Snowden provided hithertounknown insights into the sheer scale andintrusiveness of online surveillance by a numberof Western governments as well as raisingawareness of just how easy and widespread thepractice of compromising and exploiting sensitive


42

user information online has become. This hasresulted in a number of policy responses, theresults of which are to limit the freedom of actionof technology companies and to require thesecompanies to disclose more – in some casesproprietary – information on how they work(particularly source code disclosure requirements).Data localization measures are another such policyresponse being contemplated by governmentsin many jurisdictions, both developed anddeveloping, as are restrictions or conditions onthe use of encryption for messaging traffic.Here the debates seem to be less between Northand South interests per se rather than betweenDoves and Hawkes, i.e.,those stakeholders thatespouse a more liberaland open approach toonline activities and thosepredominantly concernedwith the security riskssuch activities potentiallyentail. This is a difficultand sensitive policybalancing act that mustbe performed by the highest levels of countries’political leadership. International tradenegotiations are an important forum whereprecisely this kind of weighing and balancing ofinterests is currently taking place.

3.2.4. Giving the Digital Economy the SpaceIt Needs to Foster Innovation

Regardless of the underlying tensions betweenoperators that pay for the network and OTTproviders that make money from the servicesthey provide over these networks, most

stakeholders seem to agree that the freedom toinnovate and exploit existing regulatory andlegal loopholes in the development of newbusiness models has been a key characteristic ofthe digital economy. Also the benefits of theinternet as a retail space devoid of the upfrontcosts of a brick and mortar store and the heavyregulatory burdens of opening and licensinga business in the real world are well understood,particularly by small and medium-sized firmswhose primary point of contact with (and salesplatform to) customers is their internet website(and increasingly their mobile app). The history ofM-PESA, the ubiquitous online payments platform

in Kenya, is illustrative inthis respect. Originallylaunched in 2007 by thecountry’s largest mobileoperator Safaricom, it wasallowed to proceed on anexperimental basis by thecountry ’s banking andfinancial services regulator,which didn’t really knowwhat to do about the

service. Today, it has propelled Kenya to theposition of world leader in mobile payments withmore than 17 million Kenyans using this service,and somewhat stunningly, a quarter of thecountry’s GDP passing through it. There are severalreasons credited with the runaway success of theapplication, with one of the most prevalent beingthe regulatory holiday it was afforded from theoutset. Such freedom to experiment has oftenbeen lacking in other more technologicallyadvanced and richer economies, where a numberof factors have slowed the universal adoption ofdifferent online and mobile payment platforms.

Both developed and developingcountries have seen nationalsecurity concerns take up a newand more central role in dictatingpolicy responses to the digitaleconomy in addition to simplysupporting and promoting it as anengine of economic growth.

3.3. Finding a Consensus on what Works

Given the fact that the internet and the digitaleconomy have been around for just over twodecades now, a fairly broad and increasingly well-defined consensus has started to emerge bothinternationally and among the many differentstakeholders (governments, private-sector, grass-roots etc.) as to how the internet and the digitaleconomy should be governed. This is arguably

true despite that fact that different approachesand different degrees of “free” versus “regulated”continue to face off against one another invarious fora. This section discusses some of theprinciples underpinning this consensus and alsodiscusses the implications for the digital economymore generally, of international rule makingthat seeks to incorporate a number of these


43

principles into binding and potentially actionableobligations in trade agreements, a subject that isexplored in more detail in the following Chapterof this White Paper.

3.3.1. Broad Consensus on PolicyInterventions

A number of policy choices that governments canmake are generally viewed as favorable and enjoya broad internationalconsensus in internationalmeetings of organizationsand groupings such asthe OECD, the ITU, APEC,and the G20, as well asamong the many private-sector, grassroots andn o n - g o v e r n m e n t a lorganizations that engagein policy advocacy withrespect to various aspectsof the digital economy. These tend to involveclear and transparent policymaking that is opento a wide range of stakeholders and whichcarefully considers the costs and benefits ofregulation, while also inviting and affordingthoughtful consideration to any constructiveinput received during public consultations.Regulatory approaches that are geared towardsprotecting the weakest elements of the ecosystem(users) and positively rebalancing preexistingpower asymmetries, such as enhancing effectivemechanisms for users to protect their privacy,strengthening consumer protection for thosewho engage in e-commerce, making it easier forbusinesses to understand and comply with legalrequirements, shield users from nefariousactivities like unsolicited email (spam), and thathelp to identity theft and online scams, are allapproaches that are almost unanimously viewedas welcome policy interventions.

This is equally true of policy approaches thatallow for a broad margin of discretion by all partsof the online ecosystem with respect to how tobest comply with or implement them. Interventionsthat disproportionally restrict the openness of theinternet, or force supply-side actors to jumpthrough a complex array of (often arbitrary)

regulatory hoops in order to comply, are generallyseen as detrimental to the growth and continuedvitality of the digital economy. Any such measuresare usually suspected of concealing ulterior policymotives and are a red flag for internet companiesthat have hitherto been able to operate freelyin the absence of such restrictions. Finally,policy responses that reduce the freedom ofaction of internet operators or technologycompanies by mandating the adoption of certain

standards, the use ofspecific technologies, thedisclosure of proprietaryinformation, or thelocalization of informationstorage facilities orbusiness processes, tendto be viewed by manyin the industry as acts ofregulatory over-reachand very possibly dis-proportionate to the

legitimate public policy objectives purportedlybeing pursued. These views are starting to bereflected, albeit only tentatively and subject tovarious exceptions, in international rule makingwhich we discuss in brief under the next headingand in more detail in the next Chapter of thisWhite Paper.

3.3.2. The Implications of InternationalRule-Making

Until fairly recently, multilateral action on issuessuch as internet governance and rules for thedigital economy had typically been espoused inthe form of ministerial declarations and statementsof desired best practices by governments, privatesector associations, and grass-roots advocacygroups. Although certainly representing a positivedevelopment, the main drawback to thesedeclarations was that they were completely non-binding, and in many cases seemed to beobserved primarily in the breach by many of thegovernments that were signatories to them.However, commitments in bilateral, regional andplurilateral trade agreements are normative, andsometimes even enforceable for any governmentparty to such an agreement, but they could alsoapply indirectly as a de facto code of good

Interventions that unnecessarilyrestrict the openness of theinternet, or force supply-side actorsto jump through a complex array ofregulatory hoops in order tocomply, are generally seen asdetrimental to the growth andcontinued vitality of the digitaleconomy.


44

conduct even for countries and territories notparty to such agreements.

In many ways the situation we are currentlyseeing unfold in the area of trade rules and thedigital economy mirrors the approach takentowards the end of the 20th century on intellectualproperty rights. International treaties on IPRs hadexisted since the 1800s, and the World IntellectualProperty Organization (WIPO)was established to oversee theimplementation of theseagreements in 1967. However,in the absence of bindingdispute settlement provisions,these IPR treaties remainedlargely declarations of intentand WIPO itself was powerlessto enforce these rules,with whatever enforcementpossibilities these treaties didcontain being left to nationalcourts. But what if nationalcourts couldn’t or didn’t enforce IPRs as foreseenin international IP treaties? This all changed onthe 1st January 1995 with the entry into force ofthe WTO Agreements, including the Agreementon Trade-Related Intellectual Property Rights(TRIPS). By incorporating the WIPO treaties byreference into the TRIPS Agreement and bymaking these provisions subject to the bindingand compulsory dispute settlement proceduresof the WTO, the international enforcement of IPRshad entered a new era. Much the same thing ishappening now in the area of digital trade, evenwhile we have “analog rules” for an economy thathas now gone digital, with a new set of rulesemerging to clarify and constrain the ability ofgovernments to arbitrarily legislate and regulatein ways that, at least to some stakeholders in thedigital economy, are perceived as being inherentlyinimical to its future growth and vitality.

3.3.3. Consensus on the Need to Bridge theDigital Divide

One thing that everyone agrees on is that toomany people on the planet are still beyond reachof these transformative technologies. Acrossgovernments of almost every ideological

persuasion and among all the major multilateraland regional development agencies, consensusprevails that more of the world’s poor need to bebrought into the digital economy as a matter ofthe highest urgency.

The World Bank, in its 2016 World DevelopmentReport points out that “nearly 60 percent of theworld’s people are still offline”, while advocating

that “[m]aking the internetuniversally accessible andaffordable should be a globalpriority”. In order to completethe “unfinished task ofconnecting everyone to theinternet”, the World Bankcalls for what it refers to asa “judicious mix of marketcompetition, public privatepartnerships, and effectiveregulation of the internet andtelecom sector”.

By the same token, the InternationalTelecommunications Union (ITU), in the 2016edition of its annual Measuring the InformationSociety report, states that “in some low-incomecountries, between 20 and 40 percent of peoplestill do not own a mobile phone and […] thegender gap in mobile phone ownership issubstantially higher”. It also points out that “while84 percent of the world’s people live in an areawhere mobile broadband services are offered,only 47 percent are actually using the Internet”.The ITU report concludes that “[u]rgent action isrequired to address this persistent digital divide”.Figure 3.6 shows the ITU’s estimates for ICTpenetration levels based on different metrics andacross different regions. Africa comes in lowestacross the board, proving that this is where mostof the world’s unconnected still reside and wherethe greatest urgency is for rapid and tangibleimprovements in connectivity, access and digitalliteracy.

But it ’s not just sp ecialized agencies fordevelopment or telecommunications that agreeon the need to bridge the digital divide, alsothe United Nations – in its 2016 SustainableDevelopment Goals report notes that “[f ]ixed-

A new set of rules isemerging to clarify andconstrain the ability ofgovernments to arbitrarilylegislate and regulate inways that, at least to somestakeholders in the digitaleconomy, are perceived asbeing inherently inimicalto its future growth andvitality.


45

broadband connections remain largelyunaffordable and unavailable across largeswathes of the population in developing regions,highlighting the vast digital divide in access tohigh-speed, high-capacity Internet services”. Italso notes that “internet access is a requirementfor producers and entrepreneurs to remaincompetitive, and greater efforts are needed toexpand this type of coverage to rural and remoteparts of the world”.

And finally the WTO has also recently taken upthe call for expanding access to the digitaleconomy for the very important role it plays insupporting inclusive trade and helping micro andsmall businesses, as well as women in developingcountries, connect with global trade flows. In2016, the WTO Public Forum was dedicated tothe topic of “inclusive trade” and the role of

the trading system in supporting innovation,particularly in the realm of the digital economyand new technologies. In 2016, the WTO’s flagshippublication, the World Trade Report analyzed theimportant role the digital economy plays inbringing SME’s, the vast majority of which arefound in the developing world, closer to regionaland global value chains.

As one of the biggest equipment vendors in theglobal ICT industry, and given our evidentcommitment to helping bridge the digital dividein many developing countries including many inAfrica, we at Huawei stand at the forefront ofthese efforts and are already deeply entrenchedwith both operators, private sector partners andgovernment stakeholders in bringing new andaffordable connectivity solutions to the hithertodisconnected.

Figure 3.6: Estimated ICT penetration levels (2016) by region

Source: ITU Measuring the Information Society (2016 Report)

160

150

140

130

120

110

100

90

80

70

60

50

40

30

20

10

0

Per

100

inh

abit

ants

/ho

use

ho

lds

Fixed-telephonesubscriptions

Mobile-cellularsubscriptions

Fixed-broadbandsubscriptions

Mobile-broadbandsubscriptions

Households with a computer

Households withInternet access

Individuals usingthe Internet

Africa Arab States Asia and Pacific CIS Europe Americas


46


The next Chapter turns to an examination of the emerging set of international trade rules currently beingcrafted to try and discipline many of the regulatory interventions discussed in this chapter.

01

02

03

04

Although often adopted with perfectly legitimate policy objectives,the impact of regulatory responses to digital trade in many cases has

a number of unforeseen consequences.

Policies affecting digital trade should be conceived and implementedaccording to international best practices and principles such astransparency, multi-stakeholder engagement, non-discrimination,cost-benefits analysis, proportionality, least-trade restrictive approach,and genuine effectiveness in achieving the stated policy objectives.

Digitization and online connectivity have an important role to play inindustrial development and other economic policy objectives in both the

developed and the developing world. We should seek flexibleapproaches that combine and harness the strengths of both the

public and private sectors.

There is almost unanimous consensus among governments and certainlyamong multilateral institutions as to both the desirability and the urgentnecessity of acting quickly to overcome the digital divide and bringthe world’s poor into the fold of the digital economy.

Chapter Four | International Trade Rule Making for the Digital Economy

47

CHAPTER FOUR | INTERNATIONAL TRADE RULE MAKING FOR THE DIGITAL ECONOMY

As in most policy areas, international rule-making tends to lag behind domestic legislative and regulatoryresponses to the needs of the digital economy. This disconnect is something that had begun to beaddressed in a series of free trade agreement negotiations, particularly the Trans-Pacific Partnership (TPP)Agreement and the Trans-Atlantic Trade and Investment Partnership (TTIP) – both of which face anuncertain future at the time of writing. International trade agreement texts that relate directly to the digitaleconomy were also emerging in the context of the Trade in Services Agreement (TiSA) negotiationsproceeding on the sidelines of the WTO, and currently feature in the ASEAN+6 Regional EconomicPartnership (RCEP) negotiations. In addition to these initiatives, work has been completed at the WTO toupdate the 1997 Information Technology Agreement (ITA) to bring a whole range of new products withinits scope and the ITA Committee at the WTO is now seen as a key way of advancing liberalization ona whole range of NTBs that effect trade in IT products. Finally, other initiatives on the protection of dataand on privacy that are taking place between the United States and the European Union, as well as earlierwork in the OECD and APEC, promise to set new standards that will affect the cross-border transfer ofpersonal information and as such have important ramifications for the digital economy.

4.1. Existing and Emerging Global and Regional Rules Framework ........................................................... 484.1.1. Existing WTO Rules on Trade in Services ...................................................................................... 484.1.2. New initiatives in the WTO | Post-Nairobi and ITA2 .................................................................. 494.1.3. Trans-Pacific Partnership Agreement (TPP) ................................................................................. 504.1.4. Trade in Services Agreement and the Transatlantic Trade and Investment

Partnership ............................................................................................................................................... 514.1.5. Regional Comprehensive Economic Partnership (RCEP) ........................................................ 524.1.6. APEC Initiatives on the Digital Economy and Privacy .............................................................. 524.1.7. OECD on Privacy, Trans-border Flow of Personal Data and the Internet Economy ...... 534.1.8. The Future of Digital Trade Rules ..................................................................................................... 544.1.9. Trade Policy-Making in an Uncertain Future ............................................................................... 554.1.10. The Road to Buenos Aires and MC11 ............................................................................................. 584.1.11. UNCTAD and e-Trade for All ............................................................................................................... 59

4.2. Substantive and Procedural Rules ................................................................................................................... 594.2.1. Transparency and Notification Obligations ................................................................................. 594.2.2. Elimination of Customs Duties on Digitally Traded Products ............................................... 594.2.3. Obligations on Free Flow of Information ...................................................................................... 604.2.4. Forced Data Localization ..................................................................................................................... 614.2.5. Mandatory Disclosure of Source Code .......................................................................................... 624.2.6. Privacy and Protection of Personal Data ....................................................................................... 624.2.7. Legislative Framework Obligations to Facilitate E-commerce .............................................. 624.2.8. Technical Standards and Conformity Assessment Procedures ............................................. 634.2.9. Specific Commitments on Trade in Services ............................................................................... 644.2.10. Intellectual Property Rights ................................................................................................................ 64

4.3. The Dynamics Driving New Rules for the Digital Economy .................................................................. 654.3.1 Past Current and Future Negotiating Fora ................................................................................... 654.3.2 Regulatory Divergence within FTAs ................................................................................................ 664.3.3 Interests and Interest Groups ............................................................................................................ 674.3.4 Regulatory Autonomy, Industrial Policy and the Risk of Fragmentation .......................... 684.3.5 Crafting Digital Trade Rules in the Service of Development ................................................. 68



48

We begin by examining the status quo underexisting WTO rules before turning to summarizethe negotiating fora where different sets of newrules for the digital economy are starting toemerge. It is important to understand each ofthese initiatives since they involve differentgroups of countries with varying offensive anddefensive interests, and because as we discuss thesubstantive rules taking shape later in thisChapter, we will also refer back to several of thesenegotiations to compare how these rules arebeing addressed in each of them.

4.1.1. Existing WTO Rules on Trade in Services

The WTO launched the so-called Global ElectronicCommerce Work Program in 1998, which soughtto lay the groundwork for agreeing on disciplineson the then newly emerging issue of e-commerceas they related to other areas in which the WTOalready had establishedrules, particularly in areassuch as trade in services,trade in goods, andtrade-related intellectualproperty rights. Sub-stantively the mainachievement that canarguably be accredited tothese efforts is a nowlong-standing (albeit stilltemporary) moratorium on imposing customsduties on internationally traded electronictransmissions, which more recent bilateral,regional and mega-regional trade agreementshave sought to make permanent. Nevertheless, itis likewise true that during the Uruguay Round ofmultilateral trade negotiations (1986 to 1993),Contracting Parties of the General Agreement onTariffs and Trade (GATT), and now WTO members,agreed on what are essentially fairly far-reachingcommitments that affect cross-border trade inservices across many sectors, including computerand related services, but also – more importantly– across many other services sectors that are offundamental importance to the digital economytoday (retail, financial and communicationsservices to name just three), but which at the

time, negotiators considered of very minorimportance in terms of the actual cross-bordersupply of the relevant services. These commitmentsunder the WTO are generally overlooked andunderused, and they bear strongly on the digitaleconomy. To begin, WTO members havecomprehensive commitments under GATS inservices sectors like “online processing services”.These commitments include the most commonforms of internet services and industrial use ofconnectivity; members are therefore bound toprovide market access and provide nationaltreatment (i.e. non-discrimination) on both cross-border transmissions and commercial presence intheir jurisdictions.

WTO members are also signatories to the GATSAnnex on Telecommunications that ensures openaccess or use of “public telecommunicationsnetworks” on “reasonable and non-discriminatory”

terms. The TelecomsAnnex is unique withinthe WTO system, as it isthe only set of ruleswithin the multilateralsystem that requiresmembers to police anti-competitive behaviour bymarket players, so that itcould effectively remedyantitrust practices of any

upstream players that exert downstream effectson service providers (such as, say, bandwidththrottling). Although the Annex predates cloudcomputing, VoIP or on-demand streaming, it dealswith open competition on the telecoms marketas well as the delicate market interface betweentelecoms and OTTs. In addition to the Annex,a consensus document called the Reference Paperalso sets out a number of important substantiveobligations on issues such as universal serviceand discriminatory practices on interconnection,regulation and licensing procedures for cross-border infrastructure and competition withintelecommunications services markets.

In the years since these commitments were made– in what was essentially a pre-internet era –

4.1. Existing and Emerging Global and Regional Rules Framework

Many of the limitations, restrictionsand conditions that WTO membershave sought to impose in order tolimit access to their domesticservices markets, and whichessentially represent a restrictionon digital trade, are not consistentwith WTO rules.


49

several WTO dispute settlement rulings haveinterpreted important clauses of the WTO GeneralAgreement on Trade in Services (GATS) anda number of market access commitments WTOmembers made during the Uruguay Round andalso since then in the context of WTO accessionnegotiations. These rulings have deemed thatmany of the limitations, restrictions andconditions that WTO members have sought toimpose in order to limit access to their domesticservices markets, and which essentially representa restriction on digital trade, are not consistentwith WTO rules.

Much of the consequent negotiations and publicdiscourse taking place around the digitaleconomy is effectively about the two paradoxicalevolutions from GATS: on the one hand, there isa need for more ambitious and stringentcommitments going beyond GATS to openup digital trade, andto maintain the globalnature of the internet; onthe other hand, there isalso a need for deepercarve-outs and exceptionsfor governments fromsuch commitments topreserve their policyspace in addressing themany political sensitivitiesthat the digital economy has given rise to –especially on security, privacy and industrialpolicy. For this reason, many argue that what isrequired in the realm of digital trade is less a setof new and binding trade agreement rules, ratherthan clarification and acceptance of the scopeand meaning of existing rules.

4.1.2. New initiatives in the WTO | Post-Nairobiand ITA2

The original Information Technology Agreementwas concluded in 1996 and involved acommitment to eliminate tariffs on dozens oftariff lines for information technology products.Starting with 29 signatories, the ITA ultimatelycame to comprise some 81 WTO members andcovered a reported 97 percent of world tradein information technology products. In 2015,

the original ITA was updated (ITA2) to moreaccurately reflect the technological advancementsthat had taken place in this sector since 1996,whereby an additional 201 items were addedto the list of duty-free traded IT products. Somefifty-three WTO members (counting the EU asone) are participating so far in ITA2, includingChina and other big exporters of IT hardwareproducts.

The updated ITA is a positive development for thehardware side of the digital economy. Non-tariffmeasures have now been included as adiscussion item on the ITA Committee’s agenda,and it remains to be seen whether such talks canprogress much in the absence of the negotiatingdynamic that characterizes market access offersand requests. Although the initial items on theITA NTM agenda are relatively rudimentaryand concern very basic areas of harmonisation

on electromagneticcompatibility (EMC) andinterference (EMI) thatwere also part ofthe Doha negotiations,positive outcomes fromthese processes remainuncertain. This will toa large degree dependon how well the globalIT industry manages

to organize itself and put pressure collectivelyon negotiators from different countries to pushthis agenda in meetings of the ITA Committee aswell as with individual governments who areparty to ITA2.

The incremental expansion of the ITA is justone path towards more comprehensive andcontemporary trade rules for the digital economywithin the multilateral system building on whatwas originally a tariff-centric deal on devices andequipment. Other approaches have their points ofdeparture in various other disciplines, such asthose governing trade in services. Within theso-called post-Nairobi agenda (called thisbecause it constitutes the negotiating agendathat followed the Nairobi WTO MinisterialConference in December 2015), attempts arebeing made to find slimmer sectoral issues where

The incremental expansion of theITA is just one path towards morecomprehensive and contemporarytrade rules for the digital economywithin the multilateral systembuilding on what was originally atariff-centric deal on devices andequipment.


50

UNITED STATES OF AMERICAVIET NAM

NEW ZEALAND

SINGAPORE

AUSTRALIA

CHILE

PERU

MEXICO

CANADA

JAPAN

BRUNEI

MALAYSIA

compromises can be found amongst likemindedparties within the broader WTO membership. In2016, India tabled a proposal emphasizing theirinterest in the importance of connectivity forknowledge process outsourcing (KPO) and mode 4,or the temporary mobility of ICT consultants.China has also presented a constructive proposalbased on liberalization of electronic retailing, aswell as the use of connectivity and onlineplatforms to support international trade in goods.These initiatives evidently demonstrate thereis a broad consensus and ownership of thee-commerce agenda within the multilateral system.

4.1.3. Trans-Pacific Partnership Agreement(TPP)

The TPP was a so-called mega-regional tradeand investment agreement originally between12 countries (Figure 4.1) whereby the UnitedStates withdrew in January 2017 after a finaltreaty text had been agreed but beforeratification procedures. A number of otherimportant regional economies have at varioustimes expressed their desire to join the TPP infuture (South Korea, Philippines, and Thailand).Taken together, the parties to the TPP would havecomprised almost 40% of global GDP; trade flowsof the TPP countries represented the samecoverage of global trade as the GATT system bythe 1980s – a considerable coverage by anymeasure.

Although at the time of writing its future seemsuncertain, the TPP is increasingly being creditedwith setting benchmarks in a range of tradepolicy areas that have so-far defied consensusat the WTO, including investment, competition,e-commerce, environment, and labor. But theagreement also covers some new territory in thatit contains rules on issues that have never beentabled for negotiation in Geneva, including state-owned enterprises, competitiveness and businessfacilitation, regulatory coherence, as well as ontransparency and corruption. In this context, theTPP advances the first strand of the post-GATSevolution – namely to advance commitmentswithin e-commerce, digital products (e.g.downloads), including disciplines for the cross-border transfer of information, which alsocomprises “personal information, by electronicmeans”, as well as a ban on the forced localisationof computing facilities.

Although formal negotiations were concluded in2015, at the time of writing there remains a gooddeal of uncertainty as to whether the agreementwill ever be ratified by the parties, particularlyfollowing the withdrawal by the United States,and thus whether it will ever actually enter intoforce. However, this does not mean that theresults of the drafting exercise under the TPPnegotiations will have been lost, many of thenegotiating outcomes that emerged from the TPPprocess have found their way into othernegotiating fora, albeit often with various nuances.

Figure 4.1: Original 12 negotiating parties to the TPP

Source: The European Financial Review


51

4.1.4. Trade in Services Agreement and theTransatlantic Trade and InvestmentPartnership

One of the new agreements that could havepotentially adopted some of the negotiatingoutcomes achieved in parts of the TPP was theTrade in Services Agreement (TiSA), negotiatedfor four years (and counting) amongst a groupof 23 like-minded WTO members that wereoriginally called the Really Good Friends (RGF) ofservices. These plurilateral talks were formallytaking place outside of the framework of the WTOitself. TiSA is itself currently under re-evaluation.

A number of draft negotiating texts have beenleaked which provide insights into whichdirection these talks could have been headed. TheTiSA negotiating texts included proposals one-commerce bearing a strong resemblance tothe corresponding TPP text as well as variousproposals that diverged from the TPP orthodoxy.The differences of opinion within even supposedly“really good friends” clearly shows the differentapproaches and objectives being pursued ondigital trade. The outcomes that ultimately couldhave resulted from the TiSA talks on e-commercewere much more likely to accommodate the needfor further exceptions than both TPP and GATS,reflecting a balanced consensus from a broadergroup of countries than the TPP – especially,given the influence of the EU in TiSA. Given thisbalanced approach, China formally announced itsintention to join TiSA, which the founding partiesare yet to agree on. As TiSA may be reinitiatedin the near future – possibly under differentleadership – the exceptions may further divergefrom the GATS and TPP texts.

The Transatlantic Trade and InvestmentPartnership (TTIP) between the European Unionand the United States is another possible causalityof a similar political crisis and negotiation fatigue.The parties to the TTIP – the EU and the U.S. –comprise almost 50% of world GDP and nearlya third of global trade flows. Because tariffsbetween the EU and the U.S. are relatively lowafter almost 60 years of successive rounds ofmultilateral trade negotiations, the big gains interms of trade and investment liberalization thatthis initiative promised were in the area of non-

tariff barriers (NTBs) and regulatory impedimentsto increased economic integration – somethingthat proved more difficult than envisaged,especially in the detailed sectoral negotiationsin areas of interest for this White Paper, namelye-commerce and services.

Similar to the TiSA talks, TTIP shows how the EU’spositions on privacy and data protection leads toa need to define exceptions to the commonprinciples of open digital trade, more or lessderived from the TPP. Outside of cross border dataflows, publicly available texts on electroniccommunications and telecommunications seemto be little more than elaborations of many ofthe principles already laid out in the 1996 WTOTelecoms Reference Paper – an approach usuallytaken in EU FTAs; Likewise, the leaked draft ofthe TTIP chapter on technical barriers to trade( TBT ) comprises a restatement of the WTOTBT Agreement, with the important addition ofnon-discrimination in conformity assessmentprocedures – an approach that closely resemblesthat taken in the corresponding chapter of the TPP.

At the time of writing, it is generally agreed thatthe three new major initiatives on services – TPP,TiSA and TTIP (Figure 4.2) – are in stasis for thecoming political cycle. Yet it is important to bearin mind that the seemingly diverging views one-commerce were not the definitive issue thatbrought any of these agreements to a temporary

Figure 4.2: Overlapping trade agreementnegotiations in 2016

Source: Global Research Canada


52

halt. But rather, an era of mega-FTAs may come toan end due to much more pertinent domesticpolitical factors – various forms of populismand nationalism with a widespread sense ofdisillusionment over the effects of technologyand globalization on the fabric of society, or thedistributive effects of an increasingly integratedworld to the detriment of vulnerable political-economy constituencies.

4.1.5. Regional Comprehensive EconomicPartnership (RCEP)

The Regional Comprehensive EconomicPartnership (RCEP) currently being negotiatedbetween ASEAN and its six FTA partners(Figure 4.3: Australia, China, India, Japan, Korea,and New Zealand) was launched in November2012. Progress has been varied given the differentlevels of ambition and diverging degrees ofenthusiasm among what ultimately comprises aset of negotiating parties with highly divergentviews on the desirability and benefits ofinternational trade and investment liberalization(e.g., India and Indonesia, as compared to China,as compared to Japan, as compared to economieslike Australia, New Zealand and Singapore).Negotiations have been initiated within thecontext of RCEP on e-commerce and much of thediscussions have revolved around a similar set ofcore obligations to those found in the TPPe-commerce chapter. Given the presence of somecountries in these negotiations who have chosento intervene quite forcefully in their domestice-commerce frameworks and in which regulatorshave taken what many actors consider to be amore restrictive approach to regulating the digital

economy and digital trade, it is as yet unclearwhether the RCEP e-commerce provisions willinvolve a set of “hard” and enforceable obligationsmuch like those found in the TPP, or whether theywill be limited to a less ambitious set of largelyhortatory best-endeavor obligations in favor offuture cooperation.

For this reason, if and when rules on e-commerceemerge from the RCEP process, they are likely tocontain only some of the obligations enteredinto under the TPP. Nonetheless, if it can besuccessfully concluded, RCEP is likely to bea cornerstone of global economic governancein a post-TPP world. Given some of the parties tothe RCEP negotiations are genuinely concernedwith retaining policy space for their regulators,exceptions may be considerable in relation to thebinding disciplines that would constrain them.Given the current uncertainty surrounding theTPP, RCEP has emerged as a potential candidatefor the first regional platform where the newconsensus on trade governance of the digitaleconomy finds its home, and from which it willevolve and grow.

4.1.6. APEC Initiatives on the DigitalEconomy and Privacy

Codes of conduct for the digital economy are notonly negotiated as a part of trade agreements,but in the context of soft law and other forafor international cooperation. For example, theAsia-Pacific Economic Cooperation (APEC) group(Figure 4.4) can be credited with recognizing thepotential of the internet quite soon after thetechnology ’s worldwide adoption, havingadopted its Blueprint for Action on ElectronicCommerce as early as 1998 (the same year theWTO adopted its Electronic Commerce WorkProgram). The APEC Blueprint is a declarationthat essentially comprises two sections, namely1) a statement of principles, and 2) a workprogram. Among the principles elucidated, onefinds APEC affording a leading role to the privatesector when it comes to the development ofe-commerce technologies, applications, practicesand services. APEC Ministers also affirmed the roleof government in the then newly emerging

Figure 4.3: Geographical coverage of RCEP

Source: Wikimedia Commons


53

sector as being one of providing a favorable legaland regulatory environment characterized bypredictability, transparency and consistency. APECMinisters also emphasized their role in providingan environment that promotes trust andconfidence between e-commerce participants.Another principle stated in the 1998 APECdocument is that governments shall promoteefficiency in the functioning of internationale-commerce by aiming to develop “domesticregulatory frameworks which are compatible withevolving international norms and practices”. Thesection containing the statements of principlesalso recognizes that “although some degree ofgovernment regulation may be necessary,technology-neutral, competitive market-basedsolutions which can be safeguarded bycompetition policy, and effective industry self-regulation, should be favored”. Finally theprinciples recognize that governments andthe private sector must collaborate in thedevelopment and implementation of technologiesand policies in the realm of e-commerce in orderto “build trust and confidence in safe, secure andreliable communication, information and deliverysystems, and which address issues includingprivacy, authentication and consumer protection.”Now, almost 20 years later, the 1998 APECBlueprint seems to represent a remarkablyvisionary and prescient document in that itaddressed a number of the issues that today havebecome somewhat contentious, namely, the roleof government in regulating e-commerce and theacceptable level of government intervention inthe digital economy.

4.1.7. OECD on Privacy, Trans-border Flow ofPersonal Data and the InternetEconomy

Like APEC, the Organization for EconomicCooperation and Development (OECD) alsorepresents an important inter-governmentalorganization that produces policy statements andaction plans that affect different areas ofrelevance to the digital economy, particularlyprivacy, the trans-border flow of personal data,and the internet economy. In each of theseareas, the OECD generally tends to strikea consensus that invariably represents theviews of its member economies, which, except forKorea and Mexico, are all wealthy industrializedcountries from Europe, North America andAustralasia (Figure 4.5).

Figure 4.4: Geographical coverage of APEC

Source: APEC Secretariat

Figure 4.5: Geographical coverage of OECD

Source: Wikimedia Commons

In the area of privacy, the OECD was the very firstinternational organization to take up this issueand in 1980 adopted a first set of PrivacyPrinciples, which addressed such issues aslimitations on the scope of data collected, thequality of data collected on people (in terms offunctional relevance, proportionality, as well asaccuracy, completeness and being up-to-date),the need to specify the purpose for which data iscollected, limitations on the use of data, thesecure storage and processing of data, opennesswith respect to developments, practices andpolicies affecting personal data, the principleof individual participation and finally theaccountability principle, namely that those thatcollect data on individuals are accountable forcomplying with these principles. The 1980


54

Principles reflect the concerns of their time, ascitizens in advanced Western democracies wereslowly becoming cognizant of the capabilities oftheir governments and other organizations suchas credit card companies and banks, to gather,store and exploit massive amounts of personalinformation on individuals. Today these concernsremain, but in the digital economy datarepresents the lifeblood of the entire system, andso there must be suitable legislative andregulatory frameworks in place that support thecross-border flow of personal data. This was oneof the underlying rationales behind the 2013update to the 1980 OECD Privacy Principles. The2013 update saw the emphasis shift slightly infavor of this new reality, and culminated in theGuidelines on the Protection of Privacy and Trans-border Flows of Personal Data. These newGuidelines called for the establishment ofmultifaceted national privacy strategies with buy-in from the very highest levels of government, aswell as for the adoption of national privacymanagement programs for the operationalimplementation of privacy protection. The 2013Guidelines also sought to strengthen notificationprocedures to both national governments andthe affected individuals in the event of a databreach. The 2013 Guidelines also call for theinternational inter-operability of privacy regimesand the collection of more sophisticated data onthe functioning of different privacy regimes inorder to better inform ongoing and future policy-making processes.

Similarly, the OECD has been pursuing an agendaon the internet economy, with members longrecognizing the importance of the internet andthe digital economy as drivers of nationaleconomic growth and global welfare. Theseefforts culminated in the 2008 Seoul Declarationon the Internet Economy and the 2011Recommendations for Principles for InternetPolicy Making. These recommendations coversome very important aspects of internetgovernance and are discussed in more detail inChapter Five. Suffice to say here, however, thatOECD members recognize the value of an openand global internet and have committedthemselves to national and international multi-stakeholder governance frameworks that seek to

uphold the open and global nature of theinternet in the future.

4.1.8. The Future of Digital Trade Rules

In the context of this White Paper, it is importantto bear in mind that a new gold standard fordigital trade rules has emerged, by and largederived from the TPP. The coming generation ofFTAs will build on this benchmark to one extentor another, with exceptions likely for policy spacerelated to security and privacy concerns. This isnot the case for just TPP signatories and RCEP,but also for future bilateral trade agreements,such as the EU FTAs. Europe’s next majoragreement (e.g., EU-Japan FTA) is likely to containsome form of progeny of the TPP rules butreflecting EU priorities on privacy and dataprotection. Politically speaking, this standard alsocalls for an effective set of adequate exceptionsbased on the varying political sensitivities of theparticipants of each trade agreement, unique foreach FTA. For example, what the EU deems assensitive towards the U.S. may not be a sensitivityin its relationship with China or Japan.

What is more, the role of soft law, value-drivenand endeavor-based cooperation should not beunderestimated in their ability to play the role ofpolicy catalysts. This is particularly true atinternational organizations such as the OECD orAPEC, where members share similar economicconditions, development trajectories, or a commonset of regional policy objectives.

4.1.9. Trade Policy-Making in an UncertainFuture

International trade flows slowed to a trickle in theaftermath of the 2008 Global Financial Crisis, theresult of both a collapse in demand and thesudden drying up of trade finance. Althoughtrade growth seemed to recover somewhat asmajor economies slowly climbed back to theirfeet, it has not managed to maintain the steadyupward trajectory it experienced for many yearsprior to 2008. The reasons for this are still beingdebated by trade economist, but it is clear thatgovernments all over the world continue to resortto conventional and new forms of protectionistmeasures, as has become well documented in


55

reports produced by organizations such as GlobalTrade Alert as well as the WTO itself. Trade financehas also failed to recover to pre-crisis levels, forreasons that trade economists also continue todebate, but for which some lay the blame onBasel 3 and the high capital requirements itplaces on banks, long the major sources of tradefinance.

More recently, advanced industrialized nationshave seen a popular backlash unfold against theforces of globalization and economic integration,with the unexpected victory of the Leavecampaign in the Brexit vote being the first majorwarning bell, and which now sees the UnitedKingdom firmly planted on the path to anuncertain future as it attempts to manage itsdisentanglement from theEuropean Union. Equallyunexpected was the victoryof Donald Trump in the2016 U.S. presidentialelection, who like theother major candidates,had adopted a platformthat disavowed the TPPand promised to chart anew course for U.S. trade policy that would bevery different than that pursued over the lastseveral decades. Soon after being elected, thenPresident-Elect Trump reaffirmed his commitmentto withdraw the United States from the TPP andto henceforth use trade policy as an instrumentfor bringing jobs back to America. Economistsand seasoned trade policy experts all agreethat the jobs that left America in the last two tothree decades of global economic integrationare not coming back, so at the time of writing itremains to be seen what direction PresidentTrump’s trade policy will ultimately take,particularly given threats by President Trump towithdraw from both NAFTA and the Korea-US FTA(KORUS).

The prolonged deadlock and ultimate failure ofthe Doha Round should arguably have served asforewarning that “business as usual” was nolonger a viable option for the world tradingsystem, since firstly the developing world nowexpects to be taken seriously with its demands in

Geneva, but also because of seismic shifts takingplace in the developed world. In advancedindustrialized countries the constituencies infavor of continued trade and investmentliberalization are starting to break down, butmore importantly they wereare starting to bedwarfed by a growing and increasingly vocalmovement of workers on the wrong side of thedistributive effects that economic integration(offshoring) coupled with technologicaladvancement (automation) inevitably produce.

Until governments in advanced industrializedcountries can figure out ways to distribute thebenefits of trade and investment liberalizationmore evenly, and start making a coherent andpersuasive case that trade and investment

liberalization are beneficialforces, there will likelybe no overcoming theincreasingly entrenchedopposition to furthereconomic integration. Inlight of this reality, itseems more realisticto expect only veryincremental changes to

the existing framework of multilateral andpreferential trade agreements we currently havein force.

This sets the stage for progress to be made inother negotiating fora, particularly RCEP, but alsopossibly a reconstituted TiSA. It also provides anopportunity for others to show leadership indrafting and enacting the next generation oftrade rules for the digital economy.

4.1.10. The Road to Buenos Aires and MC11

In December 2017 the WTO will hold its 11th

Ministerial Conference since the organizationwas founded in 1995. MC11 will be hosted by theArgentinian Government in Buenos Aires. Atthe last Ministerial Conference (MC10), heldin December 2015 in Nairobi, WTO membersissued a declaration on electronic commerce inwhich they undertook to continue the workalready ongoing under the 1998 Work Programon Electronic Commerce (discussed above),

Soon after being elected, thenPresident-Elect Trump reaffirmedhis commitment to withdraw theUnited States from the TPP and tohenceforth use trade policy as aninstrument for bringing jobs back toAmerica.


56

instructed the General Council to hold periodicreviews and report on the outcomes of thesereviews at MC11, and finally members decided toextend the moratorium on the non-imposition ofcustoms duties on electronically downloadedproducts.

One such periodic review took place in July 2016and saw a flurry of proposals and statementssubmitted by WTO members both individuallyand in different groupings, and provided anopportunity for members to express their viewson where they believethe organization’s focusshould be leading up tothe next MinisterialConference in December2017 with respect tothe e-commerce WorkProgram and digital trademore generally. Mostmembers seemed to becautious in how theyapproached this issue, not wanting to advocatetoo vocally in favor of new negotiations lest sucha proposal inflame already existing tensionsamong different members on this and manyother issues. Many of the proposals called forcareful consideration and reflection amongmembers, with some seeming to more openlyfavor the WTO taking up a more active role in thearea of e-commerce and digital trade moregenerally.

Two proposals, from the United States and Japanrespectively, seem to advocate in favor, at least inthe long-term, of a set of rules-based outcomesvery similar to those that emerged in the TPPe-commerce chapter and the TPP TBT chapter(both discussed in more detail above).

Another proposal from a group of nine countriescomprising Canada, Chile, Columbia, Côte d’Ivoire,the EU, Korea, Mexico, Paraguay and Singaporebegan by briefly describing the way that digitaltechnology has transformed the global economybefore highlighting some challenges thatcurrently impede countries from realizing the fullbenefits of the digital economy, includingincreasing digital protectionism, inadequate

infrastructure and connectivity, and insufficientaccess to technology. The proposal then seeks toinform members in their efforts to address thesechallenges under the WTO’s e-commerce WorkProgram. It attempts to do this by mapping outdifferent e-commerce issues at the WTO underfour main headings (Figure 4.6), namely1) regulatory frameworks; 2) open markets;3) initiatives facilitating the development ofe-commerce and; 4) enhanced transparency ofthe multilateral trading system. The proposalconcludes by outlining what the next steps

could be, beginning byexhorting members tomake more effective useof the e-commerce WorkProgram so that the WTOcontinues to retain itsrelevance to the globaleconomy. Finally theproposal poses fourquestions to members,namely 1) whether the

mapping exercise it has embarked upon shouldinclude other e-commerce-related elements oftrade policy; 2) on what elements would WTOmembers like to have technical discussions;3) whether any elements could be pursued aspotential outcomes for MC11 and; 4) how andwhere members should discuss such elements.This proposal, which has been the focus of muchdiscussion since it was circulated in July 2016, isinteresting not only for the methodologicalmapping exercise it undertakes and the verypractical questions it asks of members, but alsobecause of the composition of the group ofmembers that circulated it. Canada, the EU, Koreaand Singapore represent advanced countrieswhen it comes to the digital economy and onlineconnectivity, while Chile, Columbia, Mexico andParaguay each representing largely open middle-income developing countries. Chile, Mexico andSingapore were party to the TPP negotiations andparticipated in the elaboration of the many rulesdiscussed above on digital trade in those talks.Finally Côte d’Ivoire’s presence seems remarkablesince it is the only LDC in this group.

Another proposal by a similarly eclectic group ofWTO members comprising Hong Kong, Japan,

The stage is set for progress to bemade in other negotiating fora,particularly RCEP, but also possiblya reconstituted TiSA. There is alsoan opportunity for others to showleadership in drafting and enactingthe next generation of trade rulesfor the digital economy.


57

Pakistan, Russia, Singapore and Taiwan, likewisebegins by extolling the transformative nature ofelectronic commerce for the global economy, butalso highlights the unique position of the WTO asthe “pre-eminent global forum for trade rulessetting and governance”. This proposal seeksto have members engage in discussions one-commerce issues and in furtherance of thisobjective asks members to answer threequestions. The first of these asks members toidentify existing barriers to e-commerce faced bystakeholders such as consumers, manufacturers,service providers, regulators and SME’s. The

second question asks members whether existingWTO frameworks and initiatives already addressthese barriers in part or in full. It also askswhether the WTO can or should address thesebarriers. The third question asks members toidentify current or future initiatives or practicesin the area of e-commerce at either theinternational, regional or domestic level.

Finally, yet another proposal has emerged fromthis process, namely one from the People’sRepublic of China, circulated in November 2016.This proposal calls for WTO members to focus on

Figure 4.6: Mapping exercise conducted by Canada, Chile, Columbia, Côte d’Ivoire, the EU, Korea,Mexico, Paraguay and Singapore as part of the July 2016 Review of the

WTO Work Program on Electronic Commerce.

Source: WTO (JOB/GC/97/Rev.1)

Regulatory Frameworks

• Enhanced transparency

• Consumer confidence enhancing measures

– Regulatory framework for consumer protection

– Regulatory framework for privacy protection

– Regulatory framework for cyber security

– Regulation of unsolicited communications

• Trade facilitating measures

– Open network/access to and use of the internet

– Addressing licensing and authorisation procedures

– Addressing electronic payments

– Access to and use of communications networks

– WTO Telecommunication Reference Paper

– Trade aspects of intellectual property rights

– Recognition of e-signatures/authentication

– Addressing e-procurement/e-auctions

– Technical standards

Open Markets

• Liberalisation commitments

– Services

* Commitments in e-commerce-relevant sectorse.g. (Telecom; computer; Mode 1 delivery;business services; professional services, etc.)

* Classification, e.g. adhering to the Understandingon Computer and Related Services

– Goods

* Tariff elimination, e.g. ITA

– Prohibition against custom duties on electronictransmissions

• Measures ensuring openness

– Disciplines ensuring cross-border data flows

– Disciplines with respect to localisation (localpresence – including of computer servers, localcontent)

– Addressing the transfer of and/or access to sourcecode

Initiatives facilitating the development of e-commerce

• Trade Facilitation Agreement/further custom facilitations measures/paperless trading

• Aid for Trade/Technical assistance

• Regulatory cooperation among Members and their regulatory authorities

Enhanced transparency of the multilateral trading system

• Greater focus on e-commerce at the occasion of Trade Policy Reviews

• DG Monitoring Report on protectionism could include a digital focus

• Exchange of information through e-commerce agenda items of the regular WTO Committees

MAPPING OUT E-COMMERCE ISSUES AT THE WTO


58

promoting and facilitating cross-border trade ingoods enabled by the internet (particularly B2Cand B2B transactions), in conjunction withservices directly supporting such cross-bordertrade in goods, such as payments and logisticsservices. The Chinese proposal also calls forextensive information exchanges on a range ofe-commerce and digital trade related issues aswell as for enhanced transparency on policiesgoverning cross-border e-commerce. Comparedto the expansive range of issues covered in otherproposals submitted in the context of the July2016 periodic review, the Chinese proposal ringsa relatively cautious note,but otherwise seemsgeared to furthering theglobal interests of majore-commerce players suchas Alibaba, and evenexplicitly refers to theElectronic World TradePlatform (eWTP) firsttouted in 2016 by Alibabafounder Jack Ma as Chinawas hosting the G20.

Reports on the July 2016 review session also notethat India and a number of African countriesadopted a similarly cautious approach, with someAfrican LDCs warning members not to stray toowidely from the work program alreadyestablished under the Doha DevelopmentAgenda (which many other WTO membersperceive as being dead for all intents andpurposes). Clearly the membership remains verydivided on these issues, and perhaps the best onecan hope for coming out of MC11 is a set ofmodalities or a roadmap laying out the issues onwhich negotiations can take place for the WTOmembership as a whole or for like-mindedgroups of members. In the near future, the mostlikely fora for progress remain a reconstituted andreinvigorated TiSA and (somewhat less likelyperhaps), a new work program on NTBs under theexpanded ITA.

What is clear from the e-commerce proposalssubmitted is that any new rules or market accesscommitments in this area will inevitably have to

be balanced against similar commitments undereither Aid for Trade or other capacity building andtechnical assistance frameworks that can helpdeveloping countries close the many gapsbetween themselves and developing countries indigital trade and online connectivity moregenerally.

4.1.11. UNCTAD and e-Trade for All

Launched at the 14th quadrennial Conference ofUNCTAD which took place in Nairobi, Kenya inJuly 2016, the e-Trade for All initiative focuses

on online platforms andthe transformative rolee-commerce can play inminimizing start-up costsfor SMEs and helpingthese businesses to scalein ways that would beunthinkable or at leastextremely difficult in theconventional (offline)economy.

By bringing together partners from both thepublic and private sectors, UNCTAD’s e-Trade forAll initiative seeks to itself provide a knowledge-sharing platform serving e-commerce businessesin the developing world, helping them to findboth information on best practices, but also toraise awareness of opportunities, challenges andpotential solutions. This new platform is alsointended to serve as a portal for developingcountries seeking technical and financialassistance to support the growth of theirdomestic e-commerce ecosystems.

The initiative is directed towards seven policyareas, namely: (1) e-commerce readinessassessment and strategy formulation – helpinggovernments determine what areas require moreactive policy interventions; (2) ICT infrastructureand services – focusing on both the availabilityand affordability of these elements; (3) tradelogistics and trade facilitation – acknowledgingthe need for complimentary policies to smooththe flow of goods in the real world; (4) paymentsolutions – promoting online payment options,

What is clear from the e-commerceproposals submitted is that anynew rules or market accesscommitments in this area willinevitably have to be balancedagainst similar commitments undereither Aid for Trade or othercapacity building and technicalassistance frameworks.


59

particularly for the unbanked; (5) legal andregulatory frameworks – seeking to balance theimperatives of consumer protection, privacy andcybersecurity against the need to facilitate onlinetransactions; (6) e-commerce skills development –raising digital literacy; and (7) access to financing– providing startups with access to credit to beable to grow and scale.

UNCTAD’s new e-Trade for All initiative representsa comprehensive and holistic approach to themany constraints currently impeding more of theworld’s poor, as well as both internet users anddigital entrepreneurs in developing countriesfrom seizing and leveraging the many opportunitiesthat the digital economy offers. We at Huawei areenthusiastic supporters of these efforts.

4.2. Substantive and Procedural Rules

This section discusses the different substantiveobligations emerging in the context of therule-making frameworks described in brief above.Where possible, we compare how some of theobligations agreed in one framework comparewith those under discussion in another.

4.2.1. Transparency and NotificationObligations

Transparency is one of the core principles of WTOmembership and it is given operational effect bya number of notification obligations that canbe found throughout the WTO Agreements.This is the case for example with GATT Article X(“Publication and Administration of TradeRegulations”), which requires WTO members tobe transparent when enacting and applying allmeasures of general application affectinginternational trade with other WTO members. Inthe same way, Article III (“Transparency”) of theGeneral Agreement on Trade in Services requiresWTO members to promptly publish any measuresof general application that would affect theoperation of the Agreement, and this arguablyapplies to any and all measures affecting thecross-border supply of services on whichcommitments have been taken, or which arelikely to affect the domestic regulatoryenvironment in any sector in which the servicessuppliers of any other member may operate (i.e.,the financial sector, the telecommunicationssector, even the retail sector).

WTO members are thus bound by far-reachingand generally all-encompassing transparencyobligations with regard to the trade-relatedaspects of their domestic economies, which, seekto impose certain disciplines on a wide range of

domestic regulatory agencies beyond simply theministry of trade or the ministry of foreign affairs,the two ministries that are most likely torepresent the member in question at the WTO.Such transparency obligations will inevitablyapply to any policy or regulatory acts that affectthe digital economy, and should be seen asa minimum requirement of internationallyrecognized internet governance practices.Moreover, transparency is a minimum requirementfor allowing traders to effectively comply with anyNTMs and TBTs, the so-called “comply or explain”approach of e.g., ASEAN FTAs.

4.2.2. Elimination of Customs Duties onDigitally Traded Products

A moratorium on the imposition of customsduties on electronic transmissions was firstagreed on a provisional basis at the WTO in 1998and has since been continually extended. TheTrans-Pacific Partnership sought to make themoratorium permanent among its signatories.This is a substantive obligation that, althoughslightly controversial among many developingcountries can generally be said to enjoy a fairlybroad consensus globally. As such, one can bealmost certain that this obligation will likely figureas part of any e-commerce chapter that resultsfrom RCEP.

This obligation is very important today becauseof a range of electronic media products that havelong been available in digital format, such asmusic, e-books, audiovisual content, anddownloadable software and computer games.The range of products that can be reduced tobinary code and transmitted electronically is onlylikely to grow, meaning that the importance of


60

the moratorium on customs duties for suchproducts is likewise certain to increase. It isenough to think about the range of productsconnected with the rise of the so-called appeconomy and to advances in 3D printing(discussed immediately below), which untiltoday have largely been limited to industrialapplications, but which are also poised to becomemore important for consumer and retail products.

In fact, 3D printing turns many fundamentalconcepts of international trade on their heads.To begin, market access may be governed bynumerous sets of rules, as what is actually tradedis just a digital file that is transferred to anothercountry where the physical good will actually beprinted. This issue is particularly pressing giventhat the use of 3D printing is spreading andcovering not only applications of fast prototyping,but also the production of intermediate and finalgoods. Such future applications and extension ofthe concept of “digital products” pose interestingtrade policy questions. For example, the digital fileper se does not have any value unless it isactually rendered into a physical object, whilesoftware, content and other digital products canbe consumed directly in digital format.

Another fundamental concept that could becalled into question as trade in digital productsand services becomes more ubiquitous is theconcept of technology neutrality. Most likely,some questions must be determined on a case-by-case basis in the course of litigation. However,since data transfers might replace the movementof physical goods, this revenue stream might dryup and tempt governments, particularly thosethat rely on tariff revenues as an important sourceof fiscal receipts, to tax data in various ways as analternative. Therefore, in order to ensure claritywith respect to the rules that apply to theseapplications and to avoid impractical andinefficient approaches to taxing data flows, manyin the digital economy feel that the moratoriumon custom duties on electronic transmissionsmust be made permanent and adopted by thevast majority of WTO members. Anotherapproach to this issue can be found in the drafte-commerce chapter of the EU-Mexico FTA that is

still under negotiation. Here trade in digitalproducts has been classified as trade in servicesand thus by definition not subject to customsduties.

4.2.3. Obligations on Free Flow ofInformation

The TPP contained a provision that sought toenshrine the right to transfer and accessinformation across borders in its e-commercechapter, but subjected this right firstly to a narrowscope of application, namely only for the sake ofconducting business, while secondly making thisobligation subject to an exception thatgovernments may invoke when imposingmeasures that would limit the free flow ofinformation for legitimate public policy purposes.Yet, this exception applies only if the measure isnot applied in a manner which would constitutea means of arbitrary or unjustifiable discriminationor a disguised restriction on trade, and providedthat governments do not impose measuresrestricting cross-border information flows ina way that is disproportionate to the public policyobjective being pursued. This exceptionslanguage is broadly similar to that found insimilar general exceptions clauses in both theGATT and the GATS, although it does not specifyin explicit terms what constitutes “a legitimate”public policy objective, and therefore a justifiablederogation from FTA commitments.

The draft version of the TiSA e-commerce annexthat was leaked to the public also containsa clause on the free flow of information, althoughit is obvious from the draft versions of the clausethat have been tabled that different parties to thetalks have different approaches and objectives.Some parties to the TiSA negotiations wouldprefer to see any provision on free flow ofinformation limited to addressing the protectionof user information in e-commerce, whereas otherparties wish the language to better reflect theneeds of service providers in terms of predictableand stable market access conditions, and a levelplaying field on which to compete against otherforeign or domestic suppliers of the same orsimilar services.


61

4.2.4. Forced Data Localization

Forced data localization is essentially theantithesis of free flow of information discussed inthe previous paragraph: A general prohibition onforced localization of server capacity (so calleddata localization) is found for the first time in thee-commerce chapter of the TPP. This refers tocases in which a company is required to eitheruse or locate server capacity in the implementingjurisdiction as a condition for doing businessthere. Data localization is a contentious issue inmany countries, particularly between exporters ofaffected services, on the one hand, and a numberof governments that have legislated or are in theprocess of considering legislation in this area onthe other.

At the time of writing, there are as many aseighty-three different regulations being appliedthat regulate how and when data can cross theborder of the country of residence of a citizenmaking use of a certain service (see Figure 4.7).Among these, some forty-seven measures requirethe service provider to use or locate computerfacilities in a specific country as a condition toconducting business in that territory. In addition,there are thirty-six regulations which imposecertain conditions for the transfer of data abroadwith localizing effect on data of varying degreesof restrictiveness.

a period marked by a growing number ofrestrictions on such transfers and demands bymany governments that electronic data be storedand processed locally. While many stakeholdersagree on the need to enact treaty languageeffectively constraining the use of data localizationlaws, some economic actors may look favorablyon expansive exceptions to negotiated limitationsto data localization measures in the hope that thelegal uncertainty leads to a surge in local demandfor their services. However, evidence shows thatdata localization rules can come at severe costsfor those economies that enact them, as shownin Figure 4.8. The estimated costs of datalocalization and its associated regulatory barriersare significant and run through the entireeconomy. As a matter of fact, data localizationbenefits businesses that would provide theirservices and goods at a less efficient rate, withnegative implications for productivity over theshort, medium and long terms, which as is well-known, can have serious long-run implications foreconomic growth.

80

60

40

20

0

No

. of

mea

sure

s to

CB

DF

Year enacted1960 1980 2000 2020

Figure 4.7: Rise in data localization measures

Source: ECIPE Digital Trade Estimates, 2016

A provision enshrining the right to transferinformation across borders by electronic meanswould be an important political statement in

Figure 4.8: Losses from data localizationmeasures

Source: ECIPE using GTAP

0

-0.5

-1.0

-1.5

-2.0

GD

P lo

sses

(in

%)

India Brazil Korea EU28 Indonesia China Viet Nam

-0.10-0.20

-0.40 -0.40-0.50

-1.10

-1.70

The conflict is essentially about the right ofgovernments and regulators to compel serviceproviders in the digital economy to localize datastorage and processing facilities in countries asa prerequisite for doing business there. Theinclusion of language in the TPP that constrainsthe freedom of action of regulators in this regardis seen as something of a victory by exportinterests, i.e., those who have businessesdependent upon cross-border data flows, and


62

this is something that is likely to be included toa similar degree in future trade rules. This was thecase for TTIP as well as the TiSA e-commercechapter. How the countries participating in RCEPdecide this issue will be very important, since itis likely to establish a broader internationalconsensus on this issue.

4.2.5. Mandatory Disclosure of Source Code

The TPP was also the first agreement tocontemplate the issue of forced access tosoftware source code. The e-commerce chapter ofthe agreement contains language that seeks toconstrain the ability of signatory governments torequire the mandatory disclosure of source codeas a condition for doing business in theirrespective territories. Unlike the correspondingprovisions on the free flow of information ordata location, the relevant clause in the TPPe-commerce chapter did not contain a publicpolicy exception, although the provision’s scopewas ultimately limited to mass-market softwareand would not be able to be invoked to counterregulatory interventions aimed at safeguardingsoftware used for critical infrastructure. As theterm ‘critical infrastructure’ is left undefined inthe agreement, there is a lot of space forinterpretation and thus arbitrary application inthis area. The draft trade agreement text that hasbeen tabled on mandatory disclosure of sourcecode in the course of the TiSA negotiationscontains proposed language very similar to thatcontained in the TPP. It is hard to predict how anypotential RCEP e-commerce chapter may play outon the source code issue, given the presence inthese negotiations of certain governments whichhave not shied away from using mandatorysource code disclosure requirements for foreignsoftware companies as a condition for thembeing allowed to operate on their markets.

4.2.6. Privacy and Protection of PersonalData

Privacy and the protection of user data hasemerged recently as a hot-button issue. Given theimportance of data to the digital economy, it isnot surprising that all of the international rule-making frameworks address this issue from one

perspective or another. Both the TPP and theleaked draft of the TiSA e-commerce chapteraddress this topic in a similar manner, namely byproposing a set of best-endeavor obligations forsignatories, and attempting to afford sovereigngovernments certain flexibilities for the differentapproaches they may take in protecting theprivacy of their citizens’ data. The balance to bestruck seems to be one of achieving a minimumlevel of trust and security for consumers andbusinesses to feel confident about engaging ininternet commerce, while at the same timeallowing commercial operators in the digitaleconomy enough space to innovate and developnew business models using the very largeamounts of data being generated by private andcommercial users.

The TPP sought to achieve this by setting forth anumber of obligations for signatory governments.First they must adopt or maintain a set of lawsand regulations that provides protection of thepersonal information of users, and in formulatingthese rules, governments are exhorted to takeinto account internationally agreed principles andguidelines. In addition to this, the relevantprovision of the TPP e-commerce chapter exhortsmembers to enforce laws on data privacy in anon-discriminatory manner in their jurisdictionsand to practice transparency on data protectionlaws with regard to both how individuals canpursue remedies in the case of a violation of theirprivacy and how businesses can comply with theapplicable data privacy laws. Finally, the TPP dataprivacy provisions exhort signatories to developmechanisms that allow for their different privacyregimes to be recognized as valid (a form ofmutual recognition agreement) and thuscompatible so as to be facilitative of the crossborder transfer of private user data upon whichthe modern digital economy relies.

4.2.7. Legislative Framework Obligations toFacilitate E-commerce

The e-commerce chapter of the TPP contains anumber of provisions that require or encouragesignatories to set up or maintain rules that aresupportive of e-commerce (Figure 4.9). Inaddition to those already discussed above on the


63

protection of personal privacy, a number ofdifferent legislative action obligations wereincluded in the TPP. One such obligation is thatsignatories must maintain laws and regulationsthat are consistent with either the 1996UNCITRAL Model Law on Electronic Commerce(MLEC) or the 2005 United Nations Convention onthe Use of Electronic Communications inInternational Contracts otherwise known as theElectronic Communications Convention or ECC.

In addition to the obligation to enact or maintainlaws governing electronic transactions, the TPPalso requires signatories to “adopt or maintainconsumer protection laws” for the benefit of“consumers engaged in online commercialactivities”. A similar provision is being consideredin the context of TiSA.

Finally, both the TPP and the leaked draft of theTiSA e-commerce annex set out an obligation onthe part of signatories to adopt or maintainmeasures to combat unsolicited commercialelectronic messages (spam). Here the emphasis ison requiring the producers of spam emails to

comply with a number of obligations thatempower recipients to minimize the incidence ofsuch emails, while at the same time equippingrecipients of these unsolicited messages witheffective legal remedies against producers ofspam that fail to abide by these spam minimizationobligations.

4.2.8. Technical Standards and ConformityAssessment Procedures

The TPP also includes a chapter on technicalbarriers to trade (TBT) which itself contains adedicated annex on information technologyequipment that will be of interest to vendors ofhardware and devices in the digital economy. TheTBT chapter incorporates the disciplinescontained in the corresponding WTO Agreementbut goes slightly further in constraining theuse that signatory governments can make oftheir own mandatory conformity assessmentprocedures. It achieves this by introducing anational treatment obligation for conformityassessment procedures, requiring signatories torecognize testing and certification carried out

TPP E-Commerce Chapter: An Industry Wish List of New Rules

No Customs DutiesPermanent moratorium on customs duties for electronically downloadedproducts (music, books, games); Implications for 3D printing?

Non-DiscriminationEqual treatment to all digital products created, produced, published,contracted for, commissioned, or first made available on commercial terms in the territory of another Party.

Access to and Use of the InternetHortatory language on recognizing the benefits of consumers having access to and use of services and applications of their choice and being able to use devices of their choice to access the internet.

Cross-Border Information TransferObligations to allow the cross-border transfer of information provided it’s for business purposes but subject to exceptions (legitimate public policy objective) with similar language to the GATT Article XX Chapeau.

Localization of Computing FacilitiesBasic ban on data localization, subject to a similar exceptions clause to cross-border information transfer.

Mandatory Disclosure of Source CodeBasic ban on requiring suppliers to disclose source code, but limited in scope to mass-market software and excludes software for critical infrastructure.

Compatibility of Privacy RegimesDuty to adopt a domestic data privacy regime in accordance with international “principles and guidelines”: transparency requirements; compatibility of different privacy regimes.

No Customs Duties

Non-Discrimination

Access to and Use ofthe Internet

Cross-Border InformationTransfer

Localization of ComputingFacilities

Mandatory Disclosureof Source Code

Compatibility ofPrivacy Regimes

Figure 4.9: Summary of TPP e-commerce chapter commitments

Source: Huawei


64

by another signatory’s qualified bodies. The TBTchapter also contains a number of new andfar-reaching transparency obligations that, ifimple-mented faithfully, would ensure that infuture, technical regulations and product standardsare developed in consultation with stakeholdersrepre-senting the interests of domestic industry,consumers and trading partners.

The dedicated annex within the TPP chapter ontechnical barriers to trade essentially focuses ontwo issues, cryptography and electromagneticcompatibility testing. With regard to the first ofthese, the annex’s provisions are intended tosafeguard both the integrity of any cryptographytechnologies that manufacturers or suppliersof a product may use aswell as their freedomof discretion in optingin favor of any one suchtechnology over another.Thus TPP signatories cannotcompel manufacturers orsuppliers to disclose howa particular cryptographytechnology works or forcethem to either work witha domestic partner orchoose a given form ofthe technology. With respect to electromagneticcompatibility, the provisions of the dedicated ICTannex require signatories to accept a supplier’sdeclaration of conformity, which on its face wouldseem to be a very far-reaching obligation andcould have significant benefits for the ICTindustry if this was to become international bestpractice and adopted in future trade agreements.

4.2.9. Specific Commitments on Trade inServices

The TPP also contains a chapter on cross bordertrade in services that will be of direct relevance tothe digital economy. First and foremost, thechapter’s scope extends to any measures thataffect “the purchase, use, or payment for, a service”,as well as measures affecting “the access toand use of distribution, transportation ortelecommunications networks and services inconnection with the supply of a service”. The

relevant TPP provisions impose far-reaching due-process requirements and transparencyobligations in connection with the regulation ofservices and the issuing of permits to provide anyservices in a signatory economy, which will applyto the supply of digital services as it will to anyother services. Finally, the cross-border trade inservices chapter of the TPP contains a provisionentitled “Payments and Transfers” whichcircumscribes the ability of signatories to imposea de facto restriction on cross-border trade inservices by impeding the processing of paymentsfor them.

The negotiations taking place in the contextof TiSA likewise looked set to achieve an

important number ofcommitments that wouldlimit the scope of nationalregulators to arbitrarilydisrupt or impede thesupply of services andwhich would otherwisebe formulated in a waythat would be broadlysupportive of the digitaleconomy and globale-commerce.

4.2.10. Intellectual Property Rights

Intellectual property rights are important in thedigital economy and are facing new challenges.The TPP seeks to strike a balance between theneeds of traditional content creators, such as themotion picture and record label industries as wellas publishing houses, against the interests of bigand more recently emergent players in the digitaleconomy that provide new and innovativeplatforms for the dissemination of such mediaand who seek protection against litigation bycopyright owners. The negotiating outcomes thatemerged in the TPP are likely to represent abroad international consensus and will probablyfind corollaries in RCEP and (eventually) even theWTO. As of today, IPR issues are covered at themultilateral level by the Agreement on Trade-Related Aspects of Intellectual Property Rights( TRIPS), which only prescribes the minimumstandards of protection while national laws are

The TPP TBT chapter contains anumber of new and far-reachingtransparency obligations that, ifimplemented faithfully, wouldensure that in future, technicalregulations and product standardsare developed in consultation withstakeholders representing theinterests of domestic industry,consumers and trading partners.


65

those that govern IPRs in substance. This hasresulted in a fragmented approach which makesit harder to cope with new digital challenges andmight prevent the development of new digitalsolutions.

The TPP provisions on copyright begin withhortatory language exhorting signatories to“achieve an appropriate balance” in theirrespective copyright regimes by using limitationsand exceptions whereappropriate for “legitimatepurposes”. The relevantTPP provisions nameseveral of these limitationsand exceptions, includingcriticism, comment, news,reporting, teaching,scholarship and research.There are also provisionsin the IP chapter ofthe TPP that requiresignatories to put in place and enforce civil andadministrative procedures and remedies againstpersons who knowingly circumvent any technicalprotection measures or knowingly remove anyrights management information intended toprotect the rights of copyright holders.

The TPP IP chapter also contains a dedicatedsection for internet service providers (ISPs) andrequires signatories to provide them with

so-called “safe harbors” by means of which ISPsare shielded from legal liability for copyrightinfringements provided that they cooperatewith content owners in trying to minimize theincidence of such infringement (by say removingor disabling access to copyright-infringingmaterial from websites at the request of rights-holders). The existence of a safe harbor isconsidered a key success factor for the emergenceof innovative services. As a safe harbor framework

provides intermediarieswith sufficient legalcertainty to conduct theiractivities free from thethreat of potential liabilityand the chilling effectof potential litigation.According to the dataavailable on sixty-fourcountries in the DigitalTrade Estimates databaseof the European Center

for International Political Economy, at least sixteeneconomies currently lack a framework thatprovides a safe harbor for intermediaries, while atleast twenty-nine countries have exceptions inplace on the scope of liability. The fact that thisissue was addressed in the TPP is of course nocoincidence. Time will tell if similar provisionsbecome a staple of the IP chapters of future tradeagreements.

The existence of a safe harbor forISPs is considered a key successfactor for the emergence ofinnovative services and providesintermediaries with sufficient legalcertainty to conduct their activitiesfree from the threat of potentialliability and the chilling effect ofpotential litigation.

4.3. The Dynamics Driving New Rules for the Digital Economy

4.3.1 Past Current and Future NegotiatingFora

As discussed above, a new set of rules is startingto emerge that is designed to augment andclarify the current WTO system of “analog rules”,and to articulate a fragile and still emergingconsensus on the kinds of policies governmentscan and should enact to regulate internationaltrade and investment in the digital economy. Theformulation of these rules has so far been drivenin no small part by the interests of a small groupof well-organized technology companies mostnotably from the United States. Although

European companies have themselves been bothcoordinated and active in communicating theirviews and interests to the European Commissionand the European Parliament, these efforts havenot as yet found any manifestation in the form ofsubstantial e-commerce chapters in the FTAs thatthe EU has been negotiating in recent years withits trading partners, except of course where theUnited States is also at the negotiating table. Untilrecently, other developed countries (e.g., Japan,Canada, etc.) have also not been very proactiveon the digital trade front but have generallyshown themselves to be supportive of others’initiatives in this area.


66

0

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.20

TPP TiSA EU TTIPAPECRCEP

0.16

0.14

0.090.08

0.050.04

As a general matter, until very recentlydeveloping countries on the other hand haveeither been silent or defensive on these issuesand have largely viewed efforts to negotiate rulesin this area as an attempt to limit them in theirregulatory autonomy or even as a direct affrontto their economic development ambitions (anattempt to “kick away the ladder” ) . This issurprising since many developing countriesbenefit from the digital economy in ways that aresimilar to developed countries, such as themassive business process outsourcing industriesthat have netted some developing countriesbillions in services exports. Research by McKinseyGlobal Institute finds that cross-border flows ofdata have increased worldGDP by an estimatedUSD2.8 trillion, exertinga larger impact than theglobal flows of goods.Developing countries(and in general countrieswhich are found at theperiphery of the networkof global data flows) are found to benefit themost from cross-border data flows as these allowfor new ways of engaging with the globaleconomy and of overcoming local marketconstraints, especially when it comes toconnecting with customers, suppliers, financingand talent worldwide. The negotiations currentlyongoing in the context of TiSA, as well as thepotential of seeing an e-commerce chapterconcluded under RCEP, arguably offer developingcountries and emerging markets a chance tohave their interests better reflected in negotiatedtrade agreement texts than has been the case upto now. The positive economic benefits of internetuse for the purpose of bridging the digital divideneed to be better understood, and these need tobe embraced as negotiating objectives.

4.3.2 Regulatory Divergence within FTAs

As shown in this section, there is great diversitywhen it comes to the extent of commitmentsundertaken in different FTAs and negotiating fora.This is inevitably related to how the regulatoryenvironments of signatories and participants tonegotiations differ. As a general rule, if the parties

have already a modern and open framework toregulate digital issues domestically, they arealso more likely to commit to high levels ofcooperation on digital issues externally withother countries. However, this is only part of thestory. In fact, when looking more in detail atrecent FTA negotiations, it is striking howcurrently the deepest levels of integration andcommitment related to the digital economy havein fact been achieved by countries with moredivergent regulatory frameworks on digital issues.This is summarized in Figure 4.10, which showsfor certain agreements the level of regulatorydivergence between signatories or negotiatingpartners of an FTA when it comes to digital issues.

The fact remains thatthe agreements involvingcountries which havethe highest degrees ofregulatory divergencerelated to digital issues(namely, APEC and TPP)are also the agreementswhere a deep level of

commitment on digital issues has been achieved.Similarly, in the context of other negotiationswhere one would expect deeper levels ofcommitments on digital issues due to lessregulatory divergence between negotiatingparties (such as the TTIP), consensus in thesenegotiations seems to have proven much moreelusive. Taken together, it is revealing that thereasons for commitment and non-commitmentsgo beyond economics, as a clear politicalcommitment is needed in order to bring forwardthe market integration agenda.

The formulation of these new ruleshas so far been driven in no smallpart by the interests of a smallgroup of well-organized technologycompanies most notably from theUnited States.

Source: ECIPE

Figure 4.10: Regulatory divergence in digitaltrade across FTAs


67

4.3.3 Interests and Interest Groups

As alluded to above, the formulation of theserules has up to now been driven by a relativelysmall group of technology companies andtheir trade associations, and less so bytelecommunications companies and otherbusiness and consumer interests. This is largelythe result of both the global dominance of manyof these companies in the digital economy,but also the many opportunities that the tradepolicy formulation processes, particularly in theUnited States, offer to well-organized groups toinfluence agendas andoutcomes in internationaltrade negotiations. Be thatas it may, there are clearlyother interests besidesthose of big business tobe considered andadvocated in internationaltrade talks on the digitaleconomy. A number ofgroups concerned withthe needs of users and consumers have alsoemerged, such as the Electronic FrontierFoundation that has well thoughtout andsophisticated policy views, which it advocates onissues such as privacy, cybersecurity, andcopyright, predominantly in the Americandomestic legal and regulatory context. Outsidethe United States and operating in a moreinternational context, there are groups like theWorld Wide Web Foundation and the InternetSociety, dedicated to openness of the internet asa medium of information sharing available toanyone anywhere.

In terms of identifying interests that all users ofthe internet share, views and approaches differ.Universally accepted values may be difficult toidentify but certainly anyone who connectsonline ideally wants to be able to do so easily,reliably and cheaply, and to be able to find anduse the information and services he or she wantswith as little obstruction as possible and withoutsuffering the negative consequences offraudulent behavior. This means that internet

users must also be safe with respect to theirpersonal and financial information, and must beable to browse websites and use apps free ofharassment by unsolicited commercial interests,unscrupulous advertisers or – even worse –fraudulent hackers seeking to steal their personaldata in order to access credit card numbers orbank account information. When engaging withand sharing their information with online serviceproviders, users also want to know that theirpersonal data will not be accessed by unauthorizedthird parties, in particular governments, eithertheir own or those of foreign countries. Finally, all

users can arguably besaid to desire easy andsecure online paymentsystems, without arbitrarylimitations or restrictionson their use.

In terms of the interestsof suppliers and serviceproviders in the digitaleconomy, these are

largely congruous to the interests of marketactors in the real world, in that they wantpredictable and effective market access,transparency and fairness of market terms andthe ability to understand and comply with anylaws and requirements upon which such marketaccess is contingent. They also wish to be free intheir choice of technologies and business modelsto the extent this does not run contrary to anyoverriding public policy interests. Suppliers andservice providers also wish to be treated equally,and be confident that they will not be undercutby the arbitrary interventions of governments orregulators in favor of their competitors, which canbe done in a range of ways, such as prescribingthe use of proprietary technology, the mandatoryapplication of non-universally adopted standards,or by subsidizing one set of industry players tothe detriment of others. Many of these interestsare starting to be reflected in the negotiatingtexts analyzed above and will continue to be thefocus of debates between different countries innegotiating fora like TiSA and RCEP in the comingyears.

Suppliers and service providersin the digital economy wantpredictable and effective marketaccess, transparency and fairnessof market terms and the ability tounderstand and comply with anylaws and requirements upon whichsuch market access is contingent.


68

4.3.4 Regulatory Autonomy, IndustrialPolicy and the Risk of Fragmentation

As discussed in Chapter Three of this White Paper(Emerging Legislative and Regulatory Trends),many governments in both developed anddeveloping countries are finally catching up withthe technological advent of the digital economyand starting to regulate in ways that are bothlong-overdue and welcome, as well as – in somecases – potentially more ominous for its futuregrowth. In the developed world, most of thedebate focuses on privacy and security, whichhave been ongoing concerns for several years,but which are currently subject to divergingviews on the increasing use of end-to-endencryption in instant messaging platforms and towhat extent it should be possible for lawenforcement authorities to compel technologycompanies to provide them access to devices anduser information (as well as the actual messagessent) in the case of criminal investigations or inthe face of an overriding and urgent threat tonational security. This is also a trade issue sincea lot of these technology companies operateinternationally and transfer user data acrossborders. It is likewise a trade issue because manytechnology companies do not want to be subjectto laws and regulations compelling them tocomply with any such orders from lawenforcement authorities in either their homejurisdictions or in foreign markets, and would liketo see effective constraints on this sort of behaviorincluded in international trade agreements.

From the perspective of developing countries,regulatory and law-making activities in the digitaleconomy have on the one hand focused to alarge degree on increasing the size and value oftheir participation in the digital economy andglobal ICT supply chains, while on the other handseeking to ensure that domestic regulators andlaw enforcement authorities can play an effectiverole in regulating and policing the activities ofinternational technology companies despite orperhaps directly because of the fact that suchcompanies are not beholden to just onejurisdiction and thus may be perceived as havingmore leeway to engage in cross-borderregulatory arbitrage and thereby escape orcircumvent many of the legal and regulatory

constraints to which domestic suppliers andservices providers are inevitably subject.

Despite the differences in concerns andapproaches by governments and regulators indifferent countries, the internet and the digitaleconomy have thrived thanks to the ease withwhich information, digital products and servicescan effortlessly and instantaneously crossinternational borders. This is one of the definingcharacteristics and intrinsic strengths of theinternet and any policy, law or regulation thatundermines this ease must be carefullyconsidered. The interventions of somegovernments have resulted in an internet thattoday is much more fragmented along nationallines than was the case in the early years of thetechnology. This is cause for concern bytechnology companies, online service providersand users.

4.3.5 Crafting Digital Trade Rules in theService of Development

If we consider that the three largest causes ofthe digital divide are (1) infrastructure deficits,(2) affordable access to online connectivity, and(3) insufficient digital literacy in much of thedeveloping world, it seems equally clear howtrade rules can be crafted to support developingcountries (Figure 4.11).

On the infrastructure side, initiatives like theITA and ITA2 offer a clear path for countries toeliminate tariffs on these vital goods, andorganizations like the Information Technologyand Innovation Foundation (ITIF) have publishedcompelling research on the economic andbusiness arguments for governments to do so.Here, the onus is on those countries who arealready signatories to the ITA and ITA2 to expandthe Agreement’s membership, monitor its faithfulimplementation, and review its product scopefrom time to time to ensure that it remainstechnologically relevant.

Yet another set of barriers on the infrastructureside can be found in the use made of high-impactand discriminatory trade barriers that targetequipment vendors on the basis of theirnationality and effectively deny them market


69

access, much to the detriment of prices forinfrastructure, since these markets are typicallycontested by a very small number of vendorsin any event. The same price distortionsare prevalent from the use of local contentrequirements, which trade rules could alsodiscipline more stringently.

The other big trade barrier to infrastructure is ofcourse comprised by technical regulations andconformity assessment procedures. The TPPsought to impose a national treatment obligationfor conformity assessment procedures, andindeed the multilateralization of such anobligation would be hugely facilitative ofinternational trade in ICT products. For now, WTOmembers must decide in the coming monthswhether they wish to launch negotiations onnon-tariff barriers under either the expanded ITAor some other multilateral instrument. At theregional level, it remains to be seen whetherinitiatives like RCEP will also seek to minimize theimpact of technical barriers to trade.

On the affordable access side of the equation, thisis largely a matter for national governments,who must ensure that their domestic

telecommunications markets remain competitive.The global downward trend in costs for bothfixed and mobile data access seems todemonstrate some success in this area. Most FTAstoday contain chapters on telecommunicationsservices that seek to entrench principles of faircompetition in this sector. In addition to this, theWTO Telecoms Reference Paper that many WTOmembers have signed up to, represents avisionary document setting out internationallyrecognized best practices in the regulation oftelecommunications services. Efforts to expandthe number of WTO members who commit to theReference Paper and help developing countrieswith technical assistance to faithfully implementthese commitments would also represent anotherstep the global trading community could take toboost affordable access in as many countries aspossible.

On the digital literacy side, this is again largely anarea where domestic governments can lead butthe international community can help. There isalso a meaningful role for internationaldevelopment assistance in this space in theabsence of accessible and affordable marketsolutions. The impact that trade rules can have

Figure 4.11: Crafting digital trade rules in the service of development

Infrastructure deficits Affordable access Digital literacy

Cross-cutting issues

• Expand membership of ITA and/or ITA2;

• Review the desirability of new rules on NTBs for ICT goods.

• Access to telecommunications services markets;

• Free and fair competitive environment on domestic markets;

• Regulatory best practices.

• Free flow of data to support access to information and knowledge sharing;

• Cross-border supply of education services.

• Avoid anything that raises the cost of doing business in the digital economy (data localization, mandatory disclosure of source code• MRAs to ensure the inter-operability of domestic privacy regimes so they are not a barrier to the cross border flow of information• Implementation of the WTO Trade Facilitation Agreement

Source: Huawei


70

are limited but nevertheless important. Ensuringthe free flow of data, so that internet users indeveloping countries can access and exploit themany information and knowledge-sharingplatforms available to them is an importantcontribution trade rules can support. The cross-border supply of education services is also possiblyan issue where trade rules and liberalization ofthese areas can help to raise digital literacy levels.

There are also areas of cross-cutting importancewhich have been discussed above in some detailbut which we will re-iterate here in brief. Anypolicy interventions that increase the cost ofdoing business in the digital economy have to becarefully weighed against the importance of thepolicy objective being pursued. Governmentsshould not fear entering into international treatycommitments in the area of data localization,mandatory access to source code or ensuring thecross-border flow of information, provided suchcommitments are qualified by reasonable andprecisely defined public policy exceptions.Likewise, striking the right balance betweenprivacy protection and the free flow of data is anarea where trade agreements can be supportiveof domestic legislative and regulatory agendas,particularly in the form of mutual recognition

arrangements such as we have seen recentlybetween the world’s largest digital economies,the United States and Europe, in the form ofPrivacy Shield. Where developing countries canprove that their privacy regimes meet adequacyrequirements, they should be permitted andencouraged to accede to such arrangements, andtrade rules can also be leveraged to support thisobjective.

Finally any trade rules that help to further reducetrade costs are to be actively supported, since inthe zero-tariff world that dominates much (albeitnot all) of international trade in ICT products,trade costs now represent an important elementand can significantly erode companies’ margins.In this vein, the WTO Trade Facilitation Agreementthat recently entered into force is to be applaudedand efforts to ensure the proper and comprehensiveimplementation of its commitments are to bewholeheartedly supported.

Because developing countries stand to be someof the biggest winners from any expansion of thedigital economy (in China, the e-commerce marketis predicted to double by 2020), developingcountries should also be at the forefront ofcrafting this new generation of trade rules togovern the digital economy.


71

4.4 Key Points for this Chapter

01

02

03

04

The various new trade agreements being negotiated are predominantlyfocused on addressing only one aspect of the digital economy

(e-commerce), and need more input from the broader digital economyconstituencies being affected.

TiSA and RCEP are a timely opportunity to incorporate broader interests.In addition, because uniform rules will tend to make global businessmore efficient for the global ICT industry, innovative approaches shouldalso be pursued at the WTO, where a possible Digital TradeAgreement could be negotiated.

Hauwei’s guiding principles underlie our approach, namely our support forfree trade and our dedication to competing fairly to promote the healthy

development of the global ICT industry, and this is also the basis forHuawei’s thought leadership.

Trade rules have an important role to play in supporting developmentoutcomes and expanding the reach of the digital economy so thatmore of the world’s people can leverage its many benefits.

The next Chapter sets out Huawei’s vision for an optimal trade regime for the digital economy.

Chapter FIVE | A Vision for an Optimal Trade Regime for the Digital Economy

73

CHAPTER FIVE | A VISION FOR AN OPTIMAL TRADE REGIME FOR THE DIGITAL ECONOMY

This Chapter outlines what an optimal framework for the digital economy could look like, namely onethat is characterized by a level playing field and non-discriminatory access to commercial opportunitiesin a spirit of fair and open competition. It also addresses the importance of global investment rules andtrade in achieving the goal of bridging the digital divide. It then discusses how the domestic policyframeworks and corresponding international trade agreement rules can be formulated and implementedin such a way that both meets reasonable regulatory objectives and does not act as a disguised restrictionon international trade, or in a manner which unfairly favors one set of industry players to the detrimentof others. This Chapter discusses the potential benefits of rules that enable innovation, that encouragedeployment of ICT solutions in order to bridge existing digital divides, that promote technology neutrality,an open internet, flexible and compliant approaches to increasing domestic value-add requirementsamong others. Finally this Chapter makes a set of compelling policy and economic arguments in favor ofthe positions taken.

5.1. Huawei’s Position on International Trade ..................................................................................................... 745.1.1. Open Cooperation .................................................................................................................................. 745.1.2. Fair and Open Competition ................................................................................................................. 755.1.3. Respect for Intellectual Property Rights ......................................................................................... 765.1.4. Minimizing the North-South Divide by Focusing on Strengths and Value ....................... 77

5.2. What Makes the Digital Economy so Special and Why are Special Trade Rules Needed? ........ 785.2.1. The Role of Commercial Middlemen: The End of Conventional Intermediation ............ 785.2.2. Diminishing Information Asymmetries ........................................................................................... 805.2.3. The Long-Awaited Level Playing Field ............................................................................................ 81

5.3. Emerging Consensus and Remaining Differences .................................................................................... 835.3.1. Low-Hanging Fruit and Quick Wins .................................................................................................. 835.3.2. Policy Areas of Ongoing Contention ............................................................................................... 845.3.3. The Need for Narrowly Formulated Exceptions Clauses .......................................................... 85



74

Rest of the world,15.4

Other participants,6.3

Thailand, 1.8

Canada, 2.3

Malaysia, 2.8

Chinese Taipei, 4.2

Korea, 4.5

Japan, 5.3

Singapore, 5.7

EU(28), 12.1

United States, 14.3

China, 25.1

EU(28), 14.7

China, 22.5

United States, 13.4

Japan, 10.5

Singapore, 9.1

Korea, 7.2

Chinese Taipei, 7.1

Malaysia, 3.4

Thailand, 1.7Switzerland, 1.4

Otherparticipants, 3.4

Rest of the world,8.9

As a company operating in more than 170countries and territories, as well as providing avery diverse range of goods and services up anddown the entire value chain of the digitaleconomy, our position on international trade ingeneral was established years ago, although itcontinues to evolve in the face of technologicaladvancements, new risks and ever-emergingchallenges. Huawei is a collaborative industrycontributor and we cooperate openly, supportfree trade and compete fairly to promote thedevelopment of a healthy global ICT industry. Weare also a company that places the highestpossible premium on compliance and haveentrenched the need to comply with allapplicable laws and regulations into our strategicdecision-making processes and our day-to-dayoperations. We describe these values in moredetail below, before discussing what makes thedigital economy such a particular force forenhancing global welfare and thus why it is soimportant that national governments share thesame vision for the digital economy’s future tradegovernance.

5.1.1. Open Cooperation

For a relatively young company, Huawei has anestablished track record of industry cooperationon a range of technical and policy issues such as5G or cloud computing, as well as spectrum

allocation and ultra-broadband. We are presentand actively engaged in all the major standard-setting organizations. We participate in globalthought leadership activities such as the WorldEconomic Forum, the WTO Public Forum andUNCTAD’s e-Trade for All initiative. We have alsobegun to play an increasingly active role inindustry organizations that elaborate andadvocate policy positions in different areas ofnational legislation and international cooperation,such as the Silicon Valley Leadership Group andDigital Europe. Going forward, we see manyopportunities for us to expand and deepen ourindustry advocacy and consider doing so animportant element of our thought leadership.One recent but important example of Huawei’sengagement with industry partners andgovernment stakeholders should suffice todemonstrate the win-win approach Huawei takesto open cooperation in international trade.

The WTO Information Technology Agreement,originally signed in 1996, has been one of theunderpinnings of the growth in the digitaleconomy over the last two decades, with theoriginal list of 29 signatories growing to 82,thereby effectively covering a reported97 percent of world trade in informationtechnology products (Figure 5.1). The ITA’s scopeextended to a broad range of high-tech goodsincluding computers, telecommunications

5.1. Huawei’s Position on International Trade

Figure 5.1: Global imports and Exports of ITA products

Source: WTO

Share of imports of products covered by the ITA,by WTO member, 2011-2013 (%)

Share of exports of products covered by the ITA,by WTO member, 2011-2013 (%)


75

hardware, semi-conductors, software, scientificinstruments, high-tech manufacturing and testingequipment, as well as parts and components ofall of these products. Despite such broadcoverage, after a decade and a half, the ITA hadbecome somewhat outdated in terms of productcoverage following the rapid technologicaladvancements made over the same period. Forthis reason, in May 2012, as the Agreement turned15 years of age, product expansion negotiationswere launched. We at Huawei recognized theimportance of these negotiations, not only to ourown bottom line but to the global industry as awhole. Working together with our partners in theprivate and public sectors, both within China butalso in the other countries involved in thenegotiations where we are present, we supportedthe process of formulating offers and requestsand ultimately succeeded in getting 34 of ourown products included inthe list of 201 new ICTproducts that will qualifyfor duty-free marketaccess in the fifty-fourWTO members thatultimately signed the newagreement in December2015. As importantly,Huawei aligned itself withits global industrypartners in advocating for a strong ITA update.According to the WTO, “[a]nnual trade in these201 products is valued at over $1.3 trillion peryear, and accounts for approximately 7% of totalglobal trade today”. This was thus a significant winfor Huawei, but it was also a win for the global ICTindustry as well as consumers of these productsworldwide.

5.1.2. Fair and Open Competition

Huawei has come from very humble beginningsto become a global ICT industry leader. From thevery earliest days of the company we have beenexposed to the sometimes harsh winds ofcompetition as we began in China facing alreadyentrenched foreign ICT giants, leaving us toscramble for market share in rural markets. Wethen took the hard-won lessons we had learnedinto other markets, expanding globally while

partnering with operators and governments tobuild the backbone telecommunicationsinfrastructure in countries and regions with someof the toughest geographic and climatologicalconditions on earth. We are no stranger tocompetition, nor do we fear it. In order to operatein the many markets where we partner with ourcustomers, we essentially only need two things:predictable market access, and to be treated thesame as other market actors (non-discrimination).We are in favor of fair and open competition,where all players are afforded market accessunder the same terms and treated equally byregulators. These two conditions form thebedrock of our understanding of fair and opencompetition.

We recognize the extreme competitiveness ofglobal product markets in the technology sector

and the rapid pace ofchange to which thesemarkets are subject, withindustry titans regularlyrising and falling. Werecognize that this isa global market in whicha company ’s relativestrength is dictated by itsability to innovate andstay at the forefront of

technological developments, providing customersand consumers with the latest cutting-edgetechnologies, products and solutions. The highlevel of competition in our industry has allowedus as a company to understand the importanceof customer-centricity and pushes us tocontinually strive towards and achieve ourambitious growth targets. We are well aware thata lack of competitive forces leads to complacencyand stagnation, which is something we cansimply not allow ourselves to succumb to if wewant to stay relevant and maintain our successfulgrowth course.

We view trade and investment liberalization asimportant drivers and facilitators of these globalcompetitive forces. As such, we as a companyadvocate in favor of closer economic integrationbetween all of the countries and territories inwhich we operate, as well as in favor of more

We are no stranger to competition,nor do we fear it. In order tooperate in the many markets wherewe partner with our customers, weessentially only need two things:predictable market access, and tobe treated the same as othermarket actors.


76

Huawei Tops International Patent Filing in 2014International patent applications fied under the Patent Cooperation Treaty in 2014

1 391

1 399

1 450

1 512

1 539

1 591

1 682

2 097

2 409

3 442

open goods and services markets globally. Werecognize that over the last two decades of ourown growth story, we have benefited enormouslyfrom the open markets and conducive businessenvironments we have encountered as weexpanded globally, selling equipment, nurturinglocal talent, investing in domestic capacity,engaging in research and development, as wellas establishing global supply chains across170 countries. We recognize that our globalsuccess has been as much about our ability toinnovate as it has been our ability to trade withand invest in the many markets with which weengage.

We also recognize, however, that cut-throatcompetition in the absence of clear market rulescan be detrimental to market players, to marketsthemselves and even to consumers. That is whywe at Huawei place a heavy emphasis onoperating within the rules of the markets wherewe do business. We have a very strongcompliance focus in our operations and haveinstituted internal procedures and oversight toensure all our officers comply with local marketrules. We feel strongly that markets withtransparent and, predictable rules that areenforced fairly against all actors irrespective oftheir nationality, are the best markets to dobusiness in, not just for Huawei but for allindustry players. We are not afraid of healthycompetition on a level playing field, and alwaysseek to strike a reasonable balance betweencompetition and cooperation, to maximizebenefits for our partners in government andindustry, for the global ICT sector and, mostimportantly, for consumers worldwide.

5.1.3. Respect for Intellectual PropertyRights

We view respect for intellectual property rights,and the non-discriminatory enforcement of IPRsas an indispensable precondition for the smoothconduct of business across international bordersand for a company such as Huawei to be able tooperate in both its home market as well asforeign markets. We are now a company atthe forefront of innovation across all of ourgoods and services offerings. As such, we have

also become a global leader in patent filings(Figure 5.2). We are the number one filer ofpatents in the United States from mainland China.Within China, we are the number one filer ofpatents overall, and have filed close to 50,000patents. Outside of China, we have almost 37,000patents granted to us. We also have patentlicensing agreements with all the other majorindustry players, subject to which we allow themto use our patents and vice-versa: an example ofindustry cooperation for the benefit of the globalindustry and consumers. We see respect forintellectual property rights as an inalienablepart of our broader compliance mandate andhave several hundred IP lawyers working toensure such compliance both in our Shenzhenheadquarters and in our frontline offices globally.

Figure 5.2: Comparison of company patentfilings (2014)

Source: Statista

Intellectual property rights were created severalhundred years ago in national legislatures, andwere in fact the subject of some of the earliestinternational treaties concluded on matters ofinternational economic law in the modern era.Both domestic laws and international tradeagreement commitments have long sought tostrike a balance between different public andprivate interests. It is this balance which theadvent of new technologies in the digital andinformation age is increasingly threatening todisrupt. Nowhere is this more in evidence than inthe field of copyright. The capabilities thatdigitization and the internet have created formaking easy and flawless copies of artistic workswhich can then be instantly disseminated to


77

billions of users worldwide has been extremelydisruptive to a range of industries that for manydecades functioned relatively well under theexisting rules protecting intellectual propertyrights. This is something that domestic lawmakersand international trade negotiators havegrappled with and addressed in various ways andsubject to different pressures and constraints.What seems to be emerging now is a fragile anddelicate balance that allows those actors thatmake access to the internet possible (InternetService Providers or ISPs) and those that provideplatforms on which content is made available,(search engines like Google, databases likeSlideShare, websites like YouTube) to evadeliability for infringement if they agree to removeany copyright-infringing material once it isnotified to them (so-called “notice & take down”rules).

These rules seem to have struck a workablebalance for now, although some stakeholders feelthey either don’t provide enough protection tocontent owners, while others feel that lawmakersand trade negotiatorshave long been toobeholden to the needsof industry rather thanthe general public inthis particular area. Theprotests that erupted inthe United States and theensuing internationaloutrage which wasexpressed from manysides in 2012 over twoproposed bills, the StopOnline Piracy Act (SOPA)and the Protect Intellectual Property Act (PIPA),both of which were being championed by theMotion Picture Association of America, theRecording Industry Association of America, andthe Entertainment Software Association, butwhich were opposed by a whole slew of internetcompanies (Craigslist, Flickr, Google, Mozilla,Reddit, Tumblr, Twitter, Wikipedia and WordPressto name a few of the more prominent ones),shows what can happen when one set of playerstries to tip this fragile consensus in its favor. Thisconflict eventually culminated in the unravelling

of the Anti-Counterfeiting Trade Agreement(ACTA) as the European Parliament rejected theratification of the agreement in 2012, which stillhas a bearing on the negotiation of provisionsrelating to IPRs in FTAs.

5.1.4. Minimizing the North-South Divide byFocusing on Strengths and Value

The traditional paradigm tended to viewinternational trade liberalization as juxtaposingthe (often frustrated) market access interests ofdeveloping countries, particularly in primarycommodities but also in textiles and clothing,versus the demands of developed countries tobring an ever-increasing number of sectors andpolicy areas within the scope of multilateral traderules.

However, recent developments show that theNorth-South divide is a concept of the past.Bilateral FTAs are overwhelmingly North-South,especially between Asia and North Atlanticeconomies of the EU and the US. Moreover, thefailure of TTIP and the significant difficulties

encountered by EUFTAs with other OECDeconomies like Canadaand Japan show thatNorth-North FTAs areconsiderably more difficultto conclude, despite closerregulatory coherence. Intoday ’s trade policyenvironment, economicand policy similarity is nota given recipe for success.TTIP has shown thatregulatory divergence on

digital issues can be particularly difficult to bridge.

Meanwhile, the TPP (which included developingcountries like Viet Nam and Malaysia, alongsidemore advanced economies like the US and Japan)at least managed to reach conclusion, despiteconsiderable differences in legal and constitutionalstructures amongst the agreement’s signatories.In addition to this, ASEAN and China havesucceeded in concluding advanced FTAs withincreasing levels of ambition, not least withregional partners like Australia and New Zealand.

The capabilities that digitizationand the internet have created formaking easy and flawless copies ofartistic works which can then beinstantly disseminated to billionsof users worldwide has beenextremely disruptive to a range ofindustries that for many decadesfunctioned relatively well under theexisting rules protecting intellectualproperty rights.


78

Supply-chains and industrial partnerships reachacross the equator and span East and West(Figure 5.3), as dissimilar economies can offerknow-how, markets and complementarities thatfirms cannot find at home, with less likelihood ofrunning into direct competition in the countries

they expand their value chains into. As economiesseek to develop their comparative strengths andmaximize the economic value of FTAs, they aremore likely to seek their partners across thetraditional North-South divide.

Figure 5.3: Geography of cross-border investments in design development and testing (DDT)within the Global South, 2003-2014

Source: Global Innovation Index

1–3

4–7

8–21

22–66

1–4

5–9

10–25

26–82

ICT source nodes

ICT destination nodes

5.2. What Makes the Digital Economy so Special and Why are Special Trade Rules Needed?

As has been pointed out by the OECD and otherorganizations like APEC that follow and proposepolicy and regulatory developments inconnection with the growing importance of ICTs,it is becoming increasingly futile to talk of thedigital economy in abstraction from the realeconomy since the digital economy is rapidlybecoming simply ‘The Economy’. Nevertheless,there are a few things that make the digitaleconomy unique, three of which are outlined inmore detail below, namely 1) what it has done tothe nature of intermediation between producersand consumers; 2) what the internet economyhas done to information asymmetries; and 3) howthe digital economy represents a much more

level playing field than was ever achieved by theconventional economy. This sub-section alsodiscusses why the digital economy needs its ownset of trade rules to ensure the gains experiencedup to now are not lost in future.

5.2.1. The Role of Commercial Middlemen:The End of ConventionalIntermediation

Traditional business tended to have four or fivelayers between manufacturers and consumers:production, exporters/importers (sometimes alsothe producer itself ), wholesalers, retailers, andultimately consumers. The digital economy has


79

shifted a lot of retail and even wholesale activitiesonline. If one understands retailers andwholesalers as intermediaries between those thatmake the products (producers, manufacturers,entrepreneurs), and those that purchase them(consumers, but also other producers in the caseof components or parts necessary for theproduction of a separate end-product), then itbecomes obvious that some intermediationactivities have become completely redundant,while others have had to adapt to the technicalchanges wrought by digitization and the internet.Take the example of an airline. Airlines have longhad their own ticket offices where it was possibleto book and purchaseflights, and they have alsoused travel agents to selltickets to customers(passengers) on theirbehalf. These distributionchannels have notchanged fundamentally, although in today ’sworld there is usually no real need to walk into orcall the airline office or travel agency. Today, mostsources of market intelligence seem to indicatethat an ever increasing share of travel is beingbooked online, both for leisure and business, withsome sources reporting as many as three in four,or 75% of airline tickets (in the U.S. at least) beingpurchased online. The same is true of course forhotels. Classic intermediaries such as travel agentshave had to either shutter operations all together,move online, or move into very niche segments ofthe travel market. An overwhelming majority ofsmaller travel agents have certainly succumbed tomarket pressures, so that the brick and mortartravel agents that do remain are almost invariablypart of larger chains that can still exert somemarket power thanks to their size and scale, andwhich themselves all have an online presence bymeans of which they likewise do a lot of business.

But this trend is not just happening in the worldof travel. Other areas of the economy are alsogoing digital. Proper Cloth is a U.S. e-commercecompany that is in the very conventional businessof selling shirts. They have out-intermediated theold job of tailor by setting up a very intuitive andfunctionally innovative website that helpscustomers take their own measurements (thanks

to a series of small and easily downloadableinstructional videos), select fabrics, collars, buttonsand other individually customizable touches allby means of very effective visualization software,and which then allows users to purchase and payfor the shirt online. The shirts are then made toorder (in Malaysia) and shipped to customers attheir real-world addresses. What’s more, ProperCloth’s customer base is global, comprising anycountry with a functioning postal system,since the shirts come by regular mail. The same isof course true for Amazon, although purchasinga book at Amazon involves very little tozero customization. Amazon is credited with

almost single-handedlydisrupting the retailbookselling industry andmany hold it responsiblefor bankrupting what wasfor many years America’slargest national and

global bookstore chain, Borders, therebyremoving this particular intermediary from themarket altogether.

In China the online retail sector is vastly superiorto the traditional brick and mortar sector. China isthe world’s largest e-commerce market, and salesare increasing every quarter. Many products,particularly consumer electronics, can really onlybe bought in very large stores located incorresponding clusters, but are actually muchmore easily acquired online, with same daydelivery a reality in many urban centers forpurchases made before 11 am, or next daydelivery for any purchases made after that. Evenvery large retailers like Walmart are for all intentsand purposes unable to compete with onlineportals like JD.com. The implications of this for thecountry ’s retail sector, but also for its urbanarchitecture (e.g. the impact on the manyshopping malls in the country) is only slowlybeing understood by private businesses, propertydevelopers and government planners. Oneimportant ramification is that shoppers willprimarily be attracted to malls for food anddining options (something that can of course beordered online but not consumed in digital form),and that retailers will have to try and wooshoppers that do come to the mall primarily to

Some intermediation activities havebecome completely redundant,while others have had to adapt tothe technical changes wrought bydigitization and the internet.


80

eat and socialize into making impulse buys. Thisis yet another way in which the digital economyis beginning to exude subtle but profoundchanges to the lives of city dwellers in the realworld. But also for people in rural communities,the digital economy has long shifted the balanceof power in terms of intermediation and allowedmillions to join global value chains (as buyersor sellers) in a way that previously requiredovercoming the tyranny of distance.

Of course the biggest intermediation industry isarguably banking and financial services. Banksand other firms in the financial sector have beensome of the earliest and most enthusiasticadopters of information technology and nowrepresent some of the most entrenched playersin the digital economy. Information andcommunication technologies have allowed banksto move a lot of services online, helping them toachieve efficiency gains in terms of headcountreduction, economies of scale in IT and other costsavings. It was the CEO of Citibank, who, in 2015,joked that banks had taken so enthusiasticallyto ICT that today a bank was essentially“a technology company with a banking license”.What this means for most of us as customers isthat we now do the lion’s share of our banking viaour laptops or smartphones. Although banks arestill entrenched as financial intermediariesbetween those with excess capital (depositors)and those seeking to borrow, the structuralinterface and the underlying power dynamics ofthe relationship between banks and theircustomers have been profoundly transformedthanks to the digital economy, new entrantsinto the online and mobile payments spaces(Figure 5.4).

The decline in use of conventional intermediariesand the shift towards online transactionsbetween parties that in many cases have nevermet and will never meet, requires trust andconfidence and an effective means of redresswhen things don’t come out as advertised. To thisend, the new set of emerging trade rulesspecifically include provisions and obligationsthat would require countries to adopt legalframeworks that are facilitative to electronictransactions, that provide online consumer

protection, and that guarantee a certain degreeof protection for users’ personal information. TheTPP also set out a number of principles on accessto and use of the internet for electroniccommerce, which would, inter alia, requiregovernments to accept the notion of free trade(described as “access and use”) in services andapplications available on the internet. Likewise,different international trade agreementframeworks (UNCITRAL, TPP, UNESCAP) areactively promoting the transition towardspaperless trading in support of the changingnature of intermediation in trade administrationprocedures. We discuss potential fault lines whenit comes to an international consensus on theemerging set of trade agreement obligationsgoverning trade and the digital economy below,but for all intents and purposes the rulesdiscussed in this paragraph generally seem toenjoy a broad consensus among most countries,meaning they are not particularly controversialsince most governments recognize the obviouseconomic benefits of e-commerce.

5.2.2. Diminishing Information Asymmetries

A lot has been written about the game-changingimplications of having virtually the entiretyof humankind’s accumulated knowledgeeasily accessible from a device that most peoplecarry around in their pockets. In fact, for mostof us living and working in the moderninformation economy, the challenge is not accessto information per se but managing theoverwhelming amount of it we are constantlybombarded with every waking minute. To be sure,the digital economy is one in which there is muchmore transparency and information aboutproducts and markets. Prices can easily be

Figure 5.4: Estimated online paymenttransactions in China in USD billions (2016)

Source: Remitsy

520 500

320

50 30

600

500

400

300

200

100

0

AsPay WeChat PayPal Braintree Stripe


81

compared, product reviews can be read, andconsumer decisions are much more informed. Inmany ways, this has handed a lot more powerback to users and consumers, and has made itmuch more difficult to sell under-performing orover-priced products andservices. But makingso much informationavailable online has alsocreated vulnerabilitiesthat previously barelyexisted and has also givenrise to a massive internetscam industry thatregularly defrauds un-witting individuals andinsufficiently protected institutions out of billions.So the changing nature of information asymmetriesworks both ways. The dark side of this equationaside, we now live in a world where we can makeeducated decisions about a whole range ofunprecedented choices, and where we can accessthe information and tools available online tobetter navigate the challenges we face in the realworld, and to connect much more easily withother online actors, either for social or commercialpurposes.

The international trade rules emerging toreinforce the benefits and safeguard against thenegative externalities of these changinginformation asymmetries come in different forms.On the one hand we have tentative provisions onthe free flow of information, which seek to ensurethat all internet users in all countries have alargely similar internet experience or at leastaccess to the same information and tools online.We have discussed this somewhat in ChapterFour and will return to this topic again below, butfor now it suffices to say that different countriestake different views on what free flow ofinformation actually means, and what constraints(if any) this principle should be subject to.Another provision that one finds emerging indifferent tentative proposals for trade rules on thedigital economy is one that seeks to obligatecountries to adopt or maintain measures onunsolicited commercial electronic email messages(spam). This latter provision is one that isintended to minimize the downsides of

information overload or prevent the internet andonline communications from being exploited tothe detriment of users. Nobody likes spam andtrade rules have slowly come around toaddressing this problem. There are newer forms

of commercial advertisingthat do not seem yet tobe addressed (e.g., there-targeting pixel onFacebook), and thisshows that technology isalways ahead of rules.Nonetheless, like therules on adopting legalframeworks that aregenerally facilitative of

e-commerce and rules on spam seem to belargely uncontroversial for most countries.

5.2.3. The Long-Awaited Level Playing Field

Much has also been made about the internet asthe “great equalizer”, i.e. a technology that allowsSMEs or even micro businesses to compete on alevel playing field with multinational corporationsin seeking out and winning customers in theirhome markets and abroad. Although the internetand the possibilities afforded by onlineconnectivity have not totally removed powerasymmetries between large well-resourcedplayers and smaller actors, it has opened up anew world of possibilities for many businesses,and has allowed new and innovative businessmodels to emerge that were largely unthinkable(or at least not thought of ) in the conventional(pre internet) economy. Equally important is thereality that the internet has effectively giveneveryone using it a megaphone with which toreach a mass audience, which was a privilegeenjoyed by only an entrenched and influentialfew in the pre-internet era. Online connectivityfurnishes content creators with numerous waysof disseminating original or derived content toa potential audience that today comprisesbillions of internet users. Websites likeYouTube, WordPress, Reddit, Instagram, Mediumand many others provide users the chance toupload and disseminate their own content ina way that is completely unprecedented inhuman history.

For most of us living and workingin the modern informationeconomy, the challenge is notaccess to information per se butmanaging the overwhelmingamount of it we are constantlybombarded with every wakingminute.


82

Take for example a comparison between thepaths to recognition enjoyed by authors such asJ.K. Rowling on the one hand, who wrote theincredibly successful Harry Potter series of fantasyfiction novels (beginning in 1997 when theinternet and e-publishing was just gettingstarted), and Andy Weir on the other hand, who in2011 wrote the science fiction novel “The Martian”,that then went on to become a New York Timesbest-selling novel and a Hollywood blockbuster in2015 starring Matt Damon. J.K. Rowling followedthe conventional path that so many authors havetrodden before her. She sent the manuscript forthe first Harry Potter book (“Harry Potter and thePhilosopher ’s Stone”) to a reported eightpublishing houses before the ninth (Bloomsbury)finally agreed to publish it and paid the author anadvance of 2500 poundsfor the right to do so.Contrast this with theroute that Andy Weirchose when writing “TheMartian”. Having alreadyexperienced rejection byliterary agents for aprevious book, Weir opted to publish “TheMartian” online in installments, making themaccessible for free on his own website. Inresponse to the demand by fans, he thenpublished a version of the book available onAmazon’s Kindle store for 99 cents (the minimumallowed). The Kindle edition of the book quicklybecame a best-seller in the science fictioncategory, selling a reported 35,000 copies in threemonths. It was at this point that publishinghouses started to take an interest. In 2014 Weirwas ultimately able to sell print rights to theCrown Publishing Group for an amount reportedto be in excess of 100,000 dollars. It was theinternet, and Amazon’s Kindle Store that allowedAndy Weir’s book to see the light of day and gavethe author unprecedented artistic freedom towrite and publish it as he saw fit.

The legal conditions required for the above-described level playing field dynamic to functionoptimally are also being addressed in part by the

new set of emerging international trade rulesdiscussed in this White Paper. The above-mentioned principle of free flow of information isan important precondition for this dynamic towork. Another important element, at least forcommercial actors, is the ability of e-commercecompanies to decide for themselves where tostore and process customer data. Take theexample of Proper Cloth discussed above. IfProper Cloth were required to store and processdata in every country in which someone availsthemselves of its services, this would addenormously to Proper Cloth’s operating costs, andwould probably require the company to stopservicing customers in most countries thatenforced such a requirement. This wouldessentially deny the company the chance to

exploit the benefits ofthe level playing fielddynamic discussed here.Another related set ofrules are the onesemerging on mandatorydisclosure of source code.These rules seek to place

limits on the ability of governments to requiresoftware companies to disclose their source codeas a condition for doing business in a givencountry and are discussed in more detail inChapter Four (as well as below). Requirements likethese artificially raise the costs of doing businessin those markets where they are enforced,thereby leading to fragmentation of the internetand undermining the level playing field dynamic.The same is true for different national standardsand rules on privacy that effectively impede thecross-border flow of personal user data, which isalso starting to be addressed in internationaltrade agreements and in more detail below. In thenext section, we discuss the different degrees ofconsensus and discord emerging between majoreconomies on the new set of trade rules for thedigital economy and where we as a company seethe balance of interests ultimately emerging forthe benefit of the global ICT industry, as well asinternet users and digital consumers all over theworld.

It was the internet, and Amazon’sKindle Store that allowed AndyWeir’s book “The Martian” to seethe light of day and gave the authorunprecedented artistic freedom towrite and publish it as he saw fit.


83

In the previous Chapter of this White Paper wediscussed the emerging set of trade rulesgoverning the digital economy. Without wishingto rehash this discussion, this section discusseswhere the international consensus seems likely toland on some of the more contentious of theserules. Different governments have different viewson the best way to regulate international tradefor the digital economy. We discuss and proposevarious policy approaches that go a long wayto accommodating the differing positionsgovernments have chosen to take on a verylimited number of these issues.

5.3.1. Low-Hanging Fruit and Quick Wins

A number of policy areas of importance to thesmooth functioning of the digital economyalready enjoy broad-based consensus, with theonly real differences between countries being thedegree to which they have already succeeded inimplementing facilitative legislative frameworksin furtherance of theseprinciples. Among therules discussed in theprevious Chapter (ChapterFour), this categoryencompasses such issuesas 1) making themoratorium on customsduties on electronicallytransmitted productspermanent; 2) rules on electronic authenticationand electronic signatures; 3) online consumerprotection; 4) unsolicited commercial electronicmessages (spam); 5) paperless trading; and6) increasing cooperation in the areas oftransparency, improving internet governancegenerally and cybersecurity. These so-called“Tier 1 Disciplines” demonstrate that there isalready a lot on which the vast majority ofstakeholders already agree.

Another issue that enjoys widespread consensusis the principle of non-discrimination, meaningthat goods and services in the digital economyshould be subject to the same regulatorytreatment irrespective of their origin or the

nationality of the service provider in question. Theprinciple of non-discrimination is one of the mostfundamental underpinnings of the multilateraltrading system and has been for over 60 years. Itis inconceivable and wholly undesirable that thisprinciple should not apply with equal effect inthe digital economy. All of the various rule-making initiatives on the digital economydiscussed in Chapter Four include bindinglanguage on this principle, meaning that sooneror later it will become a hard (i.e., binding andenforceable) international legal obligation. Inmany ways it has already achieved this status,since most trade in ICT products is subject toGATT rules and thus the relevant provisions onMost Favored Nation and National Treatment.Digitally traded services also enjoy theprotections afforded by the WTO’s GeneralAgreement on Trade in Services.

Other principles being advocated in fora likethe OECD and APEC can also be said to enjoy

broad consensus, althoughdifferent countries takedifferent approaches inhow they interpret thescope of these principlesas well as the extent towhich they limit theirapplication on variouspublic policy and nationalsecurity grounds (we

discuss exceptions in more detail below). Theseprinciples would include keeping the internetopen, accessible, truly global, decentralized anddynamic, promoting and enabling the crossborder delivery of services, encouraging multi-stakeholder cooperation in the developmentof policies and standards, limiting internetintermediary liability, ensuring a healthycompetitive environment on markets for goodsand services in the digital economy, andpromoting investment and competition in thedevelopment and operation of high-speednetworks.

As a globally active ICT company, providinggoods and services at multiple points along a

5.3. Emerging Consensus and Remaining Differences

Different countries take differentapproaches in how they interpretthe scope of these principles aswell as the extent to which theylimit their application on variouspublic policy and national securitygrounds.


84

diverse range of digital value chains, we see everyreason to fully support these principles andadvocate in favor of their realization at all levelsand in all countries. A robust and well-functioningdigital economy with market power evenlydistributed between providers and users is onewhich we believe will continue to fostertechnological progress and innovation, as well ascontinuing to be a driver of economic growthand wealth creation with net welfare-enhancingsocio-economic benefits for all. We will continueto work with our industry partners, with ourpublic-sector stakeholders and with ourcustomers in furtherance of these principles.

5.3.2. Policy Areas of Ongoing Contention

A narrow set of obligations are emerging wheredifferent views have manifested themselves indifferent countries. These so-called “Tier 2Disciplines” essentially embody differences inregulatory approaches and policy priorities. Thefree flow of information is generally recognizedby all as desirable, but governments disagreewith regard to the scope of this principle. Shouldit apply to all information oronly information that isessential for the conduct ofbusiness (i.e., facilitative of aspecific transaction or set oftransactions)? Even if theanswer would be the latter, ispersonal information also to beseen as covered by such a necessity test?

It is also generally recognized that restrictions onthe free flow of information should be allowed aslong as they are justified on necessary andlegitimate public policy grounds and notadministered or applied in a way that isunnecessary to the objective in question, or thatwould constitute a means of arbitrary orunjustifiable discrimination or for protectionistends. At Huawei we are generally supportive ofthe principle of free flow of information and viewit as an essential precondition for the proper-functioning of the internet. The symbioticrelationship between the infrastructure anddevices that we manufacture and sell, and thedata that flows over this infrastructure andoriginates or terminates on these devices (which

we help our customers to store, process,understand and manage), relies upon informationbeing able to flow freely between different actors,between different countries, and across differenttechnologies and platforms. Having said that, as agood global corporate citizen that alwaysprioritizes compliance with all applicable lawsand regulations, we equally recognize thesovereign right of governments to makeexceptions to this principle where suchexceptions are justified on recognized andlegitimate public policy grounds, where suchproposed actions are proportionate to theobjective in question and where they do notconstitute an arbitrary or unjustifiable act ofdiscrimination or a disguised restriction oninternational trade.

Another area of limited contention is anemerging consensus on banning so-called datalocalization requirements (also discussed in somedetail in Chapter Four). A number of major ICTmarkets and players in the digital economy likeIndia, the EU, China, Indonesia, Brazil, Korea, Russia,Viet Nam, and Turkey have become enthusiastic

adopters of data localizationpolicies, particularly in thewake of the Edward Snowdenrevelations and the ensuingclimate of mistrust theserevelations have given rise to.Certain interests in the EU

have also distinguished themselves on this issuewith proposals such as the “Schengen Cloud”. Theglobal technology industry (particularly U.S.internet companies), seem to have rallied aroundand are forcefully advocating for as binding andcomprehensive a ban on data localization aspossible. This has largely been achieved in the TPP,but again subject to the same exceptionslanguage discussed immediately above in thecontext of the principle of the free flow ofinformation.

It follows that where there are forced datalocalization requirements, there will be distortionsto cross-border data flows. The intensity that hassurrounded this debate is understandable. It mayseem that very large and populous markets likethe EU, India, China, Brazil and Turkey could

It follows that where thereare forced data localizationrequirements, there will bedistortions to cross-borderdata flows.


85

become self-sustaining, able to meet domesticdemand on reliable and economical cloudcomputing infrastructure: Yet, as we have seen inChapter Four, these policies come at hefty societaland macroeconomic costs. How they measureagainst existing WTO rules remains largelyuntested. These facts notwithstanding, sovereigngovernments must retain the right to imposeconditions on certain types of data (e.g.government data, national security, personalrecords) being stored or processed outside oftheir jurisdictions – provided that such conditionsare imposed in a transparent, multi-stakeholderand inclusive manner consistent with agreedrules. Also, any conditions to international transfershould be imposed only to the extent necessary,applied in a non-discriminatory manner, bereasonable, proportional and not more trade-restrictive than necessary to achieve thelegitimate public policy objective in question. Inthis sense, the constraints to which governmentsshould be subject in this policy area should bethe same as those by which they have alreadyagreed to be bound under the general exceptionsclause of the WTO GATS under Article XIV.

Another area of international rule making for thedigital economy where broad consensus seemselusive is the issue of mandatory disclosure ofsource code (alsodiscussed in some detailin Chapter Four). Althougha hard obligation withvery limited exceptionshad been agreed in theTPP and looked likely tofinds its way into the TTIPand TiSA rules that mayone day emerge, somegovernments are quite comfortable making suchdemands of software companies that operate intheir markets and are unlikely to allow theirregulatory autonomy in this regard to beconstrained by an international trade agreementobligation that seeks to effectively ban suchdemands unless made in relation to criticalnational infrastructure. For Huawei, we see thisissue more in terms of the protection alreadyprovided in the WTO TRIPS Agreement withrespect to copyright (since software must be

protected as literary works under the Berneconvention), rather than as an issue of regulatorysovereignty or digital trade governance per se.The binding nature of TRIPS obligations for allWTO members notwithstanding, regulationsmandating the obligatory disclosure of sourcecode could be justified for reasons of networkintegrity or national security, and could even beconducive to restoring much of the trust that hasbeen lost in the Post-Snowden era. Provided suchregulations are enacted in a transparent, multi-stakeholder consultative process, and thenapplied in a non-discriminatory, good-faithmanner, and only to the extent necessary toachieve the legitimate public policy objective inquestion, we cannot foresee why any softwarevendor could reasonably be opposed to suchrequirements.

5.3.3. The Need for Narrowly FormulatedExceptions Clauses

The best way to align the differences inapproaches among countries is to establish basicprinciples and then provide for an appropriatedegree of regulatory autonomy for governmentsand regulators that may have their reservationsabout the universal desirability of such principlesin practice and in the light of specific public

policy priorities. This islargely the approach thatwas followed in the TPPfor principles such as thefree flow of information,data localization andmandatory disclosure ofsource code as discussedabove. We essentiallysupport this approach

although we also have our concerns, given thatany determination on whether or not anexception has been justifiably and fairly invokedmust inevitably be made (where two countriesdisagree on the matter) in the context ofinternational trade litigation. This issue is alsoworrisome in that some governments advocatethat the national security test, in particular, shouldbe self-defining. Any litigation can be a long anddrawn out process even at the best of times butespecially in the context of FTAs, which generally

Exceptions clauses in tradeagreements should be narrowlyformulated and be accompaniedwith explicit requirements interms of necessity, proportionality,non-discrimination and multi-stakeholder consultation.


86

have a much more infrequently-used track recordwhen it comes to these provisions than say, theWTO, where many agree that the organization’sdispute settlement system is the jewel in theorganization’s crown.

Because of the ease with which they can be usedas a means of disguised protectionism, exceptionsclauses in trade agreements, whether they begeneral exceptions or exceptions to specificprinciples or obligations, should be narrowlyformulated and be accompanied with explicitrequirements in terms of necessity, proportionality,non-discrimination and multi-stakeholderconsultation. This should be the case also for thenational security exception, which we note hasbeen increasingly invoked in the post-9/11 eraand in the aftermath of the Snowden revelations.We recognize the sovereign right of all countriesto protect their citizens and the integrity of theirborders, territories and critical infrastructure, butgovernments should be held to a certain set ofstandards in invoking the national securityexception, and these standards should beequivalent to those that already apply for theinvocation of general exceptions clauses in say,the GATT or GATS, together with a proportionalityand necessity test, and subject to the constraintsprovided by multi-stakeholder consultation.

It would be short-sighted to seek to cherry-pick,by exempting say, privacy and other areas ofpolitical sensitivities from the GATT/GATS two-tiertest for exceptions, as this would undermine thevalue of trade commitments and could easily leadto an increasing number of exceptions fromcommitments that are subjective – rather thanobjective – and that are self-assessed and mayvery well be unjustified. In this context, we alsounderstand multi-stakeholder consultation to bea mechanism by which companies and otherstakeholders affected by the application of arestrictive measure that is being contemplated,can be afforded ample opportunity to expresstheir position on the proposed measures and tosuggest alternative policy responses that wouldachieve the same regulatory objective but be lesstrade restrictive. We recognize that this is a bolddemand to make, particularly in the presentclimate, but nevertheless feel that given therise in digital protectionism the world hasexperienced over the last several years, and giventhe overriding importance of digital trade asa driver of such phenomenal and transformativeeconomic growth, this bold new approach ismore than warranted.


87

5.4 Key Points for this Chapter

The next and final Chapter sets out our findings and conclusions from this exhaustive study of theemerging set of trade rules for the digital economy.

01

02

03

04

Continued and inclusive growth of the digital economy will best be servedby a set of rules that emphasize non-discrimination, open and fair

competition, transparency, proportionality of regulatory responses,international best practices in domestic regulation, partnership and

cooperation, and respect for intellectual property rights.

Governments have the sovereign right to enact rules governing digitaltrade, but this right is best exercised through global consensus andglobal rules and policies, and such rules should be exercised in a spiritof open and transparent international cooperation and whileobserving the principle of non-discrimination.

All elements of the global ICT industry and all sectors affected by the digitaleconomy should engage with governments in a constructive and

mutually beneficial manner so as to achieve win-win outcomes forgovernments’ development policy and digital connectivity objectives,

as well as for the health and vitality of the global ICT industry.

As an emerging industry leader scross a broad swathe of the digital valuechain and as a global company with vast economic reach, we at Huawei takevery seriously our role in encouraging, fostering and nurturing an optimaland conducive business and regulatory environment for the digitaleconomy and we will work constructively and openly with industrypartners and government stakeholders to achieve this objective.

Chapter Six | Findings and Conclusions

89

CHAPTER SIX | FINDINGS AND CONCLUSIONS

This section presents our findings and conclusions. We essentially conclude that the current emphasis ontrade rules and trade negotiations for the digital economy focuses too narrowly on e-commerce to thedetriment of other important issues such as various non-tariff barriers that different negotiating fora haveaddressed with varying levels of ambition but only modest success to date. Because of Huawei’s sheer sizeand our vast global footprint, we are uniquely positioned to operate across a broad spectrum of the digitaleconomy, but this is both a source of strength as well as posing problems as there may be significantmisalignments with how our different customers and stakeholders view the best approach with respectto their own interests. Nevertheless, rules that benefit the global ICT industry as a whole will also benefitHuawei, since a rising tide lifts all boats. The unprecedented growth and success of the internetas a platform for global commerce, communication, and self-expression has been underpinned by therelative openness of regulatory regimes it has enjoyed in the first 25 years since it rose to prominence inthe mid-1990s. We must all be vigilant to maintain that openness in a world where the forces ofanti-globalization are starting to raise their voices and question the very foundations on which theremarkable economic growth of the last half century has been achieved.

6.1. Huawei’s thought leadership is timely .......................................................................................................... 90

6.2. These new trade rules will impact Huawei’s interests ............................................................................. 90

6.3. Huawei should be part of the conversation ................................................................................................ 90

6.4. Huawei has much to contribute to this dialogue ..................................................................................... 91

6.5. Huawei’s interests are broadly aligned with the rest of the global ICT industry .......................... 91

6.6. We all win in a world where the internet is global, open and accessible ........................................ 91

6.7. Governments must and will remain the arbiters of the public policy exception ......................... 91

6.8. National security is vital but cannot be used to justify every policy intervention....................... 92

6.9. Regardless of who exercises leadership, these rules ultimately belong in the WTO ................... 92


90

Even before the fate of the TPP becamequestionable, the timeliness of the present WhitePaper was never in any doubt. Trade rulesspecifically designed for the digital economy havebeen taking shape since 1998 (the year of theWTO’s Work Program on Electronic Commerce).But it has only been in the last six years or so thatregulatory interventions by policymakers outsideof the United States have seen internetcompanies mobilize in an effort to directly bringabout a set of targeted negotiated outcomes

on issues such as the free flow of information,data localization and mandatory disclosure ofsource code. These efforts although stalled in fora such as the TPP and TiSA, are nevertheless likelyto come to fruition at some point in the next fewyears, perhaps at the WTO, or in RCEP, or in thecontext of future bilateral agreements. Theconsensus on where the balance lies betweeninternet freedom and regulatory autonomy nowseems to be up for grabs all over again.

6.1. Huawei’s thought leadership is timely

6.2. These new trade rules will impact Huawei’s interests

Ever since before the conclusion of theInformation Technology Agreement (1997) andthe elucidation of the above-mentioned WTOWork Program on Electronic Commerce (1998),and particularly as negotiations began in earneston the TPP (starting in 2010), the global ICTindustry and internet companies have beenworking hard to achieve binding and enforceabletrade rules that would maximize the industry’sfreedom of action, underpin transparency andpredictability, and reduce both trade barriers andtrade costs for them. These efforts haveculminated in a number of early successes (theITA itself ), and ongoing trade and investmentliberalization in the form of various FTAs. As partof the global ICT industry and as a company thatdoes business in some 170 countries, Huawei’sinterests are of course affected in positive ways

by these developments. But the enactment ofnew rules which have the potential to alter theunderlying environmental conditions in whichthe global ICT industry operates must be carefullystudied by a company the size of Huawei. ThisWhite Paper has made an initial attempt to dojust that. We have found for example, that ourCarrier Network business is likely to benefit fromfurther tariff reduction or zero-duty commitmentsnegotiated and being implemented now underthe ITA Expansion initiative at the WTO. We alsopredict that negotiations on non-tariff barriers(NTBs) being contemplated as part of the ITAExpansion work could be of great benefit to us infuture, particularly on issues like conformityassessment procedures and electromagneticcompatibility.

6.3. Huawei should be part of the conversation

Because we operate across such a broad swatheof the digital economy and are now an undisputedindustry leader in network equipment anddevices, we need to make our voice heard, eitherdirectly or indirectly, loudly or softly, but shouldnot remain silent. This is even more so the casenow that leadership on the negotiation of mega-regional trade negotiations has shifted from theTPP to RCEP. As a China-based multinational, weat Huawei are uniquely placed to contribute tothe conversation in the next few years. This WhitePaper represents a first milestone in this direction.

The previous set of initiatives launched in aneffort to write new rules for the digital economy(TPP, TiSA, and TTIP) was to a very large extentinfluenced by a narrow set of industry players andgovernment actors. With the finalization andratification of these initiatives now in doubt, thisrepresents a unique moment in history for othervoices to be heard and to become part of theconversation. Even if our views and perspectivesmay not differ radically from those expressed byother actors in the digital economy, it is stillimportant that our voice be heard.

Chapter Six | Findings and Conclusions

91

6.4. Huawei has much to contribute to this dialogue

dedicated experts on global trade rules basedin Shenzhen as well as in important regionaltrade-policy capitals such as Brussels andWashington, D.C. We are in a position and ata unique moment in time where we can providethought leadership on these important emergingissues.

Precisely because of our size, the breadth of ouractivities and the extent of our reach, we are acompany that is uniquely positioned to offerinsights into what rules are likely to contributetowards an optimal trade regime for the digitaleconomy. In addition to these attributes, Huaweiis fortunate to count among its 170,000 employees,

6.5. Huawei’s interests are broadly aligned with the rest of the global ICT industry

Huawei is deeply entrenched in global digitalvalue chains and we have long worked closelywith suppliers, partners, customers and otherstakeholders in many countries, and across manydifferent product and services markets within thedigital economy. As such, we are undeniablya significant part of the global ICT industry, andour prospects rise and fall in conjunction withthe general welfare of the global ICT industry asa whole. This means that what’s good for the

global ICT industry and for the digital economy isalmost certain to be good for Huawei, and what’sbad for the global ICT industry and the digitaleconomy in general is likely not going to benefitHuawei either. As the saying goes: “a rising tidelifts all boats” and this saying is very applicablewhen it comes to policies, measures and traderules that have an impact on trade flows in thedigital economy.

6.6. We all win in a world where the internet is global, open and accessible

Disproportionately restrictive policies enacted forprotectionist purposes or without taking intoaccount the realities of the global internet arelikely to create negative externalities both withinand beyond the borders of the authorities thatenact them. In the same way, trade rules that

promote an open, accessible and global internetpromote the exchange of ideas, grant openaccess to the latest ideas and innovation andprovide a global public good that benefits thewhole ICT industry and all players in the digitaleconomy, including Huawei.

6.7. Governments must and will remain the arbiters of the public policy exception

Huawei recognizes and is completely supportiveof the very important role governments can andmust play as watchdogs and overseers of thepublic interest. We also recognize thatgovernments must act when doing so is requiredto safeguard legitimate public policy interests.However, like many in the industry, and asgovernments have recognized in fora like APEC,

the OECD and the G20, the invocation of publicpolicy exceptions should be done in good faithand subject to certain agreed limiting principles,such as proportionality, least-trade restrictivenessof measures, and the effectiveness of anymeasures taken in achieving the purportedpublic policy objectives for which they wereimposed.


92

6.8. National security is vital but cannot be used to justify every policy intervention

We live in a world today where both the public atlarge as well as governments have becomeincreasingly aware of not only the benefits of abetter connected world, but also the risks thatgreater interconnectivity brings with it. As such,governments are legitimately starting to take abroader and deeper view of what constitutescritical national infrastructure and are becoming

increasingly vigilant against potential cybersecuritythreats. Be this as it may, we believe that thenational security exception cannot be used as ablank check to justify measures that are essentiallyprotectionist in intent and nature. This is a verysensitive topic, and we also recognize that it mustbe treated as such. Equally, it should be subject todisciplines which are agreed and reviewable.

6.9. Regardless of who exercises leadership, these rules ultimately belong in the WTO

We view the different initiatives to developnew rules in the context of various FTAs andplurilateral initiatives as a very positivedevelopment that we wish to wholeheartedlysupport. We also recognize that a strong andeffective body of rules governing much of theeconomic activity in the digital economy alreadyexists in the form of the WTO Agreements. Theapplication of those “analog rules” in today ’s

digital economy has been highlighted. Given theWTO’s track record in the negotiation andenforcement of these rules, we view it as essentialin the medium to long term that any new orupdated rules that are enacted to govern thedigital economy be brought under the auspicesof the WTO and particularly its overridingprinciple of non-discrimination and its disputesettlement procedures.

References and Further Reading

93

REFERENCES AND FURTHER READING

This White Paper is the result of research across a wide range of sources and a number of interviews anddiscussions with experts from both within and outside of Huawei. Below we have provided ascomprehensive a list as possible for the sources we consulted in putting together this White Paper.

1. Adlung, R. (2006, October). Services Negotiations in the Doha Round: Lost in Flexibility? Journal ofInternational Economic Law, 9(4), 865-893.

2. Advisory Committee for Trade Policy and Negotiations (ACTPN). (2015). The Report of the AdvisoryCommittee for Trade Policy and Negotiations. Washington, D.C: SCTPN. Retrieved from http://www.commoncause.org/fact-sheets/the-political-money-behind-trans-pacific-partnership.pdf

3. Ahmed, U., & Aldonis, G. (2015). Addressing Barriers to Digital Trade. Geneva: E15 Expert Group on theDigital Economy. Retrieved August 02, 2016, from http://e15initiative.org/wp-content/uploads/2015/09/E15-Digital-Economy-Ahmed-and-Aldonas-FINAL-2.pdf

4. Baldwin, R. (2016). The Great Convergence: Information Technology and the New Globalization. CasmbridgeMassachusets: Belknap Press of Harvard University.

5. Bank, D. (2003, January 15). Microsoft to Let Governments See Source Code for Windows. The Wall StreetJournal.

6. Barfield, C. (2015). When Tech and Trade Collide: Digital Policy Challenges and Solutions for 2016 andBeyond. American Enterprise Institute. AIE.

7. Barray, A. (2015, June 20). TTIP is unlikely to happen anytime soon and here’s why? Retrieved May 1, 2016,from Vocal Europe: http://www.vocaleurope.eu/2015/06/20/ttip-is-unlikely-to-happen-anytime-soon-and-heres-why/

8. Bauer, M., Lee-Makiyama , H., van der Marel, E., & Verschelde, B. (2014). The Costs of Data Localization:Friendly Fire on Economic Recovery. Brussels: ECIPE. Retrieved June 3, 16, from http://www.ecipe.org/app/uploads/2014/12/OCC32014__1.pdf

9. Benkler, Y. (2006). The Weatlh of Networks: How Social Production Transforms Markets and Freedom. YaleUniversity Press: New Haven and London.

10. Berden, K., & Francois, J. (2015). Quantifying Non-Tariff Measures for TTIP Paper No. 12 in CEPS-CTR project“TTIP in the Balance. CEPS-CTR.

11. Broadband Commission for Sustainable Development. (2016). The State of Broadband: Broadbandcatalyzing sustainable development. Geneva: ITU and UNESCO.

12. Brodsky, I. (2008). The History of Wireless: How Creative Minds Produced Technology for the Masses. St. Louis,Missouri: Telescope Books.

13. Brynjolfsson, E., & McAfee, A. (2014). The Second Machine Age: Work, Progress and Prosperity in a Time ofBrilliant Technologies. New York: W. W. Norton & Company.

14. Bullock, D., & Couleau, A. (2014, July 8). Transatlantic Trade and Investment Partnership (TTIP), Part 2: TTIP,Regulatory Harmonization and Non-tariff Barriers to Trade. Retrieved May 1, 2016, from Policy Matters:http://policymatters.illinois.edu/transatlantic-trade-and-investment-partnership-ttip-part-2-ttip-regulatory-harmonization-and-non-tariff-barriers-to-trade/

15. Business Software Alliance. (2012). Lockout: How a New Wave of Trade Protectionism is Spreading throughthe World’s Fastest-Growing IT Markets – And What to Do about It. BSA.


94

16. Bygrave, L. A. (2010). Privacy and Data Protection in an International Perspective. Stockholm: StockholmInstitute for Scandinavian Law. Retrieved August 02, 2016, from https://www.researchgate.net/publication/265240559_Privacy_and_Data_Protection_in_an_International_Perspective

17. Carr, N. (2013). The Big Switch: Rewiring the World from Edison to Google. New York, London: W. W. Norton& Company.

18. Castro, D. (2013). How Much Will PRISM Cost the U.S. Cloud Computing Industry? Washington, D.C.: TheInnovation Technology & Innovation Foundation. Retrieved August 02, 2016, from http://www2.itif.org/2013-cloud-computing-costs.pdf

19. Chander, A. (2013). The Electronic Silk Road: How the Web Binds the World Together in Commerce. YaleUniversity Press.

20. Common Cause. (2015). The Political Money Behind the Trans-Pacific Partnership. CommonCause.org.Retrieved from http://www.commoncause.org/fact-sheets/the-political-money-behind-trans-pacific-partnership.pdf

21. Crawford, S. (2013). Captive Audience: The Telecom Industry and Monopoly Power in the Gilded Age. NewHaven and London: Yale University Press.

22. Crosby, D. (2016). Analysis of Data Localization Measures Under WTO Services Trade Rules andCommitments. Geneva: E15 Initiative, WEF & ICTSD. Retrieved August 02, 2016, from http://e15initiative.org/publications/analysis-of-data-localization-measures-under-wto-services-trade-rules-and-commitments/

23. Curtis, J. M. (2016). Trade and Innovation: Policy Options for a New Innovation Landscape. E15 Expert Groupon Trade and Innovation – Policy Options Paper. Geneva: E15Initiative. Geneva: International Centre forTrade and Sustainable Development (ICTSD) and World Economic Forum. Retrieved August 02, 2016,from http://www3.weforum.org/docs/E15/WEF_Innovation_report_2015_1401.pdf

24. Czernich, N., Falck, O., Kretschmer, T., & Woessmann, L. (2011). Broadband Infrastructure and EconomicGrowth. The Economic Journal, 121(May), 505-532.

25. David Dean, S. D. (2012). The Internet Economy in the G-20: The $4.2 Trillion Growth Opportunity. BostonConsulting Group. Retrieved December 15, 2016, from https://www.bcgperspectives.com/content/articles/media_entertainment_strategic_planning_4_2_trillion_opportunity_internet_economy_g20/

26. Dong, J. (2014, October 9). Silicon Valley tech execs: Surveillance threatens digital economy. Palo AltoOnline.

27. Dutta, S., Lanvin, B., & Wunsch-Vincent, S. (2016). The Global Innovation Index 2016: Winning with GlobalInnovation. Geneva and Beijing: Cornell, Insead, World Intellectual Property Organization.

28. eBay. (2013). Commerce 3.0 For Development: The promise of the Global Empowerment Network.Washington, D.C.: eBay. Retrieved August 02, 2016, from https://www.ebaymainstreet.com/sites/default/files/eBay_Commerce-3-for-Development.pdf

29. Erixon, F., & Weigel, B. (2016). The Innovation Illusion . New Haven: Yale University Press.

30. Erixon, F., & Weigel, B. (2016). The Innovation Illusion: How so little is created by somany working so hard.New Haven: Yale University Press.

31. Flies, B. A., & Sauve, P. (1997). Of Chips, Floppy Disks and Great Timing: Assessing the WTO InformationTechnology Agreement. Paris: Organization for Economic Development and Cooperation.

32. Galloway, S. (2017). The Four: The Hidden DNA of Amzaon, Apple, Facebook and Google. New York: PenguinBooks.


95

33. Google. (2010). Enabling Trade in the Era of Information Technologies: Breaking Down Barriers to the FreeFlow of Information. Google. Retrieved from https://static.googleusercontent.com/media/www.google.com/en//googleblogs/pdfs/trade_free_flow_of_information.pdf

34. Goswami, A. G., Mattoo, A., & Saez, S. (2011). Exporting Services: A Developing Country Perspective. WorldBank. Retrieved June 3, 2016, from http://elibrary.worldbank.org/doi/abs/10.1596/978-0-8213-8816-7

35. Greenwald, G. (2014). No Place to Hide: Edward Snowden, the NSA, and the U.S. Surveillance State. NewYork: Metropolitan Books.

36. Grossman, G. M., & Rossi-Hansberg, E. (2006). The Rise of Offshoring: It’s Not Wine for Cloth Anymore.Proceedings – Economic Policy Symposium – Jackson Hole. Retrieved August 02, 2016, from https://www.princeton.edu/~erossi/RO.pdf

37. Hammond, K. J. (2013, May 01). The Value of Big Data isn’t the Data. Harvard Business Review. RetrievedJune 3, 201, from https://hbr.org/2013/05/the-value-of-big-data-isnt-the (visited on 3 June 2016)

38. Hill, J. F. (2012). Internet Fragmentation: Highlighting the Major Technical, Governance and DiplomaticChallenges for U.S. Policy Makers. Cambridge, MA: John F. Kennedy School of Public Policy. RetrievedAugust 02, 2016, from http://belfercenter.ksg.harvard.edu/files/internet_fragmentation_jonah_hill.pdf

39. Hill, J. F. (2014). The Growth of Data Localization Post Snowden: Analysis and Recommendations for U.S.Policymakers and Business Leaders. Cambridge, MA: John F. Kennedy School of Government. RetrievedAugust 02, 2016, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2430275

40. Hogan Lovells. (2016). Legal Analysis of the EU-US Privacy Shield: An adequacy assessment by reference tothe jurisprudence of the Court of Justice of the European Union.

41. Huawei Techologies Co. Ltd. (2016). Global Connectivity Index. Shenzhen: Huawei Technologies Co., Ltd.Retrieved November 15, 2016, from http://www.huawei.com/minisite/gci/pdfs/Global_Connectivity_Index_2016_whitepaper.0614.pdf

42. International Telecommunications Union. (2016). Measuring the Information Society Report 2016. Geneva:ITU.

43. International Telecommunications Union. (2016). White Paper on Broadband Policy and Regulation inAsia-Pacific Region: Facilitating Faster Broadband Deployment. Geneva: ITU and Huawei. RetrievedNovember 15, 2016, from http://www-file.huawei.com/~/media/CORPORATE/PDF/event/itu-telecom-world-2016/white_paper_on_broadband_regulation_and_policy_in_asia_pacific_region_2016.pdf

44. International Trade Center in partnership with Alibaba Group. (2016). E-Commerce in China Opportunitiesfor Asian Firms. Geneva: ITC.

45. International Trade Centre (ITC). (2015). Intenational E-Commerce in Africa: The Way Forward. Geneva: ICT.

46. International Trade Centre (ITC). (2016). Bringing SMEs onto the E-Commerce Highway. Geneva: ITC.

47. Katz, R. L. (2013). Measuring digitization: A growth and welfare multiplier. Technovation, 33(10-11), 314-319.

48. Katzer, D. W. (2005). Exercises in Futility: Post-War Automobile-Trade Negotiations between Japan andthe United States. University of Massachusetts – Amherst Economics Department Working Paper Series.Retrieved August 02, 2016, from https://www.umass.edu/economics/publications/2005-16.pdf

49. Kendrick, K. (2015, February 2015). Risky Business: Data Localization. Forbes Capital Flows.

50. Khanna, P. (2016). Connectography: Mapping the Future of Global Civilization. New York: Random House.

51. King, B. (2013). Bank 3.0: Why banking is no longer somewhere you go but something you do. Singapore:John Wiley & Sons.


96

52. Kolsky Lewis, M. (2013, September 2). The TPP and the RCEP (ASEAN+6) as Potential Paths TowardsDeeper Asian Economic Intergration. Asian Journal of WTO and International Health Law and Policy, 8(2),359-378.

53. Kommerskollegium. (2016). Trade Regulation in a 3D Printed World – A Primer. Stockholm: SwedishNational Board of Trade. Retrieved June 3, 2016, from http://unctad.org/meetings/en/Contribution/dtl_eweek2016_Kommerskollegium_en.pdf

54. Koutroumpis, P. (2009). The economic impact of broadband on growth: A simultaneous approach.Teleccmmunications Policy, 33(9), 471-485.

55. Kressel, H., & Lento, T. V. (2007). Competing for the Future: How Digital Innovations are Changing the World.Cambridge, UK: Cambridge University Press.

56. Kroenke, D., & Auer, D. (2009). Database Concepts. New Jersey: Prentice Hall.

57. Lacey, S. (2011). Implementation of National Broadband Plans: Agreed Regulatory Principles and TheirEvolution. Washington, D.C.: SSRN. Retrieved August 02, 2018, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2072855

58. Lacey, S. (2012). Trade Rules and their Limits: Internet Restrictions as Actionable Trade Barriers. Washington,D.C.: SSRN. Retrieved August 02, 2016, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2072854

59. Lee, T. B. (2015, November 29). How the TPP could impact regulation of everything from cars to medicaldevices. Retrieved from Vox Policy and Politics: http://www.vox.com/2015/11/29/9760918/tpp-ecommerce-chapter

60. Lee, T. B. (2015, November 6). The Trans-Pacific Partnership Explained. Retrieved from Vox Policy andPolitics: http://www.vox.com/cards/trans-pacific-partnership

61. Lessig, L. (2006). Code Version 2.0. New York: Basic Books.

62. Losse, K. (2012). The Boy Kings: A Journey into the Heart of the Social Network. New York: Free Press.

63. Marans, D. (2016, January 27). How the Presidential Election Could Endanger Obama’s Big Trade Deal.The Huffington Post.

64. McGreggor, J. (2010). China’s Drive for ‘Indigenous Innovation’ A Web of Industrial Policies. US Chamber ofCommerce.

65. McKinsey Global Institute. (2011). Big data: The next frontier for innovation, competition and productivity.McKinsey. Retrieved June 3, 2016, from http://www.mckinsey.com/business-functions/business-technology/our-insights/big-data-the-next-frontier-for-innovation

66. McKinsey Global Institute. (2011). The great transformer: The impact of the internet on economic growthand properity. McKinsey. Retrieved August 02, 2016, from http://www.mckinsey.com/industries/high-tech/our-insights/the-great-transformer

67. McKinsey Global Institute. (2014). Global flows in a digital age: How trade, finance, people, and dataconnect in the world economy. McKinsey. Retrieved August 02, 2016, from http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/global-flows-in-a-digital-age

68. Meltzer, J. P. (2015). A New Digital Trade Agenda. Geneva: E15 Expert Group on the Digital Economy WEF& ICTSD. Retrieved August 02, 2016, from http://e15initiative.org/wp-content/uploads/2015/07/E15-Digital-Economy-Meltzer-Overview-FINAL.pdf

69. Meltzer, J. P. (2015). A New Digital Trade Agenda E15 Expert Group on the Digital Economy Overview Paper.Geneva: International Centre for Trade and Sustainable Development (ICTSD) and the Wolrd EconomicForum. Retrieved from http://e15initiative.org/wp-content/uploads/2015/07/E15-Digital-Economy-Meltzer-Overview-FINAL.pdf


97

70. Mercurio, B. (2014). TRIPs, Patents, and Innovation: A Necessary Reappraisal. Geneva: E15 Expert Group onTrade and Innovation, WEF & ICTSD. Retrieved August 02, 2016, from http://e15initiative.org/wp-content/uploads/2015/09/E15-Innovation-Mercurio-FINAL.pdf

71. Michael , H. J. (1990-91). Vital Interests and the Law of GATT: An Analysis of GATT”s Security Exception.Michigan Journal of International Law, 558-620.

72. Mitchell, A., & Hepburn, J. (n.d.). Don’t Fence Me In: Reforming Trade and Investment Law to BetterFacilitate Cross-Border Data Transfer. Yale Journal of Law and Technology (Forthcoming). Retrieved 11 15,2016, from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2846830##

73. New Zealand Ministry of Foreign Affairs and Trade. (2016, February 5). Text of the Trans-PacificPartnership. Retrieved from Official Website of the Ministry of Foreign Affairs and Trade of New Zealand| TPP Portal: https://www.mfat.govt.nz/en/about-us/who-we-are/treaty-making-process/trans-pacific-partnership-tpp/text-of-the-trans-pacific-partnership

74. Nolte, S. (2016). The Expansion of the Information Technology Agreement: An Economic Assessment.European Union . European Commission.

75. Olsen, M., Schneier, B., & Zittrain, J. (2016). Don’t Panic: Making Progress on the “Going Dark” Debate.Cambridge , MA: The Berkman Center for Internet and Society. Retrieved August 02, 2016, fromhttps://cyber.law.harvard.edu/pubrelease/dont-panic/Dont_Panic_Making_Progress_on_Going_Dark_Debate.pdf

76. Organization for Economic Cooperation and Development. (2013). Measuring the Internet Economy:A Contribution to the Research Agenda. Paris: OECD Publishing. Retrieved 12 15, 2016, from http://dx.doi.org/10.1787/5k43gjg6r8jf-en

77. Organization for Economic Cooperation and Development. (2013). The Internet Economy on the Rise:Progress since the Seoul Declaration. Paris: OECD. Retrieved August 02, 2016, from http://www.oecd.org/internet/internet-economy-on-the-rise.htm

78. Organization for Economic Cooperation and Development. (2014). OECD Principles for Internet PolicyMaking. Paris: OECD. Retrieved August 02, 2016, from https://www.oecd.org/sti/ieconomy/oecd-principles-for-internet-policy-making.pdf

79. Peng, S. (2013). Is the Trade in Services Agreement (TiSA) a Stepping Stone for the Next Version ofGATS? Hong Kong Law Journal, 43(2), 611-632.

80. Peng, S.-Y. (2015). Cybersecurity Threats and the WTO National Security Exception. Journal ofInternational Economic Law, 18(2), 449-478.

81. Plummer, M. G., & Petri, P. A. (2015). The Economic Effects of the Trans-Pacific Partnership: New Estimates.Washington, D.C.: Peterson Institute for International Economics. Retrieved from http://www.iie.com/publications/wp/wp16-2.pdf

82. Putz, C. (2016, February 5). The Ratification Race is On. The Diplomat.

83. Schneier, B. (2006). Data and Goliath: The Hidden Battles to Collect your Data and Control your World. NewYork, London: W.W. Norton & Company.

84. Schneier, B. (2016). Data and Goliath: The Hidden Battles to Collect Your Data and to Control Your World.New York: W. W. Norton & Company.

85. Schwab, K. (2016). The Fourth Industrial Revolution. Geneva: World Economic Forum.

86. Segal, A. (2016). The Hacked World Order: How Nations Fight, Trade, Maneuver and Manipulate in the DigitalAge. New York: Public Affairs.


98

87. Singh, H. V. (2016). New Industrial Policy and Manufacturing Options for International Trade Policy. Geneva:E15 Expert Group on Reinvigorating Manufacturing: New Industrial Policy and the Trade System WEF& ICTSD. Retrieved August 02, 2016, from http://e15initiative.org/publications/new-industrial-policy-manufacturing-options-international-trade-policy/

88. Spence, M. (2011). The Next Convergence: The Future of Economic Growth in a Multispeed World. New York:Farrar, Straus and Siroux.

89. Stair, R., & Reynolds, G. (2001). Principles of Information Systems. Boston: Course Technology.

90. Stephbens-Davidowitz, S. (2017). Everybody Lies: Big Data, New Data, and What the Internet Tells Us AboutWho We Really Are. HarperCollins Publishers.

91. Suffolk, J. (2015). Cyber Security Perspectives – Bound Volume 2012, 2013, 2014. Huawei TechnologiesCo., Ltd.

92. Telles, R. (2016). Digital Matching Firms: A New Definition in the ‘Sharing Economy’ Space. Economics andStatistics Administation, Office of the Chief Economist. Washington, D.C.: Department of Commerce.Retrieved June 3, 2016, from http://www.esa.gov/sites/default/files/digital-matching-firms-new-definition-sharing-economy-space.pdf

93. The Asia Foundation. (2017). Six Stories, Six Paths to Development: Online Platforms as Drivers of InclusiveGrowth. Bangkok: Asia Foundation.

94. United Nations. (2016). The Sustainable Development Goals Report. New York and Geneva: UN.

95. United Nations Conference on Trade and Development. (2016). Data protection regulations andinternational data flows: Implications for trade and development. Geneva: UNCTAD. Retrieved August 02,2016, from http://unctad.org/en/PublicationsLibrary/dtlstict2016d1_en.pdf

96. United Nations Conference on Trade and Development. (2017). World Investment Report 2017:Investment and the Digital Economy. Geneva: United Nations.

97. United States International Trade Commission. (2013). Digital Trade in the U.S. and Global Economies.Washington, D.C.: USITC. Retrieved August 02, 2016, from https://www.usitc.gov/publications/332/pub4415.pdf

98. United States International Trade Commission. (2014). Digital Trade in the U.S. and Global EconomiesPart 2. Washington, D.C: USITC. Retrieved August 02, 2016, from https://www.usitc.gov/publications/332/pub4485.pdf

99. United States Trade Representative. (2016). National Trade Barriers Estimate Report.

100. Weber, R., & Burri, M. (2012). Classification of Services in the Digital Economy. London: Springer.

101. Weiss, L. (2014). America Inc.? Innovation and Enterprise in the National Security State. Cornell UniversityPress.

102. World Bank. (2015). Potential Implications of the Trans-Pacific Partnership Agreement. World Bank Group.Retrieved from http://www.worldbank.org/en/publication/global-economic-prospects/GEP-Jan-2016-Implications-Trans-Pacific-Partnership

103. World Bank Group. (2016). World Development Report 2016 Digital Dividends. Washington, D.C.: WorldBank Group.

104. World Trade Organization. (2016). World Trade Report 2016. Geneva: WTO.

105. Wu, T. (2010). The Master Switch: The Rise and Fall of Information Empires. New York: Vintage Books.

106. Wunsch-Vincent, S. (2006). The WTO, The Internet and Trade in DIgital Products EC-US Perspectives. HartPublishing.

Date post:	17-Aug-2020
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times