SUPPORTING THE INTERNET AS A PLATFORM FOR …

Global Economy and Development

at BROOKINGS

Global Economy & Development Working Paper 69 | FEBRUARY 2014

SUPPORTING THE INTERNET AS A PLATFORM FOR INTERNATIONAL TRADE

OPPORTUNITIES FOR SMALL AND MEDIUM-SIZED ENTERPRISES AND DEVELOPING COUNTRIES

Joshua Meltzer

Global Economy and Development

at BROOKINGS

Joshua Meltzer is a fellow in the Global Economy and Development program at the Brookings Institution.

Acknowledgments: Support for this publication was provided by eBay Inc. and FedEx. Brookings recognizes that the value it provides is in its absolute commitment to quality, independence and impact. Activities supported by its donors reflect this commitment and the analysis and recommendations are not determined or influenced by any donation.

Contents

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A Smarter Internet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Evolution of Web 2.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

How the Internet Drives Economic Growth and International Trade. . . . . . . . . . . . . . . . . . . . . . . 4 The Impact of the Internet on Small and Medium-Sized Enterprises. . . . . . . . . . . . . . . . . . . 5 The Impact of the Internet on Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Barriers to the Internet as a Platform for International Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Internet Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Trust in Conducting International Trade Online. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Cross-Border Data Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Market Access Restrictions on Trade in Goods and Services . . . . . . . . . . . . . . . . . . . . . . . . . 13 A Balanced Intellectual Property Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Different Regulatory and Legal Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 International Payment Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Trade Logistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Addressing Barriers to the Internet as a Platform for International Trade . . . . . . . . . . . . . . . . . 17 Internet Access and Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Ensure the Free Flow of Data across Borders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Improve Market Access for Goods and Services Traded Online. . . . . . . . . . . . . . . . . . . . . . . . 21 Update the Classification of Services in WTO Members Schedules . . . . . . . . . . . . . . . . . . . 22 Define Digital Trade ? Is It a Good or a Service?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Clarify Whether Providing a Service Online is a Mode 1 or Mode 2 Form of Delivery . . . . . 24 Use a Negative List for Scheduling Services Commitments. . . . . . . . . . . . . . . . . . . . . . . . . 24 Develop a Balanced Intellectual Property Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Improve Online Financial Payment Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Increase Transparency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Improve Trade Logistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Develop Legal Rules for Online Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Develop Trust in the Internet as a Platform for International Trade. . . . . . . . . . . . . . . . . . . 32

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

iv

Global Economy and Development Program

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

LIST OF FIGURES

Figure 1: Internet Access in the Developed and Developing World. . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 2: Wired-Telephone and Mobile-Cellular Subscriptions by Country Group,

per 100 Inhabitants, 2005-2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 3: Wired and Mobile Broadband Subscriptions by Country Group,

per 100 Inhabitants, 2005-2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

supporting the internet as a platform for international trade

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