Technology-powered trade: Energising sustainable development in international trade

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In a recent article in the OECD Observer, Vézina and Melin describe how online platforms lower trade barriers and enable micro to small and medium-sized enterprises (SME) to build multinational operations. The contrast with traditional trade is stark, where exporting is normally confined to the largest corporations. Technology is reshaping the international trading landscape, and the changes are real and quantifiable. This is sharpening the role international trade can play in promoting sustainable development.

The European Union is determined that international trade should contribute to promoting sustainable development. The goal is a priority under the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations.

Recent research from Lund University not only supports these initiatives, but points to how the goals can be achieved.

The concept of sustainability is normally defined as consisting of three interlinked elements or pillars: economic growth, social development and environmental protection. Our analysis, which echoes that of Vézina and Melin, suggests that trade, when enabled by the internet and technology services, promotes the economic pillar in an unparalleled way by opening up world markets to small exporters, thereby facilitating the growth of multinational SMEs.

This very conclusion should inform our definition of the economic pillar and how policies are shaped. In particular, creating opportunities for SMEs becomes a key part of creating economic growth in the context of sustainable development, and internet and digital services are effective tools to that end.

But this should also influence how we think about the social and environmental pillars, and how negative impacts in one pillar might be offset by positive impacts in another. In short, as the OECD has
long argued, sustainable development can be achieved only by measures aimed at maximising the total value of all three pillars, while not losing focus on progressing each one of them.
 
Based on a refined economic pillar–one in which small business participation in global trade is supported and part is formed by the use of digital services–the following four measures would maximise total value and thereby promote sustainable development.

First, trade policies are needed for a new age. Today, this means policies adapted to the merging of technology and trade and to the involvement of SMEs in global economic activity.

Examples of such policies include improving and harmonising customs procedures by raising minimum thresholds, promoting regulatory standards that support digital payments, structuring a global consumer rights system, and promoting the principles of interconnection and openness as the core of the internet.

Inclusive growth would be a key likely outcome. Free trade has been criticised by some for not succeeding in reducing poverty or bringing about a higher standard of living for all. The Lund research does not find that technology-enabled trade has yet radically improved the situation, but interestingly it highlights the enhancement of specialised workforce skills. With the right support and tenacity, especially from supportive government job policies and even wage guidance, these skills can open up opportunities for meaningful and future-oriented careers for millions of workers. That would mean sustained poverty reduction and raised living standards.

Second, governments should work together to simplify and streamline transportation, while making it as “green” and efficient as possible. They can do this, for instance, by promoting international standardisation of box sizes, label formats, and tracking data terminology. Full digitalisation of customs processes would cut time delays at customs, thus reducing lags in the logistics systems and advancing economic and environmental aspects of modern international trade. Moreover, with the use of real-time data and optimisation tools in customs processes, infrastructure across the globe based on information and communications technology can play an even more important role in reducing the environmental impacts from transport and delivery. Such a development will need international policy support. Here, the OECD could play an influential role, alongside the likes of the UN’s Universal Postal Union, in facilitating transnational regulatory co-operation in the area of postal and delivery services.

Third, policymakers should give online retailers a helping nudge. SMEs can be drivers of change due to their agility in taking on new business models and adapting to changes in operating environments. However, they are often limited by financial, time, and expertise constraints. Supportive structures, ranging from digital services to private-public networks, could help overcome these problems–for instance, by educating sellers and consumers on product sourcing and production. Good examples of using transparency to encourage curiosity, bolster confidence and set industry standards are Patagonia’s Footprint Chronicles of its supply chain and Honest By’s breakdown of the materials that make up each product.

There is an important policy angle to transparency of trade flows: rules of origin need to reflect the patterns of small global exporters, and be made less burdensome administratively so that small and micro-sized firms will be able to rely on them. Also, the information these rules, including non-preferential ones, elicit could be combined with big data analytics to create benefits for consumers as well as contribute to more transparent and efficient trade flows.

A fourth policy strategy is to take steps to make the backbone itself greener. As SMEs take greater advantage of the technology’s commercial possibilities, the energy intensity of trade will rise. Data centres powered by environmentally friendlier energy sources are expanding.

The trouble is, cleaner forms of energy are often more expensive than fossil fuels, resulting in higher operating costs for environmentally conscious firms. Governments could as one measure help with clean-energy policies to tilt incentives away from harmful fuels while making renewable energy more affordable.

References


Ahmed, Usman, et al. (2013), “Can the WTO adapt to a world where everyone is empowered to engage in global trade?” in Building on Bali: A Work Programme for the WTO, Centre for Economic Policy Research, London. Available at www.voxeu.org/content/building-bali-work-programme-wto

Ash, Ken (2013), “EU-US trade and investment talks: Why they matter”, in OECD Observer, No 297, Q4.

Finnbogason, Saemundur K. (2013), Sustainability Within Online and Mobile-Enabled Commerce: How Is Sustainability Being Affected in This Form of Commerce Conducted via Small and Medium-Sized Enterprises?, Lund University, International Institute for Industrial Environmental Economics (IIIEE), Lund, Sweden. Available at http://lup.lub.lu.se/student-papers/record/4113770/file/4146317.pdf

Flatters, Frank (2001), Modern Trade Policies for the Global Economy, presented at the CIDA-funded MIER/Queen’s University Conference on Globalization and the Knowledge Economy, Kuala Lumpur, Malaysia.

OECD (2010), Globalisation, Transport and the Environment (electronic resource), OECD, Paris.

OECD (2012), Divided We Stand: Why Inequality Keeps Rising, OECD and Brookings Institution Press (distributor), Washington.

Vézina, Pierre-Louis and Hanne Melin (2013), “eBay and the rise of the micro-multinationals”, in OECD Observer, No 295, Q2. Available at www.oecdobserver.org/news/fullstory.php/aid/4141/eBay_and_the_rise_of_the_micro-multinationals__.html
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© OECD Observer No 299, Q2 2014




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