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Davos Meeting Spotlights Digital Transformation of International Trade

By Karen Lynch

The World Economic Forum's (WEF's) 2018 meeting in Davos, Switzerland, spotlighted the digital transformation of international trade and global supply chains, including the debut of a new cross-border e-commerce initiative1 and the first Readiness for the Future of Production Report.2

International Trade Environment

 

Digital trade trends were analyzed in the context of stronger overall growth in the global economy and international trade.3 "Global growth has been accelerating since mid-2016, and all signs point to a further strengthening both this year and next," said International Monetary Fund (IMF) President Christine Lagarde.4 The latest World Economic Outlook, issued by the IMF during Davos, projected a 3.9 percent growth in global output in 2018. Cross-border goods and services trade was projected to grow 4.6 percent in 2018, up 0.6 percent from the IMF's projection in October 2017.5

 

Nevertheless, warnings were also issued about the current state of international trade – notably, in the WEF's Global Risks Report 2018. "Political commitment to globalization has weakened in the wake of the global financial crisis, and even minor disputes could trigger an unravelling," the report said. "A breakdown of the global trade system would roil supply chains and reduce overall economic activity."6

 

Ten multinational CEOs issued a joint statement at Davos that characterized the international trade situation simply: "Global trade needs a major reboot."7 Their recommendations include improving how the World Trade Organization (WTO) functions, streamlining customs, and making trade more inclusive, by supporting workers displaced by trade or technology and providing more international trade opportunity to smaller businesses and less-developed countries.

 

Digital Trade Environment

 

Notably, the CEOs also called for bringing international trade laws into the digital era. "By 2020, cross-border e-commerce is expected to hit nearly $1 trillion, but trade regulations haven't kept pace," they said. "Only 20 percent of regional trade agreements address such e-commerce issues as transparency, data protection, and paperless trading – and it's imperative that trade laws catch up to the times."8

 

In line with this appeal, Davos was also the setting for the debut of the Enabling E-commerce Initiative.9 The initiative was announced in December 2017 at the WTO's Ministerial Conference, which fell short of achieving a mandate to begin negotiating multilateral digital trade rules. The Enabling E-commerce Initiative was conceived as a public-private discussion forum by its founding members – the WEF, WTO, and Electronic World Trade Platform, an initiative of Alibaba Group Executive Chairman Jack Ma.

 

At Davos, representatives of the three founding members described the initiative's mission and objectives. "Governments still have rules and regulations that apply to 20th century trade; that's going to disappear," said WTO Director-General Roberto Azevêdo. The challenge is to set priorities, he said, because "when you begin a conversation about e-commerce, it very quickly covers one thousand different aspects."10

 

Among these aspects are e-payments, e-signatures, consumer protection, customs, and logistics, said WEF Managing Director Richard Samans. The initiative should move the ball forward in some of these areas while the formal negotiating process for specific WTO obligations and rules for cross-border e-commerce catches up, Samans said.11

 

Azvêdo also noted that 70 nations agreed during the WTO Ministerial Meeting to form a new e-commerce group, saying the group's conversation could lead to formal negotiations in the future. The Enabling E-commerce Initiative will help frame that conversation, he said. "Otherwise people will sit around the table, and they won't know what to do. There will be so many things to handle that they will get lost in the forest," he said.12

 

Alibaba's Ma advised governments not to think about how to regulate e-commerce, but how to help facilitate its trade flows. "Because of new technology, I would say that in the future, there will be no ‘Made in China,' no ‘Made in America,' no ‘Made in Peru,'" he said. "It's going to be ‘Made on the Internet.'"13

 

Global Supply Chains

 

The WEF has coined the term "Fourth Industrial Revolution" to describe the transformation of global production and supply chains by rapidly emerging technologies such as the Internet of Things, artificial intelligence, robotics, and 3D printing. "The Fourth Industrial Revolution will trigger selective reshoring, nearshoring, and other structural changes to global value chains," said the WEF's first Readiness for the Future of Production Report.14

 

The report predicted an early phase of inertia in restructuring supply chains, because of the cost of moving production from one location to another. Inevitably, though, the cost-benefit ratio of emerging technologies will make new locations more attractive.

 

Some low-cost labor centers may continue their traditional manufacturing model, while others may mix advanced manufacturing with low-cost labor, the report said. Advanced countries can be expected to focus primarily on advanced manufacturing. As they do, "countries that have been outsourcing activities for the last several decades may now be able to reshore or nearshore these production activities to be closer to their consumer base," it said.15

 

Countries will need to fashion themselves into attractive production destinations within global supply chains – for example, with skilled workers and global connectivity, the report said. The report issued two types of grades for achieving such "production readiness." One was for the structure of production (volume and mix of products), where Japan, South Korea, and Germany ranked first, second, and third. The other was for the drivers of production (including innovation, international trade, and other factors), where the United States, Singapore, and Switzerland ranked first, second, and third.16

 

The

Takeaway:

The WEF's annual meeting in Davos provided a forum for advancing discussion on the digital transformation now reshaping international trade and supply chains. A new Enabling E-Commerce Initiative pledged to help set priorities for improving the conditions for cross-border e-commerce, to clear the path toward eventual, formal multilateral trade negotiations on e-commerce.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. “Enabling eCommerce: Small Enterprises, Global Players,” World Economic Forum; https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=240862,240867,240868,240870,240871,240899,240875,240874,240878,240877&CurrentCatalogueIdIndex=4&FullTextHash=371857150&HasEnglishRecord=True&HasFrenchRecord=T
2. Readiness for the Future of Production Report 2018, World Economic Forum; https://www.weforum.org/reports/readiness-for-the-future-of-production-report-2018
3. “What Just Happened? The Biggest Stories from Davos 2018,” World Economic Forum; https://www.weforum.org/agenda/2018/01/davos-2018-biggest-stories
4. “Opening Remarks for the World Economic Outlook Update Press Conference,” International Monetary Fund; https://www.imf.org/en/News/Articles/2018/01/22/sp012218-opening-remarks-for-the-world-economic-outlook-update-press-conference
5. World Economic Outlook, International Monetary Fund; file:///C:/Users/Owner/Desktop/work/amex_2016-2017/World%20Economic%20outlook%20january%202018.pdf
6. The Global Risks Report 2018, World Economic Forum http://www3.weforum.org/docs/WEF_GRR18_Report.pdf
7. “How to Fix Trade, According to 10 Global CEOs,” World Economic Forum; https://www.weforum.org/agenda/2018/01/how-to-fix-trade-according-to-10-global-ceos
8. Ibid.
9. “Enabling e-Commerce: Small Enterprises, Global Players [video]," World Economic Forum; https://www.weforum.org/events/world-economic-forum-annual-meeting-2018/sessions/enabling-ecommerce-small-enterprises-global-players
10. Ibid.
11. Ibid.
12. Ibid.
13. Ibid.
14. Readiness for the Future of Production Report 2018, World Economic Forum; https://www.weforum.org/reports/readiness-for-the-future-of-production-report-2018
15. Readiness for the Future of Production Report 2018, World Economic Forum; https://www.weforum.org/reports/readiness-for-the-future-of-production-report-2018
16. Readiness for the Future of Production Report 2018, World Economic Forum; https://www.weforum.org/reports/readiness-for-the-future-of-production-report-2018

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