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Why technology transfer can fuel the global agenda in digital trade
Digital trade has been defined widely as trade activities where products and services are digitally ordered and/or delivered. In services, digital trade revolutionizes traditional service delivery by eliminating the need for physical presence, thereby reducing face-to-face costs and facilitating cross-border service provisions.
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Digital trade can transform how firms innovate by reducing information, logistics and transaction costs associated with acquiring foreign inputs. (Shutterstock/Summit Art Creations)
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he World Trade Organization (WTO) 13th Ministerial Conference held in Abu Dhabi in February-March has drawn considerable attention, particularly regarding the extension of the e-commerce moratorium for an additional two years. This extension, until the 14th Session of the Ministerial Conference or March 31, 2026, whichever comes earlier, is perceived as a positive development in digital trade. This result did not come from an easy negotiation, as developing countries advocated for ensuring they receive equitable benefits from the arrangement.
The conundrum with the moratorium lies in the concentration of the invention of digital technology in certain countries, with developing nations often serving merely as markets or sources of data for these technologies. At the same time, the growth of the export of digitally deliverable services worldwide has been substantial, highlighting the significance of digital trade volume.
Governments in developing countries see this as an opportunity to yield income and they are racing to develop new ways to tax this new “oil”. India imposed a goods and services tax (GST) rate of 18 percent on digital services categorized as online information and database access or retrieval (OIDAR) effective since August 2023. In a different approach, as recorded in this Global Trade Alert database, Indonesia imposed a 10 percent value-added tax (VAT) on the utilization or copyright of intangible goods or services from foreign sources since August 2020, making its way to tax the United States-based subscription-based streaming service, Netflix.
To break the hurdle, the extension of the e-commerce moratorium comes with prerequisites: that the level of playing field of developing countries be elevated so that they can have digital industrialization; and that developing countries can also be exporters of electronically delivered products and services. As digital industrialization requires the integration of digital technologies into traditional industrial processes, this is the case where most developing countries will likely need to import these advanced technologies from the global north before they have their own capacity to produce them. This is also a reasonable argument for supporting free digital trade from the point of view of the global south: free digital trade allows for technology transfer to developing countries, helping them to meet both above objectives. What then might be the channel for digital trade to affect technology diffusion and adoption in developing countries?
Digital trade has been defined widely as trade activities where products and services are digitally ordered and/or delivered. In services, digital trade revolutionizes traditional service delivery by eliminating the need for physical presence, thereby reducing face-to-face costs and facilitating cross-border service provisions. This transformation enables firms to outsource tasks within global value chains to other countries, presenting developing nations with opportunities to emerge as net exporters due to their lower labor costs than those in the global north. Collaboration between firms in developing countries as suppliers and those in developed nations as clients then increases, fostering technology transfer during service delivery. Imagine a scenario where a start-up company in the Philippines provides data annotation services to a software company in the US.
During the process, the company needs to meet the standards set up by its client in the US on image labeling, text categorization, data tagging, or skilled annotators, prompting this start-up company to learn new skills and technology, improve the production process, and deliver new service outputs. Having a better data annotation service can be another door for technology spill-over to the Philippines: the development of local machine learning models.
Digital trade can transform how firms innovate by reducing information, logistics and transaction costs associated with acquiring foreign inputs. This accessibility also expands the variety and quality of inputs available overseas, enabling firms to enhance efficiency and output expansion as it has more choices in managing their inputs. For instance, digital trade may allow automotive manufacturers in Thailand to import the MAM Autowork Online software, a United Kingdom web-based application designed to simplify and manage various aspects of running a busy workshop or garage. These high technology and knowledge content digital products may benefit more manufacturers in developing countries as these types of products most likely are produced in developed countries.
