We need to step up innovation to minimize digital gap

Digital trade becomes important not only in the context of covid19 but also for the pre-covid19 dynamics in the trading world. For one, I would like to refer to the sort of overall pressure on globalization, particularly in the context of us-china tension and how it sorts of had an impact on WTO’s understandings and WTO’s consensus and works going forward. But then, of course, covid-19 added the importance of digital trade many folds. I think it needs no introduction as to why that is the case. Covid19 has shown that economic crises can happen not only for the problems in the demand side of the economy but also economies can come to a grinding halt almost overnight just because of collapse of supply side due to movement restrictions of the economic agents which are people, buyers and sellers and the markets.

I think it is the digital means which keep the economies and trade going whether it's e-commerce, digital payments, digital transactions, electronic documents or even the overall digital flow of information.

What is this digital trade? We have heard about the e-commerce aspect of this, we also have heard about few other digital services aspects, but digital trade is as simple as digitally enabled trade of goods and services, any product and services which can be either digitally delivered like e-commerce or could be physically delivered as well. The market for digitally delivered goods such as, electronic books, software, databases and so on are significantly increasing with the digital transformation of the economies around the world and the benefit of the digital trade as we have seen not only during the covid19 disruptions where the digital means really kept the wheels of the trade going to whatever extent that was possible, but empirically in terms of data, it also shows that if bilateral digital trade connectivity between two countries goes up by 10% it helps goods trading, merchandise goods trading to go up by 2% and it helps service trade go up by 3%, according to the OECD. But it is not free of constraints so the policies need to come into place in the context of opportunity and constraints.

Let me first touch up on some constraints which apply globally around the world. The first and foremost is digital protectionism. I think trade has as much prosperity as it has delivered to the world and the popularity it has gained, it has also faced severe protectionism around the world. Of course, WTO and other multilateral and regional arrangements have seen this protection going down but it is a dynamic process and there is a trade protectionism aspect in the digital trade as well. For example, restrictions on cross border data exchange, restrictions on licensing requirements. There are many regulatory frameworks which require local processing of data or mandatory local equity participation. Now, that sometimes or often dissuades many global participants from going into another country cross border or exploring cross border trade. There are also issues around foreign and local licensing involving a digitally enabled trade and so on. Believe it or not there can be tariffs on digital trade as well; particularly service trade. For example, Bangladesh has had exemptions on hardware import of ICT to enable digital transformation of the country for many years but software for example which is to be delivered from foreign countries to Bangladesh or vice versa through cd’s is no longer the case, it is delivered digitally, but then there are severe sort of tariff implications or lack of awareness on the part of our regulator which exacerbates the cost of digital trade, so there are many such constraints. In light of such constraints, what can Bangladesh do?

In Bangladesh’s context the digital trade could not have been more important. For one, we have export led growth strategy, where the readymade garments has led the way very strongly, but we also need to see the export based expanding over the coming years to share the growing burden of a LDC graduation qualified country where RMG going to play a very strong role but  need to bring in more sector to share the burden that Bangladesh needs to become an upper middle income and a developed country by 2041. There is a high cost of trade in Bangladesh. The non-digital trade largely has been very costly. So, cost competitiveness to Bangladesh's economy has been quite limited because of this high cost. Just to give you one overarching indicator of this many angles of this cost measurement, if you look at the trading across border indicator in doing business, Bangladesh stands at 176 out of 190 countries. Some of the competing economies of Bangladesh who may be ahead or behind Bangladesh, Vietnam is at 104, Indonesia is at 116. I cited these two countries because as we know in the context of covid-19, these countries we are hearing are going to get greater share of the supply chain diversification and as a result of that greater trade is Indonesia and Vietnam. That’s how far we have fallen behind in terms of cost competitiveness of trade.

Bangladesh has more reasons to bring digital trade and a more positive reason is to deliver the digital Bangladesh agenda. Which is a great development vision put forward by the current government many years ago. It needs to go into incremental areas of digital transformation, not of digital governance, not only in digital literacy but also digital forms of economic activities particularly digital trade. Bangladesh has to put in a number of policies which are not unique to Bangladesh; it would apply to similar economies and in some cases to developed economies as well. Fast and foremost the rules and regulations, particularly the global and regional rules and regulations supporting trade they do cover for digital trade; however, they have been set at a time when the digital transformation was not as mature. The advent of IOT, machine learning, blockchain, they did not come. This is all from the last several years, but the rules were long before that. So, there is a need for modernizing these governing rules, but there is also a need to have more forward looking bilateral and regional trade agreements. FTA for example. If you look at some of the worlds very productive trade agreements, such as the, US-Canada- Mexico agreement, the comprehensive and progressive trans-pacific partnership CMTPP or even the digital partnership agreement where many countries have signed, they provide very forward looking, very facilitative access and ability to engage in greater digital trade with greater ease.

Secondly, i think what is important is to bring interoperability in the context of systems. One government system needs to operate well with another government system and so on, there needs to be interoperability of rules as well, when it comes to global trade. Again, digital trade is evolving very fast; the previous rules are not enough to accommodate that.  So, the world needs to have a set of governing rules which actually help connect the rules of different countries regarding digital trade as well as rules of different regional blocs, SAFTA, ASEAN, the USMCA and so on. At the moment they stand in isolation and they actually offer a lot of disadvantages for countries like Bangladesh.

The third aspect which is actually a very important element of digital trade. Often, we think digital trade is more opportunities for digitally traded or digital products in trade but there is a back-end issue as well. Which is, how are the trade facilitated by the regulatory authority, the border clearance, the applications, the licenses, the approvals, the documentations. Now, like many other developing countries, it is not wholly but largely manual in Bangladesh. Of course, there are great efforts, national single window, which is currently in implementation. As and when this comes in, it is going to address a lot of this manual paper-based trade system and will help move it to electronic systems. Bangladesh needs to put in place a single national window policy in the form of law or some form of existing regulation.

Fourth, digital trade requires a certain level of digital literacy, digital connectivity, digital infrastructure and modernization. Of course, countries like Bangladesh are making good progress but there is still a massive difference between the developed countries which are going to be likely partners in this digital trade. So, for example, Bangladesh stands at 116th out of 129 in the global innovation index. We need to step up a lot more of this innovation and digital transformation in a much faster way so that the divide is minimized.

Finally, i would say, trade is about trust, digital trade is about greater trust, because you really have to do a lot of things without discussion, without seeing your counterpart. It's all electronic and so on. A trusted system both architecture, software, hardware and overall framework needs to be such that it boosts the trust of traders, buyers and sellers who are going to engage in digital trade.