World Trade Report 2020 Explores Increasing
Use of Policies to Foster Digital Innovation
A growing number of governments have adopted
policies aimed at promoting innovation and technological progress for their
economies, a trend which has implications for trade flows
and the rules that govern global commerce, according to the 2020 edition of the
WTO’s World Trade Report. The flagship publication, launched in an online event
on 23 November, maps out the use of government policies in the digital era and
underlines the importance of countries working together to encourage positive
global outcomes while minimizing negative spill-overs.
“Historically, governments have often sought to use policy to
enhance long-term economic growth and societal welfare,” Deputy
Director-General Yi Xiaozhun said at the launch. “In
the past decades, these policies have increasingly been outward-oriented, in
recognition that openness and access to larger markets and increased
competition lead companies to innovate. Thus, trade and trade policies have
contributed to innovation.”
“In very recent years, spurring innovation in the digital field,
whether new
in the world or new in the country, is at the core of many new
government policies, which have been adopted in countries at all levels of
development,” DDG Yi said. “Just as the WTO fostered broadly open, predictable,
and competitive markets in the wider global economy, it can in the future play
an important role in reducing uncertainty in markets for digital goods and
services. But this will require updating the WTO framework to address new
challenges and demands.”
Since the 2008-09 financial crisis, some 115 countries have
instituted “new industrial policies” and other industrial and digital
development strategies aimed at advancing their economies towards digitally
enabled production processes and services, generally supporting the transition
to the digital economy through technological upgrading and innovation. The
report finds that some of the policy instruments being
employed to this aim are relatively new. They include policies aimed at
addressing access to data, research and development support such as tax breaks
to assist digital innovation, knowledge diffusion through the agglomeration of
talents and skills, and technological hubs to maximize knowledge spill-overs.
Other policy instruments are more conventional, such as tariffs on
infrastructural equipment, investment and tax incentives to develop local
technologies, innovation-oriented procurement to shift markets towards
innovative products and incentives to foster patent and other intellectual
property creation. The report notes that government policies retain “defensive”
aspects, particularly in mature non-digital sectors subject to intense competition
and technological transition.
The COVID-19 pandemic, furthermore, has accelerated the uptake of
e-commerce and digital innovation and with it the introduction of government
support measures for capacity building and upgrading in information and communication
technology.
Developing countries are showing a clear interest in the
transition to the digital economy. While the report notes some challenges, such
as developing the necessary infrastructure, it also identifies opportunities
related to the digitization of manufacturing production, inclusion in the new
digital services supply chain (for instance in e-commerce and coding
industries) and lower costs of reaching international markets through the
Internet.
The report examines the rationale for innovation policies and
discusses their cross-border effects, noting that while there is no
one-size-fits-all approach, an important element, nevertheless, is that
government interventions should be grounded in sound
expectations of what technological advancement can be achieved and should be
aligned with the countries' comparative advantage. Due to both the positive and
negative impact government policies may have on other countries, there may be
scope for international cooperation, the report adds.
WTO agreements and the principles of non-discrimination,
transparency, reciprocity and the prohibition of unnecessarily
trade-restrictive measures, combined with policy space allowing governments to
address important societal concerns, have long promoted liberalization and
innovation, the report notes, adding that open trade can make innovation
policies more effective at achieving their stated goals.
In the digital field, the WTO and its rulebook have proved to be
forward-looking. The WTO has already supported innovation in
many ways It has done so directly by eliminating tariffs on internet and
telecommunications infrastructure products through the Information Technology
Agreement (ITA), by liberalizing internet services through the
telecommunications agreement and by stimulating
e-commerce with the moratorium on duties on cross-border digital flows, as well
as by providing a robust and stable framework for the development of global and
open standards, intellectual property protection and other critical rules based
on the principles of non-discrimination, transparency and reciprocity.
Indirectly, it has supported innovation through the improved resource
allocation and efficiency that result from open trade, which frees up resources
to be devoted to new cutting-edge pursuits.
Moving forward, the WTO will continue to have an important role to
play in reducing uncertainty in markets for digital goods and services. Members
will have to consider how to encourage the sharing of benefits arising from
innovation policies, what measures will be needed to
facilitate investment, and whether new flexibilities can be expanded for
governments to support domestic digital innovation. The mobility of skilled
workers, data flows and privacy concerns, and anti-competitive behaviour in the digital industry will be of high concern
as well, the report adds.
International cooperation to foster shared understandings about
these policies would help forestall trade tensions — and thus lay a firmer
foundation for innovation, investment, and cross-border activity to flourish.