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Transformative Tech

Nations move to avoid global ecommerce ‘splinternet’

A group of more than 70 nations led by Australia, Japan and Singapore will on Friday announce plans to restart stalled World Trade Organisation talks to create a set of rules governing e-commerce and cross-border data flows, which have not been updated since the internet was in its infancy.

The move reflects growing worries of a “splinternet” in which internet commerce and the flow of online information become fragmented globally. There is concern that increased trade frictions between the US and China, as well as fundamental differences between China and the west over the accessibility of data on the internet, could lead to a fracturing of digital trade.

As of Thursday, China had not signed up to a joint statement, to be announced at the World Economic Forum in Davos, Switzerland.

“We felt we couldn’t wait any longer to do this,” said a minister involved in the talks. “International trade is changing, and the WTO risks becoming irrelevant” if it cannot set ground rules for the fastest growing area of global trade.

The current rules for such flows, which have not been revised since 1997, govern only the financial sector. Yet traded services and cross border data flows have grown 60 per cent faster than trade in traditional goods since 2007, according to a McKinsey Global Institute report on global value chains.

Informal discussions about restarting the WTO talks began in Buenos Aires in late-2017 and carried on in Geneva throughout last year.

Later, however, as more nations bought into the idea of restarting the long-stalled talks, it became clearer that China wanted what the minister called “watered down rules” as Beijing sought to keep control over what data can and cannot flow across borders.

Beijing has an entirely different regulatory approach to the internet, with the state exerting more control over companies. “Data are sensitive for China,” the minister said, while noting the size of its domestic market.

Some business leaders and investors compare China today to the US after the second world war — a large, single language consumer market with massive growth potential.

China has encouraged trade agreements via groups such as Asia-Pacific Economic Cooperation and the Association of Southeast Asian Nations, and could still come on board the ecommerce push at any time.

Indeed, as growth slows, the need for trade will only grow. “Everything for them is about [social] stability, so it is hard to know whether [their objections to the talks] are a short-term or long-term strategy.”

Either way, the different approach could add a further element to the trade conflict between China and the west. Indeed, multinational companies that once would have put up with an unequal playing field in the Chinese market are becoming more vocal about their complaints.

As one trade lawyer in Davos representing large US multinationals said: “I think western companies are at a turning point in terms of what they’ll sacrifice to be in the China market.”

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