The UNCTAD's Trade and Development Report 2018 outlines what developing nations must to do ensure that they don't get swayed by the narratives being perpetuated by the digital giants and their cheerleaders.
In today’s world, anyone who argues for regulating data/tech giants in the digital arena, or suggests putting restrictions on cross-border data flows, stands the risk of being labelled a 21st century Luddite. However, this might just have changed. In its flagship Trade and Development Report (TDR 2018) released last month, UNCTAD has strongly advocated the need for developing countries to address issues of data sovereignty and design national policies to ensure equitable distribution of gains arising from data which is generated within the national boundaries.
Evocatively titled Power, platforms and free trade delusion, TDR 2018 discusses some of the crucial issues in these turbulent times, including trade wars and monopolies and global value-chains. However, the most valuable contribution of the report is its analysis of the policy challenges for developing countries in the digital era.
The report correctly identifies data as the “most important component of the digital infrastructure, providing the basis for generating huge profit streams and potentially changing the relative positions of countries in terms of their shares in global production, consumption, investment and international trade.” The report further states that “in the digital economy access to, and control of, data is a source of market power. It can also create barriers to entry for new players.” According to the report, it is “critical for countries to devise national data policies to ensure equitable distribution of gains arising from data which is generated within the national boundaries.”
Further, in respect of the digital economy, the report has eight key messages. These are extremely relevant for India’s quest to formulate a national e-commerce policy.
First, TDR 2018 argues that in the digital economy first-movers advantages benefit from controlling and scaling large volumes of data. Further, the market dynamics in the digital arena eradicate competition from small firms through acquisitions or exclusionary practices, and promote the ability of first-movers to grow and assimilate further market power. The report correctly recognizes that the existing anti-trust laws and policies in many developing countries may be unsuited to the digital economy and recommends tighter regulation of digital platforms.
Second, UNCTAD has zeroed on the phenomenon, which is commonly referred to as “cash burning” in the Indian context. TDR 2018 drives home the point that players in the digital economy seek to enhance their market shares by resorting to various strategies, including slashing prices, even to the extent of sustaining losses. Policymakers in India and other developing countries need to take note of these unfair practices and devise solutions to address them.
Third, the report states that “localisation of servers can be required for regulatory purposes, and such regulation can also operate to assist in the promotion of domestic providers of a range of goods and services”. Given the in-depth research that seems to be underpinning the report and the credibility of this flagship publication of UNCTAD, this should strengthen the hands of those who want India to adopt a nuanced approach to localisation for giving a fillip to local innovation and domestic entrepreneurs.
Fourth, TDR 2018 makes important suggestions for nurturing local innovators in developing countries—an issue of considerable significance for India. The report suggests that firms and innovators in developing countries should have access to data that are typically collected by multinational platform companies. It further advocates for governments to acquire stakes in commercialization of successful new technologies by establishing professionally managed public funds.
Fifth, the reports emphasises that linking domestic producers to national e-commerce platforms should be a part of national promotion scheme. It buttresses this point by giving the example of a Chinese e-platform called KiKUU, which sells only Chinese goods. This example is extremely relevant, as the need to create a national platform for selling Indian goods appears to have been considered in the course of formulating India’s draft e-commerce policy.
Sixth, TDR 2018 makes a persuasive case for developing countries to implement digital industrial policies for catching up with the leaders. However, it makes the point that such policies would need to be preceded by regulating the digital platforms. This would provide developing countries’ firms with an opportunity to compete with the existing platforms and avail themselves of new opportunities in the digital world. Thus, UNCTAD’s view is that regulation is essential for developing countries to gain from ecommerce.
Seventh, UNCTAD has recognised the problem of digital giants escaping the tax net in many countries. The report recommends taxing these firms where their activities are based rather than where they declare their headquarters. This will help in redistributing their rents and increase government revenues.
Eighth, given the strong push by some countries at the WTO to negotiate binding rules on ecommerce, TDR 2018 strikes a cautionary note. It has observed that “the potential for development provided by digital technologies can be easily eclipsed if developing countries are not given the flexibility and policy space to design their economic and industrial policies and national regulatory frame-works to promote digital infrastructure and digital capacities.”
Overall, unlike many other international organizations, UNCTAD’s TDR 2018 has resisted the temptation of getting swayed by the narratives being perpetuated by the digital giants and their cheerleaders about the global digital economy and its links with development. The report’s diagnosis of many of the problems emerging in the digital arena is objective and spot on. The recommendations to address the underlying problems are well thought-out and far reaching. It also resonates well with India’s attempts at formulating a domestic ecommerce policy. Are India’s policymakers listening?
The author is a Head,Centre for WTO Studies Views are personal