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INTRODUCTION
While nationalist policies areundergoing a revival, globalization should find new paths through thedigitization of the economy. Since they are either immaterial ordematerialized, the flows supporting global business escape restrictivepractices. But digital globalization also entails digital protectionism. Protectionism is perhaps not as incompatible with the digital world as wethink!
Corinne Vadcar ／ Senior Trade Analyst, InstitutFriedland
Whencommercial exchanges result in services, data flows and dematerialized goods,they bypass physical boundaries and traditional barriers to trade such astariffs, standards or technical regulations.
Today theseintangible flows are growing exponentially.
The transformation of globalization bydigital technology
Trade inservices has increased by 5% in Q2 2017 (compared to Q2 2016), according to theWTO. With the digitization and transformation of their value chain, companieshave already largely shifted their activities from products to services. Theyhave strengthened their service offering with different business models. Andthe obligations concerning local content or implementation in exchange foraccess to the foreign market encourages them to do so.
Similarly,data flows have increased tenfold in a decade, according to McKinseyGlobal. As a powerful source of value creation,data will experience strong growth in cross-border trade. Startups, whichdepend on models based on connectivity, should better withstand theseprotectionist barriers. As for digital platforms, their levers of development(network multiplier effect, power of algorithms, ability to grow fast andstatus of first entrant) have protected them from protectionist practices.
Lastly, thisnew globalization also entails a globalization of collective intelligence:knowledge and know-how will be at the heart of exchange channels of the future.As pointed out by GillesBabinet, open space or artificial intelligenceplatforms integrate knowledge contributions from countries such as China andIran, despite their being closed to the Western Internet.
Digitaltechnology allows to bypass local regulations in order to penetrate foreignmarkets. But if new business models are more resilient to trade barriers, it isbecause they access consumers directly and partner with them thanks to newpayment models (sales based on use or transactions).
In thedigital age, a firm’s resilience will greatly depend on its position as aglobal leader. Digital platforms, both American (GAFAM) or Chinese (BATX), havewell understood this simple fact. Amazon and Alibaba, both e-commerce players,are racing to become the world’s leading distributor within the next decade. Asfor Baidu, it seeks to cover 99% of the world’s population with its geolocationmaps: over 100 million cars in the world are already using them. However, newglobalization also entails new protectionism.
Protectionism 2.0
While manyobservers agree that another globalization is under way, it is equally true tosay that protectionism is embracing new forms. This shows in different ways: inthe first place, in terms of data protection.
Severaldomestic regulations around the world are working to regulate the transfer ofdata abroad. According to Nigel Cory, in May2017, 34 countries had adopted legislation to protect the internationaltransfer of data: personal data (including health) and public data but alsotax, accounting and financial data. However, such restrictions could reduce theGDP of EU or BRIC countries by 0.7% to 1.7%. While the protection of personaldata is legitimate, the borderline between protection and protectionism istenuous when it comes to other types of data (commercial and industrial).
In addition,data flows obey more or less strict regimes. Martina F.Ferracane has established a simple andenlightening taxonomy, ranging from the absence of restrictions on cross-borderflows to the total ban on transfer, including the obligation to store orprocess data locally (via cloud servers, Internet servers and data centers).
"Digitalprotectionism is not just about data protection."
But digital protectionismis not just about data protection. It is also about localization requirementsof computer installations, disclosure of computer source codes (computeroperating systems) or the discriminatory treatment of digital products (music,video, software, e-books) transmitted electronically. These questions also jointhe issue of net neutrality recently questioned by US lawmakers.
Finally,commercial flows of goods can be impacted by restrictions on data from themoment products include services, software and other connectivity applications(embedded goods). In any case, some practices, which often prove difficult to distinguishfrom protectionism, exclude intermediate sized-companies from foreign marketsor introduce additional costs (rise in prices of cloud services).
Without evenmentioning the legislation adopted in the name of cybersecurity, lawsprohibiting the access to the Internet and social networks, such as the GreatFirewall of China, or designed to severely restrict the use of anti-censorshipsoftware or VPNs (Virtual Private Network), the digital age hardly resemblesthe idea of freedom that comes to mind, as Mark Leonard remindsus.
A digital agenda on e-commerce
The bestdefense against this new protectionism could come from technological advances.The fact that a growing number of actors need digital rules that respect thebalance between innovation, security and regulation, while ensuring the trustof users, could stand as a powerful bulwark. We welcome the agreement reachedby European countries to legislate on any unjustified geo-blocking, allowingEuropean consumers to buy online in another country without being geolocated. Inaddition, several countries support, within the framework of the WTO, theprinciple of a digital agenda on e-commerce, the lowering of barriers in orderto stimulate trade. The challenge is to regulate, protect and promote withoutbeing protectionist.
At the end ofthe day, regardless of the form it takes – whether new or old – protectionismdoes not change its aims:
1/ Supportthe emergence of national operators by giving them time to develop competitiveproducts or services: when controlling Internet users for political reasons,China also protects its territory for Alibaba and JD.com, national champions ofe-commerce.
2/Create high standards that other countries will be forced to respect if theywish to access the market: this is what we are currently witnessing withambitious data management and data security measures that also aim at settingthe digital rules of tomorrow.
Thetemptation of protectionism is strongest when technological evolution offersopportunities for the redistribution of economic power. Irrespective of thecountry in which it is implemented, protectionism is used to enter the digitalage and reconfigure productive systems in order to join, or remain among, theleading industrial powers.
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Corinne Vadcar
A graduate in international relations, Corinne Vadcar has a twenty years' experience in analyzing international trade and business internationalization. She is an expert on major trade trends, free trade agreements, global value chains (GVC) and trade policies. She is presently Senior Trade Analyst at InstitutFriedland, a Paris-based think tank, crossing macro and micro researches and expertises. Before joining InstitutFriedland, Corinne Vadcar served as Head of International Trade Studies Department at the Paris Region Chamber of Commerce and Industry. For five years (2008-2013), she was the chief editor Les Cahiers de Friedland. Prior to that position, she served as a Project Manager on geopolitical matters for a political risks insurance company and for the French Ministry of Defence.
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