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Digital trade in services: where we stand?

Digital trade in services refers to services supplied internationally over the Internet. Digitalization has helped boost the tradability of services since providers and consumers do not need to be in the same place. It is worth mentioning that cross-border services exports, including through electronic/digital means, hovers around $4 trillion[1].

Digital-trade-services-Bangladesh
Figure 1: Digitalization has helped boost the tradability of services.

A WTO study found that by lowering costs and increasing productivity, digital technologies could boost trade by up to 34% by 2030[2]. There are now a growing number of regional agreements with provisions addressing specific e-commerce/digital trade in services issues.

Currently about 30% of the Regional Trade Agreements (RTAs) notified to the WTO contain e-commerce provisions[3], and this number is bound to grow. This seems to indicate that countries are taking measures – regionally and bilaterally – to try and regulate cross-border e-commerce. At the multilateral level, members are continuing the exploratory work under the existing Work Program on Electronic Commerce.

Potential barriers that impede the growth of digital international trade in services in Bangladesh[4]:

  • Trade facilitation is an emerging area of interest as well for e-commerce/digital trade in services. Bangladesh’s cross-border e-commerce activity is currently constrained due to a low de-minimis value and factual checks of most parcels entering Bangladesh. There is a need to review the benefits versus the burden imparted to the customs authority as a result of this.
  • Trade logistics is an area where improvements are required. While the post office network is extensive, last-mile delivery remains a concern given the challenging geography and remote/dispersed communities. For e-commerce/digital trade firms, order facilitation involves a fragmented chain of multiple logistical suppliers, and operations are frequently hampered by security challenges, reliance on cash as the predominant form of payment (between logistics suppliers and e-commerce firms, as well as with customers), and an overall weak level of maturity of this important service function.
  • The Information and Communication Technology Act 2006 (and amended versions in 2009, 2013) and the Digital Security Act 2018 are the cornerstones of cyber-laws in Bangladesh. The former is credited with broad-ranging coverage related to the recognition of online contracts and digital signatures, as well as recourse mechanisms for dispute resolution. Unfortunately, no specific law on cyber-crime exists, although the above laws include certain tenets dealing with cybercrime.
  • The Consumers’ Rights Protection Act does not have any focus on digital transactions. A regulatory gap regarding copyrights, trademarks and patent rights of e-information and data, domain name protection, etc. exists. Moreover, existing intellectual property laws (i.e. copyright, trademarks and patents) do not contain any provision on e-aspects, requiring an amendment of the regulations.
  • Mobile Financial Services (MFS) have experienced rapid uptake from consumers and has outpaced card-based payment systems growth. Currently, e-commerce related transactions only account for approximately 1.02% of the transactions of MFS. Also, digital payments constitute currently only 0.14% of the transactions of MFS. The key challenges to overcome are fostering consumer trust, and strengthen merchant – MFS/card service providers’ linkages.
  • Two key areas of concern are international transaction limits for outbound payments in foreign currency, and access to financing for startups, ICT entrepreneurs and e-commerce/digital trade merchants. The former needs to be reviewed in terms of balancing valid concerns of capital flight with the concern that such restrictions will prevent companies from scaling up operations, especially in cases where the procurement of inputs is required from international sources, or where business-related expenses are required. The latter is a key factor constraining SME growth, extending to firms operating within the digital economy.
  • In terms of skills-development, the e-commerce/digital trade in the services sector has outpaced skills-providers. Companies do cite a challenge in acquiring IT talent, although this is expected to extend to the broader digital skills base as well as the sector evolves since the increased requirement for spurring digital entrepreneurship is on the rise.
Mobile-Financial-Services
Figure 2: Mobile Financial Services (MFS) have experienced rapid uptake from consumers and has outpaced card-based payment systems growth.

How digital services trade can promote economic advancement in the context of Bangladesh?

ICT is a natural component of the country’s developmental trajectory for several reasons. Furthermore, this sector is a natural fit in the country’s development goal to create jobs for the 110 million Bangladeshi under the age of 35, in a country of around 170 million[5]. Since the inception of the Digital Bangladesh initiative, the ICT sector has grown at an average pace of 40 percent per annum[6].

Given the facts, the digital economy constitutes a significant national development opportunity for Bangladesh and a chance to diversify from traditional industries prevalent in the country. Ample potential exists to add digital trade components to our nationally prioritized sectors such as pharmaceuticals, the apparel, jute sector and the food processing industry.

What measures can enable Bangladesh to benefit from the internationalization of services by using technology?[7]

e-Commerce readiness assessment and strategies formulation o   Translate e-commerce policy and ICT- to multi-year master-plan.

o   Connect initiatives for cluster-based economic development and trade promotion efforts in priority sectors with e-commerce-based business models.

ICT infrastructure and services o   Ensuring 100% coverage vis-à-vis 2G, 3G while increasing 4G and eventually 5G.

o   Increase smartphone coverage, especially in rural areas and continue efforts to promote local handset manufacturing.

o   Encourage telecommunications service providers to cooperate on network/infrastructure sharing in remote areas.

Trade logistics and trade facilitation o   Review national de-minimize regime.

o   Conduct post office revitalization pilots in rural areas developing the capacities of remote/rural post offices through technology.

o   Support the introduction of insurance products for trade logistics firms to minimize the risk imparted due to product breakage, consumer fraud, and security challenges encountered during delivery.

Payment solutions o   Foster dialogue with the private sector to develop mechanisms for reducing consumer reliance on cash and encouraging the use of MFS and card-based payments.

o   Review the regulations for ceiling limits related to outbound transactions and review particularly the online transaction limits for individuals and corporate entities.

o   Foster interoperability of payment services and transfers between mobile-money and banks and between mobile-money providers.

o   Establish and communicate a clear return guideline for online purchases and identify options to strengthen after-sale services in e-commerce including return payments.

Legal and regulatory framework o   Amend Consumer Rights Protection Act to include provision for digital content and e-transactions in this Act.

o   Develop a data protection act or amend the existing Digital Security Act to include the provision of data protection for digitally produced content.

o   Amend existing intellectual property laws (i.e. copyright, trademarks and patents) to include e-aspects.

o   Ensure that domain name protection exists for e-commerce websites.

E-commerce skills development o   Provide support to youth and learners seeking to transition to entrepreneurship or employment in e-commerce through nation-wide incubation or acceleration programs.

o   Provision of startup support in second and third-tier cities.

Access to financing o   Strengthen linkages between commercial lenders and associations in sectors.

o   Develop lending instruments specific to the needs of e-commerce businesses.

o   Support capacity-building efforts of the commercial banking sector to allow a more hands-on understanding of e-commerce-based business models, risk profiles of e-commerce businesses and typical patterns of financing needs of such companies.

o   Encourage the market entry or expansion of local or international venture capital firms through investment promotion activities on opportunities in Bangladesh’s e-commerce and ICT spaces.

 (Note: The write-up produced here is based largely on the findings from the publication titled “Rapid eTrade Readiness Assessment for Bangladesh” prepared by UNCTAD.)

References:

[1] World Economic Forum

[2] https://etradeforall.org/wto-dg-azevedo-the-conversation-on-digital-trade-and-e-commerce-concerns-us-all/

[3] WTO

[4] Rapid eTrade Readiness Assessment, completed by UNCTAD at the request of the Bangladesh government

[5] UNESCAP Report (Rapid eTrade Assessment, Bangladesh)

[6] UNESCAP Report (Rapid eTrade Assessment, Bangladesh)

[7] Compiled from UNESCAP Report

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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