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Digital Trade Policy in the Era of Digital Transformation Trade policy, electronic commerce

Author Kyu Yub Lee, Wonseok Choi, Ji Hyun Park, Jun Hyun Eom, Minji Kang, and Unjung Whang Series 21-01 Language Korean Date 2021.12.30

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   This study focused on digital trade policies that affect the trading of goods and services over the internet. After examining digital trade and digital trade barriers, changes of global digital trade norms, and Korea’s digital trade policy response, the study presented major tasks of Korea’s digital trade policy and mid- to long-term policy direction. 
   The scale of goods imported and exported by Korea through the internet in 2020 was about KRW 6 trillion and 4.1 trillion, respectively. It is difficult to find statistics on Korea’s service exports through the internet. In this study, we estimated the size of Korea’s service exports through the internet in 2018 and 2019 by combining data on electronic intangible goods import/export confirmation document from the Korea International Trade Association and data on value-added declaration from the National Tax Service. First, Korea’s service exports through the internet exceeded at least KRW 3 trillion in both 2018 and 2019. Second, in 2019, the volume of service exports through the internet increased by about 6.89% from the previous year. Third, the scale of export of services through the internet (except for the duty-free shop performance) was larger than that of goods. To estimate the sales effect of domestic e-commerce firms, we matched survey data by KIEP and Korean Enterprise Data and applied the Difference-in-Difference estimation using the propensity score matching technique. In the year of first entry into the e-commerce market, it was estimated that the per capita sales growth rate of e-commerce firms was about 9.5% higher than that of general domestic firms included in the control group. We also conducted a survey titled with Status of Digital Trade Barriers and Difficulties from January to June 2021. As a result of analyzing the randomized data (number of firms: 1,029), we identified that common difficulties of firms were from e-commerce facilitation, digital products, and data regulation, and the difficulties caused digital trade barriers were more burdensome to smaller size of firms.
   As digital trade has expanded and digital trade barriers have also increased, the WTO e-commerce talk has begun since May 2019. We investigated the heterogeneity of domestic laws related to e-commerce among countries participating in negotiations, differences in terms and areas of interest, data-related provisions guaranteeing free data flows and prohibition of data localization, and customs duties moratorium for electronic transmission. It was predicted that conflicts arising from data-related issues and China’s strong digital protectionism will become major obstacles to the progress of the WTO e-commerce negotiations. To derive the characteristics of digital trade norms that have appeared in bilateral and regional FTAs, we used the TAPED (Trade Agreement Provisions on Electronic Commerce and Data) and reviewed 113 trade agreements that have e-commerce provisions or chapters. First, most of the trade agreements containing digital trade provisions or chapters were signed between continents and between developed and developing countries. Second, trade agreements that include data-related provisions tied to strong obligations have increased. Third, trade agreements that either mandate the application of dispute resolution or allow general exception have been on the rise. We further compared and reviewed the digital trade rules of FTAs ​​signed by the US, EU, and China and also summarized the contents of digital trade agreements signed recently.
   Next, we examined the Korea’s digital policy in response to changes in the global digital trade environment. The main tasks were to compare directions, strategies, detailed agendas contained in several digital economy policies and digital trade policies over the last four years (2018-21). In particular, we looked into the linkage among digital economy policies including the Digital New Deal and digital trade policy and the implementation structure of digital trade policy. To examine the aspects of data regulation response, we reviewed the recent changes in domestic data regulations. First, we focused on whether commercial research can be included in ‘subjects that are the basis for determining the possibility of personal identification’ and ‘scientific research’ in the Personal Information Protection Act amended in 2020 and summarized related provisions and ongoing issues. Second, we focused on the scope of information that can be used in the MyData project, the security issue of the MyData project, issues related to the adequacy of the EU Commission in relation to the Credit Information Use and Protection Act. We also reviewed recently proposed policies including the Act on the Consumer Protection in Electronic Commerce, Data Basic Act, and Korea Data 119 Project. Using the National Trade Estimate on Foreign Trade Barriers published by the U.S. Trade Representative, we scrutinized the U.S.’s critical views on Korea’s digital trade policy by classifying free data flows, data localization, and other issues and examining them from the perspective of international trade law.
   Finally, we evaluated Korea’s digital trade environment by using the Digital Trade Restriction Index of the European Centre of International Political Economy, the Digital Services Trade Restrictiveness Index of the OECD, and the Global Cloud Computing Index of the Software Alliance in the U.S. In short, the level of Korea’s digital trade environment was evaluated to be in the mid-range. We recommended that Korea’s mid-to-long-term digital trade policy should aim to be open and rule-based, meaning that it should raise the level of liberalization and embrace global digital trade norms to expand digital trade by introducing minimum number of domestic data regulations. Digital trade policy aiming to be more open and rule-based can be used as a means of achieving the long-term goal of the Korean economy and can yield beneficial effects to consumers, firms, and the long-run growth. Finally, the study provided several policy recommendations of digital trade based on self-evaluation criteria for Korea’s digital trade policy.

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