18.04.2021 Views

White Paper Trade Rules and the Digital Economy Key Points and Findings

This synopsis document summarizes and articulates the key points and findings from the much longer 2017 White Paper on Trade Rules for the Digital Economy.

This synopsis document summarizes and articulates the key points and findings from the much longer 2017 White Paper on Trade Rules for the Digital Economy.

SHOW MORE
SHOW LESS
  • No tags were found...

Create successful ePaper yourself

Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.

October 2017

Trade Rules and the

Digital Economy

A White Paper

Key Points and Findings


Huawei | Trade and the Digital Economy

ABSTRACT

Our White Paper on Trade Rules and the Digital Economy examines trends and needs in the global digital

economy, and the emerging set of international trade agreement rules currently under negotiation to

govern world trade in the digital economy. It seeks to define the needs of the global economy, the

requirements to service those needs by the global ICT industry, and the position of Huawei as a leading ICT

company operating in over 170 countries and providing goods and services along almost the entire length

of the global digital value chain. It recommends that non‐discrimination, open markets, and fair

competition should be the fundamental rules for the global digital economy, whereas any exception to

these rules should be adopted subject to the principles of transparency, proportionality, necessity, and

multi‐stakeholder consultation. This short summary of the key findings and conclusions is provided for

those seeking a more succinct breakdown of our positions on these issues. For a more in‐depth analysis,

please see the full White Paper.

ACKNOWLEDGEMENTS

Huawei’s White Paper on Trade Rules and the Digital Economy is the result of a major project by the Trade

Facilitation and Market Access (TFMA) team within Huawei Technologies, inspired by the vision of James

K. Lockett, Vice President of Trade Facilitation and Market Access (TFMA) at Huawei Technologies to stake

out Huawei’s views on the pivotal issue of the trade rules for the digital economy. With contributions from

numerous colleagues, its principal author is Simon Lacey, also at TFMA Huawei Technologies, who

researched and prepared an initial and comprehensive draft and has also edited the manuscript through

its various stages. Simon’s tireless commitment to this complex and evolving topic is reflected from

beginning to end in the White Paper. It has been written under the overall supervision and direction of

Madame Chen Lifang, President of PACD at Huawei Technologies and Mr. Zhang Jiangang (Victor) as well

as his predecessor Pang Jimin, President of Government Affairs, also at Huawei Technologies. Other

members of the TFMA team have also contributed extensive comments and edits, and thanks must go to

Alessandro Marongiu, Zhang Shige (Aviva), Hu Zhengguo (Neo) and Professor Sheng Jianming (Jamie) for

their input and feedback while preparing the initial manuscript and on many procedural and technical

issues in the process of bringing the White Paper to fruition. The TFMA team would also like to thank a

number of individuals within Huawei who took time out of their busy schedules to sit and share of their

valuable insights and experience, including in particular Paul Scanlan, Colin Giles, Tommi Laine‐Ylijoki, Joe

Kelly, Walter Jennings, Han Feung, Ting Ka Lun (Allen), Sameer Malik, Zou Wenyu (Kitty) and Allan Yap. The

White Paper has also benefitted enormously from the many valuable insights and inputs received from

Hosuk Lee‐Makiyama, Martina Francesca Ferracane, and Erik van der Marel, with whom the TFMA team

worked at the end of the process to supplement our research and add some value in terms of economic

analysis, case studies as well as with graphical inserts. Hosuk’s far‐reaching and highly insightful expertise

on the subject matter proved extremely valuable. James Lockett and Simon Lacey “field tested” some of

the preliminary findings at a number of international symposia throughout the months the White Paper

was being prepared and in this context we would like to thank Harsha Singh and Michitaka Nakatomi for

comments on an earlier paper for the E‐15 initiative which helped our thinking, and we must thank Usman

Ahmed from Paypal, Marcos Vaena of the International Trade Center in Geneva and Pierre Sauvé of the

World Bank for their valuable contributions as part of our panel session at the 2016 WTO Public Forum

which helped our thinking to evolve further on these issues. We would also like to thank the team of

Huawei translators who worked on the Chinese version of the White Paper and provided invaluable

assistance in also making the English version a much better document. In this regard, it was in particular

the skills of Miss Gong Jing that proved invaluable to the whole project. Finally we would like to thank Joy

Tan, President of the Corporate Communications Department for her invaluable guidance. As always any

shortcomings, errors or omissions in this White Paper are solely those of the lead author.

1


Huawei | Trade and the Digital Economy

EXECUTIVE SUMMARY

Our White Paper on Trade Rules for the Digital

Economy represents a first attempt by Huawei to

exercise thought leadership in a relatively new

area of international rule‐making. The current set

of international trade rules largely predates the

internet era of the last two decades. An update

of the “analogue rules” to bring them into the

digital age is long overdue but has run into some

unexpected headwinds as of late. Our White

Paper is an attempt to express our views on how

we see the current debates surrounding new

trade rules, with the hope of making a modest

contribution to producing outcomes that would

guarantee future decades of the breathtaking

growth we have seen in the digital economy and

the unleashing of pent‐up innovation, as well as

the seizing of manifold opportunities as millions

have become empowered in the developing

world to set themselves free from poverty.

The first Chapter of our White Paper defines the

digital economy as the range of goods, products,

services and solutions that have emerged and

continue to emerge in direct relation to online

connectivity. This definition admittedly covers a

broad value chain ranging from the hardware

and equipment constituting the backbone

infrastructure of telecommunications networks,

to the devices, particularly smart phones, tablets,

wearables, computers and other terminals used

in order to get and stay online. This definition

also comprises the various services, solutions

and applications that have emerged to meet the

many needs that users place on the internet and

the whole online ecosystem, including digital

products and services such as software and e‐

books. In laying out this definition, we will look

beyond the narrow confines of focusing simply

on e‐commerce, but rather examine how

digitalization has transformed international

trade across borders: Chapter 1 looks to define

and elucidate the emergence of modern day

digitalized global value chains that are having a

disruptive and transformative effect on both the

way businesses operate as well as how

consumers acquire and use products, services

and information.

Chapter 2 of our White Paper examines Huawei’s

place in the digital economy. Across all of our

three business groups, we occupy a unique place

in the digital economy in terms of product

coverage, but also in terms of our geographical

footprint, since we operate in both very

underdeveloped as well as very technologically

advanced markets. With regard to our core

carrier business, we are responsible for building

the underlying network infrastructure (pipe) that

allows the digital economy to function in the first

place. When it comes to our enterprise business,

we provide a range of new services and solutions

that leverage the power of cloud computing and

remotely serviced platforms, such as in the area

of digital customs, or our many Smart City

solutions. Finally in our devices business, where

we are contesting global smartphone, tablet and

wearables markets, we operate as a seller of the

terminals with which users interface with the

digital economy in order to purchase and/or

consume the services, solutions, products and

information that the digital economy offers. As

such, we are potentially vulnerable to changes in

the underlying legal, regulatory and policy

regimes that govern the many stages of the

digital value chain. Chapter 2 discusses several

ways in which new and existing trade and

investment rules affect different aspects of our

business.

Chapter 3 focuses on the underlying legal and

regulatory environment in which companies like

Huawei operate. As in many other fields of the

law, the current rules are struggling to keep pace

with technological developments and the quick

pace of innovation that characterizes the

technology sector in particular. Many countries

are enacting rules and setting up regulatory

regimes that have a direct impact on the digital

economy. Whether it be with the objective of

better protecting the data privacy of their

citizens, beefing up national law enforcement

2


Executive Summary

capabilities in the face of increasing cybersecurity

threats, or in the hope of kick‐starting

their own domestic ICT industries, governments

in many countries, both developed and

developing are becoming increasingly

interventionist in this sector. Chapter 3 analyzes

a number of these policy and regulatory trends

and discusses how they fit into the broader

international consensus that has emerged over

the last two decades with respect to global

internet governance and rules on the digital

economy.

Chapter 4 of our White Paper focuses on the

existing and emerging set of multilateral and

preferential trade rules that currently or may

soon govern the digital economy. International

rules for digital trade currently exist in a legal

framework put in place before the advent of the

internet era so that we currently live in a world

of “analog rules” for a digital age. As in most

policy areas, international rule‐making tends to

lag behind domestic legislative and regulatory

responses to the needs of the digital economy.

This disconnect is something that had begun to

be addressed in a series of free trade agreement

negotiations, particularly the Trans‐Pacific

Partnership (TPP) Agreement and the Trans‐

Atlantic Trade and Investment Partnership (TTIP)

‐ both of which face an uncertain future at the

time of writing. International trade agreement

texts that relate directly to the digital economy

are also emerging in the context of the Trade in

Services Agreement (TiSA) negotiations

proceeding on the sidelines of the WTO, as well

as in the context of the ASEAN+6 Regional

Economic Partnership (RCEP) negotiations. In

addition to these initiatives, work has been

completed at the WTO to update the 1997

Information Technology Agreement (ITA) to

bring a whole range of new products within its

scope and the ITA Committee at the WTO is now

seen as a key way of advancing liberalization of a

whole range of non‐tariff barriers (NTBs) that

effect trade in IT products. Finally, other

initiatives on the protection of data and on

privacy that are taking place between the United

States and the European Union, as well as earlier

work in the OECD and APEC, promise to set new

standards that will affect the cross‐border

transfer of personal information and as such

have important ramifications for the digital

economy. Chapter 4 of our White Paper explains

the current rules framework, and addresses

some of these processes and the substantive

rules that are emerging in this context, while also

looking forward to the next WTO Ministerial

Conference in Buenos Aires in December 2017

and what a reinvigorated WTO Work Program on

E‐commerce may look like.

Chapter 5, the final chapter in our White Paper,

outlines what an optimal framework for the

digital economy could look like, namely one that

is characterized by a level playing field and nondiscriminatory

access to commercial

opportunities in a spirit of fair and open

competition. It also addresses the importance of

global investment rules and trade in achieving

the goal of bridging the digital divide. It then

discusses how the domestic policy frameworks

and corresponding international trade

agreement rules can be formulated and

implemented in such a way that both meets

reasonable regulatory objectives and does not

act as a disguised restriction on international

trade, or in a manner which unfairly favors one

set of (domestic) industry players at the expense

of another. This Chapter discusses the potential

benefits of rules that enable innovation, that

encourage deployment of ICT solutions in order

to bridge existing digital divides, that promote

technology neutrality, an open internet, as well

as flexible and compliant approaches to

increasing domestic value‐add requirements.

Finally this Chapter makes a set of compelling

policy and economic arguments in favor of the

positions taken.

We hope our White Paper will make a

constructive and welcome contribution to the

debate at a time when the openness of the digital

economy that we have all become accustomed to

could be under threat and at a time when the

positive welfare enhancing effects of trade and

investment liberalization we have all benefitted

from under the post WWII economic order has

started to be challenged in much of the

developed world.

3


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

CHAPTER ONE | DEFINING THE DIGITAL ECONOMY AND DIGITAL TRADE

In the White Paper we define the digital economy as the range of goods, products, services and

solutions that have emerged and continue to emerge in direct relation to online connectivity. This

definition admittedly covers a broadly conceived value chain ranging from the hardware and

equipment constituting the backbone infrastructure of the internet, to the devices, particularly smart

phones, tablets, wearables, computers and other terminals that users avail themselves of in order to

get and stay online. This definition also comprises the various services, solutions and applications that

have emerged to meet the multitude of needs that users place on the internet and the whole online

ecosystem, including digital products and services such as software and e‐books. In laying out this

definition, we look beyond the narrow confines of focusing simply on e‐commerce, and how

digitalization has changed international trade across borders to define and elucidate the emergence

of modern day digitalized global value chains that are having a disruptive and transformative effect on

both the way businesses operate as well as how consumers acquire and use products, services and

information.

Key Points Summarized

4


Chapter One | Defining the Digital Economy

Key Points Explained

01

When we think of the digital economy, most of us tend to think about e‐commerce, since

this is the most visible and certainly one of the most dynamic areas of the digital economy.

However the digital economy is much more than simply the act of providing or consuming

a service online or buying or selling something over the internet. In our White Paper we have defined the

digital economy as “The ecosystem comprising goods, products, services, platforms and solutions that are

either instrumental to or avail themselves of online connectivity”.

By the same token digital trade is a lot more than international e‐commerce, but comprises – for the sake

of this White Paperthe “cross‐border supply of goods, products, services and solutions that are

instrumental to or avail themselves of online connectivity”.

In light of these definitions, the digital economy and digital trade encompass a whole range of goods and

services, including the underlying backbone infrastructure, the services provided on top of this

infrastructure, the platforms and eco‐systems designed to provide a range of goods and services using the

connectivity this infrastructure provides, and finally the devices or terminals with which the user interfaces

with all of this functionality. Accordingly, international trade negotiations that seek to provide new rules

for how governments may regulate trade in the digital economy will go beyond the narrow issue of e‐

commerce. Instead, they will also embrace disciplines on technical barriers to trade, on the cross‐border

supply of services, on trade‐related intellectual property rights, on regulatory cooperation, privacy,

cybersecurity, online payments and a whole range of other related issues, including national security, which

are beyond the purview of a single national regulator or ministry.

The digital economy is becoming so ubiquitous and all‐encompassing that soon it will be

02 very hard to draw the line between the digital and the non‐digital or conventional economy.

The digital economy is quickly simply becoming “the economy” This is because digitization

as a trend is quickly taking hold across all sectors of the economy and permeating all areas of economic

activity. There is an increasing degree of complementarity between off‐line and online activities, which is

another factor driving this trend. This “convergence” as it is known, must also be reflected in the next

generation of international trade rules, so that disciplines are not crafted in silos but rather take into

account their potential impact on other areas of the digital and offline economies.

The digital economy and the technological breakthroughs that heralded it have proven to

03 be a watershed for productivity, innovation and economic growth, with hitherto

inconceivable new products and services being offered creating unparalleled welfare gains

for millions of internet users. These very positive effects from the growth of the online economy are things

that many policymakers can and should foster by carefully considered policy interventions. There are many

things regulators can do to ensure that their economies share in the substantial new growth opportunities

that the digital economy offers, many of which start in how they regulate and promote the availability of

offline factors such as skills, transport and connectivity infrastructure, logistics and the ease of doing

business.

Connectivity infrastructure is a basic precondition for participation in the digital economy

04 although it is not the only one. Nevertheless, without the backbone infrastructure to carry

the data produced from the interaction between providers and consumers, sellers and

buyers, suppliers and users in the digital economy, there would be no digital economy to start with. Here

also, there are different policy interventions governments and regulators can contemplate and enact in

order to boost the attractiveness of their own markets for those that invest in, build and operate the

network infrastructure required to power the digital economy, particularly operators.

5


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

Defining the Digital Economy and Digital Trade

As part of our analysis we performed a mapping exercise of the various aspects of the digital economy as

well as the economic actors who populate and compete against one another across the different parts of

the digital value chain. See the full‐length White Paper for more in‐depth analysis. Below (figure 1.1) we

show a schematic synopsis of our analysis. Below we have also laid out the definitions of both the digital

economy and digital trade that we have been guided by when writing our White Paper.

Figure 1:2: The digital economy: Infrastructure, services, platforms/ecosystems and devices

1 Infrastructure 2 Services

3 Platforms & 4 Devices

Ecosystems

What?

> Telecommunications networks

and connectivity infrastructure;

> Optical fiber, cables, switches,

signal amplifiers, servers, data

centers, satellites, wireless

base stations, mobile

telephone towers, antennas,

routers, modems, range

extenders and other equipment

that brings connectivity to our

homes, offices and devices.

> Information, communications

and computing services;

> Comprises everything from

banking to retail to booking and

paying for travel and

accommodation, to finding and

booking someone to clean your

apartment and someone else to

take you to your next

appointment.

> The result of multi-device

connectivity, meaning we now

connect to the internet with two

or more devices and expect

seamless operability;

> Results in a winner-take-all

competitive dynamic where the

economics of network effects

plays a very important role.

> Traditionally desktops or laptops

> Mobile telephones are portable

super-computers capable of almost

any functionality;

> Wearables (watches headphones)

becoming more prominent,

> Trend moving towards connected

homes, connected cars, connected

factories , IoT and the Internet of

Everything (ubiquitous and

comprehensive connectivity).

Who?

> Few large equipment vendors

working with carriers;

> 1000s of smaller players

manufacturing and selling

individual components.

> Telcos who invest in build,

operate and lease access to

their networks;

> Millions of other providers from

Citibank to Uber and across

many other sectors.

> Google and Android versus

Apple and iOS;

> WeChat and Alibaba in China;

> Amazon, Microsoft.

> The future belongs to those

who can make all of the

devices users want;

> And connect them seamlessly

with ecosystems that they

either own or control.

Source: Huawei

The Digital

Economy

Defined

The ecosystem comprising

goods, products, services,

platforms and solutions that

are either instrumental to or

avail themselves of online

connectivity.

The cross‐border supply of

goods, products, services

and solutions that are

instrumental to or avail

themselves of online

connectivity.

Digital Trade

Defined

6


Chapter One | Defining the Digital Economy

CHAPTER TWO | HUAWEI’S PLACE IN THE DIGITAL ECONOMY

Across all of our three business groups, we occupy a unique place in the digital economy in terms of

product coverage, but also in terms of our geographical footprint, since we operate in both very

underdeveloped as well as highly technologically advanced markets. With regard to our core carrier

network business, we are responsible for building the underlying network infrastructure (pipe) that

allows the digital economy to function in the first place. When it comes to our enterprise business, we

provide a range of new services and solutions that leverage the many advantages of the digital

economy to overcome the physical constraints of the real world by harnessing the power of cloud

computing and remotely serviced platforms, such as in the area of digital customs, or our many Smart

City solutions. Finally in our devices business, where we are contesting global smartphone, tablet and

wearables markets, we operate as a manufacturer and seller of the terminals with which users

interface with the digital economy, availing themselves of the services, solutions, products and

information that the digital economy provides. As such, we are potentially vulnerable to changes in

the underlying legal, regulatory and policy regimes that govern the many stages of the digital value

chain. This section will discuss the many ways new and existing trade and investment rules affect

different aspects of our business across the three business units.

Key Points Summarized

7


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

Key Points Explained

01

At Huawei we are uniquely placed across a very broad swathe of the digital economy, selling

equipment and network management services to operators, providing cloud computing

services to both operators and a range of other services providers across different industry

verticals, as well as selling devices and wearables to consumers. As such, we can claim to be playing from

a position of some strength as we attempt to define and articulate our interests, particularly in those

product segments like network equipment and devices where we have recently emerged as an industry

leader. Nevertheless, our broad engagement across such a wide range of industry segments also means

there is some potential for misalignments between different customers and stakeholders. Because of our

size and the breadth of our engagement, the rule of thumb for us at Huawei will be that what is good for

the global ICT industry as a whole will be good for us as a company. This is likewise bound to be true in

areas of international rule making that target trade and investment in the digital economy.

02

Opinions tend to differ on how profound the changes are that have been wrought by the

digital economy and whether or not we are at the end or just the very beginning of an age

of new digital innovation. Regardless of where one stands on this particular question, the

productivity gains and the welfare‐enhancing innovation we have seen in the last 20 years are all too readily

apparent even to casual observers. The powerful capabilities of digitization and the internet to instantly

reproduce and disseminate knowledge at almost zero cost has ushered in far‐reaching and often disruptive

changes to a range of industries, especially those whose goods and services can be rendered into a series

of ones and zeros. This is yet another important and distinctly unique characteristic of the digital economy

that must be taken into account when trying to negotiate new rules to govern international trade in this

space.

03

The digital divide is a very real phenomenon and recent research has shown that it is getting

deeper, meaning that the disparities in access and capabilities (and ultimately access to

opportunities in the digital economy) between the connected and the unconnected are

widening even as more and more people come online in one way or another. This is something that many

in the international community, including private sector players like Huawei, are working hard to address.

And here also, there may be a role for trade rules, since negotiating outcomes can be harnessed to help

mitigate shortfalls in developing countries on both the demand and the supply side, through instruments

like technical assistance, aid for trade, or concessional loans tied to the realization of carefully conceived

and articulated targets in trade agreements.

04

At Huawei, like at almost every other player in the digital economy, we are forced to

confront inconsistencies and uncertainties in terms of market access and the treatment we

encounter once we have entered a market. This is unfortunately a reality of doing business

today although internationally negotiated rules and recognized best practices can be useful tools in both

fostering predictability and creating a level playing field on which Huawei and our industry partners can

compete. We see our role here as cooperating with, and where called for, advising and educating

policymakers on the best possible choices for them in terms of achieving their policy objectives and

refraining from imposing measures that unnecessarily distort trade or unfairly favor one set of industry

actors to the detriment of another.

8


Chapter Three | Emerging Policy and Regulatory Trends

Huawei’s Place in the Digital Economy

What many people don’t realize is that Huawei is a truly international player, meaning we have operations

and business interests that span the globe. Although we originated in China, today we operate in some 170

countries and count employees from some 170 nationalities among our ranks. That’s from the perspective

of geography. From the perspective of product markets, we also span a very wide spectrum of the digital

economy, having started out as a reseller of switches to our current position as industry leader in network

equipment, number two globally in consumer devices, and fast‐growing challenger in the cloud computing

space. Figure 2.1 (below) depicts Huawei’s presence both geographically and on different product markets.

To read more, check out chapter two of the full White Paper.

Figure 2.1: Huawei’s place in the digital economy

Source: Huawei

9


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

CHAPTER THREE | EMERGING POLICY AND REGULATORY TRENDS

The underlying legal and regulatory environment in which companies like Huawei operate is struggling

to keep pace with technological developments and the quick pace of innovation that characterizes this

sector. Many countries are enacting rules and setting up regulatory regimes that have a direct impact

on the digital economy. Whether it be with the objective of better protecting the data privacy of their

citizens, beefing up national law enforcement capabilities in the face of increasing cyber‐security

threats, or in the hope of kick‐starting their own domestic ICT industries, governments in many

countries, both developed and developing are becoming increasingly interventionist in this sector.

Chapter Three of our White Paper analyzes a number of these policy and regulatory trends and discuss

how they fit into the broader international consensus that has emerged over the last two decades with

respect to global internet governance and emerging trade rules on the digital economy.

Key Points Summarized

10


Chapter Four| International Trade Rule‐Making for the Digital Economy

Key Points Explained

01

For the first few years as the internet was just starting to gain widespread adoption and

uptake among users in both developed and developing countries, governments were often

slow or hesitant to intervene for fear of overplaying their hands in trying to regulate

something about which they still lacked a detailed understanding of both its workings and its vulnerabilities.

Those days are almost certainly behind us as governments all over the world have become cognizant of the

very real benefits but also of some of the latent risks the digital economy entails. We find governments of

all ideological bents actively opting to intervene in the digital economy in order to achieve a whole range

of policy and regulatory outcomes. Because of the complementarity effects and the general

interconnectedness of both the online and offline economies, these interventions can have unforeseen

consequences far beyond the narrow scope in which they were enacted. Governments need to beware of

and refrain from regulatory overreach but they must likewise be careful not to allow a policy or legal

vacuum to arise which engenders real risks to the future growth of the digital economy.

02

In order to avoid any potentially harmful repercussions that may constitute the unforeseen

consequences of such policy and regulatory interventions, governments should take into

consideration any internationally agreed principles or pre‐existing best practices before

they act. They should also consult widely with a broad array of stakeholders comprising businesses,

consumer groups, and public interest groups, and make sure any measures they enact are the least invasive,

least trade restrictive, but also an effective way to meet the intended policy objective. We also advocate

in favor of non‐discriminatory and transparent legislative and regulatory processes that result in equal and

fair market access terms for both foreign and domestic economic actors.

03

We recognize the important role the digital economy has to play in helping governments

foster economic development and achieve industrial policy goals, as well as in empowering

users to pursue productive and satisfying economic livelihoods. When designing policies

that seek to achieve such outcomes, we advocate strongly in favor of flexible regimes that afford

companies as much freedom of action as possible in deciding how they wish to meet any targets or

objectives set. We also favor governments enacting such targets only following a transparent and multistakeholder

consultation that allows all affected parties to have their views heard.

04

We at Huawei have for many years emphasized the importance of investment in the

essential network infrastructure that enables the digital economy and unleashes all of its

productivity gains and welfare‐enhancing effects. This is a prerequisite to tackling the

digital divide which continues to plague many, particularly the poor in developing countries. Although

connectivity infrastructure is only one of several important elements that need to be tackled to resolve this

problem, we contend that it is both the starting point and the conditio sine qua non for effectively and

finally bringing the billions of unconnected online and allowing them to participate in this modern day

economic miracle.

11


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

Emerging Policy and Regulatory Trends

As the internet economy emerged in the second half of the 1990s, it was a place largely free of government

intervention, with some commentators pointing to this as one of the reasons why it has grown so quickly

and was able to become such a powerful economic force. For better or for worse those days are now well

and truly behind us, with many governments having long recognized both the massive potential but also

the risks that the digital economy brings with it. Today governments intervene in the digital economy in a

number of ways, both directly and indirectly, in order to achieve a very wide range of – for the most part –

perfectly legitimate and commendable policy objectives. The graphic below (Figure 3.1) is an attempt to

map some of the different regulatory objectives governments have for intervening in the digital economy

as well as some of the different regulatory approaches they take. To find out more, see chapter three of

the full White Paper.

Figure 3.1: Different regulatory objectives and approaches

Stimulate

competition

Protect existing

jobs

Promote

economic

development

Increase the size

of the formal

economy

Bridge the

digital divide

Objectives

Foster

Innovation

Stimulate

economic

growth

Diversify the

economy

Promote

market

contestability

Create new jobs

Promote digital

Inclusiveness

Enable inclusive

trade

Kick-start

domestic ICT

industry

Prevent base

erosion and

profit shifting

Attract

investment

Approaches

Light touch

approaches

Generally favored

by advanced

industrial countries

where the digital

economy is already

very ubiquitous.

Interventionist

approaches

Generally chosen

by developing

countries with

prominent national

security concerns or

development

agendas.

Industrial

Policy

Generally chosen

by middle-income

developing

countries with their

own ambitious

plans for the digital

economy.

Executive

agency activism

This can be in the

form of lawsuits to

reign in tax

privileges,

competition

investigations or

other actions.

Tax breaks/

incentives

These can be used

to either attract

investment or

encourage local

content, but often

also lead to market

distortions.

Source: Huawei

12


Chapter Four| International Trade Rule‐Making for the Digital Economy

CHAPTER FOUR | INTERNATIONAL TRADE RULE‐MAKING FOR THE DIGITAL ECONOMY

As in most policy areas, international rule‐making tends to lag behind domestic legislative and

regulatory responses to the needs of the digital economy. This disconnect is something that had begun

to be addressed in a series of free trade agreement negotiations, particularly the Trans‐Pacific

Partnership (TPP) Agreement and the Trans‐Atlantic Trade and Investment Partnership (TTIP), both of

which face an uncertain future at the time of writing. International treaty texts that relate directly to

the digital economy were also emerging in the context of the Trade in Services Agreement (TiSA)

negotiations proceeding on the sidelines of the WTO, and currently feature in the ASEAN+6 Regional

Economic Partnership (RCEP) negotiations. In addition to these initiatives, work has been completed

at the WTO to update the 1997 Information Technology Agreement (ITA) to bring a whole range of

new products within its scope and the ITA Committee at the WTO is now seen as a key way of advancing

liberalization of a whole range of non‐tariff barriers that effect trade in IT products. Finally, other

initiatives on the protection of data and on privacy that are taking place between the United States

and the European Union, as well as earlier work in the OECD and APEC, promise to set new standards

that will affect the cross‐border transfer of personal information and as such have important

ramifications for the digital economy.

Key Points Summarized

13


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

Key Points Explained

01

The WTO Work Program on Electronic Commerce in 1998 initiated a program of reflection

by WTO members on how best to address the trade‐related aspects of the then nascent

internet economy, and focused predominantly on the need to negotiate new rules on e‐

commerce. Likewise, the recently completed TPP negotiations, the outcome of which is uncertain at the

time of writing, and the recently stalled TiSA negotiations have also included dedicated provisions intended

to liberalize cross‐border trade in services and establish disciplines on e‐commerce. However there are

other areas and rules that affect the digital economy that also need to be addressed both at the WTO as

well as in free trade agreements. Also at the WTO we had some progress very early (in 1997) on an

Information Technology Agreement (ITA, recently updated in 2015) which saw tariffs eliminated on a large

number of IT products among participating WTO members. In the TPP we saw a range of new provisions

addressing different aspects of the digital economy beyond e‐commerce, such as in the chapter on

technical barriers to trade (rules on conformity assessment procedures, encryption and electromagnetic

compatibility), as well as a new chapter on regulatory coherence, and new disciplines on the cross‐border

supply of services. The more holistic approach taken in the TPP, although not perfect, is much more suited

to addressing the plethora of trade‐related regulatory issues that different actors across the very broadranging

value chain that represents the digital economy are increasingly encountering. We hope for and

advocate a similarly broad approach in other negotiating fora such as the WTO and RCEP.

02

We view TiSA and RCEP as two negotiating fora that could, if we are lucky, see the

emergence of new rules that would be of enormous benefit to the digital economy,

particularly on issues such as cross‐border trade in services and e‐commerce for TiSA and a

whole range of issues in RCEP including those mentioned above in Point 1. We also would like to express

our support for an ambitious new negotiating agenda at the WTO in the context of the now very mature

Work Program on Electronic Commerce. Also at the WTO we would welcome new negotiations, building

on the work of the ITA, on non‐tariff barriers in the IT and ITC sectors, especially with respect to technical

regulations that rely on international standards and the adoption of an MFN obligation for conformity

assessment procedures (so that if an IT or ITC product is certified in one WTO member it can be exported

to any other member without further testing). Like we have seen for the ITA, new rules on non‐tariff

barriers could first be agreed on a plurilateral basis with an open membership clause.

03

We at Huawei have come from very humble beginnings and fought many existential battles

to become the global industry leader that we are today. Along the way we have benefitted

from the openness that has characterized much of the global economy and many of the

markets in which we have been privileged to serve our customers and build relationships with our

stakeholders. This journey has also contributed in no small way to the formation and strengthening of our

core values and guiding principles, which include support for free trade, open and fair competition on a

level playing field and the protection of intellectual property rights. These principles will continue to guide

us and we will advocate for them in all the markets we do business in, both at home and abroad.

04

We also recognize that trade rules can be about more than just trade and investment

liberalization or imposing disciplines to curb protectionism. Rather, we see trade rules and

the market opening that they foster, as also acting to support development outcomes and

greater inclusion into regional and global value chains of small and medium sized enterprises, as well as

micro businesses. We favor leveraging existing and future trade rules to not only bridge the digital divide

but also expand the reach of the digital economy, to create a more equitable and fairer world economic

order where anyone who chooses to participate can. The digital economy has been the harbinger of many

benefits and all the world’s people should be able to partake in these new and exciting technologies.

14


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

International Trade Rule‐Making for the Digital Economy

As governments have started to intervene more actively in the digital economy, different industry players

have sought to lobby their governments in order to establish international treaty commitments that set

limits on such intervention and establish both a level playing field as well as predictable terms of market

access for foreign and domestic actors. Governments have also seized the opportunity presented by

various new trade negotiating forums to adopt rules and enact disciplines that promote international

cooperation and a degree of harmonization or at least coherence in this sphere. However, it should not be

overlooked that the WTO already governs a large degree of the international trade that takes place in the

digital economy as defined in the White Paper. There remains some contention among WTO members as

to whether new rules and disciplines are even needed. Nevertheless, the trend is pointing towards, and

many industry actors in different parts of the digital economy continue to advocate in favor of new rules

to clarify their freedom of action and their rights in the face of increasingly interventionist governments.

See Chapter Four of the full White Paper to learn more.

Figure 4.1: Trade Rules Old and New

15


Chapter Five | A Vision for an Optimal Trade Regime for the Digital Economy

CHAPTER FIVE | A VISION FOR AN OPTIMAL TRADE REGIME FOR THE DIGITAL ECONOMY

This chapter of the White Paper outlines what an optimal framework for the digital economy could

look like, namely one that is characterized by a level playing field and non‐discriminatory access to

commercial opportunities in a spirit of fair and open competition. It also addresses the importance of

global investment rules and trade in achieving the goal of bridging the digital divide. It then discusses

how the domestic policy frameworks and corresponding international trade agreement rules can be

formulated and implemented in such a way that both meet reasonable regulatory objectives and do

not act as a disguised restriction on international trade, or in a manner which unfairly favors one set

of industry players to the detriment of others. Chapter Five also discusses the potential benefits of

rules that enable innovation, that encourage deployment of ICT solutions in order to bridge existing

digital divides, that promote technology neutrality, an open internet, flexible and compliant

approaches to increasing domestic value‐add requirements among others. Finally Chapter Five makes

a set of compelling policy and economic arguments in favor of the positions taken.

Key Points Summarized

16


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

Key Points Explained

01

As new disciplines start to emerge to govern the digital economy across a broad variety of

rule‐making fora, we at Huawei favor enforceable treaty commitments that establish a level

playing field for both domestic and foreign firms on the one hand, but also legacy players

and new market entrants on the other. When we enter a new market or as we continue to serve customers

in our existing markets, we need to be able to count on non‐discriminatory treatment across a whole range

of policy and regulatory areas, as well as transparency of local laws, regulations, administrative practices

and market conditions. Where regulatory intervention is required, we at Huawei favor such intervention

being commensurate to the desired policy outcomes and in line with international best practices. We also

favor regulators and market actors working together in a spirit of mutual cooperation to achieve outcomes

that are optimal for both business and consumers.

02

We at Huawei recognize the need for governments to intervene in markets, including the

digital economy, for a whole range of perfectly legitimate policy reasons. We support

governments in their role as the ultimate arbiters of the public interest and in their

inalienable responsibility to safeguard the interests of the State and its citizens. When governments do see

themselves as required to act, we favor interventions that conform to global best practices and that respect

international treaty obligations, including those in trade and investment agreements. These interventions

should be minimally trade distorting and should not restrict the rights of foreign and domestic firms beyond

that which is absolutely required. We advocate in favor of business and investment governance regimes

which grants all affected parties a chance to share their views on how best to achieve the intended policy

objectives.

03

At Huawei we believe that we must work together with our customers, industry partners

and government stakeholders to achieve win‐win outcomes that favor the continued

robust and healthy growth of the digital economy, so that more of the world’s people can

enjoy its many benefits. This includes increasing investment in the underlying network infrastructure,

increasing expenditure on research and development to make better use of the resources at our disposal,

as well as promoting and disseminating the knowledge and skills people need in order to become more

actively engaged in the digital economy. As a newly emerging industry leader, we recognize that what is

good for the global ICT industry and for the digital economy is also good for Huawei, so that we have a very

real interest in doing everything in our power to support the continued growth of the industry and to

expand the digital economy.

04

At Huawei we will continue to advocate in favor of greater openness and nondiscrimination

between all market actors in all of the markets in which we do business. We

recognize the responsibility we bear in this respect, both due to our position as an emerging

industry leader but also as a direct consequence of the openness we have ourselves benefitted from and

which we continues to enjoy in the many markets in which we have been privileged to serve our customers.

We will continue to advocate, both domestically and globally, in favor of business and investment climates

that are conducive to the continued growth of the digital economy, and that are characterized by nondiscrimination,

a level playing field for all actors, and regulatory interventions that are limited to that which

is strictly necessary and which do not favor one set of economic actors to the detriment of others. We

believe in working with all of our partners and stakeholders to achieve these outcomes.

17


Chapter Five | A Vision for an Optimal Trade Regime for the Digital Economy

A Vision for an Optimal Trade Regime for the Digital Economy

In Chapter Five of our White Paper we discuss some of the international treaty commitments and

disciplines that could and should ideally form part of an optimal trade regime for the digital economy.

Figure 5.1 (below) highlights some of these rules, particularly those that would best be suited to bridging

the digital divide, which must remain at the very top of policymakers’ list of priorities as they embark upon

international collaborative efforts to draft new and binding trade rules to govern the digital economy.

Another important aspect of any such regime is non‐discrimination, which for over six decades now has

served as perhaps the single most important governing principle for the multilateral trading system. We

would also advocate in favor of a trade regime that is characterized by the highest possible degree of

transparency and predictability, and where governments cooperate with other interested stakeholders to

make and enforce the rules in a fair and equitable manner. To find out more, read Chapter Five of the full

White Paper.

Figure 5.1: Trade Rules in the Service of Development

Source: Huawei

18


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

CHAPTER SIX | FINDINGS AND CONCLUSIONS

This section of the White Paper presents our findings and conclusions. We essentially conclude that

the current emphasis on trade rules and trade negotiations for the digital economy focuses too

narrowly on e‐commerce to the detriment of other important issues such as various non‐tariff barriers

that different negotiating fora have addressed with varying levels of ambition but only modest success

to date. Because of Huawei’s sheer size and our vast global footprint, we are uniquely positioned to

operate across a broad spectrum of the digital economy, but this is both a source of strength as well

as posing problems as there may be significant misalignments with how our different customers and

stakeholders view the best approach with respect to their own interests. Nevertheless, rules that

benefit the global ICT industry as a whole will also benefit Huawei, since a rising tide lifts all boats. The

unprecedented growth and success of the internet as a platform for global commerce, communication,

and self‐expression has been underpinned by the relative openness of regulatory regimes it has

enjoyed in the first 25 years since it rose to prominence in the mid‐1990s. We must all be vigilant to

maintain that openness in a world where the forces of anti‐globalization are starting to raise their

voices and question the very foundations on which the remarkable economic growth of the last sixty

years has been achieved.

19


Chapter Six | Findings and Conclusions

1 Huawei’s thought leadership is timely

Even before the fate of the TPP became questionable, the timeliness of the present White Paper was never

in any doubt. Trade rules specifically designed for the digital economy have been taking shape since 1998

(the year of the WTO’s Work Program on Electronic Commerce). But it has only been in the last six years

or so that regulatory interventions by policymakers outside of the United States have seen internet

companies mobilize in an effort to directly bring about a set of targeted negotiated outcomes on issues

such as the free flow of information, data localization and mandatory disclosure of source code. These

efforts although stalled in for a such as the TPP and TiSA, are nevertheless likely to come to fruition at some

point in the next few years, perhaps at the WTO, or in RCEP, or in the context of future bilateral agreements.

The consensus on where the balance lies between internet freedom and regulatory autonomy now seems

to be up for grabs all over again.

2 The new trade rules will impact Huawei’s interests

Ever since before the conclusion of the Information Technology Agreement (1997) and the elucidation of

the above‐mentioned WTO Work Program on Electronic Commerce (1998), and particularly as negotiations

began in earnest on the TPP (starting in 2010), the global ICT industry and internet companies have been

working hard to achieve binding and enforceable trade rules that would maximize the industry’s freedom

of action, underpin transparency and predictability, and reduce both trade barriers and trade costs for

them. These efforts have culminated in a number of early successes (the ITA itself), and ongoing trade and

investment liberalization in the form of various FTAs. As part of the global ICT industry and as a company

that does business in some 170 countries, Huawei’s interests are of course affected in positive ways by

these developments. But the enactment of new rules which have the potential to alter the underlying

environmental conditions in which the global ICT industry operates must be carefully studied by a company

the size of Huawei. Our White Paper on the new trade rules being negotiated for the digital economy has

made an initial attempt to do just that. We have found for example, that our Carrier Network business is

likely to benefit from further tariff reduction or zero‐duty commitments negotiated and being

implemented now under the ITA Expansion initiative at the WTO. We also predict that negotiations on nontariff

barriers being contemplated as part of the ITA Expansion work could be of great benefit to us in future,

particularly on issues like conformity assessment procedures and electromagnetic compatibility.

3 Huawei should be part of the conversation

Because we at Huawei operate across such a broad swathe of the digital economy and are now an

undisputed industry leader in network equipment and devices, we need to make our voice heard, either

directly or indirectly, loudly or softly, but we should not remain silent. This is even more so the case now

that leadership on the negotiation of mega‐regional trade negotiations has shifted from the TPP to RCEP.

As a Chinese multinational, Huawei is uniquely placed to contribute to the conversation in the next few

years. Our White Paper represents a first milestone in this direction. The previous set of initiatives launched

in an effort to write new rules for the digital economy (TPP, TiSA, and TTIP) was to a very large extent

influenced by a narrow set of industry players and government actors. With the finalization and ratification

of these initiatives now in doubt, this represents a unique moment in history for other voices to be heard

and to become part of the conversation. Even if our views and perspectives may not differ radically from

those expressed by other actors in the digital economy, it is still important that our voice be heard.

20


Huawei | Trade and the Digital Economy | White Paper Key Points and Findings

4 Huawei has much to contribute to this dialogue

Precisely because of our size, the breadth of our activities and the extent of our reach, we at Huawei are

uniquely positioned to offer insights into what rules are likely to contribute towards an optimal trade

regime for the digital economy. In addition to these attributes, we at Huawei are fortunate to count among

our 170,000+ employees, dedicated experts on global trade rules based in Shenzhen as well as in important

regional trade‐policy capitals such as Brussels and Washington DC. We are in a position and at a unique

moment in time where we can provide thought leadership on these important emerging issues.

5 Huawei's interests are broadly aligned with the rest of the global ICT industry

We at Huawei are deeply entrenched in global digital value chains and have long been working closely with

suppliers, partners, customers and other stakeholders in many countries, and across many different

product and services markets within the digital economy. As such, we are undeniably a significant part of

the global ICT industry, and our prospects rise and fall in conjunction with the general welfare of the global

ICT industry as a whole. This means that what’s good for the global ICT industry and for the digital economy

is almost certain to be good for Huawei, and what’s bad for the global ICT industry and the digital economy

in general is likely not going to benefit Huawei either. As the saying goes: “a rising tide lifts all boats” and

this saying is very applicable when it comes to policies, measures and trade rules that have an impact on

trade flows in the digital economy.

6 We all win in a world where the internet is global, open and accessible

Disproportionately restrictive policies enacted for protectionist purposes or without taking into account

the realities of the global internet are likely to create negative externalities both within and beyond the

borders of the authorities that enact them. In the same way, trade rules that promote an open, accessible

and global internet promote the exchange of ideas, grant open access to the latest ideas and innovation

and provide a global public good that benefits the whole ICT industry and all players in the digital economy,

including Huawei.

7 Governments must and will remain the arbiters of the public policy exception

Huawei recognizes and is completely supportive of the very important role governments can and must play

as watchdogs and overseers of the public interest. We also recognize that governments must act when

doing so is required to safeguard legitimate public policy interests. However, like many in the industry, and

as governments have recognized in fora like APEC, the OECD and the G20, the invocation of public policy

exceptions should be done in good faith and subject to certain agreed limiting principles, such as

proportionality, least‐trade restrictiveness of measures, and the effectiveness of any measures taken in

achieving the purported public policy objectives for which they were imposed

21


Chapter Six | Findings and Conclusions

8 National security is vital but cannot be used to justify every policy intervention

We live in a world today where both the public at large as well as governments have become increasingly

aware of not only the benefits of an increasingly connected world, but also the risks that increased

interconnectivity brings with it. As such, governments are legitimately starting to take a broader and

deeper view of what constitutes critical national infrastructure and are becoming increasingly vigilant

against potential cybersecurity threats. Be this as it may, we believe that the national security exception

cannot be used as a blank check to justify measures that are essentially protectionist in intent and nature.

This is a very sensitive topic, and we also recognize that it must be treated as such. Equally, it should be

subject to disciples which are agreed and reviewable.

9 Regardless of who exercises leadership, these rules ultimately belong in the WTO

We view the different initiatives to develop new rules in the context of various FTAs and plurilateral

initiatives as a very positive development that we wish to wholeheartedly support. We also recognize that

a strong and effective body of rules governing much of the economic activity in the digital economy already

exists in the form of the WTO Agreements. The application of those “analog rules” in today’s digital

economy has been highlighted. Given the WTO’s track record in the negotiation and enforcement of these

rules, we view it as essential in the medium to long term that any new or updated rules that are enacted

to govern the digital economy be brought under the auspices of the WTO and particularly its overriding

principle of most‐favored nation and its dispute settlement procedures.

22


Copyright © Huawei Technologies Co., Ltd. 2017. All rights reserved.

No part of this document may be reproduced or transmitted in any form or by any means without the prior written consent of Huawei

Technologies Co., Ltd. Trademarks and Permissions Huawei and other Huawei trademarks are the property of Huawei Technologies Co.,

Ltd. All other trademarks and trade names mentioned in this document are the property of their respective holders.

Hooray! Your file is uploaded and ready to be published.

Saved successfully!

Ooh no, something went wrong!