Digital trade can help level the playing field between LDCs and higher-income countries. For example, engaging in e-commerce through international platforms can allow exporters in all countries to build visibility for their goods among geographically distant consumers more cheaply than via traditional trade. LDCs tend to benefit the most from this cost reduction.
With its rapid growth and lower barriers to entry, digital trade offers exciting opportunities for the world’s least developed countries (LDCs) to strengthen livelihoods, reduce poverty and participate in the global economy more fairly and fully.
Following a surge during the pandemic, digital trade continues to grow far faster than traditional trade. Global e-commerce already accounts for an estimated 22% of all retail sales, and could be worth $5.4 trillion by 2026, according to Morgan Stanley.
Digital trade can help level the playing field between LDCs and higher-income countries. For example, engaging in e-commerce through international platforms can allow exporters in all countries to build visibility for their goods among geographically distant consumers more cheaply than via traditional trade. LDCs tend to benefit the most from this cost reduction.
The same is true for digital services trade. As providers from lower-income countries build a track record on professional services platforms, for example, their ability to compete with providers in higher-income countries improves significantly. By 2018, low and middle-income countries – including one LDC, Bangladesh – made up the world’s top six exporters via Upwork, one of the digital freelance platforms.
With the right support, lower-income countries’ small and medium-sized enterprises, plus marginalized groups like women, could have more to gain.
Two-day Huawei Digital Nepal Conclave 2022
But despite these opportunities, LDCs’ overall share of global digital trade and e-commerce remains small. Finding ways for them to boost their digital trade – and derive more value from it – is therefore a priority for LDCs and the development community.
Conducive regulatory frameworks
At recent regional consultations ahead of the United Nations’ LDC5 conference, trade experts proposed that engaging with international partners and processes may positively contribute to greater regulatory convergence.
They noted that the regulatory and policy environments in some LDCs have struggled to keep pace with rapid developments in digital trade. According to the Digital Trade Integration (DTI) Project – which runs an open-access database of regulatory policies related to the digital economy in over 100 countries – LDCs typically have fewer policies in place that restrict digital trade, such as those that hinder cross-border data flow. However, they also have fewer enabling policies.
LDCs might therefore benefit from reviewing their regulations to see if introducing more enabling policies – such as consumer protection laws that align with those of potential trade partners – supports their digital trade. Investing in stronger regulatory frameworks can also bring broader benefits for LDC economies, making it easier for companies to do business whether they sell overseas or not.
DTI’s database and its upcoming digital trade integration index could be useful for LDCs to identify opportunities for regulatory upgrade.
International collaboration
Promoting an equitable, universal trading system under the WTO is recognized as a key target in the Sustainable Development Goals. Achieving that relies on all countries having their say. Engaging with international partners to find joint solutions to common problems can offer a range of benefits to LDCs looking to expand their digital trade.
But LDCs currently are far less likely than higher-income countries to have signed up to international standards or agreements that support digital trade, and their voices are often missing from multilateral discussions that affect them.
The open plurilateral agreements (OPAs) – in which countries are free to decide which if any part of a trade agreement they commit to – offer LDCs a uniquely flexible way to collaborate on digital trade rules. LDCs can also often access technical assistance when they participate in OPAs, either as a condition for committing to part of an agreement or on a no-strings basis.
For example, the Joint Statement Initiative (JSI) on E-commerce – which is currently being negotiated by a large group of WTO members to establish rules on digital trade – offers participating LDCs access to capacity-building support with regulatory frameworks or infrastructure that might help them boost their trade. So far, however, only four LDCs have joined.
Participating in such initiatives could also empower LDCs to flag international trade practices that disadvantage their exporters, and help shape international rules so that they better serve LDC interests. For example, the large fees that international digital platforms often charge sellers of goods and services can be a heavy burden for LDC exporters, but addressing this unilaterally – such as through local competition policies – would be difficult given such platforms’ operating structures.
Join the conversation
LDCs understand their own contexts and trade ambitions best and will decide themselves where to invest resources. But increased collaboration could be a low-cost, no-obligation route for LDCs to build tools and capacities to help them thrive in the digital economy. And taking a seat at the table when digital trade practices are negotiated could help raise awareness of LDCs’ needs and priorities.
