Dodwell's blog on SOM2 in Boracay - Post 4

May 15, 2015


Given APEC’s love of acronyms, we should call it DID… the “Digital-Internet Dance”. Someone around the APEC table makes a proposal linked with use of the “digital economy”, and within milliseconds, we are asked instead to use the phrase “internet economy”. Pavlov would have enjoyed watching the predictability of the reflex.
 
But if we are going to make progress on the many important initiatives linked with digital goods and use of the internet, someone has to cut through this time-wasting nonsense. Not least because the US this week tabled a plan for “Facilitating Digital Trade as a 2015 Next Generation Trade and Investment Issue” at a Friends of the Chair discussion on Next Generation Issues.
 
The US tried to make the distinction: “Digital trade is broadly speaking commerce and international trade in which the internet and internet-based technologies play a particularly significant role in ordering, producing or delivering products and services.”
 
I would add an example that also distinguishes: a very smart friend of mine living in Oxford set up a small company that built “requirements software”. In short, if (for example) the European Space Agency was planning a space launch in 2019, his software package would plan and synchronise the procurement process along the 5 year space launch programme to make sure that everything needed to make sure the rocket took off successfully and on time arrived in the right place at the right time over that 5 year period. He would sit in his office at home in Oxford, write the software, and then send it, encrypted, to the European Space Agency. They would pay him around US$5 million for this highly specialized software product. He would then send a disencryption “key” and the transaction was complete. Time for delivery? A few milliseconds. Nature of product: a bunch of digital code. Export benefit to the UK: US$5 million. This is a digital product. It is not an internet product. This smart Oxford friend was involved in digital trade, using the internet as a medium. Today, a hidden, but huge proportion of the exports of many economies is trade like this. That bunch of code is as real an export product as a container of lamb from New Zealand.
 
At present, this kind of trade gives governments – and in particular tax or customs authorities – huge headaches. If I buy a digital copy of a book from Amazon and download it onto my Kindle, I have imported a book, but customs know nothing about it. And if there are customs duties on books, or censorship laws about certain kinds of books, our customs folks have a headache. My Oxford friend may have earned US$5 million in less than a second, but the British tax authorities know nothing about it. How to tax his income?
 
These are taxing challenges – forgive the pun – and our governments need to address them urgently. That is what makes the US proposal timely. And that is what makes arguments about whether this is digital or internet trade rather frustrating. My only concern – given that this is a proposal going to the Committee on Trade and Investment (CTI) – is simple: how on earth can we satisfactorily tackle this issue without bringing our Senior Finance Officials to the table? I wish the US luck…
 
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Trade Policy Dialogue on FTAs

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Philippine government hosted a wonderful beachside dinner for APEC delegates
 
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Beautiful sunset on the beach
 
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