2018WORLD TRADE REPORT The future of world trade: How digital technologies are transforming global commerceWhat is the World Trade Report?The World Trade Report is an annual publication that aims to deepen understanding about trends in trade, trade policy issues and the multilateral trading system.What is the 2018 Report about?The 2018 World Trade Report examines how digital technologies are transforming global commerce. It considers the different ways in which digital technologies affect international trade and the extent of potential forthcoming changes, and discusses the consequences of this transformation for existing and future international trade cooperation.Find out moreWebsite: wtoGeneral enquiries: enquirieswtoTel: +41 (0)22 739 51 11ContentsAcknowledgements and Disclaimer 2Foreword by the WTO Director-General 3Key facts and findings 5Executive summary 6A. Introduction 141. Technological innovations have shaped global trade 162. A new world in the making 193. Structure of the report 20B. Towards a new digital era 221. The rise of digital technologies 242. How much digitalization? 493. Conclusions 59C. The economics of how digital technologies impact trade 621. Lower trade costs: opportunities and challenges 642. Changes in trade patterns 803. Quantitative analysis of the impact of new technologies on trade 1104. Conclusions 116D. How do we prepare for the technology-induced reshaping of trade? 1301. Main opportunities and challenges 1322. How do governments respond? 1323. Digital trade and international cooperation 1484. Conclusions 193E. Conclusions 202Opinion pieces Tim Harford, “What else needs to change?” 29Wim Naudé, “Emerging technologies and the future of African manufacturing” 46Avi Goldfarb and Dan Trefler, “How artificial intelligence impacts international trade” 140Robert W. Staiger, “On the implications of digital technologies for the multilateral trading system” 150Patrik Tingvall and Magnus Rentzhog, “Is the WTO 3D printing-ready?” 158 Anupam Chander, “Enabling and regulating the digital economy” 194Bibliography 204Technical notes 218Abbreviations and symbols 223List of figures, tables and boxes 225WTO members 229Previous World Trade Reports 230CONTENTS1WORLD TRADE REPORT 20182DisclaimerThe World Trade Report and its contents are the sole responsibility of the WTO Secretariat, except for the opinion pieces, which are the sole responsibility of their authors. The Report does not reflect the opinions or views of members of the WTO. The authors of the Report also wish to exonerate those who have commented upon it from responsibility for any outstanding errors or omissions.AcknowledgementsThe World Trade Report 2018 was prepared under the general responsibility of Xiaozhun Yi, WTO Deputy Director-General, and Robert Koopman, Director of the Economic Research and Statistics Division. This year the Report was coordinated by Cosimo Beverelli and Emmanuelle Ganne. The authors of the Report are Marc Bacchetta, Eddy Bekkers, Cosimo Beverelli, Emmanuelle Ganne, John Hancock, Mark Koulen, Andreas Maurer, José-Antonio Monteiro, Coleman Nee, Roberta Piermartini, Stela Rubinova, Viktor Stolzenburg, Robert Teh and Ankai Xu (Economic Research and Statistics Division).Other written contributions were provided by Marc Auboin and Michael Baltensperger (Economic Research and Statistics Division), and by colleagues from the Agriculture and Commodities Division (Lee-Ann Jackson, Ulla Kask, Cédric Pene, Majda Petschen, Melvin Spreij, Hanna Vitikkala, Christiane Wolff and Wenjing Wu), the Intellectual Property, Government Procurement and Competition Division (Robert Anderson, Wolf Meier-Ewert, Antonella Maria Salgueiro Mezgolits, Nadezhda Sporysheva and Antony Taubman), the Legal Affairs Division (Gabrielle Marceau and Juan Pablo Moya Hoyos), the Market Access Division (Roy Santana), the Trade in Services and Investment Division (Antonia Carzaniga, Juan Marchetti, Martin Roy and Lee Tuthill). External contributions were received from Anupam Chander (Georgetown University Law Center), Avi Goldfarb and Dan Trefler (Rotman School of Management, University of Toronto), Wim Naudé (Maastricht University, UNU-MERIT and IZA Institute of Labor Economics), Robert Staiger (Dartmouth College), and Patrik Tingvall and Magnus Rentzhog (Kommerskollegium).Research inputs were provided by Pamela Anne Bayona, Kian Cassehgari Posada, Razi Iqbal, Anmol Kaur, Giulia Sabbadini, and Badis Tabarki. Additional charts and data were provided by Zhi Wang and Florian Eberth.Colleagues from the Agriculture and Commodities Division (Lee-Ann Jackson, Ulla Kask, Cédric Pene, Majda Petschen and Melvin Spreij), the Development Division (Rainer Lanz), the Information and External Relations Division (Yuri Szabo Yamashita), the Market Access Division (Roy Santana and Xiaobing Tang), the Office of the Director-General (Aegyoung Jung), the Rules Division (Jorge Castro), and the Trade in Services and Investment Division (Antonia Carzaniga, Juan Marchetti, Martin Roy, Lee Tuthill and Ruosi Zhang) provided useful comments on drafts. David Tinline from the Office of the Director-General provided valuable advice and guidance. The following individuals from outside the WTO Secretariat also provided useful comments on early drafts of the report: Susan Aaronson, Mira Burri, Anupam Chander, Dan Curiak, Koen de Backer, Jean Fouré, Torbjorn Fredriksson, Shantanu Godbole, Mario Larch, Douglas Lippoldt, Dennis Novy, Bastiaan Quast and Sacha Wunsch-Vincent. Cosimo Beverelli and Emmanuelle Ganne of the Economic Research and Statistics Division managed the drafting of the Report. Administrative support was provided by Anne Lescure of the Economic Research and Statistics Division. Further support was provided by Pamela Anne Bayona, Kian Cassehgari Posada and Carol Köll. Anthony Martin and Helen Swain of the Information and External Relations Division managed the typesetting of the Report. Helen Swain also edited the report. Gratitude is also due to the translators in the Languages, Documentation and Information Management Division for the high quality of their work.3Foreword by the WTO Director-GeneralTrade and technology are closely interlinked. From the invention of the wheel, to the railways, to the advent of containerization, technology has constantly played a key role in shaping the way we trade and this phenomenon is accelerating like never before. We are living through an era of unprecedented technological change, and a series of innovations that leverage the internet could have a major impact. For example, the Internet of Things, artificial intelligence, 3D printing and Blockchain have the potential to profoundly transform the way we trade, who trades and what is traded. These developments could unlock many opportunities for individuals, entrepreneurs and businesses around the world. However, this process is not automatic. Technological advances per se are not a guarantee of greater trade growth and economic integration. History shows that successfully managing the structural changes driven by technology is central to ensuring that everybody can benefit. Therefore, we need to understand how to harness these new technologies. This is key to ensuring that the trading system can promote growth, development and job creation, and helping in the effort to deliver the Sustainable Development Goals.The World Trade Report 2018 highlights the interplay between technology and trade. It looks at how digital technologies are transforming global commerce today, and at their implications in the years to come. This report provides a qualitative analysis of the changes that are underway, and attempts to quantify the extent to which global trade may be affected in the next 15 years.The Report helps to illustrate some of the big changes that are already happening. For example, it shows how digital technologies are reshaping consumer habits. E-commerce is booming thanks to the widespread use of the internet and of internet-enabled devices which provide consumers with direct access to online markets. UNCTAD estimated the total value of global e-commerce transactions, both domestic and cross-border, at US$ 25 trillion in 2015. This represents an increase of around 56 per cent compared to 2013. Firms are also surfing this wave, as digital technologies allow for easier entry into markets and increased product diversity, making it easier for them to produce, promote and distribute their products at a lower cost. The Report also shows the impact of technological advances in cutting trade costs. Between 1996 and 2014, international trade costs declined by 15 per cent. Technological innovation played an important role here, and it has the potential to do even more. Notwithstanding the current trade tensions, we predict that trade could grow yearly by 1.8 to 2 percentage points more until 2030 as a result of the falling trade costs, amounting to a cumulated growth of 31 to 34 percentage points over 15 years. The Report finds that the decline in trade costs can be especially beneficial for micro, small and medium-sized enterprises, and for firms from developing countries, if appropriate complementary policies are put in place and challenges related to technology diffusion and regulation are addressed. Our estimations foresee that, in such a scenario, developing countries share in global trade could grow from 46 per cent in 2015 to 57 per cent by 2030.The advance of digital technologies can also bring about changes in the structure of trade. Beyond easing trade in goods, digital technologies can facilitate services trade and enable new services to emerge. The Report predicts that the share of services trade could grow from 21 per cent to 25 per cent by 2030. Other effects could include, for example, Blockchain helping smaller businesses to start trading by supporting them in building trust with partners around the world. 3D printing may help to democratize manufacturing by lowering the barriers to entry. More generally, these technologies could potentially lead to an expansion in global value chains, further shifting production activities to developing countries. Or we could see the opposite effect if it becomes more efficient to bring production activities back together in “smart” local factories than to offshore them.Notwithstanding the benefits of digital technologies, they are also giving rise to a number of concerns. This includes market concentration, loss of privacy, security threats, the digital divide, and the question of whether digital technologies have really increased productivity.WORLD TRADE REPORT 20184These are very important questions, which deserve the attention and action of the international community. We cant simply leave the evolution of our technological future to chance, or trust it to market forces. We all have a duty to make this technological revolution a truly inclusive one. Domestically, governments may need to look at how to tackle many of these challenges, including in areas such as investment in digital infrastructure and human capital, trade policy measures and regulation. International cooperation can also help governments derive more benefits from digital trade and help drive inclusion. At present, WTO members are trying to get to grips with these issues. The WTO framework, and in particular the GATS, is relevant for digital trade and WTO members have already taken certain steps to promote digital trade within the existing framework. In addition, discussions are ongoing among a large group of members regarding how members may want to respond to continued changes in the economy, and to ensure that everybody can participate and benefit from the digital economy. Change is part of life. The question is not whether we like it, but rather how we choose to respond. Are we ready to rise to the challenges and seize the opportunities that this brave new world presents? I believe that this is the defining question facing governments around the world today. I hope this report will inform their response, and help to put inclusivity at the heart of these efforts. While there is no “one-size-fits-all” recipe, I am convinced that international cooperation will remain central to helping governments navigate these changes and to ensuring that digital technologies can help build a more open and inclusive trading system now and for generations to come. Roberto AzevêdoDirector-General5KEY FACTS AND FINDINGSKey facts and findings Digital technologies such as artificial intelligence, the Internet of Things, additive manufacturing (3D printing) and Blockchain have been made achievable by the exponential rise in computing power, bandwidth and digital information. Digital technologies are reshaping consumer habits by shifting purchases online through the widespread use of internet-enabled devices which provide consumers with direct access to online markets. It is estimated that, in 2016, the value of e-commerce transactions totalled US$ 27.7 trillion, of which US$ 23.9 trillion was business-to-business e-commerce transactions. On the supply side, digital technologies allow for easier entry and increased product diversity, making it easier for firms to produce, promote and distribute their products at a lower cost. The benefits of digital technologies notwithstanding, they are also giving rise to a number of concerns, including market concentration, loss of privacy and security threats, the digital divide, and the question of whether digital technologies have really increased productivity. International trade costs declined by 15 per cent between 1996 and 2014. New technologies will help to further reduce trade costs. Our projections predict that trade could grow yearly by 1.8 to 2 percentage points more until 2030 as a result of the falling trade costs, amounting to a cumulated growth of 31 to 34 percentage points over 15 years. The wide adoption of digital technologies changes the composition of trade in services and goods, and redefines intellectual property rights in trade. Trade in information technology products has tripled in the past two decades, reaching US$ 1.6 trillion in 2016. The importance of services in the composition of trade is expected to increase. We predict the share of services trade to grow from 21 per cent to 25 per cent by 2030. Digitalization has led to a decline in trade of digitizable goods (e.g. CDs, books and newspapers) from 2.7 per cent of total goods trade in 2000 to 0.8 per cent in 2016. The trend is likely to continue with the advent of 3D printing technology. Regulation of intellectual property rights, data flows, and privacy as well as the quality of digital infrastructure are likely to emerge as new sources of comparative advantage. The decline in trade costs can be especially beneficial for MSMEs and firms from developing countries, if appropriate complementary policies are put in place, and cha