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Covid-19 has accelerated the move from physical stores to online platforms by about five years
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Boundaries and Borders

International trade regulation in challenging times

From online marketplace behemoths like Amazon, Taobao, Shopee and Lazada, to digitally native, direct-to-consumer brands, e-commerce is a thriving, rapidly burgeoning sector. The exponential growth of online retail has been further fuelled by the pandemic: According to findings from the IBM US Retail Index, Covid-19 has accelerated the move from physical stores to online platforms by about five years. While the rise of e-commerce has made it easier for consumers to browse and buy, all without even getting off the couch, it has raised new issues for policymakers, especially those involved in the area of international trade regulation.

In 2016, SMU Associate Professor of Law Henry Gao was invited to the “WTO at 20” conference co-hosted by World Trade Organisation (WTO) Appellate Body and Harvard Law School, where he presented his findings on the US approach to digital trade issues in trade agreements, especially the Trans Pacific Partnership.

“The presentation was well received by the audience, and I received several questions on China’s approach to digital trade issues,” recalls Assoc Prof Gao, who started his career as the first Chinese lawyer at the WTO Secretariat.

“As there was no paper comparing the approaches of the US and China, I decided to research the issue and wrote the paper ‘Digital or trade? The contrasting approaches of China and US to digital trade’, which is the first comparative study of the American and Chinese approaches.”

The paper, published in 2018, is a critical examination of the contrasting approaches of the US and China on the issue. It argues that the US approach tends to focus more on the “digital” nature of digital trade, while the Chinese approach prefers to address the issue from the traditional “trade” perspective.

It went on to become one of the top four papers contributing to the 2019 Impact Factor of the Journal of International Economic Law, which is the most recent year available and also the year when the journal scored the highest impact factor in its history. Assoc Prof Gao has explained that this is particularly noteworthy as his paper is the newest among the top-cited papers.

“The paper highlights the different approaches the US and China have on digital trade, and reminds firms of the differing or even conflicting regulatory environments they could be subject to as they move to different markets,” explains Assoc Prof Gao.

“Such heightened awareness also creates impetus to negotiations of a set of global rules on these issues, which Singapore is spearheading in the WTO along with 90 other members.”

The paper notes how the regulatory framework of the WTO was originally designed for the traditional offline trade model, not the complexities of e-commerce. It now has to grapple with the application of existing trade rules to the sector, and consider the development of new rules that better reflect the realities of online trade.

As home to some of the largest internet companies in the world, the US took the lead in bringing the issue of regulations relating to e-commerce into the WTO and has been the leading proponent on the issue. Disappointed over the lack of progress in the WTO, the US, as the champion of digital trade, turned to various bilateral, plurilateral and regional initiatives to push for the internationalisation of digital trade rules — based on the regulatory philosophy and approach in the US — to tackle trade barriers facing US companies.

Meanwhile, although initially reluctant to engage on the issue at the international level, China has also gradually warmed up to the issue and became more willing in negotiating e-commerce rules in its recent FTAs.

Overall, the US approach tends to focus more on the “digital” nature of digital trade, while the Chinese approach stems from a more traditional “trade” perspective. This relates to how the US focuses on the behind-the-border barriers, especially those relating to various services provided online by internet companies. In contrast, China is more concerned with customs and border issues, especially those relating to the facilitation of trade in goods bought via online platforms yet delivered in physical forms offline.

“Such differences are not really surprising, as they reveal the deep gap between the two,” writes Assoc Prof Gao in the paper.

“While the US internet companies have successfully moved their businesses entirely online by turning their commodity from tangible products to information or bits, Chinese companies still continue to trade physical goods or atoms, as mankind has done for centuries.”

With his areas of interest such as free trade agreements, international trade law and the WTO being especially pertinent in recent times — due to major disruptions brought about by digital transformation, global events like Covid-19 and globalisation, Assoc Prof Gao went on to publish several other papers that were highly received, including his new working paper, “EU-China Comprehensive Agreement on Investment: Strategic Opportunity Meets Strategic Autonomy”. It was selected by the official Social Science Research Network (SSRN) Twitter account as its “weekend read”, the first time a paper by a Singapore-based academic is featured by SSRN’s well-followed social media account.

Widely published on issues relating to China and WTO, Assoc Prof Gao’s research has also been featured in CNN, BBC, The Economist, Wall Street Journal and Financial Times. Most recently, he led two former students from his WTO law class at SMU to publish a co-authored paper “Trading Through a Pandemic: The Singaporean Experience”, which discusses how

Singapore tries to meet the challenges resulting from the pandemic through various initiatives to diversity its sources of supply, ensure trade of essential goods, and minimise interruptions to business travel.

“I was always interested in international law since I became a law student in China because I think international law helps to make the world more peaceful and prosperous,” shares Assoc Prof Gao.

“Covid has brought unprecedented disruptions to international trade, but it also created unique opportunities for using trade laws and regulations to go through the crisis.”

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