Editorial✍ Financial Express Prelims cum Mains

UNCTAD report lessons

UNCTAD’s Trade and Development Report:

  • Recently, UNCTAD (The United Nations Conference on Trade and Development) released its flagship Trade and Development Report (TDR 2018).
  • Advocated data sovereignty: In the report, it has strongly advocated the need for developing countries to address issues of data sovereignty and design national policies to ensure equitable distribution of gains arising from data which is generated within the national boundaries.
  • The most valuable contribution of TDR 2018 is its analysis of the policy challenges for developing countries in the digital era.

Data as the source of power:

  • The report correctly identifies data as the most important component of the digital infrastructure.
  • In the digital economy access to, and control of, data is a source of market power. It can also create barriers to entry for new players.
  • Data provides the basis for potentially changing the relative positions of countries in terms of their shares in global production, consumption, investment and international trade, as well as generating huge profit streams.
  • According to the report, it is critical for countries to devise national data policies to ensure equitable distribution of gains arising from data which is generated within the national boundaries.

 

Key messages from the report

  • In respect of the digital economy, the report has several key messages.
  • These are extremely relevant for India’s quest to formulate a national e-commerce policy.
  1. Existing anti-trust laws unsuited to the digital economy:
  • TDR 2018 argues that, in the digital economy first-movers benefit from controlling and scaling large volumes of data.
  • Further, the market dynamics in the digital arena eradicate competition from small firms through acquisitions or exclusionary practices, and promote the ability of first-movers to grow and assimilate further market power.
  • The report correctly recognizes that the existing anti-trust laws and policies in many developing countries may be unsuited to the digital economy and recommends tighter regulation of digital platforms.
  1. Unfair practices by players in the digital economy:
  • TDR 2018 drives home the point that players in the digital economy seek to enhance their market shares by resorting to various strategies.
  • This includes heavily slashing prices (also referred to as “cash burning”), even to the extent of sustaining losses, especially to acquire customers and destroy competition.
  • Policymakers in India and other developing countries need to take note of these unfair practices and devise solutions to address them.
  1. Localisation of servers needed:
  • The report states that localisation of servers can be required for regulatory purposes, and such regulation can also operate to assist in the promotion of domestic providers of a range of goods and services.
  • UNCTAD report strengthens the hands of countries like India that need to adopt a nuanced approach to localisation for giving a fillip to local innovation and domestic entrepreneurs.
  1. National firms and innovators should have access to data collected in the country:
  • TDR 2018 makes important suggestions for nurturing local innovators in developing countries—an issue of considerable significance for India.
  • The report suggests that firms and innovators in developing countries should have access to data that are typically collected by multinational platform companies.
  1. Need for a national platform for selling Indian goods:
  • The reports emphasises that linking domestic producers to national e-commerce platforms should be a part of national promotion scheme.
  • It buttresses this point by giving the example of a Chinese e-platform called KiKUU, which sells only Chinese goods.
  • This example is extremely relevant, as the need to create a national platform for selling Indian goods appears to have been considered in the course of formulating India’s draft e-commerce policy.
  1. Digital industrial policies needed for developing countries:
  • TDR 2018 makes a persuasive case for developing countries to implement digital industrial policies for catching up with the leaders.
  • Such policies would need to be preceded by regulating the digital platforms.
  • This would provide developing countries’ firms with an opportunity to compete with the existing platforms and avail themselves of new opportunities in the digital world.
  • Thus, UNCTAD’s view is that regulation is essential for developing countries to gain from ecommerce.
  1. Taxing digital giants:
  • UNCTAD has recognised the problem of digital giants escaping the tax net in many countries.
  • The report recommends taxing these firms where their activities are based rather than where they declare their headquarters.
  • This will help in redistributing their rents and increase government revenues.
  1. Should be careful about ecommerce rules:
  • Some countries, especially the developed ones, at the WTO are pushing to negotiate binding rules on ecommerce.
  • Developing countries need flexibility and policy space to design their economic and industrial policies and national regulatory frame-works to promote digital infrastructure and digital capacities.
  • The potential for development provided by digital technologies can be easily eclipsed if developing countries have ecommerce rules imposed on them.

 

Conclusion:

  • Overall, unlike many other international organizations, UNCTAD’s TDR 2018 has resisted the temptation of getting swayed by the narratives being perpetuated by the digital giants and their supporters about the global digital economy and its links with development.
  • The report’s diagnosis of many of the problems emerging in the digital arena is objective and spot on.
  • The recommendations to address the underlying problems are well thought-out and far reaching.
  • It also resonates well with India’s attempts at formulating a domestic ecommerce policy.

 

Importance:

GS Paper III: Indian Economy

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