Horse Trading in Cyberspace: U.S. Trade Policy in the Information Age.

• Author: Frost, Ellen L.

Like a big bang, the explosion of information technology, both symbolized and realized by the Internet, has vastly multiplied opportunities for international commerce. Thanks to a digitally linked global economy, information zips across national frontiers without stopping at customs. A revolution is upon us, says IBM to its website readers; the private sector is reinventing itself to deal with the technology, but the public sector is just beginning to face the issues it raises.(1)

One of those issues is the future of trade policy. Has the explosion of information technology changed the fundamental character of trade policy as it has been practiced to date? If not, what impact does or should it have? In other words, what is new?

This article will make the case that information technology does not alter the nature of U.S. trade policy, but it greatly expands its scope and partially transforms the role of trade negotiators. With respect to the telecommunications industry--i.e., the highway builders or carriers of information--negotiators face a largely familiar set of topics. But fulfilling the potential of electronic commerce, the for-profit traffic on the highway, opens up an unfamiliar universe of regulatory issues.

The resolution of these issues will need to be coordinated with the evolution of new multilateral rules. Increasingly, both policymakers and negotiators will find themselves not only holding talks with foreign governments, but also mediating between a variety of regulatory authorities and interest groups in their own country. But first, analyzing the implications of the new information technology for U.S. trade policymakers and negotiators requires a clear understanding of the ways that globalization and technology have shaped trade--and hence the U.S. trade policy agenda--thus far.

GLOBALIZATION

At the root of the globalization process are the twin technological revolutions in information and transportation. These revolutions enable companies to engage in flexible manufacturing and customized production to supply local markets around the world. A product meant for one set of consumers can easily be adapted for another. Mass production in a single location is disappearing. Few, if any, globally traded manufactured goods are produced in a single country, loaded into a crate and shipped intact to foreign customers. Instead, companies are now in a position to disperse different phases of the industrial life cycle among different countries, depending on local conditions.(2) For example, a Nike basketball shoe that Americans believe is made solely with cheap labor in Indonesia actually contains 52 different components from five different countries.(3) A similar process is going on in the burgeoning services industry as well as in certain sectors of the agricultural industry.

Corresponding changes are going on with respect to the demand for goods and services. More and more governments are seeing the advantages of opening up their territories to the global market. Not only do consumers enjoy a wider range of choice; industries are also finding that imported materials, components and services can make them more productive. This is why economist Robert J. Samuelson defines globalization as "the worldwide convergence of supply and demand."(4) Nowhere is this convergence more rapid and visible than in the information industry.

TECHNOLOGY

People who hear the word technology tend to think immediately of computers and the vast array of products and services associated with them. But technology is best understood not as a particular type of product or service, but rather as the full range of knowledge and means by which scientific knowledge is transformed into a usable commodity or service. When a company performs research and development, it is typically taking a scientific concept and finding ways to apply it to the production of goods and services at affordable prices. Thus the word technology--from the Greek technologia, meaning systematic treatment of an art--properly refers to know-how, as opposed to hardware.

High technology also has a specific meaning. Normally, the term refers to the intensity of R&D. Intensity is usually measured as expenditures on R&D calculated as a percentage of production or sales. The Paris-based Organization for Economic Cooperation and Development (OECD) identified six high-technology industries: aircraft (aerospace), office and computing equipment, communications equipment, drugs and medicines, scientific instruments and electrical machinery.(5) A similar U.S. Government list adds material design, computer-integrated manufacturing, biotechnology and life sciences, weapons and nuclear technology.(6)

Regardless of the exact composition of various lists, the point is that high-technology industries extend well beyond the electronics and telecommunications industries as such. At the same time, it is the use of computers and information systems that has stimulated breakthroughs in these other industries--for example, in design and engineering, inventory control, quality control and marketing.

Even supposedly low-technology industries, such as food service, hone their efficiency and lower their prices through the use of computers. The production of steel and automobiles today is light-years from where it was twenty years ago. New technology has greatly reduced the level of environmental pollution, stimulating a whole new international market for environmental products and services.(7) There is much disparaging talk about low-wage, so-called hamburger-flipping jobs, but it requires highly sophisticated information management to get literally billions of McDonald's hamburgers to the counter at those prices, not only in the United States but increasingly around the world.(8) All in all, the changes wrought by information technology appear to be more rapid, more fundamental and more far-reaching than other technological advances in living memory.

The application of the new technology that is most relevant to trade policy is electronic commerce. For consumers of goods, the Internet permits transactions analogous to catalog and telephone orders, multiplied many times over. (Ports and postal systems will have to streamline themselves to keep up.) The consequences for trade in services, especially those that can be transmitted electronically, are even more far-reaching.

While most telecommunications goods and services entered the market slowly and have been in the global market for well over a decade, electronic commerce is a newcomer. "E-commerce" is fundamentally reshaping entire industries, notably financial services, telecommunications services, business and consulting services, travel, and entertainment. It is revolutionary in at least three respects: the level of participation, speed of change and availability of information.

The first revolutionary trend is that participation in international commercial transactions is expanding beyond large corporations and banks to local retail establishments and households. Operating from home with a few thousand dollars worth of equipment, anyone can become a global merchant. Crossborder transactions, now conducted primarily by large multinational corporations and banks, will be available to individuals at the click of a mouse. Consumers in different countries can load "hypercards" with electronic cash and engage in anonymous card-to-card transfers.(9) As a consequence, consumers can go directly to producers without going through the chain of retailers, wholesalers and distributors. The new intermediaries will be network access providers, electronic payment systems and services for authentication and certification of transactions. The result could be something approaching the ideal of perfect competition: low transaction costs, low barriers to entry and improved access to information for the consumer.(10)

The second revolutionary development is the speed of technological change within those industries that provide the means of conducting electronic commerce, notably the information industry. At IBM, people think in terms of "web years", that is, periods of three months.(11) These rapid-fire innovations spill over into other industries as well. Boeing engineers around the world work on the same future airplane through virtual design.(12) Incremental technological improvements--and new challenges from competitors--flash instantly across the screen, forcing sluggish companies to accelerate the pace of change.

The third revolutionary feature of electronic commerce, closely associated with the second, is the worldwide availability of information. This development facilitates the expansion of trade by making it infinitely easier for buyers and sellers to find each other. For example, members of the Asia Pacific Economic Cooperation (APEC) forum have created an electronic database listing tariffs and other customs measures throughout the entire Asia-Pacific region.

The continued rapid growth of global trade in goods and services depends on financial flows, and it is here that the instant availability of information has had a particularly dramatic effect. Flashes of data around the world intensify the volatility of currency movements, which can send trade, investment and stock markets into a downward spiral, at least temporarily In October 1997, for example, what started as a seemingly localized banking crisis in Thailand spilled over into a chain of events that roiled financial markets around the world. As U.S. Federal Reserve chairman Alan Greenspan acknowledges, the new technology increases "systemic risk" by creating the mechanisms for mistakes to "ricochet" throughout the global financial system.(13)

At the same time, the availability of instant information makes markets work better. It can also serve to reassure investors by enhancing their sophistication and knowledge of long-term trends. Such information can contribute to a stable...