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WORLD TRADE REPORT 2018These are very important questions, which deservethe attention and action of the internationalcommunity. We can’t simply leave the evolution of ourtechnological future to chance, or trust it to marketforces. We all have a duty to make this technologicalrevolution a truly inclusive one.Domestically, governments may need to look at howto tackle many of these challenges, including inareas such as investment in digital infrastructure andhuman capital, trade policy measures and regulation.International cooperation can also help governmentsderive more benefits from digital trade and help driveinclusion. At present, WTO members are trying to getto grips with these issues. The WTO framework, andin particular the GATS, is relevant for digital trade andWTO members have already taken certain steps topromote digital trade within the existing framework.In addition, discussions are ongoing among a largegroup of members regarding how members may wantto respond to continued changes in the economy, andto ensure that everybody can participate and benefitfrom the digital economy.4Change is part of life. The question is not whetherwe like it, but rather how we choose to respond.Are we ready to rise to the challenges and seize theopportunities that this brave new world presents?I believe that this is the defining question facinggovernments around the world today. I hope thisreport will inform their response, and help to putinclusivity at the heart of these efforts. While thereis no “one-size-fits-all” recipe, I am convinced thatinternational cooperation will remain central tohelping governments navigate these changes and toensuring that digital technologies can help build amore open and inclusive trading system – now andfor generations to come.Roberto AzevêdoDirector-General

KEY 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 computingpower, bandwidth and digital information. Digital technologies are reshaping consumer habits by shifting purchases online throughthe widespread use of internet-enabled devices which provide consumers with direct accessto 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 ofconcerns, 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 technologieswill help to further reduce trade costs. Our projections predict that trade could grow yearlyby 1.8 to 2 percentage points more until 2030 as a result of the falling trade costs, amountingto 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 andgoods, and redefines intellectual property rights in trade. Trade in information technologyproducts 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 predictthe 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 tocontinue with the advent of 3D printing technology. Regulation of intellectual property rights, data flows, and privacy as well as the quality of digitalinfrastructure are likely to emerge as new sources of comparative advantage. The decline in trade costs can be especially beneficial for MSMEs and firms from developingcountries, if appropriate complementary policies are put in place, and challenges related totechnology diffusion and regulation are addressed. Our estimations foresee that, in such case,developing countries’ share in global trade could grow from 46 per cent in 2015 to 57 per centby 2030. Digital technologies give rise to opportunities and challenges that may require the considerationof governments and the international community in areas as diverse as investment in digitalinfrastructure and human capital, trade policy measures and regulation. Provisions referring explicitly to digital technologies have been included in an increasing numberof regional trade agreements. The most common provisions refer to e-government, cooperationand the moratorium on customs duties on electronic transmissions. While the WTO framework, and in particular the General Agreement on Trade in Services,is relevant for digital trade and WTO members have already taken certain steps to promote digitaltrade within the existing framework, members will have to consider how they want to respond tocontinued changes in the economy and the way we do business.5

WORLD TRADE REPORT 2018Executive summaryA. IntroductionTechnological innovations have shaped globalcommerce.From the invention of steamships, railways and thetelegraph which fuelled the first industrial revolutionin the early 1800s, to the advent of containerization inthe 1950s and, more recently, the rise of the internet,technological innovations have significantly reducedtrade costs and transformed the way we communicate,consume, produce and trade. However, technologicaladvances are not a guarantee of greater or of stabletrade growth or economic integration. In fact, over thepast two centuries, it has been the ability to managetechnology-driven structural changes that has largelydetermined whether global trade integration hasprogressed or regressed.The rise of digital technologies promises tofurther transform international trade.We are entering a new era, in which a series ofinnovations that leverage the internet could have amajor impact on trade costs and international trade.The Internet of Things (IoT), artificial intelligence(AI), 3D printing and Blockchain have the potentialto profoundly transform the way we trade, who tradesand what is traded.Understanding how these technologies mayimpact world trade is essential to help maximizethe gains.While technological advances are an essentialenabler of international trade expansion, the capacityto manage the changes at play is equally important.Appreciating the depth and breadth of these changesis critical to help governments reap the benefitsthat these technologies create and address thechallenges that may arise.B. Towards a new digital eraThe digital revolution has been enabledby technological changes in computing,communications and information processing.6The past half-century has seen a massive increasein processing and computing power, an equallyenormous decline in its cost, and widespread adoptionof personal computers. This has been accompanied byan equally rapid increase in bandwidth – the carryingcapacity of a communication system – which hasproved to be an important catalyst for the swift growthof the internet and mobile networks. Finally, the abilityto turn many forms of information that once existedsolely in analogue form into digital information and tocollect, store and analyse it has expanded enormously.The shift from mechanical and analogue electronictechnology to digital technologies, the rapid adoptionof the latter, particularly in the information andcommunication sectors, and the sweeping economicand even social changes that have accompaniedthis shift, have all laid the foundations for the digitalrevolution.The technologies that are of particularinterest in this report – IoT, AI, 3D printing andBlockchain – have been made possible by thesesame forces.The IoT equips everyday objects with identifying,sensing, networking and processing capabilities thatallow them to communicate with one another and withother devices via the internet to achieve particularobjectives. The IoT can improve consumers’ quality oflife, for example by helping to track physical fitnessand health or to better manage household tasksand supplies through smart appliances, such asconnected refrigerators. For businesses, the IoT canhelp to improve operational efficiency through betterpreventive maintenance of machinery and products,and can also provide opportunities to sell new digitalproducts and services. Nevertheless, wider adoptionof the technology faces some stiff challenges. Thedeployment of connected devices, many of whichwere designed without much thought for security, cancontain dangerous vulnerabilities. Connecting largenumbers of new devices to the internet can createserious bottlenecks in telecommunication systems.Finally, as so many companies are competing todevelop new connected devices, compatibility issuesare likely to arise in the future.Artificial intelligence (AI) is the ability of a digitalcomputer or computer-controlled robot to performtasks commonly associated with humans, such asthe ability to reason, discover meaning, generalizeor learn from past experience. Much AI today is“narrow” or “weak” AI, in that it is designed toperform relatively limited tasks (e.g. facial recognitionor playing chess). However, the long-term goal ofmany AI researchers is to create “general” or “strong”AI which would outperform humans at nearly everycognitive task. AI can be used to increase efficiencyin the production of goods and services and to aidinnovation by generating new ideas. While AI hasreached a lot of important milestones, numerous

EXECUTIVE SUMMARYtechnical challenges still lie ahead of it, includingcertain cognitive tasks that people often undertakewithout thinking, such as perceiving and navigatingtheir physical environment. Forthcoming research onAI is likely to focus on making AI systems more robustand maximizing their societal benefits while mitigatingadverse effects, which could include increasedinequality and unemployment.3D printing is the process of making a threedimensional solid object of virtually any shape from adigital model. In time, it could lead to a shift towardsmore digital and localized supply chains and lowerenergy use, resource demands and related CO2emissions over the product life cycle. However, fullrealization of the potential of 3D printing depends onovercoming a number of obstacles. The necessarymaterial technology is still nascent and buildingcomplex objects is slow. There are also regulatoryissues that need to be addressed before 3D printingcan be widely adopted in the consumer market.Finally, although declining in recent years, the costof printers, materials and scans is still relativelyhigh, especially for deployment in micro, small andmedium-sized enterprises (MSMEs).A blockchain is a decentralized, distributed digitalrecord of transactions (ledger) that is secured usingvarious cryptographic techniques. Information, onceadded to a blockchain, is time-stamped and cannotbe easily modified, making it easy to track attemptedchanges, and transactions are recorded, shared andverified on a peer-to-peer basis by anyone with theappropriate permissions. Blockchain is only one typeof distributed ledger technology. However, the term“blockchain” is now commonly used to refer moregenerally to distributed ledger technology and to thephenomenon surrounding it. Although Blockchaintechnology presents interesting features in termsof security, immutability, transparency, traceabilityand automation, its wide-scale deployment currentlyhinges on various challenges. Scalability remainslimited, existing blockchain networks and platforms donot “talk” to one another, and there are a number ofunresolved legal issues, ranging from the legal statusof blockchain transactions to the question of liability.With digitalization, economic activity around theworld has been subject to tremendous changes.New business models have emerged, with digitaltechnologies as their main underpinnings; digitalplatforms are becoming the new marketplace amidstthe rapid expansion in internet access over the lastdecade. Ever-increasing online visibility, throughinteractive websites, apps and social media, hasbecome embedded in marketing strategies, allowingbusinesses to interact with customers and therebyboost online sales. Companies also rely increasinglyon artificial intelligence (AI) and big data to analyseconsumers’ online shopping experiences in order toprofile preferences and adapt products accordingly.In this regard, a large array of products and services,including travel booking, telehealth and e-learningare delivered remotely through information andcommunication technology (ICT) networks. Digitaltechnologies such as 3D printing are making itfeasible to supply customized goods and services toconsumers who show a preference for iesnotwithstanding, they are also giving rise to anumber of concerns and questions, includingabout market concentration, loss of privacy,productivity and the digital divide.There are commercial and social benefits to thecollection and analysis of personal data. But thereare also growing concerns that companies are nottaking data privacy seriously enough. Partly as aresult of this, a number of governments are enactinglegislation to better clarify what information aboutindividuals companies can collect and retain andwhat they can do with this data.The nature of competition in digital markets ismaterially different from competition in traditionalmarkets as it tends to be based on innovation ratherthan on pricing. To this extent, anti-competitive effectsthat arise may be transient. However, significantwelfare losses may arise from these anti-competitiveeffects before one platform or entrenched businessmodel is replaced by another.Questions have been raised about how muchthe adoption of digital technologies has raisedeconomic productivity. Measures of productivity inthe United States, for instance, suggest a significantslowdown since 2005. Several explanations havebeen given to explain this discrepancy, including themismeasurement of inputs and outputs, and delaysin the time needed for technological change to workitself throughout the whole economy.The digital divide is one of the major challengesfacing the digital economy. The digital divide betweendeveloped and developing countries remains widein terms of access to broadband services ande-commerce platforms, quality of infrastructure andlegal framework. Similar divides exist within countries,for example, internet penetration rates are higher formen than for women, small firms lag behind large firms7

WORLD TRADE REPORT 2018in their readiness to engage in the digital economy,and the impact of digitalization varies significantlyacross skill categories, increasing demand forhigh-skill workers which are complementary to thatdigitalization, while decreasing demand for lessskilled workers when the latter are easily replaced bylabour-saving technologies and automation.Digital intensity differs across sectors and firms.Sectors differ significantly in their dependence ondigital technologies. On average, services firmsare more intensive users of digital technology thanmanufacturing firms, while high-tech firms are moreintensive users of industrial robots than services orlow-tech firms.Even in the most advanced economies, constantinnovation and changing business modelsinevitably result in gaps in data collection.Efforts to collect data on digital trade remain intheir infancy, particularly in developing economiesand least-developed countries (LDCs), wheresmaller transaction volumes and lower levels of ICTpenetration call into question the value of dedicatinglimited resources to developing the relevant statistics.Despite these challenges, it is possible to illustratethe current state of the digital economy usingavailable statistical and anecdotal evidence and tomake inferences about its likely future direction.Official data on e-commerce transactions issparse and not comparable across economies,but it does offer some useful information.In their latest Information Economy Report, the UnitedNations Conference on Trade and Development(UNCTAD) estimates that the total value of globale-commerce transactions, both domestic and crossborder, was US 25 trillion in 2015, up 56 per centfrom US 16 trillion in 2013 (UNCTAD 2017a). TheUS International Trade Commission (USITC) offersa similar estimate of US 27.7 trillion for globale-commerce in 2016, up 44 per cent from 2012.USITC estimates the magnitude of business-tobusiness (B2B) transactions at US 23.9 trillion in2016, six times larger than business-to-consumer(B2C) transactions (US 3.8 trillion). Currentstatistics do not break down e-commerce transactionsby origin. As a result, domestic and cross-bordertransactions are not separately identifiable.8The statistical community has developed a “workin progress” conceptual measurement framework,taking into account the nature of the transactions(“how”); the product (“what”); and the actorsinvolved (“who”). Under this framework, “digitallyenabled” transactions are split into “digitally-ordered”and “platform-enabled”. E-commerce transactionsare understood to be digitally-ordered but may bedelivered either digitally or physically.Firm-level financial data provide indications ofwhere the market is going.A series of financial reports from leading publiclytraded digital economy firms (e.g. Alibaba, Alphabet,Amazon, Facebook, Microsoft, Netflix, Spotify, etc.),taken together, demonstrate not only the global reachof these firms but also the fact that they continue tohave vast opportunities to grow their internationaloperations. For example, nearly one-third (32 percent) of Amazon’s net sales are international. Theinternational streaming revenue of Netflix rose fromUS 4 million in 2010 to more than US 5 billion in2017. Although Alibaba’s commerce revenue is mostlydomestic (92 per cent in 2016-17), it is notable forbeing a large e-commerce firm based in a developingeconomy with considerable scope to grow its crossborder activities.C. The economics of how digitaltechnologies impact tradeNew technologies may help reduce trade costs.New technologies may decrease the relevanceof distance, whether geographical, linguistic orregulatory. They also facilitate searches for products,help verifying quality and reputation, and help tomatch consumer preferences to products.Certain AI applications can benefit trade in goods,for example by optimizing route planning and enablingautonomous driving, reducing logistics costs throughcargo and shipment tracking, using smart robots tooptimize storage and inventory, and integrating 3Dprinting in order to reduce the need for transport andlogistics services. New technologies can therebyreduce trade costs by reducing transportation andstorage costs, but also by reducing time to transport,as well as the uncertainty of delivery times due tobetter logistics. These costs represent a major shareof overall trade costs and therefore their reductioncan have a large potential impact on trade flows.Trade costs related to customs procedures still hampertrade, especially in manufacturing pr

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