While the COVID-19 pandemic impacted heavily on the global trade environment, causing major disruptions in international trade, economies were seen to be engaged in the implementation, negotiation and signing of trade agreements in a bid to strengthen trade relations and get through the virus crisis. In the vanguard is New Zealand’s recently signed ‘Digital Economy Partnership Agreement’ (DEPA).
As part of its COVID-19 trade recovery strategy, New Zealand signed its first-ever digital trade pact (DEPA) with Singapore and Chile in early June 2020 to help exporters and SMEs capitalize on digital trade opportunities.
Besides encouraging growth of the digital aspects of New Zealand’s trading relationships, DEPA is also likely to unfold a remarkable opportunity for New Zealand to continue diversifying its cost-effective exports, bolstering its resilience to potential shocks in any specific exporting sector.
Here’s what we regard as the five key ‘T’rigger points:
- Transformation to digital era: paper vs digital deals
Although on-paper trade deals have been the most prevalent form of trade agreements so far, digital trade agreements are gaining popularity amidst the global shift in consumers’ and businesses’ preferences towards digitization.
The year 2020 witnessed the signing of several on-paper deals worldwide, while the advancement in two major digital trade agreements requires closer attention in the wake of the coronavirus-driven disruptions to international trade and supply chains (refer diagram below).
With international trade being a critical element of the New Zealand economy, the nation seems to focus on both digital trade pacts and paper-based free trade agreements (FTAs), with about 10 FTAs currently in force. Lately, New Zealand has embarked on FTA negotiations with its sixth largest trading partner, the UK, becoming one of the first countries to initiate talks with Britain for the post-Brexit era.
In addition to addressing non-tariff barriers and securing the elimination of trade tariffs, the agreement is likely to focus on encouraging digital trade, expected to become a ‘new-normal’ post COVID-19.
- Thrust to economy: DEPA to heal pandemic-stricken trade scenario
The COVID-19 pandemic has weighed heavily on New Zealand’s international trade, which contributes to 60 percent of the nation’s total economic activity, inducing a fall of 0.7 percent in terms of trade (goods) in the March 2020 quarter.
The virus’s impact was also evident in New Zealand’s March quarter GDP update, that plummeted by 1.6 percent amidst the sharp downturn in economic activity.
DEPA is likely to foster New Zealand’s balance of payments position by revitalizing its trade architecture, facilitating the import and export of goods and services, and bolstering scale, scope and speed of trade – thereby stimulating economic growth.
This goes in line with the OECD’s March 2019 report that highlighted that a 10 percent surge in “bilateral digital connectivity” can advance goods trade by around two percent and services trade by around three percent.
- Trade scoping for dealings: digital technologies transforming global commerce
DEPA is believed to play a critical role in extending the benefits of the digital economy to exporters and importers, thereby charting out an interesting trade scenario for the nation that has marked strong control over virus containment.
While decreasing trade costs associated with importing and exporting, DEPA can act as a stepping-stone to internationalize New Zealand businesses at a fraction of expenditure. Here, the trade costs mostly comprise information and transaction costs, the cost of crossing borders, logistics costs, transport costs and trade policy barriers. The lower expenditure also makes it easier for businesses to integrate foreign customers and suppliers into their own value chains.
Moreover, DEPA unfurls the opportunity for Kiwi businesses to serve a broader range of customers across Singapore and Chile, thereby boosting prospects of online sales. On top of these benefits, DEPA can ease arduous customs procedures and fast-track trade operations.
Although the complex regulatory environment for digital trade remains a barrier, technologies such as Blockchain/AI/Cloud Computing can unlock a fresh set of opportunities for businesses to access trade finance – enabling firms to make transactions on a peer-to-peer basis without the need to go through banks or secure traditional trade finance.
What’s worth noting is that the widespread inclusion of digital technologies in business operations is instrumental in harnessing benefits associated with digital trade.
It’s all about taking the lead in tech adoption to knock down the competition!
- Topping on growth: embedding technology with trade charting out promising growth scenario
A 2018 report published by the World Trade Organization (WTO) – The future of world trade: How digital technologies are transforming global commerce – projected a yearly growth of 1.8 to 2 percentage points in international trade until 2030 as a consequence of plunging trade costs through the advent of new technologies. The forecast reflected a cumulative growth of about 31 to 34 percentage points in world trade over 15 years.
Further, the report anticipated a change in the composition of trade in goods and services through a wide adoption of digital technologies – predicting a spike in services trade from 21 percent to 25 percent by 2030.
- Transcribing key modalities: do not confuse digital trade with e-commerce, its way beyond
While digital trade and e-commerce are often used interchangeably by some analysts, the former is a broader concept than e-commerce that just involves the purchase and sale of commodities and services online.
In addition to online transactions, digital trade comprises all digital technologies used in trade activities to stimulate businesses.
Even though digital trade plays a pivotal role in e-commerce activities by facilitating the purchase, sale and servicing of tangible goods and services, it also captures a massive range of cross-border data flows.
The OECD defines digital trade as all digital trade transactions that are either digitally facilitated, digitally ordered or digitally delivered. With the emergence of digital technologies, big data, cloud computing and social networking are increasingly becoming important components of digital trade.
Besides, digitisation has been gaining immense popularity amidst the virus crisis across different spheres, be it fintech, proptech or medtech.
Looking at the banking and financial space, the RBNZ has lately been in the news for restructuring its digital services team in response to its changing digital strategy initiatives.
It will be true to say that being ‘digi-savvy’ is the new norm!
Kunal Sawhney is founder and CEO of Kalkine, an independent equities research firm started in 2014 and based in Sydney and London.
