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It has long been established in theory that uncertainty impacts on firm behaviour. However, the empirical basis for quantifying the uncertainty-reducing effects of trade agreements has not been firmly established. In this paper, we develop estimates of the effect of reducing uncertainty regarding regulation of foreign services markets by making commitments that are bound under a trade agreement. Specifically, we identify the effect on services trade of services trade restrictions, as measured by the OECD's Services Trade Restrictiveness Index (STRI), and the separate effect of ‘water’ in binding commitments, as assessed by the difference between countries’ commitments under the General Agreement on Trade in Services (GATS) or free trade agreements (FTAs) and applied levels of market access, as captured by STRI scores. Using a gravity model, we find that services trade responds positively but inelastically to reductions in services trade barriers, as measured by the STRI and, in our preferred regression, the response to actual restrictions is more than twice – specifically 2.4 times – as strong as the response to comparable reductions in uncertainty, as measured by water. Moving from GATS commitments to FTA commitments leads to a 4.7% increase in services trade because of the reduction in uncertainty.

The digital transformation and the emergence of a data-driven economy in which data is the essential factor of production has profound implications for the role for the state as economic agent, as regulator, and as an active protagonist in the contest to capture international economic rents that are newly contestable in this economy. Modern technology enables the “datafication” of virtually every aspect of human social, political, and economic activity. Data is powering technologies that are disrupting markets and changing the way in which humans compete with machines. The expansion of the role of the state in the new economic and social environments created by digitalisation drives off the strong public good characteristics of data and knowledge and the risks of market failures and social harms that are pervasive in the new digital environment. This expanded role for the state not only pushes back against decades of economic orthodoxy that advocated for minimal governmental intervention in economic activity but entails a ramping up of government regulatory capacity and brings states into new rivalries with geo-economic and geopolitical overtones.

This chapter argues that only technological developments establish a sufficiently valuable bone of contention to explain the scale, the timing, and the contours of the US–China trade conflict. These issues run deep and are pervasive, reflecting the transition to a data-driven economy built on the nexus of artificial intelligence, machine learning, and big data. The contest to command these new technology heights explains the new Great Game that is unfolding, featuring the deployment of the full range of strategic trade and investment policies, geo-economic tools, and geopolitical manoeuvring.

With an increasing share of global commerce taking place in digital form or facilitated by digital platforms, it is becoming increasingly important to update the rules-based framework to accommodate and enable the development of the intangibles-based data-driven economy while reconciling the security, privacy and other regulatory issues associated with the flow of data across borders and the application of the new general-purpose technologies of machine learning and artificial intelligence. The development of norms, standards and operational protocols for e-commerce, digital platforms, cloud services and digital products more generally is proceeding apace in various fora, and the most comprehensive template for a trade agreement tailored for the digitally transformed economy is provided by the Digital Economic Partnership Agreement (DEPA). However, numerous areas remain under-developed and the interface with non-economic issues remains to be articulated. This brief sets out the rationale for Canada to join the existing agreement between Chile, New Zealand and Singapore, and outlines the areas where further development of the agreement is particularly needed. Joining the DEPA at an early stage would give Canada the opportunity to participate in the development of this agreement in a way that meets the needs of the small, open economies as well as help to mitigate the extent to which DEPA could limit future Canadian domestic policy space to adopt new laws and regulations to protect privacy, prevent algorithmic bias, protect critical infrastructure, ensure national security or promote domestic innovation. DEPA can also become a template for a much larger agreement, including possibly for the World Trade Organization itself. This brief sets out the rationale for Canada to join the existing agreement between Chile, New Zealand and Singapore, and outlines the areas where further development of the agreement is particularly needed.

The development of new general purpose technologies centred on the nexus of Big Data, machine learning and artificial intelligence is transforming and disrupting established economic structures and markets, creating prospects for massive economic rents that incentivize strategic trade and investment policies, and reconfiguring the ways and means of geopolitics, including by creating new vulnerabilities and new theaters for conflict. The shift of international competition onto a new technological playing field is inherently “revisionist” in political science terms as it erodes the established advantages of the advanced economies, in particular of the reigning hegemonic power, the United States, and opens the way for new competitors like China that are willing and able to make the necessary investments in the new technologies. The acceleration of the pace of innovation with the industrialization of technological change through machine learning precipitates action to capture first mover advantage and to respond to risk of falling behind. This chapter argues that the emergence of the data-driven economy provides a unifying framework to understand the eruption of a trade and technology war between states, the alignment of the players in this conflict based on their endowments of relevant assets, and the sidelining of the rules-based trading system in favour of geoeconomic and geopolitical power plays. It comments on the possible trajectory of this conflict as the data-driven economy develops in a post-pandemic context.

The adaptation of commercial frameworks to the digital environment has been underway for many years. Well-developed e-commerce regimes have already been developed in major regional trade agreements; the WTO is playing catch up - and it is imperative that it do so, both to make available the benefits of e-commerce to the full range of WTO members and for its own credibility. However, even the most advanced regional trade agreements are struggling to keep up with the rapidly evolving system and the main action in developing new norms for the digital economy is in domestic regulatory sandboxes. The most challenging issue facing the WTO is the new geopolitical security divide that has emerged between the United States and China. The WTO Agreement was framed for a unipolar world, in which “inert” goods and services were traded across borders that could be rigorously policed. This framework is challenged on multiple fronts in a multipolar, online world of smart products. Options to move forward include GATT Article XXVIII/GATS Article XXI renegotiation of WTO commitments across the security divide; conditional MFN in areas where parties agree to appropriate protocols to manage the risks in the digital environment; and a new detente agreement to narrow the range of issues subject to the new national security concerns. An up-front, open and low-rhetoric renegotiation seems infinitely preferable to a high-rhetoric acrimonious decoupling.

This note takes a contrarian position on the significance of China’s subsidies, which are generally viewed as intractable and damaging to the rules-based system. It considers the implications of Lerner Symmetry for the aggregate effect of China’s subsidies and the implications of comparative advantage for the differential effects across industries, in a context where the effective differential tax burdens are unknown, as indeed is also the case with differential effects of tax and subsidy regimes in the rest of the world. It concludes that the net effect of China’s subsidies is much less than commonly supposed and that differential effects that may be damaging can be handled, as they have been in the past, through tools available under the WTO Agreement.

After 26 years of trading under the North American Free Trade agreement (NAFTA), Mexico and its North American partners enter a new phase with the entry into force of United States-Mexico-Canada Agreement (USMCA) on 1 July 2020. This note quantifies the potential impact of the agreement on Mexico and assesses its implications for Mexico’s economic development in the context of the evolving knowledge-based and data-driven economy, the restructuring of global supply chains in response to the risks that were highlighted by the pandemic-driven economic crisis, and the changes to global trade and investment patterns driven by the trade and technology friction between the United States and China. The USMCA provides a major overhaul of the NAFTA based largely on the text of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It introduces some minor improvements to market access but its main effect for the industrial sectors of the economy is to intensify trade and investment diversion through more restrictive rules of origin, including onerous new requirements for labour value content in the automotive sector that impose significant adjustments on Mexico’s auto sector producers. The agreement builds on the institutional framework of the NAFTA, retaining the binational panel review mechanism for trade remedies – now Chapter 30 – intact, preserving the investor-state-dispute-settlement (ISDS) mechanism for Mexico-US investments only, improving state-to-state dispute settlement mechanism by addressing procedural weaknesses in the NAFTA version that had undermined its use, and introducing a new rapid-response mechanism for challenges to Mexico’s compliance with the labour market measures newly incorporated in the USMCA. The agreement, however, leaves open the use of US Section 232 “national security” tariffs and thus does not address the main new source of uncertainty concerning assured access to the US market for its North American partners. The analysis concludes that the net impact on Mexico is to reduce real gross domestic product (GDP) by about -0.8% compared to the NAFTA, once the economic adjustments are fully in place. Since Mexico had already signed onto disciplines on data localization and cross-border data flows under the CPTPP, the digital economy measures have little direct impact; however, how Mexico engages in the digital economy, both to tap the economic potential and to develop regulatory safeguards will be an important determinant of how well it fares under the new USMCA trade regime.

Over the past two centuries, the nature of innovation has evolved profoundly across many dimensions, including in the pace and volume of change, in the cost and institutional structure of innovation activity, in the enabling environment for innovation (which itself has evolved because of innovation), in the sources of demand for innovation, in the proliferation of entities engaged in innovation (including most recently the role of artificial intelligence as a patent-receiving inventor), in the distribution of its benefits, and in the nature of concerns that new technologies have raised. With the emergence of the data-driven economy, the pervasive, protean and permanent characteristics of digitized data, one of today’s most important types of intellectual property, create fundamental new social and political conditions that will necessarily elicit social and political responses. And along the way, innovation and the system of protection for intangible assets that innovation produces became the central bone of contention in the trade and technology war between the United States and China (in which third countries are increasingly embroiled). Even as these profound changes unfolded, the basic instruments incentivizing innovation – the various forms of intellectual property (IP) protection – were essentially unchanged and indeed formally expanded, even as the amount of protected IP expanded enormously. Given that many key metrics of economic performance and social behaviour have changed in problematic directions during this period, and in light of the fact that in the innovation-intensive countries the economy has been transformed from one dominated by tangible assets to one dominated by (protected) intangible assets, the system bears reviewing. This note identifies five issues for the current international norms and trade rules insofar as they cover the intangibles economy – in particular IP and the digital economy.

The rise of the intangibles economy has led to a significant erosion of corporate tax revenue in the innovation-intensive advanced economies, even as the share of national income flowing to capital rose. For developing countries, the erosion is worse and comes on top of substantial erosion of corporate tax revenues from the tangibles economy due to weak tax administration and corruption. In this paper, we take up the questions of how big is the taxing problem that the intangibles economy has raised, and whose problem is it. Further, we consider how well the proposed OECD/G20 Inclusive Framework measures up in responding to this problem. We conclude that the importance of tax reform in the modern digitalizing economy goes beyond preventing base erosion and profit shifting for it is about sustainable development and future prosperity. And whether we are there yet is a matter of wait and see.

The recognition that the modern economy is increasingly driven by data and on-line commerce has led to a number of initiatives to establish a global data governance regime that promises “data free flow with trust” or DFFT, and an associated open e-commerce regime. Since then, notwithstanding progress in formulating proposals to build the trust that is the key to enabling free flow, international frictions have pushed in the opposite direction and today’s reality is closer to unfree flow with no trust than it is to DFFT. The issues go beyond the technical and legal frameworks required to build trust at the level of private participants in the digital economy – the household/consumer and corporations. They extend to the geoeconomics and geopolitics of the knowledge-based and data-driven economy that emerge from the contest for the rising economic rents that this economy generates and the parallel contest for leadership/dominance of the new general purpose and dual-use technologies built on the nexus of big data/machine learning/artificial intelligence. This note discusses how data and digital trade policies are shaped by the new geoeconomics and geopolitics and how these are in fact endogenous to the technological conditions of the age.

This note focuses on the question of the international transmission of information concerning the outbreak of the COVID-19 pandemic in Wuhan – who knew what when. In contrast to the dominant narrative, this review establishes, based on published information outside of mainland China, that the policy-relevant information as of 31 December 2019 concerning that outbreak had spread worldwide and was sufficient to frame the necessary preventative responses, which to this date remain essentially the same (namely the routine precautions advised for any airborne respiratory diseases). Further, notwithstanding the mix of good and poor responses to the pandemic in different jurisdictions, and regardless of the response in Wuhan, global transmission was a sealed deal because of the stealth nature of COVID-19. Moreover, the scale of the pandemic in individual countries is largely a function of choices made independently by governments and populations around the world based on the same and sufficient information.

With a number of formal quantifications of the multi-named new trade agreement for North America (USCMA in the United States, CUSMA in Canada and T-MEC in Mexico) now in hand, this note compares the estimates and draws conclusions about the sign (positive or negative) and scale (order of magnitude) of the likely impacts. The published estimates feature headline figures that vary from negative impacts to major gains. These apparent inconsistencies reflect differences across the studies in terms of the factors taken into account and how they report their impacts. This note reviews the sources of differences of four studies, including the official studies released by the United States and Canada. It demonstrates that the impact of the new agreement relative to the status quo is negative when evaluated in conventional terms. The long-run impetus prompted by the pandemic to “near-shoring” or “re-shoring” due to concerns about extended supply chains would appear to work in the same direction as the new agreement in terms of creating a more insular North American economy at some expense in efficiency. However, there are many sources of uncertainty that at present do not lend themselves to a robust quantification. The known knowns promise to be negative on balance; as for the known unknowns, time will tell.

In the modern data-driven economy, trade secrets are becoming a more important part of firms’ intellectual property strategies. For their part, governments worldwide have been introducing new legislation to broaden and toughen the protection for trade secrets citing estimates of the cost of trade secret theft on the order of 1 to 3% of the GDP of the advanced countries. For the United States alone, this would put the cost of trade secret theft on the order of USD 180 to 540 billion. This note considers the “proxy” approach that has been used to generate these widely cited estimates as well as the extent of evidence that actually supports these claims. It concludes that the value of cross-border trade secret theft is much smaller than is suggested by the proxy methodology and suggests a more appropriate methodology to estimate the value of this illicit flow. The note also advances a number of considerations that temper the concern over cross-border trade secret theft.

This article addresses the issue of the suggested trade-off between attenuating the health costs of the corona-virus pandemic and limiting economic damage. It argues that there is no such trade-off because the economic costs are already effectively booked. Accordingly, Canada has to organize an orderly shutdown of non-essential production, retool for essential production, implement a quarantine, organize life support for the population and for Canadian businesses, and plan and execute a Korean-style testing program to hunt down the virus and stamp it out. At the same time, Canada needs to support an open trading system to ensure it has access to global supplies to fight the pandemic and in turn to support its own production for export abroad. The pandemic has put into sharp relief the need for international cooperation. We have seen some positive examples of cooperation in this crisis, particularly in terms of exchange of information and data at the professional level. But for the most part, this has not been matched at the political level – at least in the first instance, institutions were unable to overcome the reflexive impulse to “pull up the drawbridges”. The freedoms that characterized Globalization V2 – the largely unfettered movement of goods, services, ideas, capital, and people – which were increasingly being restricted even before the pandemic, seem now ever more precarious. A reset is needed and is inevitably coming. The pandemic is just the last straw – albeit a very large and heavy one – laden on the back of a system that was no longer representative of, or fit for the governance of, the world under the technological conditions of 2020.

This note comments on the economic impacts of the CUSMA, the implications for business certainty, and its readiness for the knowledge based and data-driven economy. Relative to the status quo, the CUSMA impacts negatively on economic efficiency and welfare, and leaves unaddressed the major new sources of uncertainty for business concerning market access in North America. While the CUSMA has been billed as a twenty-first-century agreement, the twenty-first century for which the CUSMA was designed is effectively already over. Given the regulatory ferment currently underway, data is not treaty ready — and the CUSMA is not data ready.

The most contentious and problematic issue negotiated in the Brexit deal was the so-called “level playing field”, which was to be preserved by the parties through “rebalancing” provisions. This note takes up the issue of the meaning of a “level playing field” in light of fundamental features of international trade: firm-level heterogeneity within industries; economic geography; policy heterogeneity in taxation and the provision of public goods; the principle of comparative advantage; and fluctuating national currencies. Based on this, it comments on the meaning in economic terms and practicality of “rebalancing”.

In the absence of direct evidence on the immediate origins of the novel coronavirus, COVID-19, the theories of the case are based on circumstantial evidence. The identification of the first cluster of cases in a wet market in Wuhan naturally focused attention on the leap from animal to human having taken place there. The proximity to the wet market of a biological lab naturally prompted a theory of a lab leak. After it was determined that there were earlier cases than those associated with the wet market, the circumstantial evidence for both these theories was undermined. Meanwhile, irrefutable evidence emerged that the virus mutates readily and gains function on its own. There were no wet markets or biological labs associated with the emergence of the European strain that devastated Italy and Spain and later New York. Nor was there a wet market or biological lab in Kent where the UK strain that devastated that country later emerged. The same is true for Manaus in Brazil whence P1 emerged in a population in which three-quarters of the people had antibodies against previous strains, not to mention South Africa, or India where the latest and most virulent version emerged. In this context, the key piece of circumstantial evidence becomes timing. Epidemiological modeling dates the start of the outbreak in Wuhan to the window between mid-October and mid-November. The 7th World Military Games held from 18 to 27 October 2019 in Wuhan, which brought together nearly 10,000 athletes from over 100 countries, took place in this window. Importantly, this period witnessed elevated numbers of hospital visits in Wuhan and web searches for symptoms also associated with COVID-19. The games thus provided a unique opportunity for a mutation, possibly through recombination, a well-established property of coronaviruses, which then launched the COVID-19 pandemic proper. The departing athletic teams then carried the virus to Europe, explaining the parallel timing: even as the first identification of a novel disease in Wuhan was made on 27 December when three connected cases of unknown pneumonia were reported, retrospective forensic analysis identified a patient in France with COVID-19, also on 27 December 2019. A number of other studies suggest the virus had already spread internationally prior to its identification in Wuhan. The WHO mission investigating the origins of COVID-19 has left open this avenue as a possibility. The circumstantial evidence powerfully supports the hypothesis that the Wuhan virus was in fact the first variant.