As the digital transformation of the global economy accelerates, the scale of digital services trade is growing rapidly and playing an increasingly important role in the development of the national economy. Digital services are distributed among the rest of the economy, their results can reconfigure traditional business models, enhance total factor productivity, promote industrial transformation and upgrading and give rise to more jobs [1]. According to statistics, in 2019, the world's digital services trade exported $3,192.59 billion, accounting for more than 50% of the services trade, with a growth rate of 3.75%, exceeding the growth rate of the world economy by 1.45% points in the same period, playing a vital role in promoting economic recovery and reshaping the country's competitive advantage. However, the use of data is also accompanied by problems such as leakage of personal information [2], transfer of national critical infrastructure data abroad and possible "economies of scale" arising from data centralization [3-5], some countries have erected barriers to digital trade, especially to cross-border data flows. The barriers to cross-border data flows constituted by data flow restriction measures are an important component of digital trade barriers in services. The existence of barriers to digital services trade restricts the rapid development of the global digital services trade. This paper aims to measure the barriers to digital services trade in major economies using an empirical approach to provide a basis for global digital services trade-related negotiations.

Global Digital Services Trade Development Status

The U.S. has the World's Largest Digital Services Trade Scale: In terms of export scale, global digital service trade exports showed an upward trend from 2011 to 2019, with a wide gap in export scale among different countries (Figure 1). Among them, the United States has a favorable situation in the field of digital services trade that is difficult to be surpassed by the rest of the countries and its digital services exports have been ranked first in the world during 2011-2019, far exceeding those of the United Kingdom and France. In 2019, China’s digital services export scale is closer to that of France, Japan and India and there is still a large gap with the United States, the United Kingdom and Germany but in general, after 10 years of development, China’s competitive strength has been increasing. From the perspective of different country categories, the digital trade exports of developed countries such as the U.S., Britain, Germany and Japan are significantly higher than those of China, Russia, Brazil and India. The developed economies are capital-rich, technologically advanced and have high-quality human capital, which is very suitable for the development environment required by the knowledge-intensive and capital-intensive digital services industry.

Figure 1: Digital Services Trade Exports of Major Global Economies, 2011-2019 ($ million)

Data Source: Based on data from the UNCTAD database

China’s Global Digital Services Trade Exports Grow Fastest

Countries with more developed traditional economies are developing more rapidly in digital services trade and BRICS countries, especially China and India, have also achieved significant growth. In the past 11 years, China’s export of digital services trade has increased by about three times. In 2008, China’s digital services trade exports were only $49.718 billion, while in 2019 it had grown to US$143.548 billion, one of the highest growth rates in the world. India’s digital services trade exports in 2019 were $149.226 billion, up to 86% from 2008. Comparing the development of digital services trade in the world’s major economies from 2008 to 2019, countries can be classified into four digital services trade growth rates, namely “Deep Development”, “Fast Development”, “Gradual Development” and “To Be Strengthened”, according to the growth rate of their digital services trade exports (Table 1). Nine countries, including China, Ireland and Poland have grown by more than 72% over the past 11 years, are “Deep development” countries; nine countries, including the United States, Estonia and the Czech Republic, are “Fast Development” countries with more developed economies; nine countries, including France, Austria and Denmark, are “Gradual Development” countries, especially the UK and France, whose past development of digital services trade is not ideal and seven countries, including Portugal, Latvia and Chile, whose development of digital services trade exports needs to be strengthened.

Countries have Different Aspirations for the Rules Construction of Digital Services Trade 

Zhao [6] found that barriers to cross-border data flows show a trend of gradual increase and are significantly stronger in developing countries than in developed countries. Diverse forms of digital domestic restrictions are the cause of barriers to digital services trade. Countries can be divided according to their attitudes towards data restrictions: firstly, countries represented by the US, which support data flows as much as possible; secondly, countries represented by the EU, which advocate for reducing intraregional barriers and thirdly, countries represented by China, which impose strict regulation on data. The US has been the leading force behind the moratorium on taxation of cross-border data flows under the WTO framework and its policy attitude is closely linked to its interests. 

The US is a global economic leader but as its domestic market is relatively saturated, its continued leadership in this area depends on access to the fastest-growing markets and an unrestricted environment for data flows and a global open digital trade policy environment is conducive to US internet companies entering emerging markets and gaining a competitive position. The EU’s digital trade policy takes a “data protection” approach. EU member states recognize that the Digital Single Market will enable them to pool resources, reduce barriers to data flows within Europe, share governance and create economic benefits while ensuring the protection of personal data. For other countries outside the EU, the EU is committed to using trade agreements to set rules for cross-border data flows and has adopted the General Data Protection Regulation to address new forms of digital protectionism.

International Rule System for Digital Trade in Services to be Explored

The underdeveloped regulatory framework at the international level leaves more space for countries to implement barriers to digital services trade. Currently, although an increasing number of regional and bilateral trade agreements are negotiating rules on trade in digital services, there is more disagreement than consensus among countries, failing to reach a unified system of trade rules [7,8]. WTO and GAT rules have failed to achieve the role of taking the lead and providing clear guidance, making it particularly difficult to achieve grievance resolution under the international framework settlement mechanism [9,10]. Countries led by the US and the EU are actively leading the formation of regional international digital trade rules, attempting to form a world system of digital services trade rules based on 'American' or 'European' trade rules by expanding the number of digital trade agreements signed with other countries [11], to integrate their demands into global digital trade rules. Most countries are relatively cautious in signing regional trade agreements involving trade in services with provisions on cross-border data flows and data localization [12]. Together, these issues have led to a sharp rise in barriers to digital services trade, mainly represented by barriers to cross-border data flows and exploring the construction of an international rule system for digital services trade has become a frontline issue in the trade field.

Table 1: Global Digital Services Trade Export Growth Rates 2008-2019

Source: Based on data from the UNCTAD database

Measurement of Barriers to Digital Services Trade

Measurement Methods and Data Resources: The current measurement of barriers to digital services trade is mainly based on two quantitative indicators, the Digital
Trade Restrictiveness Index (DTRI) of ECIPE and the Digital Services Trade Restrictiveness Index (STRI) of OECD. Based on ECIPE's identification of restrictive measures on digital services trade, this paper further identifies restrictive measures according to data localization defined by USTR and data restriction defined by ECIPE, evaluate the level of barriers to cross-border data flows in different countries by collecting comparable information on relevant policies of data restriction between countries. The entropy method is used to determine the objective weight of the index by calculating the index variability. Generally, the lower the entropy value of an indicator, the greater the variability it is, the greater the role it can play in the overall assessment and the greater the indicator weight. Conversely, the higher the entropy value of the indicator, the lower the variability it is and the lower the corresponding weight. In terms of specific operations, firstly, the data should be standardised and since all indicators take values in [0, 1], the indicators should be normalized and then the information entropy of each indicator should be calculated with the formula:

Table 2: System of Data Restriction Index 

where, i denotes the i-th sample, j denotes the j-th indicator, p_ij denotes the weight of the role played by the i-th sample in the j-th indicator and finally, the weight of each indicator is determined by the entropy value:

where, k is the total number of indicators. The final measures of barriers to digital services trade for each country and their weights are shown in Table 2. The data restriction index takes values in the range [0, 1], where a value of "0" means that the data flow is completely open and a value of "1" means completely restricted, with higher values representing higher levels of data flow restrictions.

This paper measures 34 countries' data restriction indices from 2008-2019 to compare their level of barriers to cross-border data flows, including 29 OECD countries and 5 BRICS countries: The OECD organization consists of 38 market economies, whose total digital services trade exports accounted for over 60% of the world's total exports in 2019; digital services trade in BRICS countries such as China and India has also grown relatively rapidly this year. Given the completeness of the data, nine countries with more serious trade data deficiencies were removed[1], leaving a final measurement range of 34 countries. At the same time, the ECIPE index system was used to measure three types of indices: Fiscal and market access limitation index, establishment restriction index and trade restriction index for comparative analysis. Information on digital trade restrictions implemented by countries was obtained from the Digital Trade Estimates (DTE) database, which covers all digital services trade measures implemented in the past in 64 economies.

Developing Countries have more Stringent Restrictions on Trade Services: Overall, barriers to cross-border data flows in BRICS countries are generally higher than those in developed countries, with the top five countries ranked in the Data Restriction Index being all BRICS countries. In 2019, China's data restriction index reached 0.8717, ranking the country with the most restrictive measures on data flow, followed by India with 0.6126 and Latvia with the lowest restrictive index. National security has been a primary consideration in the implementation of China's policies and the country's underdeveloped market economy, laws and regulations increase the likelihood of its being compromised, hence China's preference for high data restrictions. India is attempting to bend the curve and break the bottleneck of domestic economic development through domestic digital economy development and innovation. The United States advocates reducing barriers to cross-border data flows, which helps the development of digital trade in the US, with a data restriction index of 0.2282. The UK, France and Germany tend to implement stricter data policies, seeking to ensure the protection of personal data while creating economic benefits, with their data restriction index ranging from 0.1 to 0.2 (Figure 2).

Digital Trade Barriers in Countries Other Than the US Show an Upward Trend

Table 3 shows that the global level of barriers to cross-border data flows has gradually increased since 2008, with its growth rate in emerging countries far exceeding developed countries. The level of barriers to cross-border data flows has increased at a compound average rate of 168.07 and 146.26% in Brazil and Austria from 2008-2019 and they are gradually increasing the regulatory measures imposed on data. Austria, France, the UK, Switzerland, Hungary, Poland, Slovakia, Finland, etc., although the average growth rate is high, the overall level of barriers to cross-border data flows is still low up to 2019. Probably due to national security protection considerations, China enacted relevant regulatory measures earlier, resulting in a higher level of barriers than other countries already in 2008, while the growth has slowed down since then, with an average annual growth rate of 96.86%. The US, on the other hand, has a compound average growth rate of -83.03%, with increasingly lax regulation of data flows.

Figure 2: Data Restriction Index for Major Countries in the World in 2019

Data source: Calculated and compiled in this paper

Table 3: Data Restriction Index and Annual Growth Rate of Major Countries in 2008-2019

Data source: Calculated and compiled in this paper

Countries Differ in Their Implementation of Barriers to Digital Services Trade

As shown in Figure 3, the digital trade restrictiveness index for each country in different categories has mostly shown an upward trend from 2008-to 2019.

China has maintained a high level of fiscal restrictions and market access, with the US overtaking China as the country with the highest level of this restriction in 2013 until Japan surpassed the United States in 2018. The level of fiscal restrictions and market access have increased significantly as the US seeks to maintain its leading position in the digital economy, for example by restricting the US sector from purchasing telecommunications equipment and IT systems produced by companies owned, directed or funded by the Chinese government, such as Huawei. Japan overtook the US as the country with the highest level of fiscal restrictions and market access in 2018 due to its discriminatory 8% tax on digital products and anti-dumping and countervailing investigations in the area of trade in digital services. In 2019, Japan, the US, India, China and Russia have relatively similar and high levels of restrictiveness, with fiscal restrictions and market access measures being widely applied across countries.

In terms of establishment restrictions, India has the highest and most increasing level of establishment restrictions, while the UK has the lowest level of it. India has the most stringent foreign investment and competition policies in place to discourage the establishment of foreign digital firms. The growth in establishment restrictions in Germany may stem from a concern to reverse the disadvantages of the digital economy, with a range of general restrictions on investment, intellectual property applications and price in the telecommunications sector. Larger increases in the level of establishment restrictions also exist in France and the US, with both countries being more concerned with national security reviews of investments, intellectual property rights and competition policy in the telecommunications sector.

In terms of restrictions on data, China is in first place with far higher data restrictions than any other country. The US shows a significant drop in data restriction levels in 2018 for the first time after experiencing growth and the rest of the countries have been on an increasing trend.

In terms of trading restrictions, the level of it in China has been trending upwards, with increases much higher than in India, Brazil and Russia. However, there has not been a significant increase in the level of trading restrictions in Europe and the US, which do not use trade policy as the main instrument for barriers to cross-border data flows.

Figure 3: Four Categories of Digital Trade Restriction Index for Major Countries in the World from 1998 to 2019

Data source: Calculated and compiled in this paper

Currently, the scale of the global digital services trade is expanding, showing a high growth of digital services trade exports. This paper measures barriers to digital services trade in 34 countries with active digital services trade and finds that: (1) Developing countries have stricter services trade restrictions than developed countries and the top five in the data restrictions index are all BRICS countries; (2) Digital trade barriers in countries other than the US show an upward trend and the level of barriers to cross-border data flows in emerging countries grows much faster than developed countries (3) China and the US have maintained high levels in fiscal restrictions and market access, with Japan growing faster; India has the highest level of establishment restrictions and the greatest growth, while the UK has the lowest level; China has grown at a much higher rate and level in restrictions on data than other countries to rank first; China has maintained a high level of trading restrictions, with India growing more.

The digitization of global trade, including trade in services, is gradually accelerating and barriers to digital services trade represented by barriers to cross-border data flows are also increasing, which will have a significant impact on trade and economic development at the national and global levels. There is still no consensus on the effect and extent of the impact of barriers to cross-border data flows on the development of digital services trade and therefore their net impact needs to be further explored.

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