Measuring Digital Protectionism
Protectionism has gone digital. With the transition of our economies to the online world, it was only a matter of time before governments would find new ways to protect their companies from foreign competition in this new important economic sphere. Over the last decade, we have seen a rising number of trade restrictions targeting digital goods and services. The tools used are both traditional trade restrictions, such as tariffs on digital goods and restrictions on investment in digital sectors, and new types of restrictions. These include, among others, measures that block the provision of services online, restrictions on movement and processing of data, requirements to disclose source code, technology mandates, restrictions on online payments and obligations for internet intermediaries to monitor the behaviour of the users on their platforms.
While these measures have become mainstream over the last decade, it is not yet clear what measures are imposed with the objective to restrict trade and which can be justified by legitimate non-economic policy objectives. The complexity of the internet makes this analysis especially complicated and creates a grey area prone to abuse to impose trade barriers.
At the European Centre for International Political Economy (ECIPE), we took an active role in analysing the raise of digital protectionism and mapping all those measures that restrict digital trade today. The result of our analysis are the Digital Trade Estimates (DTE) database and the Digital Trade Restrictiveness Index (DTRI). The DTE database summarises all those measures implemented in 64 major economies worldwide that restrict digital trade. The database is today the most comprehensive and up to date source to review digital trade restrictions implemented worldwide, listing over 1500 policy measures.
Although the DTE database offers a first good impression of where in the world most measures are located, their precise depth and severity cannot be readily assessed from purely listing them. This is why the DTRI was developed. This is the first index ranking countries based on their openness towards digital trade. The DTRI varies between 0 (i.e. completely open) and 1 (i.e. virtually closed).
The ranking shows that China has the most restrictive policy environment for digital trade, followed by Russian Federation, India, Indonesia, and Viet Nam. These five most restricted countries in digital trade are all middle-income countries. Generally, the index shows that emerging economies are more restrictive than developed economies. On the other side of the spectrum there are small service-oriented economies. The most digitally open economy is New Zealand, followed by Iceland, Norway, Ireland and Hong Kong, China. Being small, these economies are very dependent on global markets.