This chapter identifies the challenges and opportunities that digitalisation raises for trade, including in the context of the COVID-19 recovery. It suggests that Brazil’s ability to benefit from digital trade will depend on whether it can create a policy environment that is conducive to further digital adoption. This will allow Brazil to leverage digital technologies to enable i) more trade in sectors of existing comparative advantage (namely natural resource based sectors); ii) more trade in sectors that have a high digital footprint (e.g. digitally deliverable services); and iii) greater participation in regional and global value chains which, to date, remains low.
Digital Trade Review of Brazil
1. Trade, digitalisation and Brazil
Abstract
Key messages
Although growing digitalisation implies new opportunities for Brazil’s trade, it also raises a number of new challenges requiring new and more holistic approaches to market openness.
Brazil’s ability to benefit from digital trade will depend on its ability to create a policy environment that is conducive to further digital adoption to enable:
more trade in sectors of existing comparative advantage (namely natural resource based sectors);
more trade in sectors that have a high digital footprint (e.g. digitally deliverable services); and
greater participation in regional and global value chains where participation remains low.
Trade in the digital era
The digital transformation has led to unprecedented reductions in the costs of engaging in international trade, changing both how and what we trade and contributing to growing competitiveness (López González and Jouanjean, 2017[1]; WTO, 2018[2]).1 At the same time, digitalisation has changed the scope and speed of the activities undertaken by firms; allowing value to move faster and with greater ease; providing new ecosystems for exchange; and helping firms, especially micro, small and medium-sized enterprises (MSMEs), better connect with each other, including in the context of greater supply chain integration, and with consumers across the globe.
The COVID-19 pandemic has also underscored the importance of digital technologies in enabling people to stay connected to markets, jobs and each other, including across borders. Digital enablers such as computers, smartphones, network equipment and telecommunications services have played a key role in alleviating the social and economic consequences of confinement and social distancing measures. They have allowed people to shop online and cushioned some of the economic impacts of health-related restrictions, enabling the digital delivery of services, remote working and teleconferencing. The benefits of digital trade were already apparent before the COVID-19 pandemic (López González and Ferencz, 2018[3])), however the crisis has accelerated the shift towards a digital economy and underscored the need for governments to enable digital trade as a means to mitigate the economic slowdown and speed up recovery. The new normal will be digital, with a higher degree of online activity across all sectors of the economy.
However, as a result of digitalisation, trade has also become more complex, and how and what measures affect trade has changed (López González and Ferencz, 2018[3])). In today’s rapidly evolving digital trade environment, and in the context of enabling a speedy and robust recovery, governments are facing regulatory challenges to ensure that the opportunities and benefits from digital trade, for both consumers and for businesses, can be realised and shared more inclusively. Understanding the changes that the digital transformation brings for trade and trade policy making is key to placing Brazil in the context of this transformation.
What is digital trade?
According to the OECD definition, digital trade involves digitally enabled cross-border transactions in goods and services which can be digitally or physically delivered (Figure 1.1). This includes physically delivered goods ordered from an on‑line marketplace as well as digitally delivered services. Data, and its flow across borders, underpins any and all digital trade transactions, whether as a means of production; a way for connecting supply and demand internationally; an asset that can be traded; a means through which services are delivered; or a means through which global value chains are coordinated (López González and Jouanjean, 2017[1]).
To identify how different measures might affect different forms of engagement, it is useful to break down trade transactions into their constituent elements. For instance, distinguishing between transactions that involve goods and services can be useful given that trade commitments, whether at the World Trade Organisation (WTO) or in Regional Trade Agreements (RTAs), differ along these dimensions. Moreover, with the ability to deliver services in person or remotely and, increasingly, the ability to deliver goods digitally, including through the use of 3D printing technology, the mode of delivery can also be of importance. By way of example, a book ordered through a digital platform and delivered physically at home will face a different trade policy environment than a digital delivery of an e‑book to an e-reader.
A number of digital trade enablers will affect all digital trade transactions, albeit to different degrees. Elements of physical infrastructure, such as the cables and wires that connect devices to the Internet as well as the devices themselves will matter whether you are trading goods or services (or if you are a business, a consumer or the government). The regulatory environment in which these operate, which includes broadband policy and data flow regulation and its interoperability, will also matter to the extent to which countries can engage in digital trade. Good physical infrastructure coupled with appropriate regulations are a necessary condition for digital trade in goods and services to flourish.
Figure 1.1. Typology of digital trade
Source: Adapted from López González and Jouanjean (2017[1]).
How has the digital transformation changed trade?
Digitalisation increases the scale, scope and speed of trade. It allows firms to bring new products and services to a larger number of digitally-connected customers across the globe. It also enables firms, notably smaller ones, to use new and innovative digital tools to overcome barriers to growth, helping facilitate payments, enabling collaboration, avoiding investment in fixed assets through the use of cloud-based services, and using alternative funding mechanisms such as crowdfunding. Today, and more than ever, digitalisation has become an indispensable tool, enabling more trade to take place and helping reduce the impact of restrictions arising from the COVID-19 pandemic. Digitalisation will also play a key role in fast-tracking recovery.
Digitalisation is also changing how we trade goods. For example, the growth of online platforms has led to a rising number of small parcels crossing international borders (López González and Sorescu, 2021[4]). This is giving rise to a variety of issues for policy-makers, including at the border, ranging from the physical management of parcel trade, through to the implications for risk management (such as in relation to counterfeit goods or biosecurity standards), and revenue implications in relation to collection of taxes and tariffs (Andrenelli and López González, 2019[5]).
At the same time, new technologies and business models are changing how services are produced and supplied, blurring already grey distinctions between goods and services and modes of delivery and introducing new combinations of goods and services. A smart fridge requires market access not only for the good, but also for the embedded service. An article produced by 3D printing may cross a border as a design service, but becomes a good at the moment of its consumption. Together, these issues pose new challenges for the way international trade and investment policy is made.
Rapid technological developments also facilitate the rise of services in international cross-border trade. Information and communication technology services form the backbone of digital trade, providing the necessary network infrastructure and underpinning the digitisation of other types of services. New technologies have also facilitated the rise of digitally enabled services that are supported by a range of new services building on data-driven innovative solutions such as cloud computing.
In the world of digital trade, old trade issues may have new consequences – such as the impacts of cumbersome border procedures on parcel trade, or restrictions on newly tradable services – and new issues for trade policy are emerging, such as differing regulations among nations in relation to data flows or electronic payments. Understanding the nature and extent of these changes can help policy makers create an environment that nurtures innovation and promotes digital trade in goods and services.
What are the key implications for trade policy?
Against the background of rapid and far-reaching change, it is often said that the rules that underpin the digital trade environment have struggled to keep pace with changing business models. Indeed, existing multilateral trade rules were negotiated when digital trade was in its infancy, and despite being technologically neutral, questions are arising over whether they adequately address the needs of firms engaged in digital trade or if they might require clarifications to reflect new forms of, and issues raised by, digital trade.
Although WTO rules were adopted at a time when no one could have anticipated the far‑reaching effects of digital technology on trade, the regulatory framework established under the WTO agreements has full bearing on digital trade. The General Agreement on Trade in Services (GATS) establishes important rules that are crucial for the digital world and in particular for digitally delivered services. At the same time, digital technologies facilitate trade in goods, especially for parcels which are ordered online which means that obligations under the General Agreement on Tariffs and Trade (GATT) and related agreements play an important role. In fact, there are many different agreements under the WTO that will have bearing on digital trade (Figure 1.2).
Figure 1.2. WTO rules and digital trade
Source: López González and Ferencz (2018[3]).
The question is therefore not whether the rules apply, but rather how they apply and what gaps might exist in the multilateral rulebook. Trade rules are predicated on identifying whether products are goods or services and the borders they cross, but new business models and the global nature of the Internet blur these distinctions. Today, firms can flexibly service markets from different locations, and their products bundle goods and services (for example, a smart home speaker connected to a voice-controlled digital personal assistant), making it increasingly difficult to identify the particular trade rules that apply to specific transactions.
This means that the nature of the measures that affect digital trade is changing. Measures that affect access to and use of digital networks have become more important. Likewise, in the digital era, as foreshadowed earlier, there are new consequences from some traditional trade issues (such as trade facilitation and de minimis thresholds in the context of growing parcel trade); and there are new issues that are emerging for trade (e.g. related to the movement of data or the interoperability of e-payment systems).
Today, trade is more complex, and a simple digital trade transaction rests on a series of enabling or supporting factors. For instance, ordering an e-book depends on access to a retailer’s website. This in turn depends on the regulatory environment setting the conditions under which the retailer establishes the webpage and the cost for the consumer of Internet access – a cost which, in turn, is affected by the regulatory environment in the telecommunications sector. Lastly, purchase of the e-book will also be affected by the ability to pay electronically and the tariff and non-tariff barriers faced by the physical device used to read the e-book.
A barrier on one of these transactions will affect the need or ability to undertake the other transactions. This means that market openness needs to be approached more holistically, taking into consideration the full range of measures that affect any particular transaction. For instance, Internet access may be a necessary but not sufficient condition for digitally enabled trade in goods to flourish. If logistics services in the receiving (or delivering) country are costly due to service trade restrictions, or if goods are held up at the border by cumbersome procedures, then the benefits of digital trade may not materialise.
The measures that affect digital trade can be articulated under a common framework, broken down by layer and across goods, services and bundled products (Figure 1.3). At the core of any and all digital trade transactions, whether involving goods, services or bundled goods with services, lies the “infrastructure and connectivity” layer, composed of the physical infrastructure and the regulations that underpin digital networks. There is also a transversal layer related to “enabling and supporting services” which captures access to key enabling services such as computer services. The remaining layers capture measures that are specific to the products being traded, including market access but also supporting goods and services.
Figure 1.3. Measures affecting digital trade
Source: López González and Ferencz (2018[3]).
This means that, in the digital age, a more holistic approach to market openness is needed. One that takes into consideration the different factors that enable digital trade transactions across issues related to both goods and services. At the same time, a holistic approach to market openness also means going beyond the issues that traditionally concern trade policy makers. It is also about understanding how market openness interacts with other policy domains such as innovation, infrastructure, connectivity and skills. Indeed, market openness is a necessary but not sufficient condition for digital trade. New technologies are often made available through international trade, and access to global markets for both inputs and outputs is necessary for scaling production and increasing competitiveness. But taking advantage of new opportunities is only possible for firms with the skills and capacity to adopt new data-driven solutions. Successful firms in the digital age combine adoption of new technologies with access to global markets, so trade policy needs to be seen in the context of a range of other policies which also matter for the shared benefits from digital adoption to materialise.
How can digital trade be leveraged to fight the implications of COVID-19?
Digital trade and related policies also have the potential to help tackle some of the issues arising from the COVID-19 crisis. For example, by enabling activities to move online, digital technologies may help reduce physical exposure to the virus. Digital technologies can also be leveraged to expedite the movement of goods across borders and to enable the delivery of services, both of which are critical to maintaining economic activity and promoting a speedy recovery across a range of sectors.
In this respect, six priority areas might be especially important (OECD, 2020[6]).
Promoting affordable access to digital networks: The ability to telework, shop online and to maintain remote social contact depends on access to affordable and reliable digital networks. Trade policy has a role to play in enabling access to more competitively priced ICT services (telecoms and computer and related services) and goods (network equipment such as cables, wires and hardware) that form the backbone of broadband networks and support growing bandwidth needs and use.
Enabling access to the devices through which we access the internet. Laptops, printers, monitors, storage units and other computer accessories are the gateways through which we access the internet. The production of these devices involves complex and internationalised value chains: on average, 80% of the value added of computer and related equipment is foreign – making this one of the most internationalised sectors. Reducing tariff and non-tariff barriers to these devices will help countries better avail themselves of the goods they need to go online.
Promoting cross-border trade in digitally ordered parcels. Online shopping has accelerated as a result of COVID-19. Many of the products ordered online are shipped across borders in individual consignments, this is known as parcel trade. This trade has helped consumers access the goods they need in times of confinement and also allowed firms, especially smaller ones, to maintain economic activity. Compared to ‘traditional’ container trade, parcel trade involves an even more complex network of interlinked actors and policies, and so ensuring that parcels get to where they are needed requires policy action across a diverse set of issues which include, issues to the border, at the border and beyond the border (see also OECD (2020[7]) and López González and Sorescu (2021[4])).
Enabling more efficient movement of goods across borders by adopting digital technologies at the border. Digital technologies can ensure that border processes are transparent and accessible to traders; that formalities can be expedited; and that processes at the border require less physical contact. This is particularly important for the micro- and small- and medium-sized enterprises (MSMEs) which are hardest hit by the crisis.
Facilitating the digital delivery of services across borders. Access to telecommunications networks, cloud processing and digital communication is helping businesses maintain key operations and communicate with employees and clients, while adhering to physical distancing requirements. However, barriers that affect digitally enabled services have been growing in recent years (Ferencz, 2019[8]). Lowering digital services restrictions could help to enable more digital trade in both goods and services.
Bridging the digital divide. The crisis has also underscored the need to address existing digital divides to facilitate activities under mobility restrictions and ensure that the gains from digitalisation can be realised and more widely shared across countries and societies. This is especially important in enabling an inclusive recovery.
Box 1.1. Enabling more efficient movement of goods across borders during COVID-19
Disruptions experienced in the transport and logistics that move goods to and beyond the border have led to shortages in sea, air and road cargo capacity, impacting trade routes worldwide. Additionally, to limit the spread of the virus, many governments have put in place measures such as channelling traffic through fewer border crossings; introducing new protocols at borders, including by conducting at-the-border health checks; or, in some cases, reintroducing border controls that had previously been removed. These measures place additional demands on border agencies that are also wrestling with how to efficiently carry out their functions while implementing containment measures such as social distancing (OECD, 2020[9]).
The smooth operation of logistics chains in the midst of the COVID-19 outbreak depends on reconciling the fast and efficient movement of goods with increased control measures, temporary disruptions to staffing, and restrictions on human contact. Digitalisation can play an important role by enabling more efficient trade facilitation, in particular for ensuring the swift movement of essential medical and food supplies. Digital technologies can be leveraged to ensure that formalities are transparent and accessible to traders; that they can be expedited; and that processes at the border require less physical contact. This is particularly important for micro-, small- and medium-sized enterprises (MSMEs) which are hardest hit by the crisis.
Many mechanisms limiting physical interaction – such as electronically lodging documents in advance, electronic payment of trade-related taxes, digital certificates and signatures, or 24/7 automated processing of trade declarations – are already available in regions such as Europe and Central Asia, North America, Asia-Pacific, and Latin America and the Caribbean (OECD, 2020[7]). However, countries in the Middle East and North Africa and Sub-Saharan African regions have faced more challenges in introducing such measures. With lower availability of personnel due to confinement and social distancing measures, agencies need to make full use of their interconnected or shared computer systems and real-time availability to share relevant data among themselves to facilitate cross-border data exchange or clearing of export and import declarations electronically. Given the differences in capacities among countries, and the global nature of the crisis, enhanced international co-operation in risk management is key at this stage, for example through the sharing of inspection and control results among border agencies.
Source: OECD (2020[6]).
The evolving policy context
International discussions on digital trade are picking up
Against this backdrop, trade policy is also evolving. Multilateral discussions on digital trade began as early as 1998 with the introduction of the work programme on e-commerce launched by the WTO (1998[10]). That same year, WTO members agreed on a Moratorium on applying customs duties on electronic transmissions, which has been regularly extended (most recently at the General Council Meeting in December 2019 where it was extended till the next Ministerial Conference). However, progress on digital trade-related issues has been slow until January 2019 when a group of WTO members agreed to “initiate exploratory work together toward future WTO negotiations on trade-related aspects of electronic commerce” (WTO, 2019[11]). As of January 2022, this Joint Statement Initiative (JSI) comprises 86 members, including Brazil, touching on a range of issues which include facilitating electronic transactions through discussions on e-signatures and e-payments as well as issues such as information flows, privacy, consumer protection, cybersecurity and market access (Table 1.1).
Table 1.1. Joint Statement Initiative – areas of discussion
Source: Author’s compilation.
However, these multilateral discussions are only just getting started which is why progress on governance of digital trade-related issues has largely taken place in the context of bilateral and regional trade agreements (RTAs). Indeed, according to calculations made using the TAPED database which maps digital trade provisions in trade agreements (Burri and Polanco, 2020[12]), 113 RTAs, representing 34% of all RTAs notified to the WTO, include specific provisions on digital trade.2 Most of these, close to two-thirds, have arisen between 2014 and 2016 covering issues from customs duties on electronic transmissions to domestic regulation, electronic authentication, data protection and paperless trade.
Brazil is already actively engaged in these discussions
By virtue of Brazil’s WTO membership, many issues that will matter for the governance of Brazil’s digital trade will fall within the purview of existing agreements. For instance, the GATT and GATS will cover digitally ordered or delivered trade in goods and services. Moreover, agreements such as the Trade Facilitation Agreement will cover issues that matter for cross-border trade in digitally ordered goods. Brazil is also pursuing deeper discussions on e-commerce related issues through its active participation to the WTO Joint Statement Initiative discussions. This includes proposals on issues such as e-contracts, e‑authentication, paperless trading, consumer protection, data flows, privacy protection and others.3
Recently, Brazil has also begun incorporating digital trade provisions in its trade agreements as is the case with Chile. In June 2019, Mercosur and the European Union reached a political agreement for a comprehensive trade agreement (EU-Mercosur Association Agreement), which covers issues related to e-commerce as well. Moreover, in April 2021 MERCOSUR concluded negotiations on the MERCOSUR Agreement on Electronic Commerce which touches on issues such as customs duties on electronic transmissions, e-signatures, e-authentication, personal data protection and cross-border data flows, and spam.
Trade is an important share of Brazil’s economic activity
Digitalisation can impact trade in different ways. It can enable more trade in more complex goods and services, and, at the same time, it can also facilitate trade across more traditional sectors (López González and Ferencz, 2018[3]). Understanding how trade has evolved in Brazil is key to identifying the potential impact that digitalisation has had or can have on Brazilian trade.
Trade is an important share of Brazil’s GDP – merchandise trade represents around 26% of GDP and services trade occupies a smaller 5.4% of GDP in 2020 (Figure 1.4). The relatively stable share of trade in GDP masks considerable growth in merchandise exports which have outpaced world exports (despite sharp declines between 2011 and 2016). However, Brazilian imports have only just about kept pace with world import growth, also despite large decreases between 2014 and 2016 (Figure 1.5). Overall, Brazil imported around USD 140.6 billion and exported USD 190.8 billion of goods, running a trade surplus of around USD 50 billion in 2018. In services, Brazil imported USD 68 billion worth of services and exported around USD 35 billion, running a trade deficit of about USD 33 billion.
Figure 1.4. Trade is an important share of Brazil’s GDP
Source: Adapted from World Development Indicators.
Figure 1.5. Merchandise exports have outpaced world exports
Note: Export and import value indices are calculated using the current value of exports (f.o.b.) converted to USD and expressed as a percentage of the average for the base period (2000). Data for WLD not available for 2019 onwards.
Source: Adapted from World Development Indicators.
Brazil’s trade in goods is largely natural resource based
Brazil’s merchandise exports are largely natural resource based – raw materials and agro-food products represent nearly half of total exports by value in 2019. By contrast, imports concentrate in the machinery and transport equipment and the chemicals sectors (Figure 1.6). At the product level, Brazil’s exports have become more concentrated while its imports have become more diversified and at the country level exports and imports have become more concentrated. This means that, today, Brazil exports fewer products to fewer destinations and imports more products from fewer destinations than ten years ago (Figure 1.7).
At the product level, soya beans were Brazil’s top export in 2019 accounting for about 11% of total exports (around USD 33 billion). Five of the other top ten merchandise exports are also agricultural goods (including also maize, bovine and chicken meat and coffee), the rest are raw materials (iron ores, wood and petroleum). This suggests that part of the impact of digitalisation on Brazil’s exports is going to depend on the extent to which Brazil can leverage digital technologies to enable these sectors of comparative advantage to grow. Brazil’s import basket is, by contrast, much more diversified, including petroleum oil as well as a semiconductors, pharmaceutical products, chemicals, industrial parts and motor vehicles and telephony apparatus (Figure 1.8).
Figure 1.6. Merchandise exports are largely natural resource based
Source: Own calculations from BACI.Broad product categories obtained through a correspondence with the SITC3 nomenclature at the one-digit level. ‘N.e.s.’ stands for not elsewhere classified.
Figure 1.7. Brazil’s exports have become more concentrated, while its imports have become more diversified
Note: Trade concentration is calculated using a Herfindhal indicator.
Source: Own calculations from BACI.
Figure 1.8 Soya beans, petroleum and other agricultural goods are Brazil’s top exports, imports are more diversified
Note: Abbreviations used for HS2002 nomenclature headings.
Source: OECD based on BACI database (CEPII).
Brazil’s main trade partners are the People’s Republic of China (hereafter “China”) and the United States, which together account for about 40% of the total value of goods exports and 38% of the total value of imports (Figure 1.9). Other key trading partners include Argentina and some EU countries. For both exports and imports, OECD countries are important trading partners.
Figure 1.9. China and the United States were Brazil’s largest goods trading partners in 2019
Source: OECD based on BACI database (CEPII).
A large share of Brazil’s services trade is digitally deliverable
Where services trade is concerned (Figure 1.10), finance, insurance and commercial development as well as business services are top export sectors for Brazilian firms, accounting for about 50% of the value of sales abroad in 2018. IT services (NBS heading 115) also occupy an important share of overall sales with values growing to USD 4.3 billion in 2018 (around 14% of total services exports). In terms of services imports, IP-related services accounted for USD 20.7 billion, or about 47% of total imports. IT services are also an important and growing share of firms’ purchases from abroad, amounting to USD 2.7 billion in 2018. In turn, imports of telecommunication services were the sixth most imported service (registered in the ‘Other’ category in the figure below), accounting for about USD 980 million in 2018. These figures underscore the importance of digitally deliverable services in both the imports and exports of Brazilian firms.
Relative to other countries in the region, a higher share of Brazil’s exports and imports are in business services and, to a lesser extent, telecommunications services (Figure 1.11). More granular data shows that this largely involves exports of technical and professional services, consulting services and engineering services, and imports of technical and professional services, advertisement services and consulting services.4
According to firm-level data, the main trade partners for services trade differ from those for goods trade. Although the United States remains an important source and destination for services exports, The People’s Republic of China (hereafter “China”) is not. EU countries and neighbouring Latin American countries appear to be important partners of Brazil in trade in services for both exports and imports (Figure 1.12).
Figure 1.10. A large share of Brazil’s services trade is digitally deliverable
Note: * Excludes ‘sigilo consolidado’ (confidential). Differences with previous figure (e.g. importance of finance & insurance in exports) are likely to be explained by different data sources (Balance of Payments vs. firms reporting).
Source: OECD using SISCOSERV.
Figure 1.11. Brazil is more specialised in exporting and importing business services than other Latin American countries
Note: The figure shows the individual shares with respect to total exports and imports, with the total equal to 1. ‘Other’ includes: Goods-related services (manufacturing of foreign inputs or repair and maintenance); Government goods and services; Personal and recreational services; Construction services; Charges for use of Intellectual Property. Data on Construction services is missing for Mexico.
Source: UNCTADSTAT Balance of Payments statistics, EBOPS classification, year 2018.
Figure 1.12. The United States, the European Union and other Latin American countries are the largest services trading partners for Brazil
Source: OECD using SISCOSERV, year 2018.
Brazil is an active participant in GVCs although mainly as a seller
Global value chains (GVCs) are a key driver of economic activity and employment (seeOECD (2013[13]), Kowalski e al. (2015[14]), López-González (2016[15]), and World Bank Group (2020[16])), including for SMEs (see López-González et al. (2019[17]). Digitalisation plays an important role in enabling internationally fragmented modes of production, allowing tasks to be codified and processes to be coordinated remotely.
Brazil is an active and important participant in both regional and global value chains (GVCs) positioning itself, as is the case of many natural resource producers in the region, as a supplier of value added to the production of other countries’ exports (forward participation) (Figure 1.13).5
Over 40% of the value added in Brazil’s total exports comes from three sectors: food and beverages, agriculture and mining. However, where sales into international value chains are concerned (forward participation), mining is the most prominent sector representing 19% of total sales with wholesale and retail services and other business sector services representing around 30% (Figure 1.15). This suggests that, while Brazil has a strong specialisation in finished agricultural and agri-food products, its integration into global value chains is strongly driven by its supply of mining products and other services.
Relative to the rest of the world, Brazil appears to have a lower than average import content of exports across all sectors except mining. The degree of backward participation is especially low in areas of importance for digital trade including IT services as well as computer, electronic and optical products. This suggest that Brazil might not be fully benefiting from the potential that GVCs have to offer on the input side. Where sales into GVCs are concerned, Brazil exhibits higher than average sales across a range of service sectors, including those related to food services, but also IT and telecoms.
Figure 1.13. Brazil is a strong seller of value added into the exports of other countries
Note: Backward participation is the share of foreign value added in gross exports. Forward participation is the share of domestic value added that other countries use to produce exports as a share of own gross exports. 2005 represents the sum of backward and forward participation for the year 2005.
Source: Own calculations from OECD Inter-Country-Input-Output table 2018 revision.
Figure 1.14. Most of the value added in Brazil’s exports is from agriculture, food and mining
Source: Own calculations from OECD TiVA ICIO 2018.
Figure 1.15. Brazil has a low import content of exports, but has strong service sales into GVCs
Note: Panel a. shows Brazil’s backward participation rate divided by that of the rest of the world. Panel b. shows the same but for forward participation. Values are for 2016.
Source: Own calculations from OECD TiVA ICIO 2018.
What does this tell us about the potential for digital trade in Brazil?
The digital transformation is changing the “what” and the “how” of international trade. Understanding the nature and evolution of these changes is key to making the most out of the new opportunities on offer and facing forthcoming challenges. Many of the issues that digitalisation raises for Brazil’s trade are not new, but they can have new implications. For instance, as more trade is delivered across borders via parcels ordered online, issues such as de minimis can take on greater importance. At the same time, new issues are raising new challenges. Data flows underpin all digital trade transactions and so, as countries adopt different data related policies, new challenges arise.
Digitalisation further blurs distinctions between goods and services. Increasingly goods trade underpins services delivery as we consume more digitally deliverable services on ‘smart’ physical devices (reading a book on an e-reader). At the same time, digitally enabled services enable more trade in goods with firms using digital solutions to increase productivity and find new customers. This means that, in the digital age, trade policy needs to look at elements across both goods and services more jointly.
In addition, realising the benefits of trade in the digital era also means thinking about the interactions between trade policy and other policy domains such as innovation, infrastructure, connectivity and skills. Indeed, a combination of market openness and policies that support greater adoption of digital technologies, that promote skills upgrading and that enable access and use of digital infrastructures are needed to ensure that benefits can be attained and shared more inclusively.
Since trade is an important share of Brazil’s GDP, promoting further digitalisation has the potential to enable Brazil to draw new benefits from trade. However, these will be contingent on the ability to create a policy environment which is conducive to greater digital adoption so that Brazil can leverage digital technologies to enable: i) more trade in sectors of existing comparative advantage, namely natural resource based sectors; ii) more trade in sectors that have a high digital footprint, as might be digitally deliverable services; and iii) greater participation in regional and global value chains where Brazil has a low level of participation.
References
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[6] OECD (2020), Leveraging digital trade to fight the consequences of COVID-19, https://www.oecd.org/coronavirus/policy-responses/leveraging-digital-trade-to-fight-the-consequences-of-covid-19-f712f404/.
[9] OECD (2020), Trade facilitation and the COVID-19 pandemic, http://www.oecd.org/coronavirus/policy-responses/trade-facilitation-and-the-covid-19-pandemic-094306d2/#:~:text=linklink%20copied!-,Trade%20facilitation%20measures%20%E2%80%93%20such%20as%20digitizing%20and%20streamlining%20border%20processes,reducing%20p.
[13] OECD (2013), Interconnected Economies: Benefiting from Global Value Chains, OECD Publishing, Paris,, https://doi.org/10.1787/9789264189560-en.
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[2] WTO (2018), The future of world trade: How digital technologies are transforming global commerce, WTO publishing.
[10] WTO (1998), “Declaration on Global Electronic Commerce”, WTO, WT/MIN(98)/DEC/2, https://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm.
Notes
← 1. Digital transformation refers to the economic and societal effects of digitisation and digitalisation. Digitisation is the conversion of analogue data and processes into a machine-readable format. Digitalisation is the use of digital technologies and data as well as interconnection that results in new or changes to existing activities.
← 2. However, it is worth noting that these vary widely in terms of issues covered and depth of provisions (Nemoto and López-González, 2021[18]).
← 3. See Brazil’s 9 July 2019 text-based proposal on issues discussed under the JSI: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/INF/ECOM/27R1A1.pdf&Open=True as well as the addendum to that proposal with further text-based proposals largely in the context of digital trade facilitation; https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/INF/ECOM/27R1A1.pdf&Open=True.
← 4. More disaggregated data from SISCOSERV shows that about 41.6% of the total value of exports of Business services was in other technical and professional services (NBS 11409), 36% was in consulting services (NBS 11401), and 9.4% was in Engineering services (NBS 11403) in 2018. Thirty-three per cent of the total value of import of business services was in other business services (NBS 11409), 33% was in advertisement services (NBS 11406) and about 20% in consulting services (NBS 11401).
← 5. Although Brazil has a lower degree of GVC participation than other countries such as Peru or Chile, this does not mean that it is less integrated into GVCs. Indeed GVC integration is determined by many different factors and countries with larger domestic markets tend to exhibit lower rates of participation (see Kowalski et al (2015[14])).