Does Digital Trade Change the Purpose of a Trade Agreement?

Abstract

The design of a trade agreement should reflect its purpose. Does digital trade change the purpose of a trade agreement? To explore this question, I first describe the definitional and classification issues associated with digital trade, and for modeling purposes I adopt a simple taxonomy of the ways in which digital trade can arise and the policies that can be used to restrict such trade. I then review what the theoretical literature on the economics of trade agreements has to say about the purpose of a trade agreement in a pre-digital model world economy, and how this purpose can be seen to be reflected in the broad design features of both GATT and GATS, the WTO agreements that govern international trade in goods and services respectively. Finally, I introduce digital trade into the model world economy and revisit the purpose of a trade agreement. From this perspective I consider whether the rise of digital trade warrants changes in the design of the WTO.