Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Tuesday, November 27, 2018

G20: Foundations of the digital economy discussed against the background of the commercial war

As of Friday, the top leaders of the countries that concentrate 85% of the world's GDP will meet in Buenos Aires. The agenda of the summit is shaded by the conflict of tariffs between China and the United States, and in laying the foundations for the expansion of the digital economy.

As happened at the last meeting of the World Trade Organization, also held in Buenos Aires last year, the summit of G20 leaders will discuss multilateral rules for world trade. As for the ICT sector, they will seek consensus in the promotion of the digital economy and private investment in infrastructure. But the background of the entire meeting will go through the commercial fight between China and the United States, which in reality dispute the domination by technological segments of great value.

Argentina, as host country, was in charge of presenting the topics to be discussed at the summit: infrastructure for development (focused on the infrastructure deficit that predominates in developing countries and alternatives to encourage investment), the future of employment (the search for mechanisms to protect employment and adapt production processes to develop new technologies) and the sustainable food future.

Previous statements. The work of the ministerial working groups and affinity groups allow to outline the tenor of discussions regarding the ICT sector. Infrastructure is one of the keys to the upcoming agreements. In the affinity group Business 20 (B20), which represents the business sector (the only participation they have in the forum) had already anticipated that infrastructure was needed (ports, roads, buildings and digital connectivity), so they detailed that Latin America needs to invest 5% of its GDP (US$ 150 billion) annually for the next 20 or 30 years.

For this, in the previous meetings they developed a roadmap that proposes "improving the preparation of projects, moving towards greater standardization of contracts and infrastructure financing instruments, addressing the lack of data and improving risk mitigation, taking into account the specific conditions of each country." At this point, they seek to catalyze private sector investments in infrastructure and establish necessary conditions for their development.

As for preparing for the "new industrial revolution", in the declaration of the Trade and Investment Working Group, officials state: "It has the potential not only to increase productivity, but also to transform the comparative advantages between countries and dilute the traditional limit between the physical and digital world, and between goods and services." The recommendations that this Group raised for the meeting seek that technological progress does not generate a new digital divide that ends up impacting, for example, on SMEs.

On its part, in the final declaration of the Ministerial Meeting on the Digital Economy of the G20, officials recognized that digitization is an increasingly important driver of economic growth. In this regard, they urge countries to deepen their understanding of new business models with the aim of accelerating the development of the digital economy in an inclusive, transparent and competitive manner. One of the objectives is to achieve measurements and statistics on the digital economy.

The declaration lists the requirements of a thriving digital economy, as an efficient and quality digital infrastructure, an environment that supports innovation and the appropriate regulatory frameworks as well as the promotion of the free flow of information, ideas and knowledge, among others. Regarding infrastructure, the document highlights "the common goal of the G20 to provide universal and affordable Internet access for all people by 2025" and asserts that universal connectivity is "a powerful driver of inclusive growth and sustainable development." The Argentine presidency also created the G20 Repository of Digital Policies, a platform to assist officials in the design and implementation of digitalization policies and strategies.

In the four previous meetings of the finance ministers and presidents of Central Banks, officials discussed mechanisms to guarantee a fair and modern international tax system that addresses digital scenarios. While no consensus was reached, this could determine some kind of taxes on the OTT. In the same meetings they also rejected the monetary nature of the cryptocurrencies although for now they’ve decided not to take specific measures before using them: "Although crypto-assets do not currently imply a risk for the global financial stability, we remain on alert", detailed in the Second meeting: Perhaps in the last meeting of the finance channel prior to the event, more specific measures will be defined, they concluded.

Power conflict. A aeparate chapter is the conflict between China and the United States for tariffs. At the previous summit, countries agreed, among other things, to limit protectionism. But the Americans raised tariffs on products from China, and this will be one of the main demands made by Chinese President Xi Jinping during the summit.

But behind this situation arises the struggle between the two powers for technological supremacy. The momentum that Beijing is giving to innovation and the development of new technologies led Trump to say that there is theft of intellectual property, particularly from the installation of transnational companies (Artificial Intelligence, generation of biofuel, nanotechnology and satellite) by the Asian giant.

This confrontation would have led, among other things, to the fact that last week Wall Street shares fell to 2017 levels, mainly due to the fall of technology companies. This could shake forecasts of global economic growth, which by 2018 were close to 4%.

It is likely that the summit ends with a declaration that contains consensus on infrastructure and digital economy that even though it does not have definitive definitions will be the basis of future actions.

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