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Digital Trade Expanding Rapidly but Faces Barriers, ITC Reports

Monday, August 19, 2013
Sandler, Travis & Rosenberg Trade Report

Products and services delivered via the Internet make up a growing segment of the U.S. economy and are increasing globally as well, according to an International Trade Commission report on digital trade released Aug. 15. As requested by the Senate Finance Committee, this report provides information on the role of digital trade in both U.S. domestic commerce and international trade, outlines potential approaches for further assessing the role of digital trade in the economy, and describes notable barriers and impediments to digital trade. Highlights of the report follow.

- The Internet and Internet technologies benefit both producers, who gain from lower costs and more efficient business practices, and consumers, who enjoy improved access to products and services, more choice and greater convenience.

- As companies with a large online presence expand their business operations, the products and services they offer are increasingly likely to include some, if not most, of the following: communications services (such as email, voice and instant messaging), entertainment, social networking, information search/retrieval, productivity enhancement (including data storage and analysis, productivity-enhancing software, and logistics services), and e-commerce.

- For music, games and videos, the share of digital sales has rapidly increased over the last few years, partially offsetting declines in revenues from physical sales. E-book sales are increasing as well, although revenue from e-books still accounts for a small share of total book sales.

- Social networking and user review sites increasingly act as advertising and marketing venues as they become more integrated with online content providers. Retailers account for a large portion of the advertising revenues earned by social networking sites.

- Cloud computing services (the delivery of software and other computer services via the Internet) allow companies to outsource their use of information and communication technology products and services more easily and flexibly. Small firms, in particular, benefit from no longer having to make costly investments in ICT infrastructure and computing capacity.

- Services industries that have innovatively used Internet technologies to improve their customer interface and back-end operations include retail, logistics, financial, professional, healthcare and education services.

- U.S. exports of digitally-enabled services (one measure of international digital trade) grew from $282.1 billion in 2007 to $356.1 billion in 2011, with exports exceeding imports every year. Europe is the most important regional digital trading partner for the U.S. and is also an important destination for U.S. digital trade-related foreign direct investment.

- Notable barriers and impediments to digital trade identified by industry representatives and experts include localization requirements, divergent data privacy and protection rules, inadequate intellectual property protection and unclear legal frameworks, growing online censorship, and traditional impediments such as burdensome customs procedures that particularly impact small and medium-sized enterprises.

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