E-commerce mercantilism-practices and causes

• DOI: https://doi.org/10.1108/JITLP-08-2019-0054
• Pages: 51-66
• Published date: 27 February 2020
• Date: 27 February 2020
• Author: C.Y. Cyrus Chu,Po-Ching Lee
• Subject Matter: International business,International economics,International trade

E-commerce mercantilism-

practices and causes

C.Y. Cyrus Chu

Institute of Economics, Academia Sinica, Taipei, Taiwan

(previously head of delegation of the Permanent Mission of the Separate Customs

Territory of Taiwan, Penghu, Kinmen and

Matsu to the World Trade Organization, Geneva, Switzerland), and

Po-Ching Lee

Permanent Mission of the Separate Customs Territory of Taiwan, Penghu,

Kinmen and Matsu to the World Trade Organization, Geneva, Switzerland

Abstract

Purpose –This paper aims to highlightin particular one commercially inf‌luential but subtle constituentof

China’s mercantilist stratagem –asymmetrical internet access. The wider aim of the paper is to provide a

solid basis of real-worldfacts and knowledge to the e-commerce discussionsat the World Trade Organization

and the ongoing plurilaterale-commerce negotiations.

Design/methodology/approach –This paper uses an empirical approach to ref‌lect the general

experiencesof consumers connecting from China to e-commerce platformwebsites in other countries and vice

versa consumersconnecting from other countries to China’s e-commerce platform.

Findings –The empirical data show that Chinesepotential customers trying to connect to the websites of

foreign internet retailers in 17 other sample countries are faced with prohibitively long waiting times. In

contrast, the averagewaiting time that it takes for customers in those other17 countries to link up to China’s

major internetretail platforms is much shorter.

Practical implications –The hard evidencepresented here serves to strengthen thearguments that such

internetcensorship is used by China to establish unfaire-commerce advantage. This paper further arguesthat

the General Agreement on Trade in Services is restrained from providing systemic solutions to the digital

mercantilismproblem. It is essential, therefore, that the ongoingplurilateral e-commerce negotiations address

this issue.

Originality/value –This paper is the f‌irst to publish detailed resultsof a systematic survey designed to

analyze theimpact of asymmetrical internet access in China.It is also the f‌irst to examine the extent and effect

of differing internet connection speeds in the context of international trade. The outcome of the survey

providesa factual base for future rule-making at the multilaterallevel.

Keywords WTO, Data f‌low, Digital mercantilism, Digital protectionism, Great f‌irewall

Paper type Research paper

Introduction

The internet has created a whole new marketplace, but it has brought with it a whole

new set of mercantile challenges for international trade as well. The fast-growing

prevalence of the internet and the anticipated boom in e-commerce may well induce and

fertilize a mercantilist mindset in governments. A government may thus be

incentivized to shield its e-commerce businesses from foreign competition, while

The authors thank their friends in various places of the world who help authors to accomplish the

f‌ield tests, which generate the data in this paper.

E-commerce

mercantilism

51

Received30 August 2019

Revised6 December 2019

Accepted16 January 2020

Journalof International Trade

Lawand Policy

Vol.19 No. 1, 2020

pp. 51-66

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-08-2019-0054

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

allowing its own industries to prey on the more liberal e-commerce market access of

other countries at the same time. Unlike traditional trade barriers, which are generally

applied directly to the object of the transaction (goods or services), the protectionist

measures used in the digital era of today often come in the form of government

interventions in the cross-border data f‌low by, for example, the imposition of internet

censorship or cross-border data f‌low restrictions.

China is the most prominent exponent of this so-calleddigital mercantilism. As observed

by The Economist magazine:

China is a sort of technological Galapagos Islands; a distinct and isolated environment in which

local f‌irms f‌lourish. Chinese f‌irms are protected from external competition by government

regulation and the Great Firewall. And that protection means that they need not innovate but can

thrive by copying business models developed in the West (The Economist, 2016).

For long, China has been the best case study in the relevant researches(Wu, 2006;Aaronson,

2019).

Rather than attempting here to give an overview of the full range of China’s digital

mercantilistpolicies, this paper will focuson one subtle –but g reatly inf‌luential constitue nt –

internet connection speeds. There isno doubt that a long Web page loading time drives the

visitors away.For example, according to Google’ssurvey, 53 per cent of visitsare abandoned

if a mobile site takes longer than 3 s to load (Google, 2016). Other data show that when the

page loadingtime goes up from 1 s to 10 s, the probabilityof a mobile site visitor “bouncing”

(enteringthe site and then leaving) increases by 123 per cent(An, 201 7).

Our empirical data show that, as a general rule, Chinese consumers need to wait much

longer to connect to foreign websites(if the connections are not bluntly blocked) than foreign

consumers to connect to Chinese ones. These two-way asymmetrical internet speeds are

caused by China’s censorshipof cross-border data f‌lows, also known as “the Great Firewall”

(GFW). Very little of the literature on the subject discussesChina’s low internet speeds in the

context of trade. In our view, this is another f‌irm evidence of Chinese digital mercantilist

practices.

Following this introduction,we proceed to present the current and projected market data

that demonstrate the signif‌icant advantages already gained by China in the area of e-

commerce. The next section contains a short description of how China’s digital mercantilist

policy works. This is followed by empirical data of the asymmetrical internet connection

speeds within China, showing that even when not being blocked, foreign e-commerce

businesses can hardly compete in the Chinese market. Finally,we explain why the existing

World Trade Organization (WTO) rules cannot effectively address these unfair practices.

We conclude by adding our observations of the ongoing WTO plurilateral e-commerce

negotiation and by suggestingthat a provision guaranteeing the free f‌low of data should be

included in the outcome agreement.

Before going further, we think it might be useful to clarify in advance some of the

terminology that we use in the paper. First, we use the terms “e-commerce”and “digital

trade”interchangeably. Both these terms refer to their broadest meaning, “any

transaction occurring online”, and their scope includes transactions in goods, services

and digital content. The same logic applies to the terms “information”and “data”.

Although some authors tend to consider that they each refer to different concepts

(Aaronson, 2019)[1], we do not make such a distinction here. In this paper, “data-f‌low”

and “transmission of information”both refer to the “transmission of electronic signals

via the internet”. This includes any online communication and transfer of transactional

or personal data[2].

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