China Center for International Economic Exchanges

Chen Wenling: E-International Trade System
Date:Dec 19,2017    Source:CCIEE

Part One: The revolution in science and technology and the industrial transformation have evoked the E-international trade.

The evolution of the international trade pattern and model is a gradual and natural process, which is closely related to the level of production and the development of international trade. Sooner or later, disruptive changes will emerge as such kind of evolution continue to develop and as a result, new pattern and model of the international trade will be formed.

International trade can be traced back to the slavery society, in which some products are exchanged as commodities between countries and consequently, international trade emerged. In the feudal society, international trade has evolved because of the social and economic development. China and all Eurasian countries conducted international trade activities through the famous “Silk Road.” In both the Slavery and feudal society, international commodity exchange and international trade can be characterized as an individual, partial and inconsistent phenomenon because of the low level of productivity, traffic inconvenience, and underdeveloped social division of labor. At the end of the 15th century and the beginning of the 16th century, the great geographical discovery and the development of the capitalist relations of production led to the rapid expansion of the variety of commodities and the size of the international trade, creating a very basic international division of labor. Due to the limitation of distribution channels such as means of transport, however, the trade internationalization was limited to regional trade only.

The truly modern international trade has developed along with the industrial revolution and the formation of large machinery industry. After the machinery industry replaced handicraft industry, natural economy gave way to commodity economy, which promoted cross-border circulation of elements, more and more countries are involved in the world market and international trade, a relatively complete system of international division of labor have been established, all these progress has transformed the international trade from a localized, fragmented and incoherent activity into a world market that connects all countries in the world. In particular, the third scientific and technological revolution after World War II pushed forward the development of international trade and emergence of General Agreement on Tariffs and Trade (GATT), a multilateral agreement clarifying the rights and obligations of all countries in the aspects of foreign trade policies and international trade relation. In 1994, the World Trade Organization (WTO), a more globalized organization was established to replace the GATT, and it has since become the core of the rules and governance of international trade.

The E-International trade is the product of the fourth scientific and technological revolution and it is the result of the continuous interaction between the productive forces, the revolution in science and technology, and other factors. Since the 1980s, the global trade has become more multilateral and diversified. With the accelerated development of the internet, internet of things, big data, cloud services, cloud computing and smart technologies, a brand new era has arrived and triggered a permeable and ubiquitous economic and social revolution. Later, this kind of evolution has caused profound changes in the mode of consumption and the traditional business model, brought disruptive change to the international trade and formed the next generation of trade, namely, the E-international trade. The next generation of trade works together with the next generation of manufacturing to diminish the boundaries between the traditional international trade and manufacturing, and the production and value realization of the final products are no longer completed independently by one country only. On one hand, the international trade segregates the production and consumption, on the other hand it re-connect them through the global value chain and E-international trade platform. The E-international trade will rely on the E-platform and other new channels to bring together the diversified producers, suppliers, intermediaries and consumers to form unprecedented market integration, and eventually leads to huge trade volumes, change the trade direction, resulting in more convenient and rapid free trade. The economic ties and trade between different countries have become closer than ever, which can be seen as the subversive evolution or change in the international trade pattern.

At present, we are facing a number of global challenges, such as the worldwide rise of the anti-globalization and trade protectionism, the slow progress of the multilateral trade negotiations led by the WTO, the sluggish global trade, and the uncertainties facing the world economy and global trade. However, the development of the new economic globalization is accelerating, which led to the emergence of the next generation of trade, E-international trade. In turn, the E-international trade has become a new carrier for the new globalization. At the same time, China has started to become an advocate and leader of the new globalization as it has made remarkable progress in the development of E-international trade. China will continue to create the first-mover advantage in the development of international trade and will gradually link with the general trade, processing trade, small border-trade and so forth. It will play an important role in reshaping the rules and governance in the next generation of trade, which is a major strategic opportunity for China. China needs to adapt itself to the new environment and satisfy the needs of its strategic development, thus, we must clearly define the content and evolution of the E-international trade, and speed up the establishment of a theoretical system for international trade.

Part Two: The theoretical connotation of the E-international trade

(A) The basic connotation of E-international trade

E-International trade, in short, can be seen as a new trade model triggered by the Internet, the internet of things, cloud computing, cloud services and artificial intelligence. E-trade is highly informationalized, intelligent and international. It can be online or offline, and it is the overall reflection of the digital economy, shared economy, platform economy, information economy and knowledge economy. The E-international trade is based on the modern internet technology and cloud computing, allows all the market participants to share information through the E-platform, and use the data flow to bring together global consumers, producers, suppliers and intermediaries, so as to form a new trade pattern which is featured with globalization, informationization, marketization and socialization.

The E-international trade is a revolutionary change triggered by the internet revolution, and it differs from the general trade, processing trade, small border-trade, and the purchasing trade that emerged after China launched its reform and opening up 40 years ago. Instead, it is an innovation and breakthrough based on all the aforementioned trades. The E-international trade continues to replace the traditional trade and is the result of innovation in science and technology and trade. The platform and channels of the E-international trade will link the personalized needs and the fantastic ideas of SME entrepreneurs to reduce the barriers they have when entering the international market, so that the international trade is no longer monopolized by a few large enterprises. On the contrary, it will enable the people, society, and different platforms to play an increasingly active role in the international trade, and the international market will become more consumer-based. With the development of the E-international trade, the traditional trade model will be gradually replaced and evolved into a new international trade, which is inline with the changing environment and hence, it will eventually be recognized by all countries.

As can be seen, the internet revolution triggered major changes in the field of international trade and redefined international trade as it has applied a wide range of new technologies in international trade, such as the application of modern Internet technology, cloud computing, big data and artificial intelligence, fast cross-border customs clearance, barrier-free communication among all countries, international certification and accreditation, smart chip, radio frequency identification, navigation, mobile internet and payment. The E-international trade platform provides SMEs, individual consumers and other vulnerable groups with the equal opportunity to participate in international trade. Apart from that, the platform enables individual producers, agents and consumers to access and share more information, resources and services. This new trade flow will break the traditional geographical boundary and administration, make the international trade fair and free, help to reshape the international trade rules and the global governance system, and ultimately ensure that the next generation of international trade is moving in the direction of inclusive development, equality, freedom, convenience and sharing.

(B) The analysis of the E-international trade and related concepts

Currently, there is no unified understanding of the concept of the E-international trade, theoretically and practically. By analyzing the connotation of the E-international trade, cross-border e-commerce, the interaction of the eWTP and digital commerce proposed by Ma Yun, we will be able to understand the E-international trade better.

1. E-international trade and cross-border E-commerce

Despite the different understandings of the cross-border e-commerce, the definition of cross-border e-commerce by Wang Lianglou, Wang Mingyu, and Liu Shuzhen (2013) are widely cited. They believe that the cross-border e-commerce can be seen as an international business activity, in which transaction and payment are concluded through the e-commerce platform, and the goods are being delivered through cross-border logistics. We think that the E-international trade is a revolution triggered by the internet revolution and it will become the main mode of trade in the future. The cross-border e-commerce can be seen as the “present tense” of E-international trade and gradually, it will be transformed into the next generation of trade: E-international trade. The cross-border e-commerce is the present, while the E-international trade is the future.

2. E-international Trade and eWTP

According to the “2017 Annual Report of eWTP”, released by the Ali Institute, eWTP (Electronic World Trade Platform) refers to an open and transparent public-private partnership platform which led by the private business sectors, driven by the market, and involves multiple stakeholders, with the aim of exploring the problems and trend in the global digital economy and e-commerce, making policy recommendation, sharing the best business practices, designing new rule and standard for trade, promoting the establishment of the global digital economy infrastructure and ultimately pushing forward the inclusive and sustainable development of global economy and society. The eWTP gives all stakeholders the opportunity to formulate the governance rules jointly, exchange the best practices, and build a better future for international trade. As can be seen, the eWTP proposed by Ma Yun is actually a public platform for conducting E-international trade, an infrastructure of the E-international trade and an indispensable new platform for trade. In other words, the eWTP is the infrastructure of the E-international trade.

3. E-international trade and digital trade

Digital trade refers to a new business model that provides both suppliers and buyers with required digital information through the Internet and digital exchange technology. It involves the trade of digital products and tries to use digital information as a trade standard. Digitalization is one of the features E-international trade gas, but E-international trade is not just about digitalization, is a product of the Internet revolution and the wide application of big data. Information is a very special resource of the E-international Trade, and the big data help us to generate business, logistics, information, capital and personnel turnover. This new type of trade will transform the traditional trade to the next generation of trade. In general, trade in digital goods serves the trade of goods, while the E-international trade includes both of them.

Part Three: building the theoretical system of E-international trade

All the major changes in the real world require corresponding theoretical innovation. Any new theory is the inheritance and development of the old theory, and can be seen as the summary of the continuous practices and economic phenomena. The theory of international trade is no exception. As a new type of international trade based on modern internet technology, cloud computing and big data application, the traditional economic theory and international trade theory can not satisfactorily explain the new changes and new trends in the development of international trade and hence, a new theoretical system based on successful practices and future development is urgently needed.

(A) The Exogeneity of E-International Trade: the new globalization has brought the E-international trade, which has accelerated the development of new globalization.

The E-international trade is a new carrier of the undeniable new globalization theory, it comes from economic globalization but also push forward the development of economic globalization. The development of E-international trade will make the new economic globalization fairer, more transparent, free and convenient. The interaction, connection and compatibility between the two reflects the inherent impetus of economic globalization. Plus, it also reflects the two basic economic forms, namely, the real economy and the virtuous economy, the internet of things, the industrial chain, supply chain, service chain, capital chain and value chain. The international trade engages the multinational corporations, the big data system and the platform-based economy, all these characteristics enable the E-international trade to lead the development of globalization in the future.

The E-International trade embodies the two basic forms of economy in the new globalization: the real economy and the virtual economy, which can be seen as two wheels that go hand in hand with the development of the modern economy and have become the trend of economic globalization. The E-international trade combines manufacturing and services, brings together global producers, suppliers, intermediaries and consumers, and provide constant balance to the relationship between the real and virtual economies. The traditional boundary has gradually blurred or even disappeared as the two basic economic forms have become more interdependent, brought the tangible and intangible factor endowment to circulation, and led to the integration of the tangible and intangible market. Furthermore, the development of these two basic forms of economy brought evolution to the modern economy, the economic globalization is shifting from “single track” to a “double track”. The E-international trade has adapted itself to the change in the modern economy and will promote balanced development of the two basic economic forms.

The E-international trade reflects the features of the new globalization, the application of big data and internet of things, intelligent, strong integration, mobility, which promotes a closer relationship among all the economies. It allows more countries and regions to access a more sophisticated and accessible network. The E-international trade will increase the global economic connectivity, speed up the cross-border circulation of industries and factors and become an intrinsic force driving the transformation of social productivity and production relations around the world. Under the E-international trade, the new economic characteristics brought by the Internet and the Internet of Things revolution will start to demonstrate their effect. In the near future, the E-international trade will accelerate the construction of different networks and systems, and enhance the interdependence and connectivity among all the countries.

The E-international trade embodies the economic links of the new globalization: such as the industrial chain, supply chain, service chain, capital chain, credit chain and value chain. By providing new technologies, the E-international trade has not only influenced many areas such as production and lifestyles, but also created new modes of production, management and service and achieved a higher level of integration through coordinated development of the industrial chain, supply chain, service chain, capital chain and value chain. The E-international trade has further adapted itself to the new environment and promoted the links among the supply chain, service chain, capital chain and value chain, showing great potential and bringing information to circulation. The big data generated from the E-international trade has become a factor endowment or even a tradable commodity, and it will promote a more optimal combination of industries across different borders and regions. This force has led to continuous optimization and adjustment of the global industrial chain, supply chain and value chain.

The E-international trade embodies the new economic entities of the new globalization: multinational corporations, integrated big data systems, platform economies, market integration or organizational forms that reflect the individual’s consumption awareness. The E-international trade has provided great potential for the new economy’s development, new industries and new economic entities. With excellent vitality, these new economic entities will become the main force in the aspect of cross-border circulation and allocation of resources. Multinational corporations can exert their advantage in transnational management, organize their production with locational advantages, promote the global circulation of all kinds of factors of production so as to push forward economic globalization. While transnational corporations have become the main participant of economic globalization and lead the development of economic globalization, the new economic entities have become the accelerator or catalyst for economic globalization and a new form of organization for international trade. The flow of information from the “Desktop Internet” to the “Mobile Internet” enables smooth and rapid circulation of information at any time. As an international trade infrastructure and organizational form, the platform economy has rapidly developed into a new economic entity. This platform economy with cross-sector and cross-border new economy and possesses strong vitality and competitiveness. The larger the scale of the platform economy, the better and more types of service it will be able to provide.

(B) The endogenous theory of E-international Trade: the theory of international circulation is the main feature of E-international Trade. Under the leadership of China, the world has ushered in an age of great circulation with internationalization, and informationization.

The E-international trade, as the next major generation of trade, has accelerated the global flow of commerce, logistics, information, finance and mobility. The E-international trade platform and increasing international trade have become the endogenous driving force of the new global economic system and a new era of circulation is coming.

 The economic function of the E-international trade is in line with the important status and role of modern circulation. The Economic ability has become the focus of competition among big powers in the world, and the core of economic ability lies in modern circulation. As a result, all the big nations are trying to lead the decision-making process when designing rules for circulation. The E-international trade platform and the modern circulation platform are not just about simply selling and buying commodities, but covers the entire circulation of reproduction. This process starts with consumption and the manufacturing, buying and selling process are only intermediate processes. The proportion of manufacturing process in the entire circulation process is getting smaller, while the logistics process and relevant costs have become the main body of modern circulation. Furthermore, information has become the biggest variable in the circulation, and the information flow has become the leading force. The massive amount of information, instant transmission and penetration will fundamentally change the format of traditional industries and form an integrated, cross-border and smart modern circulation capacity.

The E-international trade demonstrates the profound changes in the international trade and circulation due to the internet revolution. At present, the world economy has entered the era of information civilization, which includes both the real economy and virtuous economy. The internet has integrated the two forms of economy and transformed them into a new real economy, which has brought profound changes to the pattern of international trade and circulation. A large number of dispersed consumers, producers, suppliers gathered together to form a huge platform that has solved common problems like information asymmetry, difficulties in financing. Generally speaking, the E-international trade reflects the profound changes in international trade and circulation, and established a new global trade platform, which combines physical and virtual showcase, traditional and online marketing, online and offline markets.

According to the theory of modern circulation, the “four streams” of business flow, the logistics, the information flow and the capital flow will be further separated from one another after the real economy and the virtuous economy have become two basic economic forms. Although they will meet or overlap with one another at some point, they form their own circulation process and finish the entire process of commodity transactions. The traditional single face-to-face bargaining process has become a diversified e-commerce transaction flow. The virtual currency is gaining popularity and an independent capital flow process has been established. The logistics is separated from the information flow and capital flow, and formed a global supply chain system. As the next generation of trade, the E-international trade is platform-based, has information as its soul, gathers supply, marketing and demand together.

The E-international trade is an economic operation that covers production, trading and sales and has the typical features of modern circulation. The modern circulation theory holds that modern circulation encompasses the circulation of both tangible and intangible factor endowments, and the production and circulation have been integrated due to the fact that more intangible goods, currencies and assets have entered the circulation. Circulation in the modern market has brought the division of labor and transactions in almost all countries into the track of international mass circulation, the production and consumption of all countries have become global and process-oriented. The E-international trade is a revolution triggered by the internet revolution and its integration with the next generation of manufacturing industries will become the leading force in production, consumption and economic development. Moreover, it will drive the re-engineering and upgrading of the manufacturing process.

(C) The theoretical evolution of the E-international Trade: the trade model is a result of the interaction between the productive forces, technological revolution and different stages of development. It will promote the reform of the global trade theory, the evaluation system and governance.

The next generation of trade, E-international trade is different from the traditional trade and it is not exactly the same as the current cross-border e-commerce, eWTP and digital trade. It represents the direction of the future development of international trade and can be seen as a new trade pattern resulted from the new globalization.

The form of international trade constantly evolves with the changes in the level of productive forces, technological revolution and industrial reform. The E-international trade is formed through the interaction of the current scientific and technological revolution, industrial reform and the development of the productive force. Since the 1980s, along with economic globalization, internationalization of production and transnational mobility of production factors, the international division of labor has undergone profound changes. On the one hand, the internationalization of production and the cross-border flow of production factors have changed the boundary of the international division of labor from products to production factors. The total value of a final product is no longer solely created by the local elements of one country, but by the joint participation of the so-called “Element Advantage” of different countries. On the other hand, the product value chain is decomposed, different production processes are deployed in countries and regions with different factor endowments and thus forming a global value chain. The division of production factors and the integrated development of the global value chains have changed the international division of labor from a vertical division to a horizontal division. In such a stage of development, a great part of the international trade and the world economic growth are realized through the global value chains and strategic networks, rather than by vertically integrating the trade of different countries. At the same time, cyberspace has become an essential public infrastructure for the survival and development of mankind. E-international trade is the product of the trade reform triggered by the internet. Due to the profound changes in the international division of labor and international trade, the international trade patterns have also experienced great innovation and development. After the platform economy, modern information technology, big data and cloud computing are being widely applied in the field of international trade, the traditional international trade can no longer meet the needs of the current economic development, international trade has become highly informative, intelligent, international and network-based, leading to the next generation of trade: E international trade.

The E-international trade will become the next generation of trade that reflects inclusiveness, intelligence, efficiency and convenience. It will gradually merge with general trade, processing trade, cross-border trade and purchasing trade to become a new form of trade under the new globalization. The E-international trade has developed much faster than traditional trade, which will be gradually replaced by the next generation of trade. With the development of cross-border e-commerce between China and other countries, the traditional trade modes such as general trade, processing trade, cross-border trade and procurement trade have been rapidly transformed into the next generation of E-trade. Leading by the revolution in science and technology and the development of information technology, the E-international trade will cover all areas like production, circulation, finance, investment and other aspects connected with the world economy.

Countries can engage in the production of products with the greatest comparative advantages, promote industrial transfer and accelerate the flow of capital, technology and other production factors. All kinds of enterprises, integrated big data systems, and even individuals can participate in international competition through the E-international trading platform. The process of the formation of the next generation is full of competition and integration with each other. With the development of the E-international trade, the traditional mode of trade will gradually be replaced and evolved into the E-international trade in order to meet the needs of the new era and eventually be widely recognized by all countries.

We must study the international trade and its development under the new globalization and establish a theory, an evaluation system and a trade governance system to match the E-international trade. The formation of E-international trade is not only a process of global institutional change and the coordination of relevant national policies, but also a reconstruction of a global trade evaluation system and a remodeling process of global trade rules and governance. At present, the world economy has entered a critical period of transforming the old momentum to a new one, new forms of trade continue to emerge and trade remains to be the engine of world economic growth. We must learn more about the new ways of international trade and the next generation of trade from a new perspective, establish a new theory for the current E-international trade, promote the global understanding of the rules governing E-international trade, and reshape international trade theories, evaluation and governance system.

The E-international trade and global value chains have changed the nature of global trade. The current system of trade statistical evaluation has failed to accurately reflect the current status of production and trade in the context of a new globalization, and thus we need to establish a new statistical evaluation system urgently. The existing WTO rules and governance system have gradually failed to adapt to the transformative development of international trade and we need to establish an open, efficient, fair and mutually beneficial environment for the international trade. Apart from that, we should rely on the platform of E-international trade and break the existing barriers, obstacles and irrational trade protectionism so that all countries, regions, enterprises, individuals and consumers involved in globalization and international trade will get a fair share.

(D) The E-international trade replaces the traditional theory of international trade

The internet revolution has transformed the industrial society into an information society, fundamentally changed the research foundation of traditional economic theory and shaken the traditional economic hypothesis. It has also enriched the traditional production factor theory as it replaced the assumption of consumer rationality with the assumption of social consumer, broken the “resource scarce assumption” through information. At the same time, it also rejects the Keynesian’s marginal utility theory, marginal revenue diminution theory, and comes up with new economic theory. For the vast number of consumers, the internet economy and E-international trade can bring consumers marginal utility increases. Under the traditional economy and international trade, the higher price of the goods will lead to less demand. Under the conditions of the internet economy and E-international trade, the price of a good or service rises sharply as the number of users increases. Furthermore, the rapid price increase will in turn attracts more users and hence produce multiple benefits, which can be defined as the “externality” of the internet economy and E-international trade.

The “externality” is a major difference between the E-international trade and the traditional international trade. The main contribution of the internet economy and E-international trade theory is that they have revealed the decisive role of the information phenomenon symbolized by the trading platform in the entire economy and trade. Furthermore, it shifted the focus of economics and international trade from a monetary phenomenon to an information phenomenon and thus declares the arrival of the new trade model. As a new trade model based on modern internet technology, cloud computing technology and big data applications, the E-international trade has caused great shock to the traditional theory of international trade.

The E-international trade broke the preconditions of Ricardo’s comparative advantage theory. The two basic assumptions of the traditional theory of comparative advantage are that the boundaries of production possibilities remain the same (technology is unchanged) and the marginal returns diminish. The former is the main analytical tool of Ricardo’s theory of comparative advantage, and the latter is an important prerequisite for the unchanged boundaries of production possibilities. On one hand, the wide application of modern internet technology, information technology and big data has greatly increased the social productivity and invalidate the production possibility boundary. On the other hand, the law of diminishing marginal returns becomes ineffective under the E-international trade. Many products such as information and services are not duplicable and non-exclusive and the cost does not raise with the increased usage, making the law of diminishing marginal non-applicable in this circumstance.

The E-international trade deepens the connotation of the factor endowment theory. With the continuous integration of modern internet and e-commerce with international trade and economic and social development, dynamic changes in factors such as the level of knowledge, information and infrastructure connectivity will largely determine a country’s competitiveness and greatly weaken the role of production factors in international trade. The Heckscher-Ohlin theorem (HO) mainly focuses on the endowments of natural resources, capital, labor and human resources, but neglect technological progress and other objective elements. Obviously, therefore, this theory can not properly interpret the next generation of the trading model.

The E-international trade has greatly enriched the concept of economies of scale. With the help of the international trading platform like the E-international trade and eWTP, we can gather a large amount of information such as consumer flows and consumer evaluations and thus generate the economic scale and trade scale based on the integration of consumers. This provides more possibilities for the internal economies of scale such as product differentiation and individualized services in international trade and can effectively solve the contradictions between economies of scale and individual needs. In the development of E-international trade, a large number of virtual enterprises, small and medium-sized enterprises, and even individuals can all share information and resources through networks and platforms and carry out cooperation in production and operation. The scattered trade flows are brought together by the platform to generate economies of scale. In the traditional economy and international trade, however, economies of scale apply only to a single entity or large-scale enterprises or industries, and the economies of scale is only relevant to producers.

The concept and practice of free trade promoted by the E-international trade has produced significant impact on traditional trade protectionism. As a new trading model, the E-international trade has extended the global market to an invisible virtual one, eliminating the traditional limitation imposed by space, time and geography. The E-international trade provides hundreds of millions of consumers and SMEs with a global E-commerce platform so that they can truly achieve global Connection. Especially for the vast number of backward developing countries, the vigorous development of the E-international trade can provide them with new opportunities to participate in the international market competition on an equal footing and realize the leapfrog economic development. Supported by the newly-created trading platforms and Internet plus, the E-international trade gathers all individual consumer demand together and hence to avoid the trade protectionism. However, it will be more difficult for customs to supervise and levy a tax on online cross-border trade. In addition, the paperless trade has become the trend of future trade development, which has raised new requirements for the government’s foreign trade policy and effective supervision.

Conclusion

China has set up pilot area for cross-border e-commerce in 12 cities such as Hangzhou, Tianjin, Shanghai and Zhengzhou, which has created a good environment for the development of E-international trade. This paper offers a basic theoretical system that supports the development of international trade based on years’ of theoretical research and China’s first-mover advantage in developing international trade. Of course, the establishment of a more systematic E-international theory is a huge project and requires a joint effort of economists if we want to form the China-dominated international trade rules and theories. This article can be seen as a preliminary theoretical exploration of the E-international trade, with the aim of enabling China to guide its implementation with its own theory of international trade, promoting the development of international trade and the reshaping global economic and trade rules so as to ensure that the next generation of international trade is moving towards a fair, free and convenient direction.

 

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