II:Trade in digitizable media products

II. Trade in digitizable media products

Considering that electronic commerce will play an important role in transforming large shares of the economy, it is worthwhile discussing how trade is likely to be affected by electronic commerce. Electronic commerce will probably have most impact on two types of products. First, a number of products which traditionally have been delivered as "goods" can now be sent across networks in digital form. Second, electronic commerce will strongly affect trade in services. The former category of products is basically software and media products, and includes film, various types of printed material, video games and various recorded information on carrier media such as tapes, CDs, CD-ROMs and diskettes (for a list including SITC and HS codes, see Appendix Table 2). Newer items entering trade on an increasingly systematic basis, such as software, have been progressively included in the categorization list under a number of previously existing codes, in particular under recorder media (SITC 898.6 and 898.7 or HS 8524).

Starting with the first group of products, which can be delivered in a physical carrier medium or sent across networks, Table 2 provides a product breakdown in 1990 and 1996. World trade in these products amounted to about US$ 44 billion in 1996, or less than 1 per cent of total world trade. Printed matter and recorded tapes, CDs, packaged software, etc. account for 60 per cent of the total. While the overall numbers are relatively small, trade in several products has increased rapidly in recent years. Average annual trade growth for digitizable media products was about 10 per cent between 1990 and 1996, 1.5 times as fast as total world merchandise trade. Trade growth in recorded media such as CDs and packaged software was still higher, at an average annual growth rate of almost 17%.

Appendix Table 3 provides a country breakdown for imports of these products. The EU (including intra-EU trade) accounts for 45 per cent of world imports or about US$ 20 billion. For most countries, imports of digitizable media products account less than 2 per cent of total trade.

From these figures, we can conclude that trade in digitizable media products is currently not very large. But this may change to some extent in the near future. Physical trade in such products will most probably continue to grow, at least until access to personal computers (PCs) increases further, internet access becomes more widely available and the band-width of phone lines expands, making the downloading of information faster. Indeed, even though the number of internet users world-wide has grown dramatically in the past few years, access is still limited mostly to developed countries (roughly two-thirds of all users are currently from the United States and Canada). In addition, it is expected that only 55 per cent of the existing installed base of PCs and numerical control software (NCs) will be connected to the Web by the year 2001. Nevertheless, increasing access to the internet is likely to result in a stagnation, and possibly an eventual decline, in physical trade in these products due to their substitution by trade in electronic form. Even though a complete shift to trade on-line of digitizable products is unlikely, the significantly lower prices offered through the Web should have a strong impact on the physical trade in these highly substitutable products.

Trade over networks reduces transportation and administration costs considerably, and many products including films and music, software and its upgrading are soon likely to be or are already downloadable over the Internet. Currently, retailing costs account for a large share of the price of such products when sold in a shop. Mail order (by Internet or catalogue) is also expensive – the transportation and administration costs of sending such products across borders are often higher than the value of the product.

In sum, above average growth rates of physical trade in these areas are likely to continue in the near future, even though eventually they will stagnate and even decline due to the increasing electronic trade of such products. If physical trade continues to grow at 10 per cent, it will reach US$ 100 billion in 8 years. If the growth rate accelerates to 15 per cent, such trade will triple to US$ 150 billion over the same period.