Impacts of the fourth industrial revolution on international trade in services of developing countries

The 4th Industrial Revolution has invented advanced technologies to realize hyperconnections, integrate digitizationphysicsbiology between the world and the digital space, creating new productive forces and relations of production. Therefore, The Fourth Industrial Revolution has been and will bring more and more great impacts to the global economy, especially the international trade industry an area that is receiving significant attention from a large number of countries in the world. Developing countries have taken advantage of the positive effects of this revolution, and have experienced changes in the structure and proportion of international trade in services in recent years. These changes also present new challenges for countries, especially in the context of economic transformation after COVID19. This study will clarify these issues based on previous relevant studies, and propose some recommendations for Vietnam. Keywords: Industrial Revolution, Industry 4.0, international trade, developing countries.

FOREIGN TRADE UNIVERSITY FACULTY OF ENGLISH FOR INTERNATIONAL BUSINESS ===oOo=== RESEARCH PAPER Impacts of the fourth industrial revolution on international trade in services of developing countries Topic: Class: Instructor: Group: International Trade ESP231 M.A Phan Kim Thoa Group Ha Noi, May 2022 ABSTRACT The 4th Industrial Revolution has invented advanced technologies to realize hyper-connections, integrate digitization-physics-biology between the world and the digital space, creating new productive forces and relations of production Therefore, The Fourth Industrial Revolution has been and will bring more and more great impacts to the global economy, especially the international trade industry - an area that is receiving significant attention from a large number of countries in the world Developing countries have taken advantage of the positive effects of this revolution, and have experienced changes in the structure and proportion of international trade in services in recent years These changes also present new challenges for countries, especially in the context of economic transformation after COVID-19 This study will clarify these issues based on previous relevant studies, and propose some recommendations for Vietnam Keywords: Industrial Revolution, Industry 4.0, international trade, developing countries INTRODUCTION International trade is the purchase and sale of goods and services by companies in different countries Consumer goods, raw materials, food, and machinery all are bought and sold in the international marketplace International trade allows countries to expand their markets and access goods and services that otherwise may not have been available domestically The 4th Industrial Revolution has invented advanced technologies to realize hyper-connection between the world and the digital space, creating new productive forces and relations of production Therefore, the industrial revolution 4.0 has been and will bring more and more great impacts to the global economy, especially the international trade industry - an area that is receiving significant attention from a large number of countries in the world, including In order to have an accurate view of the situation, with a deeper analysis in the case of developing countries, we have conducted research called “IMPACTS OF THE FOURTH INDUSTRIAL REVOLUTION ON INTERNATIONAL TRADE IN SERVICES OF DEVELOPING COUNTRIES” This research is organized as follows: SECTION 1: THEORETICAL FRAMEWORK AND LITERATURE REVIEW SECTION 2: INTERNATIONAL TRADE IN SERVICES OF DEVELOPING COUNTRIES IN THE CONTEXT OF INDUSTRIALIZATION REVOLUTION 4.0 SECTION 3: RECOMMENDATIONS FOR VIETNAM The current research is based on available literature and online sources This concept derives research propositions from literature review and desk research of recent business press papers, professional reports, company web pages, and blogs because this subject is relatively new in the theory of economics and international business We searched through secondary literature with the combination of two screening terms: ‘industrial revolution’ or ‘industry 4.0’ and ‘international trade’ As for the scientific approach, this research uses a qualitative design of the study, the method of indirect observation, cause-effect analysis, predictive synthesis, modeling, induction, and description During the process of making this research paper, due to the limited amount of time and certain limits in understanding and data collecting, the report may hardly avoid mistakes despite all the efforts We are always willing to receive your comments so our group can improve and complete this paper SECTION 1: THEORETICAL FRAMEWORK AND LITERATURE REVIEW I THEORETICAL FRAMEWORK Definition of The Fourth Industrial Revolution 1.1 The First Industrial Revolution (1IR) It happened in 1784, near the close of the eighteenth century (1760 -1840), the time of the building of railroads and due to discovering steam and harnessing it for the mechanical industry The invention of the first mechanized loom, for example, was a turning point in history 1.2 The Second Industrial Revolution (2IR) It began in the late 19th century and continued into the early twentieth (1870), which was because of the huge invention of electricity and the assembly line that enabled mass production That leads to the industrial sector speeding up exponentially 1.3 The Third Industrial Revolution (3IR) The 1960s marked the start of the third industrial revolution which is usually known as the computer or digital revolution It was the time of the invention of semiconductors, mainframe computers in the 1960s, personal computing in the 1970s and 1980s, and the internet (1990s) As a result, progressive automation became possible 1.4 The Fourth Industrial Revolution (4IR) By 2014, the world started a new revolution that was built on the digital revolution The Fourth Industrial Revolution is ushering in profound changes in the way we live, and it's all happening at an unprecedented, breakneck speed (Rymarczyk, 2021) clarified that 4IR is characterized by a fusion of technologies that combine the physical, digital, and biological spheres through its Artificial Intelligence: Internet of things, robots, augmented reality, virtual reality, big data, 3D and 4D printing International trade in services 2.1 Definition Stern and Hoekman (1987) defined international trade in services as ‘occurring when domestic factors receive income from non-residents in exchange for their services’ The advantage of this definition is that it is not conditional on the location where the service is produced The service sector is key to economic growth, export competitiveness, and poverty reduction Trade in services has grown more rapidly than trade in goods, and the share of trade in services in overall trade has been increasing for much of the last three decades (Olivier Catlanneo, 2010) 2.2 Classification of International Trade in Services Services are intangible, value-added activities that a company provides to its customers They are the core of what a company does to create value for its customers and generate revenue Services encompass a broad range of intangible economic activities, including transportation, tourism, finance, telecommunications, consulting, software development, education, healthcare, and more  Import services: Helpman, E (1984) defined that import services refer to the crossborder purchase of services by a country from foreign sources Importing services provides countries with access to specialized knowledge, expertise, and resources that may not be available domestically, thereby enhancing their competitiveness and supporting economic growth (Sauvé, P, 2002)  Export services: Export services refer to the provision of services by a country's service providers to clients or consumers in foreign markets (Helpman, E, 1984) Exporting services provide considerable opportunity for countries to grow their economic activity, create foreign exchange gains, and support economic development  Mode of services: The definition of services trade under the General Agreement on Trade in Services (GATS) is four-pronged, depending on the territorial presence of the supplier and the consumer at the time of the transaction The four modes of supply are as follows (UN Statistics):  Mode 1: Cross Border Services that themselves cross-frontiers from one country to another (E.g Distance learning, consultancy, BPO services)  Mode 2: Consumption abroad Services, which are made available within a country for foreign consumers (E.g Tourism, educational students for students, medical treatment, etc.)  Mode 3: Commercial Presence Services supplied by an entity of one country, which is commercially pressed in another (E.g Banking, hotel, etc.)  Mode 4: Movements of natural persons This is a foreign national providing services (E.g doctor, nurse, IT engineer, etc.) functioning as a consultant, or employee, from one country to another Regional trade agreements (RTAs)  Definition: Regional Trade Agreements (RTAs) are agreements among countries within a specific geographic region that aim to promote trade and economic integration among the participating nations RTAs establish preferential trade arrangements, often granting reduced tariffs and other trade concessions to member countries, while also addressing various trade-related issues such as investment, services, intellectual property rights, and dispute settlement mechanisms RTAs can take different forms, including free trade areas, customs unions, common markets, and economic unions, depending on the depth of integration and the level of cooperation among member countries (Hayakawa, 2020)  Two remarkable RTAs: The USTR claims that The Trans-Pacific Partnership (TPP) is a free-trade agreement (FTA) between 11 countries around the Pacific Rim: Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, Vietnam and Japan The goal of the negotiating process of the Trans-Pacific Partnership (TPP) Agreement is to create a platform for economic integration across the Asia Pacific region The countries participating in the negotiations of the TPP intend to design a high-quality, inclusive agreement that lays the foundations for economic growth, the development and generation of employment in the member countries, and that in turn become the basis for the future Asia-Pacific Free Trade Agreement (FTAAP) Japan – Mongolia Economic Partnership Agreement (EPA) entered into force on June 2016 The EPA consists of 11 chapters covering topics such as trade in goods and services, customs procedures and trade facilitation, electronic commerce, investment protection, movement of persons, competition, protection of intellectual property, dispute resolution, and the improvement of the business environment The EPA does not regulate matters related to taxation There is currently no double taxation agreement between Japan and Mongolia (Conventus Law, 2017) II LITERATURE REVIEW International trade holds significant importance for developing nations It facilitates their ability to extend their markets, get access to international resources, and encourage economic progress (Dunning, J H, 1977) Through international commerce, developing nations can profit from economies of scale, technical breakthroughs, and more competition According to Karsenty, G, (2002), developing nations may diversify their economies, lessen their reliance on small home markets, and improve their competitiveness internationally International commerce also promotes the exchange of innovation, technology, and information, all of which may aid in longterm sustainable development  Impacts of the Fourth Industrial Revolution on international trade: The World Bank Group (Digital Dividends, 2016), in its major study on the implications of the digital economy for inclusive growth, has observed: Digital technologies have spread rapidly in much of the world Digital dividends - the broader development benefits from using these technologies - have lagged In many instances, digital technologies have boosted growth, expanded opportunities, and improved service delivery In practice, it is too difficult to estimate their impact on international trade, because of their widely dispersed and indirect growth impacts Despite these difficulties, some scientific calculations are approving that the rapid adoption of digital technologies in the economy is beneficial The internet enables many small firms to participate in global trade, thus leading to more inclusion; it enables more products to be exported to more markets, often by newer and younger firms Online platforms overcome trust and information problems through feedback and rating systems and by offering escrow and dispute resolution mechanisms Easier trade of intermediate products encourages further “unbundling” of production processes, not just in the markets for goods but also for services (Digital Dividends, 2016) The role of the Internet is highlighted in most works examining the impact of digitalization on trade: the Internet greatly increases firms’ potential to produce new goods and services and serve new markets The Internet reduces transaction costs – communication, information, and coordination – through the use of emails, websites, dedicated platforms, and online marketplaces, making it easier for firms to participate in international trade Online platforms can reduce the matching and information costs that can affect international trade more than domestic trade, and provide mechanisms such as feedback and guarantees that improve consumer trust in online sellers (Shawn, 2017) Other work examines the links between the number of broadband users in a country to its volume of international trade in goods and services Based on the model researcher concludes that each country’s openness to trade will be affected by expected future growth in broadband use: the trade- to GDP ratios will increase an additional 6.88 percentage points on average in the highincome countries and an additional 1.67 percentage points on average in the developing countries due to further growth in broadband use over the next five years (Riker, 2014) The discussions around digital trade facilitations comprise the issues of the application of modern information and communication technologies (ICTs) to simplify and automate international trade procedures Duval & Mengjing (2017) examine the paperless trade 447 measures, included in regional trade agreements (RTAs) Their analysis reveals that the number of paperless trade measures in RTAs entered into force globally since 2005 essentially doubled, with a large majority of RTAs now featuring one more measure aiming to exchange trade-related data and information electronically In many cases, recent RTAs are found to go further than the WTO TFA in promoting digital trade facilitation and the application of modern information and communication technologies to trade procedures – with the possible exception of e-payment of duties and fees, which is not specifically mentioned in any of the RTAs reviewed Mishra (2017) highlights the delicate and complex relationship between international trade and the Internet: Recent preferential trade agreements (PTAs) such as the Trans-Pacific Partnership Agreement (TPP) and the Japan – Mongolia Economic Partnership Agreement (Japan – Mongolia FTA) contains legal provisions on cybersecurity, data protection, data localization, consumer protection, net neutrality, spam control, and protection of online intellectual property, intended to facilitate electronic commerce and enable cross-border data flows Many issues related to Internet policy are also central to trade in the digital economy Issues of cybersecurity, privacy, and data protection can not only act as barriers to electronic commerce but also facilitate electronic commerce – this perspective necessitates a reorientation of legal provisions in trade agreements New methods of trading, such as e-commerce, create both new opportunities and new challenges for traders and policymakers E-commerce promotes the ability of small and medium-sized enterprises (SMEs) to go from being small players in the domestic market to becoming global exporters But a variety of impediments in policies, and in the business environment, can prevent e-commerce from reaching its full potential (Trade & Competitiveness, 2017) Based on the survey of export-oriented firms in the Canadian IT service industry and consultations with industry associations Dong et al revealed that IT service firms experience strong sales growth and tend to be very positive about their outlook, driven by the solid exports that comprise the majority of their sales; because of the knowledge-intensive nature of the industry, firms report investing in human capital more than in physical capital (Dong et al, 2016) Towards a stronger and more resilient digital economy, the discussions in the preceding sections indicate that international trade agreements are important tools in shaping the future of the digital economy As cross-border data flows are indispensable to the digital economy, international trade agreements should be equipped to respond to the 448 challenges of cyber sovereignty, frequently enforced through disproportionate and burdensome regulatory measures such as data localization, unreasonable cybersecurity requirements, and lack of interoperability of domestic privacy and consumer protection laws Thus, understanding the linkages and developing mechanisms to synergize international trade and the Internet is not just desirable, but absolutely vital to create a 10