Three main characteristics of the German economy are responsible for digital trade being highly relevant for future prosperity:
The German economy is traditionally very intensively interlinked with other economies aroundthe globe. Imports and exports amount to more than 80 percent of GDP, making Germany much more open than most other larger industrialized countries. Major sectors of the economy depend on free markets, and digital trade is becoming an increasingly important part of international trade relations. The substantial share of the manufacturing sector in Germany with its tradable goods is reflected in the importance of international trade in open markets. Not only do large companies in the automotive, machinery, and chemical industries rely on unrestricted trade relations, but especially medium-sized companies do. The “hidden champions” of the German Mittelstand are typically focused on products that require very specialized know-how. These companies, which often lead in small, specialized niches, can only be successful if they offer their goods and services globally. Furthermore, German companies are highly integrated into international value chains that depend on international trade. Open markets are essential for the core of the German economy. As products, services, and value chains are becoming more digital, international trade on digital markets should not be restricted for these companies.
- Industrie 4.0
In Germany, the manufacturing sector, with its innovative power, added value, and employment, is an essential element of the economy. It accounts for 23 percent of gross value added in Germany, and 19 percent of fixed capital formation and 17 percent of employment. Manufacturing is dominant in exports, with a share of 81 percent of all exports. The innovative power of the German economy is also primarily determined by the manufacturing industries, which are responsible for 85 percent of private R&D investment. The technological challenge that results from the Internet revolution is to combine modern data-driven technologies and business models with the production of manufactured goods. The free flow of data to and from applications all over the world, as well as data security, is essential for the future success of manufacturing and related services industries. The free flow of non-personal data, especially machine-to-machine communication, is a prerequisite for successfully implementing Industrie 4.0.
Germany depends on international trade in ICTs. Without components, hardware systems, and software from international suppliers, Germany could not use these fundamental technologies. On the other side, ICTs are also relevant products of German businesses. Open markets for ICT technologies are essential not only for export but also for digitally transforming manufacturing and services industries in Germany and, therefore, for future prosperity. Although Germany would benefit from free digital trade, several restrictions require standards and security measures for data-based international cooperation:
- Data Protection
Germany has a tradition of strict data-protection rules. This is especially true for personal data, which leads to restrictions in transmitting data to countries with lower data-protection standards. The General Data Protection Regulation (GDPR), as a European legal approach, has the potential to become an international standard which would improve the conditions for future open flows of data.
- Intellectual Property
From a company perspective, data protection is the back of the medal for the free flow of data. Sharing and using data commercially, coordinating data-driven equipment in different countries, and developing data-based competitive business models require high standards of data protection. Data from a commercial perspective is IP that companies must protect and use according to their business purposes. International digital trade requires the possibility to protect not only personal data, but every kind of data with a specific value. The ability to safeguard and extract one’s company data is crucial for globally active companies.
Data localization measures that restrict the cross-border flow of data are “measures that either mandate data to be kept locally or impose conditions to transfer data cross-border.” These measures vary in their restrictiveness and include, inter alia:
- Banning the cross-border transfer of data for foreign companies;
- Requiring local processing or storage of data in the country; and
- Making the cross-border transfer of data contingent upon the use of computing facilities or network elements in the country’s territory.