Y2K & International Trade

by Peter B. Aikat

A great deal of attention has been given to the anticipated problems in computer software associated with the turn of the century on January 1, 2000.

The possible effects of this issue on the world economy are very real. Consider the recent experience of Hong Kong, where the failure of computer systems at the new US$20 billion international airport at Chek Lap Kok in July, 1998 caused weeks of chaos and resulted in significant economic losses.

Our guest author, Peter B. Aikat, P.Eng. is a trade policy officer with the Government of Canada's Department of Foreign Affairs and International Trade. He examines in this article, the causes and consequences of a computer software problem known as Y2K.

What is Y2K?

The year 2000 is abbreviated as Y2K; it is also the name of a computer glitch which is associated with the year 2000. The glitch relates to a voluntary standard adopted at the beginning of the computer era, which recorded dates using two digits for the year, in order to save memory.

Computer memory was in short supply at that time, and the voluntary convention was considered to be an expedient way to improve computer performance. Recording years as two digits ( such as 48 or 58 instead of 1948 or 1958 ) saved enormous amounts of memory because large data bases containing birth dates or other dates needed only half the storage that would have been required to record the full four digits.

The two digit years were converted back to the full four digit year by appending 19 to the number, but it also created a built in flaw which makes the computers inoperable from January 1, 2000. In the year 2000, a year recorded as 00, these software programs will convert the year to 1900 instead of 2000.

This has ramifications which extend throughout the world economy. Some computer processes will refuse to issue pay checks or carry out transactions if we enter 00 for the year 2000. Credit cards having 00 as the expiration date will be calculated by the software as having already expired over a century ago in 1900. In effect the computer will be rendered useless and all transactions depending on the process will grind to a halt.

The problem may actually arrive before January 1, 2000 although bulk of the problems are expected to surface at that time. Recently a customer at a modern supermarket paid for his purchases using a debit card which had the digits: 00 showing as its expiration date. The store's entire computer system, which was programmed to the old standard, immediately shut down and disabled all of the store's cash registers. The store remained closed for one and a half days and lost about a half a million dollars in sales. The store is currently suing its computer supplier.

Airlines are especially vulnerable because air traffic control is now heavily computerized as are passenger reservations, luggage and cargo traffic. It may be necessary for the International Civil Aviation Organization (ICAO) to consider whether to prevent aircraft from flying on January 1, 2000 because of safety concerns.

The extent of the problem is widespread, serving as an urgent reminder to everyone who depends on electronic devices:

Almost every machine relying on computer electronics could be vulnerable. It is hard to determine the total impact, although the Y2K problem has been identified within networks using computers such as e-mail, inventory control systems, data collection, payroll systems. It has also been found in embedded systems such as facsimile machines, telephone switchboards, aircraft control systems, and even within a late model cars.

What is Y2K compliance?

In order for software programmes to be in compliance with Year 2000, it must be able to recognize 00 for the year 2000. Often this will require the installation of new hardware and software to replace existing systems.

What is the connection with International Trade?

As the year 2000 approaches, global trade has become heavily dependent on the performance of computers. Regulatory agencies in most countries, including customs and port authorities, have implemented computerized clearing processes in order to reduce costs and to speed up procedures. This means that most port entry procedures and payment transactions, including customs clearance, port fees, tariff assessments, and fines, are all computer dependent.

When January 1, 2000 arrives and a country's port facilities are not Y2K compliant (meaning the glitch has not been corrected by putting in new software), then all transactions can slow down or come to a virtual halt. A country may fail to implement a reduction in import tariffs effective on that day, if their computers are not working properly. Customs agents may not be able to look up tariff items from the master catalogue, nor will they be able to collect the fees if the cash registers are not working.

This will inevitably lead to a backlog in admitting goods and materials into the country, and result in economic hardships for businesses which are dependent on imported materials.

Long delays at border crossing points could also result from disabled computer-controlled traffic signals. If airlines are unable to fly then all air cargo will also be curtailed.

While border crossing and port entry problems could have the most direct effect, there can be also indirect problems. For example, government agencies which issue certificates to importers may not be able to access their computers, thus slowing down trade.

The delays could be also be exploited by some countries to use them as a means to reduce the flow of imports.

The problem is not restricted to governments. Private companies, such as border brokers, trucking companies, and freight forwarders, which have not brought their computers to Y2K compliance, will all experience problems in carrying out their normal course of operations.

Shipping and navigation may be jeopardy which use computerized navigation including satellite tracking. Air traffic and air cargo could be disrupted.

Other sectors may suffer; if people are prevented from traveling then tourism, which is the fastest growing sector in international trade, will take a big hit.

We may have a glimpse of what is in store from the recent problems experienced with cargo handling in Hong Kong's new airport, caused by defective computers and software. In view of the serious disruptions and economic hardship resulting from this incident, consider the impact if this were to occur simultaneously at many points around the globe.

What is being done about the impact on international trade?

There are domestic initiatives in many industrialized countries to raise awareness for correcting the Y2K problem. However these efforts are more prevalent in those countries where there is greater awareness and sufficient resources to correct the problem.

International coordination on the subject has only recently been put on the agenda.

The Paris based Organization for Economic Cooperation and Development (OECD) is known to be working on a report on the potential impact of the Y2K problem on global trade.

The International Telecommunications Union (ITU) has included Year 2000 "Millennium Compliance" on the agenda for its 1998 Plenipotentiary Conference in Minneapolis commencing on 12 October 1998. Additional details can be viewed on the ITU web site: http://www.itu.org/.

There are no known initiatives within the World Trade Organization to alert its members. The subject was not raised at the past Summit of Americas. Other regional trade organizations such as APEC and NAFTA have yet to start looking at the impact.

Although part of the issue relates to confusion in which standards to apply, there seems to be very little international dialogue in such organizations as the International Organization for Standardization (ISO) or the International Electrotechnical Commission (IEC).

Even at this late stage there are differences between Europe and America, and between industrial sectors (VCRs and Electronic Forms) on how simple date standards such as YYYYDDMM or MMDDYYYY should be represented.

What could be done?

At the global level there are many options to pursue, starting perhaps with the World Trade Organization. The WTO has various working groups which can be asked to review the potential effect in their respective areas, and to raise awareness of the problem among its 140 member nations.

The International Telecommunications Union (ITU) should also continue to raise awareness of the problem and be prepared to offer assistance to lesser developed countries for resolving a problem which knows no boundaries. With 158 members, the ITU also includes in its membership China, Russia, Taiwan, Saudi Arabia; countries which are still not members of the WTO but are nevertheless important trading countries.

The International Organization of Standardization (ISO) in conjunction with its sister organization the IEC should play a major role raising awareness of the problem among its members, mainly because the problem stems from the use of an antiquated standard adopted by the computer electronics industry.

Regional institutions such as NAFTA and APEC should also become involved in raising awareness of the problem among their members.

Individual countries should also pursue the Y2K issue with their main trading partners so that mutual concerns are resolved at specific border crossing points such as those between Canada and USA, USA and Mexico, Singapore and Malaysia.

How much time do we have?

The date draws nearer with every passing minute. Fewer than 550 days were remaining at the time of this article's writing on July 8, 1998.

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