TWN Info Service on WTO and Trade Issues (Nov18/08)
12 November 2018
Third World Network

Pressure being exerted to oppose India-South Africa e-com proposal
Published in SUNS #8792 dated 9 November 2018

Geneva, 8 Nov (D. Ravi Kanth) - Intense pressure is being exerted on several developing countries at the World Trade Organization (WTO) to oppose a proposal by India and South Africa that calls for a "re-think" on the current moratorium on customs duties on electronic transmissions, said sources familiar with the development.

The joint proposal by India and South Africa on the current "Moratorium on Customs Duties on Electronic Transmissions: Need for a Re-think" will come up for discussion at a specially convened General Council (GC) meeting on 23 November.

Significantly, it is the first time that a GC meeting is being held for examining all aspects related to the imposition of customs duties on electronic transmissions.

Ahead of the meeting, trade envoys for several developing countries who are not members of the informal plurilateral negotiations on electronic commerce are being subtly told to oppose the India-South Africa joint paper, said a trade envoy from a South American country, who asked not to be identified.

The United States, the European Union, Japan, Australia, and several other industrialized and some developing countries - who are members of the joint initiative launched on the margins of the WTO's eleventh ministerial meeting in Buenos Aires, Argentina, on 13 December 2017 - want the moratorium on electronic transmissions to be made permanent.

In its report "2018 Trade Policy Agenda" issued early this year, the US said the Trump Administration intends to use the ongoing discussions on digital trade "as a valuable forum to develop commercially meaningful rules that address restrictions on digital trade, and will work with like-minded WTO Members who share the Administration's interest in moving forward on digital trade  issues within the WTO."

Without clarifying what constitutes electronic transmissions, the developed and some developing countries of the joint initiative on electronic commerce are preparing the ground for a formal launch of plurilateral negotiations at the WTO's 12th ministerial conference in Astana, Kazakhstan, in June 2020.

Against this backdrop, the India-South Africa joint paper, circulated on 12 July 2018, says that "the realities prevailing in 1998, when WTO Members agreed for the first time to the temporary moratorium on customs duties on electronic transmissions, have changed significantly during the subsequent two decades."

"These changes," according to India and South Africa, "necessitate a re-examination of the implications of the temporary moratorium, particularly from the development perspective."

The two countries argued that "while there is no definitive estimate of the volume of cross-border electronic transmissions, it is likely that the volume of such transmissions has increased manifold over the past two decades."

They maintained that "until a few years ago, electronic transmissions were mainly used to deliver digitalised products, such as e-books, music and a variety of services."

With an explosion in the manufacturing technology through 3-D printing, "electronic transmissions have now acquired an additional salience in manufacturing physical products," India and South Africa argued in their proposal.

Consequently, the new techniques of electronic manufacturing raise serious questions on what would constitute electronic transmissions, with serious implications for national economies on the customs and several other fronts, the joint proposal by India and South Africa suggested.

In effect, there will be serious revenue implications for national governments, particularly on the customs duties front, "as more products, which are presently traded in physical form, get digitalised and delivered through electronic transmissions," India and South Africa argued.

Citing a study by the United Nations Conference on Trade and Development (UNCTAD) on "Rising Product Digitalisation and Losing Trade Competitiveness," India and South Africa maintained that developing countries will suffer "a loss in customs revenue, if the temporary moratorium on electronic transmissions is made permanent."

Moreover, "a moratorium on customs duties on electronic transmissions could imply that customs duties are not imposed on products exported in digitalised form, even if the bound rate on the same product if it is delivered in the physical form, is not zero," the two developing countries pointed out.

"Thus, a moratorium on customs duties on electronic transmissions could in effect undermine the existing schedule of tariff concessions of WTO Members. Given the fact that the average bound tariffs of developing countries are considerably higher than those of developed countries, a moratorium on customs duties on electronic transmissions could significantly alter the negotiated balance of rights and obligations," India and South Africa maintained.

Further, it is important to consider the scope of the current e-commerce moratorium because there is no agreed definition, nor common understanding amongst the Membership of what is covered under "electronic transmissions."

At the WTO's eleventh ministerial conference in Buenos Aires last year, Indonesia had issued a statement "regarding the scope of the application of the moratorium on customs duties on electronic transmissions in the context of electronic commerce discussions."

Indonesia, which delivered the statement at the Facilitator's Consultation Meeting on Electronic Commerce, had said "in regards to the discussion on the moratorium on customs duties on electronic transmissions, it is our understanding that such moratorium shall not apply to electronically transmitted goods and services."

"In other words," said Indonesia, "the extension of the moratorium applies only to the electronic transmissions and not to products or contents which are submitted electronically."

Indonesia shared its views with the Director-General Roberto Azevedo at the Buenos Aires meeting. Indonesia called for inserting a footnote in the outcome document stating that "it is understood that such moratorium shall not apply to electronically transmitted goods." But no footnote was issued in the outcome document.

Against this backdrop, India and South Africa said all these issues are of "critical importance to most, if not all developing countries, given the role of development and industrial policies in the digital age."