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TWN Info
Service on WTO and Trade Issues (Mar21/07) Geneva, 4 Mar (D. Ravi Kanth) – The United States has apparently warned developing countries led by India and South Africa that any move to discontinue with the moratorium on imposing customs duties on electronic transmissions under the 1998 e-commerce work program at the World Trade Organization will be fraught with serious consequences, said people familiar with the development. The US flatly rejected calls from India, South Africa, and other developing countries to ensure that the “Work Program on E-commerce be a standing item” at the General Council (GC) as well as in the relevant WTO bodies as mandated by the General Council on 25 September 1998, as set out in document WT/L/274. Without offering any concrete evidence, the US went on to claim that e-commerce has provided huge benefits to countries. The US called for a permanent moratorium on the customs duties on electronic transmissions. The US also warned that if the moratorium is discontinued, then, members will need consensus to continue with the work program, said people familiar with the US stand. During the discussion on the e-commerce work program at the General Council meeting on 2 March, the US position raised alarm bells, said an analyst familiar with the development. The US call for permanent “tariff-free treatment for electronic transmissions will benefit the net exporters which are based in developed countries. So the US argument holds true for them as they have to safeguard the interests of their big-tech firms,” the analyst said. “However, most developing countries are net importers and therefore, they need to regulate these imports and judiciously raise and use their domestic financial resources,” the analyst said. “Also, there is no reason why luxury items like video games, music, and movies should come duty-free while exporters of physical products face customs duties.” As regards the US stand of applying the consensus principle of decision-making to the 1998 work program if the moratorium is discontinued, the analyst said that “when it comes to the WTO reforms, consensus decision-making becomes a problematic issue for the US but now they want to use consensus decision-making as an excuse for not continuing the work program.” NEW DG REMAINS SILENT ON 1998 WORK PROGRAM Surprisingly, the new WTO director-general Ms Ngozi Okonjo-Iweala, who has been repeatedly emphasizing on the digital trade and the JSI initiative on electronic commerce, has remained silent on the 1998 e-commerce work program, nor on the need to continue with the moratorium on the customs duties on electronic transmissions. In her statement at the General Council on 1 March, the DG said “without neglecting the questions raised on the legal status of JSIs, delegations want forward movement on JSIs, especially e-commerce, Services Domestic Regulation, Investment Facilitation, and MSMEs. There is a desire to enhance dialogue and action on women in trade.” Writing in the Financial Times on 3 March, the DG argued that “the WTO rule-book must be updated to take account of 21st-century realities such as the digital economy. The pandemic has accelerated the use of e-commerce, enabling women and small and medium-sized enterprises to participate in international trade. But we must bridge the digital divide that makes some developing countries reluctant to join the e-commerce negotiations.” Her “calculated” silence on the multilaterally mandated 1998 work program concerning the scope and definitions of electronic transmissions as well as the moratorium on customs duties on electronic transmissions indicates her priorities on e-commerce, the analyst said. INDIA’S OPENING STATEMENT At the General Council meeting on 2 March, India, which introduced the agenda item on “work program on electronic commerce and moratorium on imposing customs duties on electronic transmissions,” emphasized the importance of bridging the digital divide by providing digital infrastructure. India said many members at the WTO are yet to “fully comprehend the implications of e-commerce on competition and market structures, issues related to transfer of technology, data storage, automation and its impact on traditional jobs, and the gaps in e-commerce policy and regulatory frameworks in developing countries.” India’s trade envoy Ambassador Brajendra Navnit said that New Delhi has been a proponent of strengthening the multilateral work program under the non-negotiating and exploratory 1998 Work Program on E-commerce. He drew attention to the joint proposal with South Africa about the implications of the moratorium on customs duties on electronic transmissions, especially on the scope and impact of the moratorium. That proposal (WT/GC/W/812) tabled by India and South Africa on 4 December 2020, called for “reinvigorating the work under the 1998 work program on electronic commerce.” (See SUNS #9250 dated 9 December 2020). At the GC meeting on 2 March, India said that it joined the consensus in December 2019 to extend the moratorium for six months till MC12 (the 12th ministerial conference) “with an understanding that the Work Program on Electronic Commerce will be reinvigorated with an objective of achieving clarity on issues related to the scope of the moratorium, definition of electronic transmissions as well as the impact.” Due to the postponement of MC12, the moratorium has since been extended much beyond the earlier intended six months, Ambassador Navnit suggested. “WTO has a unique opportunity to make a contribution towards laying the foundation for an inclusive and development-oriented approach to electronic commerce,” the Indian envoy said, emphasizing that “multilateralism is vital in a world facing development challenges.” India highlighted the arguments advanced in the joint proposal with South Africa, saying that “this (General) Council [is] to play a central role in discussions on the work program” by “keeping this issue as a standing item on its agenda.” Ambassador Navnit underscored the need for placing the item under regular review so as to take up any trade- related item on its agenda. He urged the GC “to direct that the Work Program on E-commerce be a standing item in the relevant WTO bodies as mandated under WT/L/274 which was adopted by the General Council on 25 September 1998.” SOUTH AFRICA’S INTERVENTION South Africa, which co-sponsored the proposal with India on the e-commerce work program, pointed out that “there is no single agreed definition and/or use of the term e-commerce and what it comprises, with the WTO, its individual Members, international organizations, business entities and other relevant stakeholders using different formulations.” “To make matters worse,” said South Africa’s trade envoy Ambassador Xolelwa Mlumbi-Peter, “the terms “e-commerce” and “digital trade” are often, but not always, used interchangeably. This interchangeable use of terms and the existence of various definitions means that the definition of e-commerce and/or digital trade are a matter of debate, with potential implications for the scope and definition.” The South African envoy said that when the 1998 work program was launched, “it was not possible to predict the far-reaching and fast-paced evolution of digital technologies and their effect on trade that have led to the spread of e-commerce as we know, including its implications on production.” Ambassador Xolelwa said that “there are issues identified by Members under the Work Programme that require clarification to enable common understanding on e-commerce and these issues cannot be clarified by a group of Members under the JSI.” She gave the example of a “positive list” approach used by the GATS (General Agreement on Trade in Services) schedules of commitments coded to a classification of categories of services and modes of supply. These govern market access and national treatment obligations. Under the positive list approach, countries are supposed to list all exceptions or conditions to these market access and national trade treatment limitations that countries want to apply. Ambassador Xolelwa said “the classification used in the WTO in GATS is the W120 which is based on the 1991 Provisional Central Product Classification (CPC) system of the United Nations,” suggesting that there is no agreement whether new services which have been created since 1991 are captured in the existing categories in the W120 or CPC, or if new categories should be created. Moreover, she said “the Work Programme provides that the General Council examines any issue of a cross-cutting nature” such as seven cross-cutting issues for deliberation by Members. The issues, according to Ambassador Xolelwa, include: (1) classification of digital products as “goods” or “services”; (2) issues concerning developing and least-developed countries; (3) revenue implications of e-commerce, especially for developing countries (DCs); (4) relationship between e-commerce and traditional forms of commerce to assess short-term disadvantages for DCs; (5) impact of continued moratorium on custom duties on DCs; (6) competition related issues including constraints on e-commerce due to concentration of market power; and (7) jurisdictional challenges for e-commerce disputes. “These issues are relevant and the discussions urgent.” The COVID-19 pandemic has highlighted the need to reinvigorate the work under the Work Programme in view of the deepening digital divide both within and between countries. “The WTO,” she said, “has a unique opportunity to make a contribution towards laying the foundation for a more just and inclusive digital economy.” “The renewal of the e-commerce moratorium becomes an anomaly when there is limited discussion on the fundamental issues outlined in the Work Programme and there is no effort by Members to engage in constructive discussions that should result in equitable benefits for all,” she concluded. Therefore, a serious conversation on the scope and definition is required, otherwise a decision at MC12 will be a challenge, Ambassador Xolelwa emphasized. INTERVENTIONS BY ACP AND AFRICAN GROUP Jamaica, on behalf of the ACP (Africa, Caribbean, and Pacific) group, argued that the “1998 E-commerce Work Programme continues to be a critical feature of the WTO’s regular work and an essential fixture on the General Council’s agenda.” The ACP group called for deepening “our engagement and understanding of the question of the customs duties moratorium.” The group wants that “the discussions must go beyond the moratorium and include other pertinent issues, such as, the extent of coverage of digital or internal taxes and a wider range of issues.” It expressed concern “that by MC12, we will again face the expiry of the moratorium should we fail to establish a common understanding on the scope and definition of electronic transmission.” Despite tremendous strides made in ICT infrastructure and services, including the benefits seen during the COVID-19 crisis, members “still face a significant digital divide within and among countries that must be addressed with urgency.” “In conducting our diagnosis of the moratorium,” the ACP group said, “some of the other areas of interest to our countries include the costs to developing country and LDC consumers and businesses, discrepancies between traditional goods or products and electronic equivalents, and the application of internal taxes on electronic transmission.” Observing that “a number of issues which were raised in the work programme are under negotiation in the JSI,” Jamaica said “it is important that the work programme is prioritized as it encompasses an agreed work-stream which will result in balanced outcomes in the context of e-commerce.” Further, it will be “important to take a pragmatic approach to discussing within the context of the existing 1998 work programme the issues of source code, localization and the impact on data flows, as well as consumer protection,” the ACP argued. “These issues should be prioritized as they will begin to not only match, or exceed the perceived impact which the moratorium may have on our regimes, but, to treat our ability to make greater use of e-commerce to earn revenue, become producers of higher level technological advancements and to improve the basic way of life for our people,” Jamaica pointed out. Moreover, members also “need to play our part in ensuring that the Work Programme continues to remain relevant and address issues of social and economic interest to our countries,” Jamaica concluded. Mauritius, on behalf of the African Group, said “while reiterating our statement made at the last General Council meeting, we wish to once again highlight that the 1998 Work Programme on Electronic Commerce remains an important element in our ongoing discussion both in respect of the moratorium on the application of customs duties on electronic transmissions as well as the broader cross-cutting issues.” The Mauritian trade envoy Ambassador Usha D Canabady said that “COVID-19 pandemic continues to have devastating impact on the services sector with demand in sectors such as tourism and transport being affected.” “The toll on income and employment in these sectors has reached such levels in some countries that recovery to pre-pandemic level will take years,” she said. Ambassador Canabady argued that “at the same time, e-commerce boomed but it is confirmed that the benefits were neither fairly nor equitably distributed highlighting the existing digital divide.” The African Group drew attention to its communication in document JOB/GC/133 of 21 July 2017 “on digital industrialization policy and development”, saying that “we did point out the extremely high market concentration levels in the global e-commerce space.” The African Group said it “believes that any post-pandemic recovery strategy must, among others, aim to bridge the digital divide to allow more countries to take advantage of digitization.” It advocated the need to reinvigorate the 1998 Work Programme with a view to comprehensively addressing the development aspects of e-commerce. INDONESIA’S INTERVENTION Indonesia, which is a JSI member on electronic commerce, threw its weight behind India and South Africa in addressing the issues of scope and definition of electronic transmissions and the moratorium on customs duties on electronic transmissions. Indonesia’s trade envoy Ambassador Syamsul Bahri Siregar issued a powerful statement, saying “it is important for us to bear in mind that the conclusion of the mandate for all WTO Members to work on the Work Programme on E-Commerce, along with the issue of moratorium on imposing customs duties, should not be forgotten.” Ambassador Siregar said that “Indonesia wishes to draw attention to the General Council Decision on 10 December 2019 where Members had agreed to reinvigorate the multilateral work under the Work Programme on E-Commerce as agreed and mandated in 1998.” Importantly, said Indonesia’s trade envoy, “the unfolding and rapid development of e-commerce in this digital era, this multilaterally mandated work has never been more important.” Ambassador Siregar said that members must “fully comprehend the complexity and whole aspects related to e-commerce, in order to further relate to their social developmental circumstance.” “The gaps among Members in utilizing and reaping the benefits from e-commerce should never be belittled, as we believe the potential of benefits from e-commerce should be accessible to all for the development of their economies,” the Indonesian envoy emphasized. “Hence, Indonesia fully supports the continuation of the work under Work Programme on E-Commerce, as mandated, and of the view that this work must be advanced,” Ambassador Siregar argued. Also, “the multilateral work to clarify the scope, definition, and impact of the customs duties on electronic transmissions should be kept in place and moved forward in this organization,” Indonesia said. Ambassador Siregar cautioned, “the fact that some Members attempted to advance an ambitious agenda on this matter through other mechanisms should not hinder the continuation of this multilateral work and degrade the relevance of this mandate.” Indonesia, which raised the issue of what would constitute electronic transmissions at the Buenos Aires ministerial conference in 2017, reiterated that “its position on the moratorium on customs duties remains unchanged.” It is important to “address the digital divide and the need for addressing this issue along with the moratorium.” There are conflicting studies on the loss of revenue with UNCTAD suggesting that the loss is much more than $10 billion. As part of the dedicated sessions, it would be important to call experts from different organizations to present their views for us to take this into consideration, Indonesia said. THE US RESPONSE In a short statement, a US official said that the moratorium on customs duties has enabled rapid development of digital trade for the past two decades. The official urged WTO members to agree on the permanent moratorium. The official went on to say that in the last meeting, several members “raised questions about the scope and definition” and on the moratorium, including whether it applies to content supplied electronically, according to people present at the meeting. The US said that the “moratorium requires tariff-free treatment for digital content transmitted electronically,” insisting that “an alternative view would render the moratorium” meaningless and would call into question what ministers had agreed in 1998. The US said, while it is open to further discussion on any aspect of the moratorium in advance of MC12, “we do not see any reason to establish a permanent agenda item for discussion or for the subsidiary bodies,” according to people present at the meeting. The US said that “some members have continually noted the importance of the work program also signaling their continued opposition to the renewal of the moratorium.” Acknowledging the relationship between the work program and the moratorium in the 1998 decision, the US said, “if the moratorium were to be discontinued, it is unclear that there would be a consensus to continue the work program.” THE EU’S STAND The European Union said that the discussion on the moratorium and the work program has raised development issues, including e-commerce in the context of the COVID-19. On the moratorium, the EU said, “we would like to underline that the moratorium provides the predictability and security that our consumers and business in developed and developing countries need” at this juncture. Brussels said that several studies suggested positive and beneficial effects from e-commerce, arguing that the UNCTAD’s seminal study on the revenue loss of more than $10 billion due to the moratorium took a “narrow view,” said a person, who asked not to be quoted. The EU also demanded a longer term for the moratorium to be continued at MC12. Commenting on the EU’s remark about the UNCTAD study, a digital trade analyst said that “however, even with the “narrow view”, the potential tariff losses for developing countries are huge.” “With a broader definition of electronic transmissions, these losses will be manifold higher,” the analyst said. “Apart from the potential tariff revenue losses, the UNCTAD study has also highlighted the adverse impact of the moratorium on digital industrialization in developing countries,” the analyst argued. China spoke about the benefits accruing to consumers and businesses, suggesting that discussions in various bodies have shed more light on electronic transmissions and the implications of the moratorium on the global economy. China urged members to continue with the discussion to achieve a meaningful outcome at MC12. Pakistan sided with the proponents calling for examining the scope and definition of electronic transmissions as well as on extending the moratorium. Turkey, which is a JSI member on digital trade, made a nuanced statement, suggesting that due concern has to be given on the clarification of the scope and definition of electronic transmissions. In short, the opponents to the continued examination of scope, definitions, and the moratorium on customs duties on e-commerce transmissions have failed to come up with any substantial evidence against the evidence provided by India, South Africa, and other developing countries, the analyst said.
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