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Info Service on WTO and Trade Issues (Apr23/16) Geneva, 27 Apr (D. Ravi Kanth) — Several developing countries, especially Indonesia, who are seeking the termination of the current moratorium on customs duties on electronic transmissions at the World Trade Organization, have demonstrated that the moratorium must end as per the mandate of the WTO’s 12th ministerial conference (MC12), said people familiar with the discussions. At a dedicated meeting on the e-commerce moratorium, held under the 1998 Work Programme on Electronic Commerce and convened by the facilitator, Ambassador Usha Cannabady of Mauritius, on 20 April, India, South Africa, Indonesia, Pakistan, and Bangladesh, on behalf of the least-developed countries (LDCs), made a strong case that there cannot be any further extension of the moratorium. Indonesia provided evidence on the adverse implications and the loss of revenue suffered by the developing countries due to the moratorium (see Indonesia’s paper below), said people, who asked not to be quoted. In contrast, the United States, the European Union, Australia, Japan, and Singapore, who are currently seeking the continuation of the moratorium on imposing customs duties on electronic transmissions, apparently failed to demonstrate at the meeting as to how the moratorium is beneficial for global trade, and how it reduces prices among others, said people, who preferred not to be quoted. The opponents of the moratorium debunked, with concrete evidence, the arguments advanced by the main proponents for the continuation of the moratorium, said people familiar with the ongoing discussions. MC12 DECISION ON E-COMMERCE MORATORIUM The Decision on the E-commerce Moratorium and Work Programme (WT/MIN(22)/32- WT/L/1143) that was subsequently adopted at MC12 last June states: “We agree to reinvigorate the work under the Work Programme on Electronic Commerce, based on the mandate as set out in WT/L/274 and particularly in line with its development dimension. “We shall intensify discussions on the moratorium and instruct the General Council to hold periodic reviews based on the reports that may be submitted by relevant WTO bodies, including on scope, definition, and impact of the moratorium on customs duties on electronic transmissions. “We agree to maintain the current practice of not imposing customs duties on electronic transmissions until MC13, which should ordinarily be held by 31 December 2023. Should MC13 be delayed beyond 31 March 2024, the moratorium will expire on that date unless Ministers or the General Council take a decision to extend.” Indonesia, which has been raising the issue of the need to re-consider the scope and definition of so-called electronic transmissions since the WTO’s 11th ministerial conference (MC11) held in Buenos Aires, Argentina, in December 2017, presented a detailed study at the meeting on the underlying realities of how goods are being traded by using electronic transmissions. Indonesia showed the difference between electronic transmissions on the one hand, and goods that are being imported by Indonesia and other developing countries through electronic transmissions, on the other. At the meeting, Singapore, which is one of the coordinators of the plurilateral Joint Statement Initiative (JSI) group on digital trade, presented its report on the likely rise in the prices of goods digitally traded among countries, said participants, who preferred not to be identified. PROPONENTS OF MORATORIUM LOSING “INTELLECTUAL” BATTLE In terms of evidence and ideas, the proponents of the moratorium seem to have repeatedly raised the same arguments without providing material evidence, India alleged at the meeting. The trans-Atlantic trade partners, namely, the US and the EU, apparently claimed at the meeting as to how the moratorium helped countries during the COVID-19 pandemic and how it proved to be a success. The two members along with their JSI allies echoed the narrative that the moratorium provided predictability and certainty in digital trade, underscoring the need for its continuation, said participants who attended the meeting. Japan and a few other JSI members appear to have demanded a permanent moratorium at the meeting. While the JSI members seem to have made different statements on the duration for continuing with the moratorium, the G-7 industrialized countries (the US, Canada, Italy, France, Germany, the United Kingdom, and Japan, together with the EU) repeatedly issued calls for a permanent moratorium right after MC12. “With a revived multilateral trading system,” the G-7 leaders said at a meeting in Germany last June, “we look forward to matching this ambitious progress at the 13th WTO Ministerial Conference, advancing negotiations on E-Commerce and finding a permanent solution for the moratorium on E-Commerce customs duties, closing the gap in the fisheries negotiations, addressing agricultural reform, and making concrete progress on WTO reform.” PROPONENTS FOR TERMINATION OF MORATORIUM At the meeting on 20 April, India and South Africa, joined by Indonesia and Pakistan, apparently sharply questioned the logic applied by the proponents for the continuation of the moratorium. India called for the termination of the moratorium as stated in the MC12 outcome document, saying that it is central to development. Pakistan said while such provisions are not provided for in the GATT (General Agreement on Tariffs and Trade) and in the GATS (General Agreement on Trade in Services), it is inhibiting digital development. Several opponents of the moratorium pointed out that it is a market access issue, insisting that its continuation is harmful to developing countries, said people, who asked not to be quoted. Indonesia presented a detailed study at the meeting, pointing out that “Indonesian Customs Law has stipulated that Customs Duties are imposed on digital goods (software, electronic data, multimedia, etc.) which are delivered via electronic transmission, i.e., through the internet.” INDONESIA’S PROPOSAL In a six-page proposal (WT/GC/W/859) circulated on 13 December 2022, Indonesia argued that “international trade rules on e-commerce must ensure the inclusivity and fairness of the global e-commerce ecosystem.” The e-commerce moratorium agreed at the WTO’s second ministerial conference in Geneva, has been repeatedly renewed every two years during the ministerial conferences, it said. The temporary moratorium on customs duties on electronic transmissions has been repeatedly discussed during the last seven years as to whether it needs to be continued. Despite some literature having argued that “the moratorium might offer benefits to the world economy and advantages brought on by the expansion of e-commerce,” Indonesia said that the time has come to discuss its significant impacts, especially on developing and least-developed countries. It said that “domestic retailers in developing countries hardly benefit from the free tax and duties scheme for the electronic transmission, given that the majority of business sectors in developing countries are Small and Medium-sized Enterprises (SMEs) who engage minimally in cross-border e-commerce.” “According to the Indonesian Customs Law number 17 of the Year 2006 on the Amendment of Customs Law number 10 Year 1995, Customs Duties are imposed on digital goods (software, electronic data, multimedia, etc.) which are delivered via electronic transmission i.e., through [the] internet.” Indonesia said it has issued a specific tariff heading for digital goods in Chapter 99 (Heading 99.01) in the Indonesia Customs Tariff Book. Despite the tariff heading, Indonesia said it imposes “most favored nation (MFN) tariff of zero percent (0%) on software and other digital goods transmitted electronically under Heading 99.01 which consists of five tariff lines, namely: Operating System Software (9901.10.00), Application Software (9901.20.00), Multimedia (9901.30.00), Supporting or Driver Data (9901.40.00), and Other Software and Digital Product (9901.90.00).” Interestingly, Indonesia said the physical import of those five digitizable goods was USD 116 billion. The difference between the estimated import value and the physical import value reached USD 139 billion, said Indonesia, adding that “this number can be estimated as the import value of digitizable goods imported using Electronic Transmission.” In addition, using the same conservative growth rate of online imports of 49 HS code of digitizable goods, it is projected that the online worldwide imports of digitizable goods imported by Electronic Transmission will rise from USD 204 billion in 2020 to USD 365 billion in 2025, i.e, an increase of 79%, Indonesia said. Moreover, in the period 2017-2020, it is estimated that developing countries and LDCs lost USD 56 billion of tariff revenue, of which USD 48 billion were lost by the developing countries and USD 8 billion by the LDCs, according to a study by the United Nations Conference on Trade and Development (UNCTAD). The loss of tariff revenue is from the imports of just 49 products (at HS six-digit), which include many luxury items like movies, music, oriented matter, and video games. In addition, the moratorium could be a continuous provision of duty-free access to developed countries to enter the markets of developing countries, including LDCs, Indonesia argued. “This will have a negative impact on economic growth, employment, and sustainable development,” Indonesia emphasized. Therefore, Indonesia argued that the “customs duty policy on digital goods requires the customs administration to monitor the flow of contents at the borders.” The existing moratorium on customs duties on electronic transmissions creates tax treatment discrimination between e-commerce stores (primarily foreign firms engaging in global e-commerce without a local presence) and brick-and-mortar stores (domestic) which results in unfair business circumstances, it said. “In practice, imported goods that physically enter the territory of a country are subject to customs duties, while the importation of digital goods through electronic transmission is prevented from any duties collection.” This different treatment on imported products results in higher prices of physical products than with digital goods. Therefore, imposing customs duties for contents will preserve the fairness of tax treatment between physical and digital goods and create a robust business environment, Indonesia argued. Further, considering global e-retailers offer more competitive prices of digital goods coupled with a convenient way of online shopping, there is no doubt that the consumers of brick-and-mortar stores will shift to online stores, Indonesia said. On this account, according to Indonesia, “in the future, the role of customs duties is to increase the prices of imported digital goods so that domestic digital goods can maintain their competitiveness and contribute towards domestic digital industrial development.” More importantly, it said that “the certainty in customs procedures is not only for government agencies but also for businesses in terms of customs duty and import tax collection, digital goods classification, as well as the import declaration procedure.” Indonesia said that “Customs administration needs to assess digital goods risks which includes the potential occurrence of tax avoidance, Intellectual Property Rights (IPR) infringement, and trans-national organized crime such as creating weapons with the use of 3D printing, illegal material smuggling, and money laundering.” Also, by monitoring the flow of content, the customs administration can control the flow of content that is harmful for society, such as digital materials for terrorist attacks, Indonesia said. POLICY SPACE For developing countries and LDCs to remain relevant in the “midst of rapid development of the digital economy, we should also consider the importance of a certain degree of policy space to enable highly needed adjustments for the imposition of customs duties on the importation of digital goods transmitted electronically,” Indonesia argued. “This policy space includes both financial space and regulatory space in which customs duties is one of the manifestations of state fiscal rights,” Indonesia pointed out. Besides, “retaining policy space is important for developing countries including LDCs to develop a viable domestic digital industrialization and the generation of local jobs in the era of Industry 4.0”, Indonesia said. There is no common understanding on the scope and definition of the moratorium, despite evidence of its negative impact on the digital industry of most developing countries, it added. “Therefore, as Members consider the policy interventions to address the impacts of the moratorium, it is imperative that WTO Members approach the implementation of the moratorium from a holistic perspective.” In this regard, Indonesia said that all Members need to be equipped with the following crucial elements: multilaterally agreed scope and definition, and a thorough, balanced understanding on the impact of the imposition of the moratorium particularly on developing countries, including LDCs. Indonesia said it has been developing a mechanism regarding the imposition of customs duties on electronically transmitted digital goods. The mechanism will be adjusted to accommodate digital goods importation, which is naturally different from conventional importation, it added. It is important in the current context that “WTO Members need to analyze the implementation of the moratorium from a holistic perspective.” “For that, we need to be equipped with crucial elements, such as a multilaterally agreed scope and definition, and an understanding on the impact of the imposition of the moratorium on customs duties”, along with having “a certain degree of policy space to enable the highly needed adjustments since customs duties are one of the manifestations of the fiscal rights of a State.” Imposing Customs Duties on electronically transmitted content will not create a distortion for global trade and it is not meant to put an administrative burden on the importation procedure of digital goods using electronic transmission, Indonesia said. In concluding, Indonesia reiterated that it “has issued the specific tariff heading for intangible goods in Chapter 99 in the Indonesia Customs Tariff Book,” adding that “so far, Indonesia imposes most favored nation (MFN) tariff of zero percent (0%) on software and other digital goods transmitted electronically under Heading 99.01.” It clarified that “the termination of the moratorium does not mean that Indonesia will abruptly increase the MFN tariff of electronically transmitted digital goods.” It said “the rationale for imposing customs duties on digital goods is not solely about the state revenue, but more importantly regarding these following concerns: recording data statistic, creating a level playing field for domestic and foreign firms, promoting the growth of local SMEs, providing business certainty, and assessing digital goods risks. Indonesia considers that these rationales are essential in establishing state sovereignty.” Jakarta said that it has been developing a mechanism regarding the imposition of customs duties on electronically transmitted digital goods. “The importer of digital goods will utilize a simplified customs declaration with the minimum requirement of filled-in element data compared with the general import and the exclusion of several customs measures,” it added. Indonesia urged WTO Members to analyze the implementation of the moratorium from a “holistic” perspective. It emphasized that members “need to be equipped with crucial elements, such as a multilaterally agreed scope and definition, and an understanding on the impact of the imposition of the moratorium on customs duties.” “In addition, we should be having a certain degree of policy space to enable the highly needed adjustments since customs duties are one of the manifestations of the fiscal rights of a State,” it argued, according to people present at the meeting. Indonesia emphasized that “customs duties are the most accurate and effective policy tool of the government to administer importation of digital goods transmitted electronically, referring to above-mentioned rationales.” Therefore, said Indonesia, “imposing Customs Duties on electronically transmitted content will not create a distortion for global trade and it is not meant to put an administrative burden on the importation procedure of digital goods using the electronic transmission.” The facilitator, Ambassador Cannabady of Mauritius, said that she will present a consolidated report of the proceedings towards the end of the week. +
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