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Info Service on WTO and Trade Issues (Jul23/10) Geneva, 20 Jul (D. Ravi Kanth) – Several developing countries including India, South Africa, Turkiye, Argentina, and Indonesia among others on 18 July pushed back against attempts made by a group of countries, including the European Union and Australia, and supported by the United States, who had insisted that electronic transmissions in the e-commerce moratorium “cover anything transmitted by telecommunications” and also include “content” through the internet, said people familiar with the development. Unless otherwise extended, the current moratorium on levying customs duties on electronic transmissions is mandated to be terminated at the World Trade Organization’s 13th ministerial conference (MC13), to be held in Abu Dhabi in February 2024. At a dedicated session on the Work Programme on Electronic Commerce which was convened by the facilitator, Ambassador Usha Canabady of Mauritius, on 18 July, members discussed the moratorium on customs duties on electronic transmissions. During the discussions, members remained divided on whether electronic transmissions exclude or include “content”. For more than 27 years, the industrialized countries never addressed the issue, even though it was raised time and time again, particularly ever since Indonesia brought the issue to the center stage at the WTO’s 11th ministerial conference (MC11) in Buenos Aires, Argentina, in December 2017, said people who took part in the meeting. Indonesia’s submission at the Buenos Aires meeting was not clarified by the former WTO Director-General Roberto Azevedo, and the issue was kept hanging until MC12, when, for the first time, trade ministers agreed to terminate the moratorium, in the absence of a decision to extend it, said negotiators who took part in the meeting. MC12 MANDATE The ministerial decision agreed upon 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.” More importantly, trade ministers said that they “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.” It is against this backdrop that 14 countries – the European Union, Australia, Canada, Chile, Costa Rica, Hong Kong-China, Japan, Korea, Norway, Peru, Singapore, Switzerland, Chinese Taipei, and the United Kingdom – issued a proposal (WT/GC/W/889) on 7 July, titled “Work Programme on Electronic Commerce – Moratorium on Customs Duties on Electronic Transmissions”. PROPOSAL BY 14 COUNTRIES The proposal by the 14 countries has apparently exposed the long-kept secret that the moratorium on customs duties on electronic transmissions is primarily aimed at cross-border services under Mode 1 of the General Agreement on Trade in Services (GATS), which could undermine the specific flexibilities availed of by the developing countries in the GATS, specifically the “positive list” approach, said people familiar with the discussions. Article XIX of the GATS emphasizes that the process of liberalization of trade in services “shall take place with due respect for national policy objectives and the level of development of individual members, both overall and in individual sectors.” It further states that there shall be appropriate flexibility for individual developing country members for opening fewer sectors, liberalizing fewer types of transactions, progressively extending market access in line with their development situation and, when making access to their markets available to foreign service suppliers, attaching to such access conditions aimed at achieving their national objectives. The US, which is assiduously campaigning for a permanent moratorium on customs duties on electronic transmissions, at the meeting on 18 July seems to have concurred with the 14 countries that electronic transmissions also include “content”. Surprisingly, Washington has all along opposed trade in services since 1998, when the moratorium was first adopted at the WTO’s second ministerial conference in Geneva in the same year, said negotiators familiar with the discussions. In the proposal circulated by the 14 countries on the scope and definition of the moratorium, the proponents argued that there is “a widespread understanding that the moratorium applies to all electronic transmissions, including their content.” They said, “If the moratorium does not cover content, this would imply that the moratorium would have been intended to only prevent the imposition of customs duties on telecommunication signals”, which they added, “would effectively render the moratorium meaningless, given the common understanding that the value of a telecommunications signal is not the signal itself but the content it carries.” The proponents added that, “While no specific definition of “electronic transmissions” is attached to the relevant ministerial decisions, it is commonly understood to cover anything transmitted by telecommunications, including over the internet, and from emails and software to digital music, blueprints, movies, and video games.” The 14 countries maintained that “the moratorium does not cover physical goods (e.g., clothing or books ordered from an online platform), which may be subject to applicable import tariffs. Nor does the moratorium limit the application of internal taxes (e.g., Goods and Services Taxes (GST) or Value Added Taxes (VAT)), as the moratorium is only concerned with customs duties. In several FTAs (free trade agreements), participants have explicitly included language clarifying that internal taxes are not part of the scope of the equivalent discipline.” The proponents said looking at FTAs of both developed and developing Members, “the practice of not imposing customs duties on “electronic transmissions” is a standard feature of most e-commerce chapters and/or digital economy agreements.” They further said, “none of the existing agreements applying to e-commerce specify that the moratorium applies only to the electronic transmission as carrier medium, i.e., excluding content.” “There are a variety of approaches to the way that FTA moratorium provisions are drafted,” the 14 countries said, insisting that regarding content, “some trade agreements/provisions specify that deliveries by electronic means are considered to be the provision of services while others refer to digital products.” “Even though these approaches may differ, they similarly result in the content of the electronic transmission not being subject to customs duties,” the proponents argued. Seemingly worried over the termination of the moratorium as mandated by trade ministers at MC12 (in the absence of an extension), the proponents touted the benefits of the moratorium. “The benefits of the moratorium for businesses around the world, including in developing country Members and Least Developed Countries (LDCs), are significant. This is particularly the case for micro, small, and medium- sized enterprises (MSMEs), which are the lifeblood of the global economy.” Without any apparent credible evidence, the proponents argued that “the moratorium reduces the cost of engaging in trade, for instance, with respect to transport costs which can amount up to 30%, increases access to knowledge and digital tools such as software, and facilitates participation in global and regional value chains.” The moratorium, according to the proponents, “reduces the barriers to MSMEs’ participation in international trade, provides businesses with legal certainty, and facilitates investment decisions.” The US, at the meeting on 18 July, apparently supported the proposal circulated by the 14 countries that insists that electronic transmissions include content through the internet in the e-commerce moratorium. Washington apparently criticized Indonesia on its e-commerce regulations, including levying customs duties on digital goods, said people familiar with the discussions. DEVELOPING COUNTRIES PUSH BACK India and South Africa have consistently demanded the termination of the moratorium, which finally led to the MC12 decision to terminate the moratorium unless the General Council or MC13 decides otherwise, said people familiar with the discussions. At the meeting on 18 July, India and South Africa pointed out the weaknesses of the arguments put forward by the 14 countries in their submission (in document W/889) on 7 July. India noted that paragraph 2.2 of the proposal states that the moratorium “is commonly understood to cover anything transmitted by telecommunications”. This interpretation leads to an implication that all services which are delivered via Internet, i.e., via Mode 1 are included in the scope of the moratorium. However, trade in services is covered under the GATS disciplines. The application of the moratorium can neither alter the GATS commitments and flexibilities i.e., the “positive list approach” from developing countries, nor introduce the concept of customs duties in the GATS context. It was highlighted that while the submission talks about the benefits of the moratorium for MSMEs, one industry where electronic transmissions have completely changed the characteristics of the industry, is the music industry. There has been a surge in imports of music in developing and least developed countries with the unprecedented growth of streaming services, which face no customs duties and governments have no control over their imports. This has also led to the concentration of markets and only 3 companies in the world dominate the global music market, earning more than 70% of the total revenue generated. In fact, MSMEs working in this industry have been wiped out due to the structural transformation of the industry. India pointed out that while there are concerns expressed today about the MSMEs in developing countries, let us not forget that they do face tariffs in the normal course of trade. In fact, the same MSMEs are increasingly being subject to stiffer non-tariff barriers by the developed countries in every sphere of trade. They are being subject to unilateral measures like border carbon adjustments and other trade measures linked to the environment, creating existential challenges for these firms. This should be clear from the discussions happening in the bodies of the WTO dealing with goods and agriculture trade. Further, the assertion made in the paper W/889 that women entrepreneurs are flourishing in the digital business due to this moratorium is not backed by data. A study by OECD (2018) estimates that the global digital gender divide in internet usage between developed and developing countries has increased in the period 2013 to 2017. OECD study has further illustrated how women are relatively disadvantaged in the “digital components” of digital literacy. ITU (2017) has highlighted that the digital gender gap has widened in Africa during this period. It was stated that the paper emphasizes that “attempts to protect businesses by imposing discriminatory taxation on foreign imports are counterproductive”. This argument is not supported by historical evidence for nascent industries. Today’s advanced countries using customs duties as a tool for policy space to industrialize during the past industrial revolutions is a well-known fact. Whether the developing countries would want to use this tool for digital industrialization is a choice best made by the developing countries themselves without being patronized. Both India and South Africa highlighted that in many FTAs, the decision to not impose customs duties on electronic transmissions has been subjected to the equivalent WTO decision. Once the WTO E-commerce moratorium ends, it will also imply that this provision will come to an end in many bilateral and regional FTAs as well. Removal of the Moratorium will increase the regulatory and fiscal space of developing and least developed countries which will bring fiscal gains to the countries both in the short term in terms of tariff revenues and in the long term because of improved competitiveness. Lack of consensus on the scope of the Moratorium has increased the uncertainty as governments do not know what is included under the scope of the Moratorium. As the digital revolution is still unfolding and countries are becoming aware of the risks of digital technologies like Artificial Intelligence, there is uncertainty around what will enter their countries as “electronic transmissions”. Removal of the Moratorium will bring more certainty for the developing and least developed countries as they will be able to monitor and regulate what enters and leaves their national boundaries. Argentina apparently said that though it supports the continuation of the moratorium, it does not reckon that transmissions would include content, while Turkiye said that “the moratorium lacks clarity and causes different interpretations by Members,” said people familiar with the discussions. TURKIYE’S STAND Turkiye said more work is needed “to better understand the scope and effects of the Moratorium,” suggesting that it is preparing to circulate a paper with members, which contains questions on how to interpret the Moratorium and how we can make it more clear. “As the Moratorium remains ambiguous,” said Turkiye, “we believe the so-called evidence-based studies that have been cited are not credible as even those studies highlight the fact that the scope is not available and they base their results on various different interpretations of possible scopes.” Therefore, said Turkiye, “We believe it is the job of this house to define and agree upon what actually the Moratorium wants to say, and then we can discuss the effects of the Moratorium on e-commerce and trade revenues. That way it would make it a lot easier to conduct internal consultations as well as form a definitive position with regard to the continuation of the Moratorium or making it permanent.” Turkiye said, “given the non-binding and ambiguous nature of the current Moratorium, Turkiye will not object to a renewal as it is but also not support making it binding and permanent without clarifications.” INDONESIA’S E-COMMERCE REGULATIONS Against this backdrop, Indonesia presented its current e-commerce regulations at the meeting on 18 July. Its presentation is summarized below: 1. Indonesia fully supports the robust global development of e-commerce and current digital technology. Indonesia is of the view that members of WTO, especially developing countries and LDCs, should be provided with instruments to support public policy objectives whilst at the same time maintaining effective customs control in trading across the border and upholding national sovereignty. 2. Indonesia believes that customs duties represent the most precise and effective policy tool for the government to regulate the importation of electronically transmitted digital goods, serving as one of the primary forms of fiscal rights of a state. Imposing customs duties on digital goods will not lead to any trade distortions at the global level, nor will it create any undue administrative burdens for the importation process of digital goods that are transmitted electronically. 3. The provisions of digital goods importation, which Indonesia has implemented, accommodate usefulness and easiness to the importers in declaring import declaration. There are no obstacles or complaints so far from the importers of digital goods in fulfilling the regulation. As a result, there has been a significant increase in the import declaration of digital goods since the implementation of the regulation in January 2023. 4. The implementation of monitoring of electronically transmitted digital goods, will generate statistical data that in the long run is very useful for developing countries and LDCs to promote local companies, especially their MSMEs and digital talents, to be able to compete globally with international companies, as well as to formulate other strategic policies including domestic software development, human resource quality improvement, etc. The US apparently expressed opposition to Indonesia’s e-commerce regulations at the meeting. Nevertheless, the developing countries stood their ground and laid bare the adverse impact of the moratorium and how it has provided market access for goods from industrialized countries since 1998. In short, the moratorium on customs duties on electronic transmissions appears to have depleted the fiscal reserves of developing countries by denying them customs duties on electronic transmissions for cross-border services, said people, who asked not to be quoted. +
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