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TWN
Info Service on WTO and Trade Issues (Feb24/20) Geneva, 22 Feb (D. Ravi Kanth) — The World Trade Organization’s 13th ministerial conference (MC13) starting in Abu Dhabi on 26 February seems like a proverbial clash of “Goliath vs David” over the proposed termination of the moratorium on customs duties on electronic transmissions, and the proposed controversial plurilateral agreement on Investment Facilitation for Development (IFD), said people familiar with the development. On both issues, the battle-lines are being drawn between a large majority of countries on the one side, with two developing countries (India and South Africa) on IFD, and three developing countries (India, South Africa, and Indonesia) on the e-commerce moratorium, on the other, said people familiar with the discussions. In both cases, the majority of countries appear determined to give short shrift to the rules-based WTO to achieve their goals, while India and South Africa want members to live up to the current mandate that was agreed at MC12 in Geneva in June 2022, said people who asked not to be quoted. It appears that all the major developed countries, including those that are not members of the IFD initiative, are likely to put up a massive show of strength at the Abu Dhabi conference hall on 25 February to drive home the message that nothing can stop them from pursuing the plurilateral agreement on IFD, said people familiar with the discussions. E-COMMERCE MORATORIUM On the e-commerce moratorium, there are four proposals on the table for the consideration of ministers at MC13. The first proposal (WT/MIN(24)/W/6) by South Africa seeks the termination of the e-commerce moratorium. It proposes that ministers: “1. Agree to terminate the moratorium on the imposition of customs duties on electronic transmissions. 2. Further agree to re-invigorate the work under the Work Programme on Electronic Commerce, including the development-related issues under it, based on the mandate set out in WT/L/274. 3. Instruct the General Council to deliver concrete outcomes on the implementation of the Work Programme on all the issues allocated to the relevant WTO bodies by December 2024. 4. Agree to establish a Fund that accepts voluntary contributions from developed countries and developing countries in a position to do so to provide developing countries including LDC Members with targeted support to address the digital divide and promote investments in developing domestic SME platforms in developing countries. 5. Agree that all leading platforms must promote greater levels of participation and promotion of historically disadvantaged SMEs on digital infrastructure through among others, funding via fee rebates for on-boarding and subscription, and ad credits or targeted promotions and to improve the visibility of developing countries including LDCs apps through a local app curation and provision of ad credits, as well as through promoting technology transfer.” The South African proposal appears to be in line with the MC12 decision, which states: “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.” The second proposal by India (WT/MIN(24)/W/7) has proposed that: “We agree to build on the progress since last Ministerial Conference and intensify the work under the Work Programme on Electronic Commerce, based on the mandate set out in WT/L/274 and particularly in line with its development dimension. We instruct the General Council to hold periodic reviews based on the reports that may be submitted by the WTO bodies entrusted with the implementation of the Work Programme and report to the next session of the Ministerial Conference.” According to a Reuters news report on 19 February, two unnamed Indian senior officials told the media that India will oppose the continuation of the e-commerce moratorium. The third proposal (WT/MIN(24)/W/8), supported by a number of countries, including the European Union and China, calls for extending the e-commerce moratorium by two years. It states: “We agree to maintain the current practice of not imposing customs duties on electronic transmissions until the 14th Ministerial Conference and to hold further deliberations on the scope, definition, and impact of the moratorium, including through the continued examination of empirical evidence.” The fourth proposal (WT/MIN(24)/W/9) by the ACP (African, Caribbean, and Pacific) group of countries, excluding the African Group, also proposes the extension of the e-commerce moratorium by two years until MC14. In short, India and South Africa, who are asking WTO members to abide by the MC12 mandate, appear to be pitted against many other countries that seem determined to extend the e-commerce moratorium, said people familiar with the discussions. Already, the US Senate Finance Committee has sent a letter to the US Trade Representative (USTR), Ambassador Katherine Tai, asking to ensure the continuation of the e-commerce moratorium. Last week, the G7 trade ministers called for the e-commerce moratorium to be made permanent. “DOUBLE STANDARDS” The alleged double standards of the US and its G7 allies are seemingly exposed against imposing e-commerce tariffs. While they maintain that “Tariffs Are a Legitimate Tool in the Trade Toolbox”, as stated by Ambassador Tai, when it comes to tariffs on e-commerce, they want countries to surrender that policy tool. In 2000, the Trade Division of the UN Conference on Trade and Development (UNCTAD) published a paper, “Tariffs, taxes and electronic commerce: revenue implications for developing countries”, which estimated the impact of the moratorium on developing countries in terms of the potential tariff revenue losses. The paper concluded that: “The fiscal impact of international e-commerce is likely to be felt more strongly in the developing countries: they will face higher losses from customs duties, which make up higher shares in their national budgets compared with the developed countries. They will have less flexibility to replace those losses by shifting to other revenue sources, such as income taxes or social security contributions. In the short to medium term, developing countries will be net importers of e-commerce and hence will run a greater risk of losing tariff and tax revenues if traditional imports are replaced by on-line delivery. Therefore, the development of efficient tax collection systems for e-commerce should be a priority for all developing countries.” UNCTAD’s view on the e-commerce moratorium has remained the same over the years. In its publications in 2017, 2019 and 2020 and also in its various Trade and Development Reports, UNCTAD has fiercely argued for the termination of the moratorium on customs duties on electronic transmissions. In the past five years, UNCTAD has produced three papers on the e-commerce moratorium and its flagship report, the Trade and Development Report 2019, provided estimates of potential tariff revenue losses to the developing countries amounting to $10 billion every year. However, with the new management in UNCTAD since 2021, there has been an alleged attempt to steer UNCTAD’s stance on the e-commerce moratorium towards that of the advanced countries like the EU. In fact, in 2023, UNCTAD joined hands with the International Monetary Fund (IMF), the Organisation for Economic Cooperation and Development (OECD), The World Bank, and the World Trade Organization (WTO) to publish a report on “Digital Trade for Development”, which appears to considerably shift UNCTAD’s position on the moratorium towards that of the advanced countries. Interestingly, the UNCTAD divisions that collaborated on this report apparently were not the ones that have been producing the papers on the e-commerce moratorium. The joint report on “Digital Trade for Development” supports continuation of the moratorium on the basis that the revenue collected will be small (0.33 percent of overall government revenue on average); that VAT could be a better way for taxing digital imports; and that customs duties will adversely impact micro, small and medium enterprises (MSMEs) and women. However, these arguments have been made before by advanced countries like the EU in various statements/ communications, such as in WT/GC/W/889. But these arguments appear to be flawed. The cited figure of 0.33 per cent on average is based on total government revenue of all countries, which includes both developed and developing countries. The correct estimate should be the total tariff revenue collected by the governments in the developing countries. Developed countries’ tariff revenue collection on this is near zero as their bound duties are almost zero. All potential tariff revenue losses are borne by the developing and least developed countries. Further, using “all revenue collected by all governments” as the denominator is a gross under-estimation of the potential tariff revenue collected from imports of electronic transmissions, as total revenue will include corporate taxes, individual taxes as well as revenue collected by the government from other sources. For example, the US federal government collected $4 trillion as revenue in 2023. Also, many questions are left unanswered which could have benefited the developing countries. For example, why should exporters of digital goods (which are big tech firms) be exempted from paying customs duties while exporters of physical goods pay both domestic taxes as well as customs duties?; if services trade via Mode 1 is included in the scope of the moratorium, do developing countries lose out on their GATS flexibilities where they have the right to decide whether to apply discriminatory taxes or not?; why should developing countries not apply customs duties on imports of luxury items like video games, when they want to discourage these imports, especially in the face of food, fertilizer, and energy crises?; in the future as more and more products leave their physical carriers while crossing borders, how significant will the tariff revenue loss become?; and how can governments in developing countries provide a level playing field for their domestic producers if they do not use non-discriminatory tariffs and use only VAT? As countries are lagging behind on the UN Sustainable Development Goals (SDGs), and only 12% of the SDGs are on track, they must explore all the possible sources of generating revenues to enable them to close the funding gap. As more and more goods are digitalized, the removal of the moratorium will provide the governments with a continuously growing source of revenue which can be used to build their digital infrastructure, and progress on their Agenda 2030, said an e-commerce analyst, who asked not to be quoted. The revenue that is generated from the removal of the moratorium can help the governments to bridge their growing gender digital divide. The gender digital divide has been found to be rising steadily among developing countries and within developing countries, especially in Africa. Furthermore, the SMEs are exporters of mostly tangible goods in all countries. It is important to provide them with a level playing field with the big exporters of digital products. Customs duties have always been used as a policy tool for protecting and nourishing infant industries in developing countries. The digital sector – especially MSMEs in the digital sector – needs protection and a level playing field, which can be provided to them only with the removal of the moratorium. More importantly, as the awareness of the possible adverse impacts of artificial intelligence (AI) is growing, advanced countries are making efforts to put in place regulations around the use of AI, but developing and least-developed countries lack the capacities to regulate AI, which may enter their countries as electronic transmissions. Developing countries, therefore, need to start regulating and monitoring the imports of electronic transmissions. Removal of the moratorium will help in this process. The moratorium on customs duties on electronic transmissions has benefited a handful of digital giants such as Apple and Amazon and increased their profits exponentially. Removal of the moratorium will help governments in all countries, including advanced Member States, to gain regulatory space and track the sales and profits of the digital giants. As the digital revolution is still unfolding and digital technologies are still evolving, taking binding commitments for not regulating imports of electronic transmissions in the future may have adverse consequences for the digital transformation of countries, including in many developed Member States, the analyst concluded. In a nutshell, there is too much at stake for the developing countries to allow the continuation of the e-commerce moratorium, said people familiar with the ongoing discussions. +
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