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TWN
Info Service on WTO and Trade Issues (Feb25/13) Geneva, 26 Feb (D. Ravi Kanth) — The Trump administration has now turned its attention to digital services taxes (DSTs) under its proposed reciprocal tariff plan, as well as securing a permanent moratorium on customs duties on electronic transmissions, according to a memo issued by the White House on 21 February. The Trump administration’s intention to make the current moratorium on customs duties on electronic transmissions permanent has now been made public, despite the decision taken by ministers at the World Trade Organization’s 13th ministerial conference (MC13) in Abu Dhabi in March last year to terminate the moratorium by 31 March 2026. The new memo, titled, “Defending American companies and innovators from overseas extortion and unfair fines and penalties”, was unveiled on 21 February. Effectively, the Trump administration appears to have decided to set aside the previous WTO ministerial decisions on the e-com moratorium, said people familiar with the memo. The Trump administration has made it clear that its “digital economy”, driven by cutting-edge American technology companies, has come under attack from foreign governments, which have “increasingly exerted extraterritorial authority over American companies, particularly in the technology sector, hindering these companies’ success and appropriating revenues that should contribute to our Nation’s well-being, not theirs.” The rather accusatory language deployed in the memo by the world’s largest economy has now become the lingua franca for extracting market access from services to critical raw materials from a beleaguered Ukraine, said people familiar with the development. MEMO ON DSTs The latest memo issued by the Trump administration says that “beginning in 2019, several trading partners enacted digital services taxes (DSTs) that could cost American companies billions of dollars and that foreign government officials openly admit are designed to plunder American companies,” an allegedly false statement without any material evidence. The memo further says that “foreign countries have additionally adopted regulations governing digital services that are more burdensome and restrictive on United States companies than their own domestic companies.” To recall, several European Union countries, including France, as well as New Zealand and Canada among others imposed digital services taxes on grounds that they are a better option in light of the WTO’s moratorium on customs duties on electronic transmissions. To counter countries such as India and South Africa that called for the termination of the moratorium at the WTO’s 12th ministerial conference (MC12) in Geneva in June 2022, and later agreed on its expiry at MC13 in Abu Dhabi in March last year, the advocates of DSTs always justified them as a better option. The MC13 decision (WT/MC(24)/38) states: “we agree to maintain the current practice of not imposing customs duties on electronic transmissions until the 14th Session of the Ministerial Conference or 31 March 2026, whichever is earlier. The moratorium and the Work Programme will expire on that date.” With the WTO’s 14th ministerial conference (MC14) slated to take place in Yaounde, Cameroon on 26 March 2026, it remains to be seen whether the moratorium will be finally terminated or made permanent, said people familiar with the development. The termination of the moratorium on customs duties on electronic transmissions could adversely affect the revenues of Google, Amazon, Meta (previously known as Facebook), Apple, Microsoft, Alibaba, and Tencent among others, said people familiar with the development. But with the Trump administration having brought the issue of DSTs onto the center-stage, the tariff battle allegedly assumes a dangerous dimension altogether, said people familiar with the development. “Trump’s Memo on DSTs and the push for its implementation will make many developing countries lose their policy space to regulate the online delivery of services. In order to sustain any kind of competitiveness in services and retain GATS flexibilities to build their own services sector (which is the largest provider of employment in many countries), it becomes critical to remove the Moratorium on Electronic Transmissions. The use of customs duties on online imports is the most simple and effective way to regulate what enters the national boundaries. The advancements in Artificial Intelligence further makes it important to terminate the Moratorium and regulate online imports, as unregulated online imports may pose significant national security risks,” said an international expert on services. Surprisingly, while the previous Biden administration pulled out its proposal on cross-border data flows from the Joint Statement Initiative (JSI) negotiations on digital trade last year, the Trump administration has accused foreign governments like the EU and China among others by saying that “additional foreign legal regimes limit cross-border data flows, require American streaming services to fund local productions, and charge network usage and internet termination fees.” Interestingly, the Trump administration says in the memo that it “will not allow American companies and workers and American economic and national security interests to be compromised by one-sided, anti- competitive policies and practices of foreign governments. American businesses will no longer prop up failed foreign economies through extortive fines and taxes.” In the second section of the memo concerning “Policy”, President Donald Trump elaborated on how his administration will impose tariffs on countries levying DSTs. “It is the policy of my Administration that where a foreign government, through its tax or regulatory structure, imposes a fine, penalty, tax, or other burden that is discriminatory, disproportionate, or designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favored domestic entities, my Administration will act, imposing tariffs and taking such other responsive actions necessary to mitigate the harm to the United States and to repair any resulting imbalance.” The US will consider when to take responsive action based on the following guidelines: * taxes imposed on United States companies by foreign governments, including those that may discriminate against United States companies; * regulations imposed on United States companies by foreign governments that could inhibit the growth or intended operation of United States companies; * any act, policy, or practice of a foreign government that could require a United States company to jeopardize its intellectual property; and * any other act, policy, or practice of a foreign government that serves to undermine the global competitiveness of United States companies. Under the section on “Agency Responsibilities”, President Trump states in the memo that “the United States Trade Representative shall determine, in accordance with applicable law, whether to renew investigations under section 301 of the Trade Act of 1974 (19 U.S.C. 2411) of the DSTs of France, Austria, Italy, Spain, Turkey, and the United Kingdom, which were initiated under my Administration on July 16, 2019, and June 5, 2020. If the United States Trade Representative determines to renew such investigations, he shall take all appropriate and feasible action in response to those DSTs.” The USTR “shall determine, consistent with section 302(b) of the Trade Act of 1974 (19 U.S.C. 2412(b)) (section 302(b)), whether to investigate the DST of any other country that may discriminate against United States companies or burden or restrict United States commerce.” Accordingly, the USTR shall further “determine whether to pursue a panel under the United States-Mexico- Canada Agreement on the DST imposed by Canada and whether to investigate Canada’s DST under section 302(b). In making these determinations, the United States Trade Representative shall consult with the Secretary of the Treasury, as appropriate.” President Trump states in the memo, “the Secretary of the Treasury, the Secretary of Commerce, and the United States Trade Representative shall jointly identify trade and other regulatory practices by other countries, including, without limitation, those described in section 2 of this memorandum, that discriminate against, disproportionately affect, or otherwise undermine the global competitiveness or intended operation of United States companies, in the digital economy and more generally, and recommend to me appropriate actions to counter such practices under applicable authorities.” Promoting the “America First Trade Policy”, President Trump further states in the memo: “The Secretary of the Treasury, the Secretary of Commerce, and the United States Trade Representative shall investigate whether any act, policy, or practice of any country in the European Union or the United Kingdom has the effect of requiring or incentivizing the use or development of United States companies’ products or services in ways that undermine freedom of speech and political engagement or otherwise moderate content, and recommend appropriate actions to counter such practices under applicable authorities.” Further, the memo states that “the Secretary of the Treasury, in consultation with the Secretary of Commerce and the United States Trade Representative, shall determine whether any foreign country subjects United States citizens or companies, including, without limitation, in the digital economy, to discriminatory or extraterritorial taxes, or has any tax measure in place that otherwise undermines the global competitiveness of United States companies, is inconsistent with any tax treaty of the United States, or is otherwise actionable under section 891 of title 26, United States Code, or other tax-related legal authority.” “The Secretary of the Treasury shall include the results of this determination as part of the report required in section 2 of the Presidential Memorandum of January 20, 2025 (The Organization for Economic Co-Operation and Development (OECD) Global Tax Deal).” E-COM MORATORIUM Significantly, the current moratorium on customs duties on electronic transmissions has also been brought into the memo, stating that “the United States Trade Representative shall identify tools the United States can use to secure among trading partners a permanent moratorium on customs duties on electronic transmissions.” It adds that “the United States Trade Representative shall include the results of this review as part of the report required in section 5( c) of the America First Trade Policy Memorandum.” The above decision places the proverbial “sword of Damocles”over India and South Africa among others for their sustained efforts to terminate the e-com moratorium, said people familiar with the development. GENERAL PROVISIONS As part of “General Provisions,” the memo has stipulated several provisions to avoid any conflicts in intra- division work. The provisions include: (a) Nothing in this memorandum shall be construed to impair or otherwise affect: (i) the authority granted by law to an executive department or agency, or the head thereof; or (ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals. (b) This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations. (c) This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person. In short, what is being seen from the Trump administration are: “(1) broad and varied proposals for US tariffs, along with (2) strong demands for foreign governments to lower their tariffs and remove their taxes and regulations, even where the latter are not intentionally discriminatory,” said former US trade negotiator Simon Lester in a post on the International Economic Law and Policy (IELP) blog. He asked, “How are the two sides of this equation going to come together? Is there a massive trade war coming, or will there be some kind of grand bargain that mostly keeps the peace?” +
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