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TWN
Info Service on WTO and Trade Issues (Mar26/08) Geneva, 9 Mar (D. Ravi Kanth) — The United States together with a group of countries have intensified efforts to extend the current moratorium on customs duties on electronic transmissions indefinitely at the World Trade Organization’s upcoming 14th ministerial conference (MC14), said people familiar with the development. As MC14 gets underway in Yaounde, Cameroon, on 26 March, amid the allegedly illegal war launched by the US and Israel against Iran, Washington, together with several other countries, is intensifying its efforts to secure an indefinite extension of the moratorium, even though it has reduced the WTO to a proverbial vegetable by “atrophying” the WTO’s enforcement function, said people familiar with the development. For the US, the moratorium, in place since 1998, is a “jewel in the crown” as it has turned out to be a huge boon for its tech giants – Google, Apple, Facebook, Amazon, and Microsoft – while developing countries are estimated to have lost more than $10 billion in tariff revenue annually, according to a study by the United Nations Conference on Trade and Development (UNCTAD). US PROPOSAL The US, along with several countries – Argentina, Australia, Costa Rica, Ecuador, El Salvador, Guatemala, Israel, Japan, Korea, Mexico, North Macedonia, Norway, Panama, Paraguay, Peru, Singapore, Switzerland, and Chinese Taipei – recently submitted a joint proposal (Job/GC/WPEC/1/Rev.3) that radically changes the architecture of the moratorium, said people familiar with the development. The MC13 decision stated: “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.” However, the latest proposal by the US and its allies states: “We agree to maintain the current practice of not imposing customs duties on electronic transmissions. For the purposes of this decision, “electronic transmission” means a transmission made using any electromagnetic means and includes the content of the transmission.” Effectively, the US appears determined to institutionalize the moratorium at MC14 somewhat on the lines of the exemption provided under Paragraph 3 of the GATT 1994 (WT/L/810 and Corr.1) for the US Jones Act, said a trade envoy who asked not to be quoted. Amid lack of clarity on what the moratorium on electronic transmissions would constitute – i.e., whether it applies only to digital goods or digitally delivered services – in the face of rapid technological advancement, particularly the development of artificial intelligence (AI), the US proposal brings a new element by introducing the notion of transmissions made “using any electromagnetic means”, which include the content of the transmission, said a digital trade expert, who asked not to be quoted. AI services are delivered through electronic transmissions across all service sectors, including IT services, financial services, professional services, healthcare services, and education services, the expert said, adding that some of these services are also used in sectors like agriculture, manufacturing, and public administration. It appears that transmission of these AI services is made using electromagnetic means which includes internet data transfer via fibre-optic cables, Wi-Fi, satellites, or cellular networks, said the expert. “For example, when you send a prompt to ChatGPT and receive a response, the data travels over the internet using these electromagnetic signals. Not only the signal but also the digital content (text, code, images, etc.) being sent counts as part of the transmission,” the expert said. According to the expert, some may argue that the Application Programming Interface (API)-driven Large Language Models (LLMs) like ChatGPT, Claude, or “deepfakes” are covered under ICT or telecommunication services and therefore should be disciplined under GATS. However, irrespective of whether countries have undertaken commitments in Mode 1 under the GATS in these services sectors or not, consumers in all countries are accessing these AI services provided by LLMs. Further, AI services through electronic transmissions (AI transmissions) can be made available globally via (a) Cloud Platforms (cloud services like Google Cloud or Amazon Web Services) enabling exports of AI capabilities without shipping physical products; (b) Open-Source releases (DeepSeek Models) so developers of other countries can run them locally; or ( c) Application Programming Interfaces (APIs & Licensing) where developers in different nations subscribe for integration into apps and services. As per Washington’s export control rules, cross-border AI access is treated as an export, while under WTO rules, these same transmissions are treated as electronic transmissions which enter without any controls, regulations, or customs duties due to the existing moratorium, the expert said. Over the last few years, several major exporters of AI services have come to dominate the field from the US, China, Germany, South Korea, and France, catering to Asia, Europe, North America, Africa, and beyond. Many developing countries like India export software coding and some Software-as-a-Service or SaaS, but these services are increasingly being replaced by AI. Currently, most of the Asian, African, and Latin American countries are consumers/importers of AI transmissions. POLICY CHOICE Given the domination of AI in almost all areas, the developing countries, including India, could only remain as the takers and not creators, a former Indonesian negotiator said on a background basis. This poses a grim challenge for developing countries, who will need to develop their own infant digital/AI economies. With source code being denied by the US and other AI giants, the developing countries will have to embark on a sustained industrialization program to develop their nascent AI sectors, the negotiator said. It is in this context that developing countries will remain losers if they allow the moratorium on customs duties on electronic transmissions to continue unabated without developing their own domestic AI industries, and India appears to be sensing that it will remain a laggard, said another digital trade negotiator. Even if developing countries are not producing these AI transmissions at present, they will need the fiscal and regulatory policy space in the near future. Removal of the e-commerce moratorium will provide countries with the opportunity to catch-up and bridge the growing AI divide. It can be an extremely useful bargaining chip in their future trade agreements with advanced countries, where they can agree to reduce tariffs on AI transmissions in exchange for removal of tariffs on their exportable products or bargain for partnerships and joint ventures in AI services, which can give them access to much- needed AI technologies. At the recent AI summit in New Delhi over ten days ago, international collaboration was emphasized. However, such collaboration is made available subject to stringent conditions that will not enable the development of AI sectors. Further, AI transmissions, according to analysts, are becoming too critical to be allowed to cross national boundaries without checks and balances. Customs duties are an easy and effective way of protecting and promoting domestic AI and digital services. These are being used extensively by the advanced countries to protect their digital industrial sectors, for example, by the US. The Carbon Border Adjustment Mechanism (CBAM) used by the EU is also a tariff equivalent on exports of developing countries. The least developed countries (LDCs) are exempted from taking any commitments at the WTO; however, they will give away their right to impose customs duties if the moratorium continues. Removal of the moratorium can provide them with a new source of tariff revenue generation which will steadily grow in future. According to Rashmi Banga (2022), LDCs could have collected US$5.3 billion in tariff revenue in 2025, if there was no moratorium on customs duties on electronic transmissions. These figures are based only on imports of 49 digitized products. With AI transmissions included, the potential tariff revenues can multiply manifold for LDCs and developing countries. Given the dramatic changes in the international trade landscape, following the unilateral reciprocal tariffs imposed by the US, it is not clear whether India will oppose the extension of the moratorium, said a former Indian trade negotiator. More so, when MC14 is unlikely to deliver on the mandated issue of a permanent solution for PSH, New Delhi faces a litmus test whether it will adhere to its previous positions on the e-commerce moratorium and the proposed incorporation of the Investment Facilitation for Development Agreement into Annex 4 of the WTO Agreement, said a former Indian trade negotiator who asked not to be quoted. +
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