Risky Business: Is This the End of the WTO’s Moratorium on Electronic Transmissions?

Posted on 9th December 2019

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UPDATE: After writing this article, The World Trade Organization announced a temporary six-month renewal of the e-commerce moratorium on 10 December. However, the issues and risk discussed in this article are still highly relevant and will continue to shape the debate until a more permanent agreement is reached.

As the end of 2019 looms closer, concerns over the decision to renew the World Trade Organization’s (WTO) Moratorium on Electronic Transmissions[1] have become critical. Since 1998, WTO members have continuously sought to extend the agreement, which prohibits the imposition of customs duties on cross-border electronic transmissions. However, the moratorium is due to end on the 31st of December 2019 and there is a significant risk that it will not be renewed. Without the moratorium in place, governments will be free to apply damaging tariffs to any cross-border data flows.

Why is there a risk now?

For years, the moratorium has enabled the exponential growth of the Internet and helped foster a prosperous digital economy. Without the hinderance of traditional tariffs, the digital universe has been able to inspire technological creativity and socio-economic innovation. So why, despite all its apparent advantages, has the moratorium come into question recently?

Although nothing has changed for most national agendas, some governments have started to view tariffs as an economic opportunity; the drastic increase of digital trade would have significant implications for government revenues if it could be taxed. Some countries, namely India, Indonesia and South Africa, have stated their intentions to begin imposing tariffs unilaterally on cross-border data flows. Indeed, last year both India and South Africa jointly introduced a WTO proposal entitled ‘Moratorium on customs duties on electronic transmissions: Need for a re-think’.

Governments in support of the removal of the moratorium have argued that the digitalisation of many consumer goods such as DVDs, CDs and printed books has resulted in major customs revenue losses. In an international comparison, the WTO found that the proportion of tariff revenues generated from digitisable products for governments in developing countries was 60% higher than that of developed countries. Having lost a sizeable portion of their customs revenue to digital products, developing nations – particularly in the Global South – are likely to view the imposition of e-commerce tariffs as a viable solution.

Additionally, the issue of what should fall within the definition of ‘electronic transmissions’ has been a further cause of division for WTO members. According to the WTO, some countries believe it is vital that the moratorium cover ‘contents’ transmitted electronically. However, this opinion is not shared by all, with some countries like Indonesia noting “it is [their] understanding that such a moratorium shall not apply to electronically transmitted goods and services . . . only to the electronic transmissions.” This opinion was evidenced by the controversial actions taken by the Indonesian Ministry of Finance in March 2019 which came close to imposing a new regulation on e-commerce transactions.

How serious is the risk?

According to many advocates of the moratorium, the level of risk associated with revoking the WTO agreement would be extremely high, not only for the digital economy but also for many GDPs. Weighing in on the debate, the Organisation for Economic Cooperation and Development (OECD) has provided compelling evidence in favour of keeping the moratorium in its new report, Electronic Transmissions and International Trade (November 2019). Principally, it found that the relative fiscal benefits for lifting the moratorium would be small and comparatively, vastly outweighed by the disruption to gains in consumer welfare and export competitiveness. Indeed, the OECD has warned countries considering revoking the moratorium not to focus exclusively on their forgone tariff-related revenues, but also to undertake a broader economic cost/benefit analysis.

The International Chamber of Commerce (ICC) Secretary General, John W.H. Denton AO, recently said that “the possible expiry of the moratorium on customs duties on electronic transmissions looms like an iceberg in the already treacherous waters of international trade.” Although the outcome of the moratorium debate remains unclear, discussions so far have set an alarming and uneasy precedent for both international relations and the digital world.

Author: Nikita Andersson, Access Partnership

[1] While the term ‘electronic transmissions’ is not clearly defined in the agreement, in practice it refers to anything from software, emails and text messages to audio and video content streaming.

 

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