The World Trade Organisation (WTO) is meeting between Feb. 26 and 29 in Abu Dhabi. It will debate the continuation of the moratorium on digital customs taxes or the tariff ban on electronic transmissions

by Umang Sharma, Tapan Thapa

You might not be able to watch your favourite spy movie on Netflix or the latest hilarious romcom that you have been waiting for eagerly to hit Amazon videos for free.

Free streaming of entertainment and data that crosses so many international borders to come to your device may end soon.

So will Tariff-Free e-Commerce.

The World Trade Organisation (WTO) is meeting next week—13th Ministerial Conference (MC 13) scheduled between Feb. 26 and 29—in Abu Dhabi and will debate the continuation, or not, of the moratorium on digital customs taxes or the tariff ban on electronic transmissions.

So, effectively, people will have to pay tolls for their movies or for searching those headphones made abroad on an e-commerce platform if the moratorium, set to expire in March and which has been renewed annually since 1998 at the WTO, lapses. The 1998 Declaration on Global Electronic Commerce said: Members will “continue their current practice of not imposing customs duties on electronic transmissions”. The same has been replicated and ratified every year subsequently.

What is at stake is the hitherto taken-for-granted fact that tariff ban has been the engine driving the fastest growing segment of world trade, namely, digital goods and services.

Who Is Opposing Tariff Ban?

Developing countries have long argued that absence of tariff ban on digital goods and services—the number of digitizable goods is growing fast—has caused huge financial losses to them, while the West—US, UK, EU—have enjoyed their dominance in BigTech and made moolah.

According to reports, three big but developing economies are up in arms to shoot down the moratorium—India, Indonesia and South Africa.

A Reuters report quoted Indian officials in the know of things, but were not names due to service regulations, as saying that earlier several goods such as books, videos or music came in physical forms. These have now been digitalised and, therefore, be taxed.

“At present there is no consensus on the scope of what this moratorium is… and we will oppose the extension of the moratorium,” one of the officials said.

India Wants Industrialisation 4.0

A communication circulated at the WTO by India and South Africa— ‘Work Programme on Electronic Commerce/The E-Commerce Moratorium: Scope and Impact’—in 2020 pegged the loss of revenue to developing nations at $10 bn.

The Indian position laid out in the document can be simply put as ‘times have changed’.

“In 1998 when the Moratorium decision was taken, the digital economy was at its earliest inception. At that time, the world wide web was only starting to be used by the general public. There was no clarity regarding how the economy would be transformed by digital advancements.”

“Today, the digital economy is growing rapidly. This is radically changing trade as we knew it. With the advent of the new technologies - 3D printing, Big Data Analytics, Artificial Intelligence, our economy is being further transformed. With regards to traditional trade in goods, 3D printing is expected to be a game changer.

India argued that the digital economy has been growing at an exponential rate and the implications of the moratorium “mostly unforeseen in 1998” must be addressed.

“The main impact is the loss of the use of tariffs as a trade policy. Tariffs are a tried and tested policy tool for supporting infant and even mature industries. All successful economies have arrived at higher levels of development because they started off first giving domestic industries the protection through tariffs to grow and gain competitiveness. Oftentimes and even up till today, tariffs are still being implemented to support industries that may not be so competitive (including in developed countries, for example in agriculture, or the steel and aluminium sectors) as there are other policy imperatives such as employment and ensuring that the economy does not lose productive capacities. If tariffs are important to developed countries, what about developing economies?”

“The loss of the use of tariffs for the digitized goods as a result of the moratorium therefore poses very profound challenges for developing countries including, the impact on Industrialisation due to the loss of the use of tariffs as a critical trade policy instrument; tariff revenue losses; and loss of other duties and charges.”

Huge Gap Between Developing, ‘Hyper-Digitalised’ Developed Nations

The communication also underlined the gap between developed or “hyper-digitalised” and developing nations when it came to export of digital goods and services.

“In 2000, developed countries accounted for 91 per cent of exports of digitisable products, while developing countries’ share was only 9 per cent. Today, with the exception of China, the situation has not changed to any significant degree. Three countries account for 80 per cent of the cross-border e-commerce in the world: US, China and the EU.”

“Clearly the benefits of digital economy are highly uneven and it does not serve all people equally. Under the current configuration of policies, rules, market dynamics and corporate power, economic gaps are likely to increase,” the paper added.

India and South Africa have argued that removal of moratorium would not necessarily mean slapping customs across the board, but will boost domestic digital industrialisation and generation of jobs in the domestic market in “Industry 4.0”.

India’s General Ideological Drift

The economic think-tank of RSS (Rashtriya Swayamsevak Sangh, the ideological fountainhead of the Prime Minister Modi-led BJP government at the Centre), the Swadeshi Jagaran Manch (SJM) is of the view that the “current moratorium on custom duty on electronic transfer is extremely against the interests of developing countries in general, and India in particular”.

“Imposition of tariff on electronic transmission will be the first condition for success in fourth industrial revolution, namely, digital industrialisation by the developing countries in general, Bharat in particular, and to block the monopoly of developed countries and digital monopolisation by tech-giants, which is already taking an ugly shape,” Ashwani Mahajan, national c0-convenor of SJM told Firstpost.

“The surging trend in digitisation of greater number of products, especially increasing percentage of 3D printing of manufactured goods is showing further losses of tariff revenue. The moratorium, therefore, is not only impacting job creation in electronic sector, but also the revenue generation. We strongly recommend ending this moratorium as also proposed by South Africa. We urge upon the Government of India to use its diplomatic channels to let the moratorium lapse in this Ministerial,” Mahajan added.

West Position

As reflected in the 2020 communication, this is not the first time that developing nations have raised the matter, but this time the mood looks more concrete.

According to a Bloomberg report, Indonesia also believes that owing to the rapid advancement in the digital landscape governments must be allowed to impose tariffs on movement of data. The same report said South Africa’s trade ministry had declined to comment.

While it is still not clear as how this new tariff regime would work—whether bit, byte or entire product will be taxed—Bloomberg cited a study by the Organisation for Economic Co-operation and Development (OECD) that found that taxing digital transmission would add just about 0.1 per cent to government coffers.

The report quoted Keith Rockwell, who had been WTO’s spokesperson in the past and now a fellow at Geneva’s Hindrich Foundation, as saying that the fall of the moratorium would send “a shockwave through the WTO” since it would be the first time since WTO’s inception that members would be voting for introducing new taxes.

The report added that over 180 business groups from across the world are backing the status quo.

Even United Nations Conference on Trade and Development (UNCTAD) wants the status quo to stand. Bloomberg quoted Torbjörn Fredriksson, who heads the agency’s e-commerce wing, as saying that while it was important for countries to adapt to digital commerce, the pace of its growth and expansion made it impossible for some nations.

Western experts believe the move could even “break” the internet.