E-commerce in the WTO: Reinforcing global inequities

The developed countries view e-commerce as a vehicle for opening up developing-country markets. When the WTO was established in 1995, developing countries were assured that they would stand to gain from the liberalisation of trade carried out under its aegis. No such benefits have accrued and there is no reason to believe the introduction of e-commerce into the WTO, which will only enhance the process of liberalisation, will be beneficial to the developing countries.

Biswajit Dhar

ELECTRONIC commerce has become one of the focus issues as member states of the World Trade Organisation (WTO) prepare for the WTO's 11th Ministerial Conference in Buenos Aires in December.

This issue is not new to the WTO - in 1998, members decided to 'establish a comprehensive work programme to examine all trade-related issues relating to global electronic commerce'. At the same time, the members agreed to 'continue their current practice of not imposing customs duties on electronic transmissions'.

The e-commerce work programme was established just as the Internet was unveiling its enormous possibilities, including in digital trade. In the initial years of their engagement on e-commerce, several members made some attempts to understand the applicability of WTO rules to electronic transmissions. In terms of their decisions pertaining to e-commerce, all that the WTO members have done since 1998 was to ritualistically extend the moratorium on customs duties in every subsequent Ministerial Conference.

In the meanwhile, however, e-commerce had started spawning several complex business models using the growing power and presence of the Internet. This happened as nations, businesses and consumers started becoming increasingly networked. E-commerce was helping in transacting business not only in digital products but also in a wide range of goods and services. The traditional ways of conducting business in the global markets were being seriously challenged by a small band of companies that were able to effectively harness the powers of the Internet.

A technological breakthrough, namely, 3D printing, has further strengthened the sinews of e-commerce. With this technology, products can cross international boundaries while they are in digital form, pushing aside conventional trade where physical goods cross borders. Importantly, the Organisation for Economic Cooperation and Development (OECD) recognises these changing forms of e-commerce in its definition of the business model.

In terms of applicability of the WTO rules, members have, until now, only extended the moratorium on customs duties concerning e-commerce. All this while, however, e-commerce has been opening up a complex agenda of rule-making, since it is really a package of various forms of services that have to be dealt with by the WTO's General Agreement on Trade in Services (GATS). At the same time, border measures on goods encapsulated by the General Agreement on Tariffs and Trade (GATT) are facing an existential threat, with the proponents of e-commerce putting forth strong arguments for a barrier-free world to support e-commerce.

This was the backdrop for the substantive discussions on the future of e-commerce in the WTO that began in 2016. Interestingly, the discussions gained momentum when a group of developing countries, namely the 'Friends of E-Commerce for Development' (FED), began emphasising the importance of e-commerce for their economies, especially for their micro, small and medium enterprises (MSMEs). This development was unique in the two-decade history of the WTO - never before had the developing countries put their might behind a new issue in this forum.

The discussions on e-commerce have largely centred on making the markets open for e-commerce to proliferate. With the 12-member FED and a few other developing countries, including China and members of the Association of South-East Asian Nations (ASEAN), lending their support to opening the markets for e-commerce from a 'development perspective', engaging discussions have been held in the WTO and other forums that have projected e-commerce as the harbinger of the final push to eliminate tariffs.

Among the proposals, the one by China needs to be mentioned. China expects the e-commerce work in the WTO to fully take into account the 'actual situation of Members at different stages of development, in particular the specific demands of developing and least developed Members'. This is an interesting formulation given that the discussions on e-commerce have not considered the preparedness of developing countries to take advantage of the e-commerce platform. The engagement of WTO members on e-commerce is diametrically opposite to that in the case of the WTO's Trade Facilitation Agreement (TFA), in which developing countries tried to secure commitments for their financial needs in implementing the TFA. In the case of e-commerce, the FED and countries like China are professing the view that developing countries are already prepared to gain from e-commerce.

The advanced countries, which had seen their push for trade liberalisation face serious opposition from developing-country coalitions in the WTO's Doha Round negotiations, see this as the opportunity to realise their long-awaited ambition of gaining market access. This opportunity could not have come at a better time for them. Economies of the North are beginning to stabilise a decade after the most recent economic downturn, and the additional market access they could gain, if the attempts to free the markets via e-commerce succeed, would do them no harm.

From the viewpoint of the developing countries, two pertinent issues need to be considered in the context of a possible e-commerce-led trade liberalisation. The first is that these countries would lose the conventional trade policy instruments with which they can realise their development aspirations. The second is whether the developing countries have the necessary infrastructure to gain from e-commerce, as has been argued by the proponents of including e-commerce in the WTO.

Across-the-board elimination of tariffs would seriously hurt a large number of developing countries, since these countries have continued to use this conventional trade policy instrument to pursue their development objectives. Thus, in the Doha Round several developing-country groupings have been engaged in trying to recalibrate their tariffs on sensitive products, which includes the demand to provide an additional dose of protection for agricultural products. Therefore, eliminating the tariffs on goods for promoting e-commerce would force a large number of developing and least developed countries to offer concessions without any reciprocal benefits, which could worsen the already widening development gaps between WTO members.

As for the second question of whether the developing countries and their MSMEs would benefit from e-commerce in the WTO, the relevant indicators of digital infrastructure from the World Bank's World Development Indicators need to be seen. There are three indicators critical for the conduct of e-commerce: (i) access to the Internet; (ii) access to fixed broadband; and (iii) access to secure servers.

The data show an interesting trend: most developing countries, including a significant number of those backing e-commerce, have extremely poor access to each of these critical elements of the digital infrastructure. Given such figures and the fact that resources in developing countries are usually very unevenly distributed, there is a very low probability that the MSMEs would get a meaningful share of the digital infrastructure. Thus, the major argument of the demandeurs for introducing e-commerce, namely that MSMEs in developing countries would get access to international markets, simply does not have any substance.

Fast-tracking of the trade liberalisation agenda is the only logical outcome of the current discussion on e-commerce. If this is realised, e-commerce would become the latest vehicle for enhancing global inequities, to which trade liberalisation has contributed aplenty over the past three decades.

The multilateral trading system under the GATT was established in 1947 with the objectives of, among others, 'raising standards of living [and] ensuring full employment and a large and steady growing volume of real income and effective demand'. These aims were re-emphasised when the WTO was established in 1995, but the functioning of the trading system has systematically undermined all its objectives. There is no doubt that the introduction of e-commerce would significantly reinforce this trend.   

Biswajit Dhar is a Professor of Economics at the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi.

*Third World Resurgence No. 324/325, August/September 2017, pp 26-27