Concerns of developing countries on the issue of e-commerce negotiations
WTO disciplines on e-commerce could hurt the domestic industry and consumers in developing countries, cautions Abhijit Das.
WTO members have agreed not to impose customs duties on electronic transmissions since 1998, and the temporary moratorium has been extended at some of the WTO Ministerial Conferences held every two years. In parallel, there is a work programme with an exploratory non-negotiating mandate under which WTO members are discussing different aspects of e-commerce.
There is a push by some countries to shift from discussions to negotiating binding rules on e-commerce. This is premature in the absence of any adequate understanding of key issues related to scope, definitions, implications etc., in the absence of any meaningful technical discussions in the appropriate WTO forums like the Council for Trade in Services, Council for Trade in Goods, TRIPS Council etc. There are areas of immense concern for developing countries inherent in this issue. Some of these are discussed below.
l Prohibiting customs duties on digital trade and mandating duty-free imports of goods ordered online but physically delivered
An ill-informed rush forward runs the risk of the present decision on zero duty on electronic transmissions being prematurely, without full understanding of the implications, extended indefinitely and made a permanent prohibition. The scope of the decision could also be expanded to prohibit imposition of customs duty on e-commerce in general (as against the present decision on electronic transmissions). Thus, even goods sold on e-commerce websites but delivered physically (and not electronically) could become eligible for zero customs duty. Given the proliferation of sales through e-commerce portals, this would amount to market access with binding customs duty at zero. If this outcome were to arise, it would pose a serious threat to the manufacturing sector in developing countries.
l Securing access to the raw material of the digital economy for free
One of the main motivations for the rush to initiate negotiations on e-commerce is the quest of global e-commerce giants for free access to data – the raw material of the digital/information economy. In most developing countries there is little if any appreciation of the fact that the continued survival of the global giants in the digital arena hinges on their ability to secure data from the developing countries for free. This data is used to provide digital products and services to the developing countries – a process that will only intensify in the future. This will make developing countries structurally dependent on imports of digital products and services from the global giants, resulting in adverse implications for employment, income generation and the balance of payments in developing countries.
l Light-touch approach to regulations: Curtailing the policy space of government to regulate against unfair trade practices and prevent market failure
E-commerce is based on disruptive technologies and is rapidly evolving. Thus, governments have a crucial role in regulating this sector to prevent market failures and protect the consumer. Unless this is suitably and thoughtfully addressed, rushed, premature actions may result in severely curtailing the ability of governments to regulate e-commerce. Consequently, governments will not be able to control unfair trade practices, such as predatory pricing, and regulate market failure. It has been alleged by some domestic players that some of the key foreign players in e-commerce in developing countries such as India are indulging in predatory pricing by cross-subsidizing their gains in other markets. Currently the government in countries like India retains the policy space to restrict anti-competitive practices. However, negotiations on e-commerce will potentially eliminate the possibility of the government controlling such unfair trade practices.
l Stifling competition and eliminating domestic players in e-commerce markets
The global market structures in different areas of e-commerce – retail, mobile commerce, digital payments etc. – are highly concentrated. A very high share of the market is accounted for by the players with first-mover advantage. Negotiations on e-commerce would mainly be aimed at facilitating the big global players to penetrate emerging markets. This will curb the prospects and growth of domestic players in developing markets.
l Undermining local technology by mandating adoption of global standards
As countries are at different stages of technological development, at times they have to implement standards that are more aligned to their needs and not use the most advanced standards. One of the potential key outcomes of negotiations on e-commerce would force countries to adopt standards mandated by the developed countries, thereby hampering the growth of domestic products related to e-commerce in developing countries.
l Compromising national security and privacy
The outcome of any rushed actions in this area is likely to curtail the ability of governments to implement measures aimed at safeguarding national security and privacy.
l Under the garb of enhancing connectivity, forcing domestic suppliers to share their infrastructure with foreign players
Under the garb of enhancing connectivity, a likely outcome of negotiations on e-commerce could be that a domestic supplier would be mandatorily required to offer to foreign players access to telecommunications network infrastructure on an unbundled basis and on non-discriminatory terms. Effectively, this obligation would result in foreign telecom service providers getting access to infrastructure created by governments and domestic players in developing countries without being required to pay more than nominal amounts in the name of facilitation.
l Under the garb of consumer protection, preventing consumers from accessing courts
Under the garb of ensuring consumer protection in the online environment, the outcome of negotiations on e-commerce is likely to prevent governments from prohibiting one-sided contracts between online retailers and consumers for resolving disputes arising from their e-commerce transactions. Under these one-sided contracts, consumers are effectively prevented any access to the courts and, in particular, to class action mechanisms for adjudication of small claims in aggregate. Some countries have prohibited such one-sided provisions in dispute resolution clauses in consumer contracts. The outcome of negotiations on this issue would actually harm consumer interests instead of protecting them.
l Using SMEs as an excuse for seeking negotiations on e-commerce, but paying only lip service to their needs
Big foreign players in the e-commerce domain are projecting small and medium-sized enterprises (SMEs) as the main beneficiaries of negotiations on e-commerce. It is true that e-commerce has opened up new opportunities for SMEs. However, it is also true that SMEs are hobbled by multiple challenges that prevent them from participating in e-commerce. If SMEs do not have the capacity to participate in e-commerce, then the outcome of negotiations on e-commerce will bring almost no gains for them. Thus, the focus should shift from negotiating rules on e-commerce to implementing initiatives that can enable SMEs to participate in e-commerce. If this is not done, the outcome of negotiations will be tilted against the SMEs.
l Protecting incomes of global giants under the garb of expanding e-commerce
The global e-commerce market, including cross-border e-commerce, has shown impressive growth. It is poised to grow at a faster pace in the coming few years. However, there is little in the proposals on e-commerce at the WTO which could impart further momentum to the already dynamic market. Instead, these proposals are more about lowering the cost of operations of global e-commerce giants (through free access to data, prohibiting localization of data and servers, mandatory sharing of telecom infrastructure, non-discriminatory sale of spectrum etc.) and boosting their incomes.
E-commerce is an emerging area in the developing world. However, negotiations on e-commerce should be distinguished from e-commerce per se. The obligations that might emerge from WTO negotiations on this issue could require developing countries to go against their own development priorities, thereby compromising the establishment of a vibrant domestic industry. Gains, if any, on this issue are likely to be extremely limited. Domestic players in developing countries are likely to be severely adversely affected by the outcome of any such negotiations.
Instead of pushing for negotiations on new issues such as e-commerce, WTO members should make best efforts to get the Doha Round back on track and prevail upon recalcitrant countries to address the outstanding issues, particularly in agriculture. Further, the WTO should work out modalities for bridging digital inequity before pushing for negotiations on e-commerce.
For these reasons most developing countries strongly oppose any movement in the direction of WTO negotiations on e-commerce.
Abhijit Das is Head of the Centre for WTO Studies at the Indian Institute of Foreign Trade in New Delhi. The views expressed above are in his personal capacity.
Third World Economics, Issue No. 637, 16-31 March 2017, pp9-10