Info Service on WTO and Trade Issues (Nov18/20)
30 November 2018
Third World Network
India, South Africa challenge continuing moratorium on e-com duties
Published in SUNS #8806 dated 29 November 2018
Geneva, 28 Nov (D. Ravi Kanth) - India and South Africa on Tuesday
challenged the global e-commerce giants - the United States, China,
and the European Union among others - at the World Trade Organization
for continuing the moratorium on customs duties on electronic transmissions.
The moratorium, they pointed out, has adverse fiscal implications
and deleterious effects on the digital industrialization of developing
and least-developed countries, trade envoys told SUNS.
But the major e-commerce beneficiaries - the US, China, the EU, and
a couple of other countries - stuck to their dogmatic positions that
any attempt to discontinue the moratorium for not levying customs
duties on electronic transmissions could cause disruption and prove
to be self-defeating for the consumers.
Significantly, the demandeurs of the permanent moratorium on customs
duties on electronic commerce failed to provide any credible evidence,
including technical or empirical evidence, to justify their opposition
to discontinuing the moratorium on electronic transmissions, said
trade envoys, who asked not to be quoted.
At a meeting convened by the WTO General Council (GC) Chair Ambassador
Junichi Ihara of Japan, India and South Africa made detailed presentations
backed with technical data as to why the time has come for a serious
re-think about the moratorium from all aspects.
The GC chair has suggested that the continuation of the current moratorium,
which will come up for review at the WTO's 12th ministerial conference
in Astana, Kazakhstan, in June 2020, must be based on concrete facts
India's trade envoy J S Deepak said the joint proposal by India and
South Africa, which was first circulated at the GC meeting on 26 July
2018, has called for examination of the "impact of the moratorium"
because of significant changes in the e-commerce since 1998.
WTO Members had agreed to the temporary moratorium on customs duties
on electronic transmissions for the first time in 1998.
Ambassador Deepak said that digital trade has rapidly transformed
over the past 20 years, with significant fiscal implications for developing
and least-developed countries.
"Also, looking from the larger development perspective, we need
to analyse how the moratorium is impacting the efforts of developing
countries and LDCs, to industrialize digitally," Ambassador Deepak
He said the proponents of the e-commerce want the moratorium to be
continued on the basis of the findings of the WTO study entitled "Fiscal
implications of the customs moratorium on electronic transmissions:
the case of digitisable goods".
The WTO study, issued on 20 December 2016, however, failed to address
all the issues comprehensively, India underscored.
According to India, as per the WTO's explanation, digitisable goods
are physical goods which have the potential to be electronically transmitted.
"In other words, these are physical goods, currently being traded
physically across borders on which the WTO members can apply their
bound customs duties," India maintained.
Surprisingly, "digitisable physical goods obviously are not the
subject of the e-commerce moratorium," India said, pointing out
that "the e-commerce moratorium applies to electronic transmissions
(ET) which is online, cross- border trade in these products."
The WTO failed to capture these differences in its study, India said.
Citing the example of one digitisable product - book - India said
the WTO study concluded that "trade in books in physical form
is low and if they were to be traded exclusively in electronic form
the loss of revenue would be small."
"But what the [WTO] study does not tell us is that a large and
growing proportion of books are already being traded in electronic
form and because of the moratorium, Members are unable to impose tariffs
on these e-books, even though this is technically feasible,"
Furthermore, there is no assessment of the "burgeoning online
trade in video games, e-books, music and video downloads and software,"
Clearly, "there would be reasonable ways to estimate such trade,"
India said, arguing that the WTO study "completely failed to
capture the revenue loss that has occurred since 1998."
"Another major shortcoming of the WTO study is that it lacks
comprehensive coverage of digitisable goods," India argued, pointing
out that the study " seems to have excluded some important tariff
lines, such as photographic films and software, whose global imports
by developing countries have been substantial."
Also, the WTO study - which is based on applied rates of customs duties
for various products - is not a proper gauge for the loss of revenue
since it does not take into account the bound rates, which Members
have the flexibility of applying anytime, and in this era of protectionism,
are increasingly resorting to, India said.
Consequently, the WTO study which is quoted by the e-commerce moratorium
supporters "grossly underestimates the tariff revenue loss on
account of the moratorium," India said.
"It is, therefore, erroneous to claim on the basis of a study
done on physical trade of products that the moratorium on ET has a
minimal negative impact on custom revenues of developing countries,"
India pointed out.
Worse still, the developing and least-developed countries are unable
to impose "internal charges" due to online trade.
Since all products imported into a country are subjected to "internal
duties such as manufacturing tax or sales tax or value added tax (VAT)
or goods and services tax (GST)," governments find it difficult
to levy such taxes on electronic transmissions.
At a time when e-commerce is dominated by super platforms such as
Amazon and Alibaba among others, the developing and least-developed
countries find it difficult to tax these super platforms.
India cited several OECD studies that focussed on tax challenges of
the digital economy, including the concept of "Base Erosion and
Profit Shifting" (BEPS) which refers to tax avoidance strategies
that exploit gaps and mismatches in tax rules to artificially shift
profits to low or no-tax locations.
Ambassador Deepak quoted the case of Facebook, saying that it "generates
huge profits from its India operation where almost 20% of its global
users are located, but pays an abysmal 0.06% of its total tax outgo
to the Indian government."
Therefore, he said, "the moratorium deprives developing countries
& LDCs, which are large recipients of online traded goods or ET
and have higher tariff rates bound at the WTO, of huge customs revenue."
Against this backdrop, "as online cross-border trade is exploding,
the loss in revenue is also cascading steeply," India said.
More disturbingly, the loss in customs revenue "is augmented
by the additional loss of domestic taxes, making digital trade a huge
revenue loss-making proposition for most developing countries &
LDCs," India argued.
The moratorium, according to India, is replete with negative impacts
on "the efforts of many developing countries, which are laggards
as far as digital industrialization is concerned, to industrialize
Without naming the US which is levying additional duties to protect
its domestic steel, aluminum and other industries, India said members
"know how tariffs play an important role in protecting infant
industries from older and established overseas competitors until they
have attained some economies of scale."
Small wonder that "custom-free imports of digital products will
hinder the growth of the infant digital industry in developing countries,"
Ambassador Deepak said that the moratorium has a "ruinous impact
of digitization on SMEs [small and medium enterprises] in developing
countries & LDCs."
According to a United Nations Conference on Trade and Development
(UNCTAD) study of 2017, "three countries, namely, China, USA
and UK have captured around 70% of the cross-border e-commerce market."
Such a concentration of e-commerce has harmed SMEs in other developing
"Given low levels of broadband penetration and the fact that
only 5% [of] people in developing countries use e-commerce platforms,
the probability of domestic e-commerce to grow in the developing countries
and benefit their SMEs appears to be low," India argued.
"The monopoly pricing powers of behemoths that run platforms
can force sub-optimal contracts on SMEs. Thus, in these countries
digital trade or ETs is harming rather than helping the cause of SMEs,
contrary to what some would want us to believe," India maintained.
Moreover, "with the advent of Industry 4.0, propelled by internet
of things and new technologies like 3D printing and artificial intelligence,
the number of products which can be transmitted electronically will
increase exponentially," India said.
In effect, "the GATT tariff commitment of Members - the bound
rates - of these digitized products will get undermined as more and
more trade moves online," India cautioned.
At a time when "virtually all non-agricultural manufacturing
products can be digitized and, therefore, transmitted electronically,
the moratorium on application of customs duties on ET will be akin
to reducing bound rates to zero on all manufactured products!"
"In other words, the e-commerce moratorium will render meaningless
the existing GATT bound rates, which are typically higher in developing
countries and for which they have made payments in the Uruguay Round,"
Ambassador Deepak said there is "an urgent need for the developing
countries and LDCs to develop their digital capacities for facing
the growing challenge of digital trade" - which will "require
developing national digital industrial policies which match the level
and pace of their digital development."
"For designing such policies it is extremely important for developing
countries to preserve policy and regulatory space in the WTO,"
Given the huge size of the online markets which runs into trillions
of dollars, "even if 10% of this is cross-border ETs, as broad
estimates show, the moratorium is preventing the levy of tariffs on
more than a 100 billion US dollars of trade", with the developing
countries and LDCs being the victims, India maintained.
The moratorium will result in "serious harm to infant digital
industry and SMEs" in developing and poorest countries.
In short, the time has come for revisiting "the key issues identified
by the Members in the context of the e-commerce moratorium,"
South Africa said the moratorium which is temporary in nature provides
the space for Members to consider the revenue implications against
the backdrop of unfolding technological developments.
The rapid digital transformation which is evolving unevenly across
the global economy "poses a range of challenges to governments
across the world in diverse areas including those affecting policies
for industry, trade, employment, taxation, and market competition,
amongst other things," South Africa said.
South Africa's trade envoy Ambassador Xavier Carim said "while
technological advances hold out the promise of a wide range of benefits
and solutions to problems in the economy and in society, such benefits
are not automatic and deliberate policy is needed both to secure their
possible benefits and to respond to the disruptive challenges that
they already pose."
Ambassador Carim said that important "measures should be located
in an overall policy framework that is developmental and inclusive
if we [members] are to reverse or at least attenuate the current trend
of growing inequality and exclusion within and between countries."
Citing the 2017 UNCTAD Information Economy Report, Ambassador Carim
said "a defining characteristic of the digital transformation,
at this stage, is its degree of "concentration", and this
is manifest in many ways."
"The total value of global e-commerce was estimated at around
$25 trillion in 2015, of which around 50% was accounted for by just
four countries [according to the UNCTAD study]," he said, suggesting
that "business to consumer e-commerce was estimated at $2.9 trillion,
of which cross-border business-to-consumer e-commerce was $189 billion."
"On a wider definition, the 2017 UNCTAD paper "Rising Product
Digitalization and Losing Trade Competitiveness" observes that
with the exception of China, almost all developing countries are net
importers of electronic transmissions," he said, arguing that
"three countries account for around 70% of the total cross-border
He said even the WTO study admitted that "there are serious gaps
in the data as it relates to the amount of trade in goods that have
already moved online."
"As a result, the [WTO] Note does not - and cannot - account
for goods already digitalized that would have otherwise attracted
duties," he said.
"The key point is that if all digitalized products that are traded
were included [in the WTO study], the figures would increase dramatically,"
said Ambassador Carim.
"In short, the revenue implications of digitized trade, which
to our understanding means electronic transmissions, has not been
properly measured [in the WTO study]," he maintained.
South Africa said that the WTO Secretariat Note also failed to take
into consideration the bound duties for calculating the revenue losses.
Ambassador Carim said "the UNCTAD 2017 study observes that trade
in electronic transmissions continues to grow and it suggests that
revenue losses could fall disproportionately on those developing countries
that remain net importers."
The UNCTAD study "also provides interesting insights on growth
trends for additive manufacturing. It suggests that the 3D printing
market has grown by 30% per annum since 2012 and that developed countries
account for 68% of revenue from that market," he said.
"More importantly, this trend will shift competitive advantages
away from high volume, low cost centers to those who own customer
networks with serious employment and manufacturing implications for
many countries," Ambassador Carim maintained.
If the moratorium covers this trade, custom revenue losses will also
grow considerably. Clearly this is an area that is going to require
The e-commerce proponents suggested that the moratorium has encouraged
e-commerce growth without mentioning the significant government support
to the development of digital capabilities in major economies, over
"The central lesson" stemming from the government support,
according to South Africa, "is the critical importance of an
appropriately configured digital industrial policy."
He urged the WTO Secretariat to collaborate "with other multilateral
organisations and competent institutions, to continue to work to fill
gaps in the data."
Ambassador Carim said "our [India and South Africa's] call is
not about ending or extending the moratorium, either on a temporary
or permanent basis... It is about the need to have more accurate data
and statistics that enable us to make more informed policy decisions
Several developed countries, including the US and Japan, as well as
China opposed any re-think on the moratorium, saying it would harm
the global e-commerce.
In conclusion, it is clear that the developed countries and China
want to turn a deaf ear to the glaring asymmetries and inequalities
stemming from e-commerce to continue their monopoly grip on digital
trade, said trade envoys, who asked not to be quoted.