Digital transformation aid must not be conditioned on e-commerce rules

Adoption of proposed multilateral rules on electronic commerce should not be made a condition for aid to developing countries, which instead need to first build up their digital economic capacity, heard a recent forum on “aid for digital transformation”.

by Kinda Mohamadieh

GENEVA: Developing countries should not join negotiations on multilateral e-commerce rules before having in place adequate digital industrialization policies.

This was a key message from a session on “Aid for Digital Transformation” organized by South Africa during the Aid for Trade Global Review at the WTO. The Review took place from 3 to 5 July.

Other core messages included that self-financing mechanisms and home-grown domestic financing solutions are needed for digital transformation and for investing in national and regional infrastructure.

If developing countries are not prepared, the digital revolution will not only impact their competitiveness in future markets, but might also lead to their loss of competitiveness in current markets.

Digital transformation strategy

The Ambassador of South Africa to the WTO, Xolelwa Mlumbi-Peter, who moderated the session, underlined the need to leverage digital transformation for development, which requires addressing the digital divide, investing in digital infrastructure, and enhancing developing countries’ ability to manage and analyze data, in addition to advancing digital skills.

Rashmi Banga, from UNCTAD’s Globalization and Development Strategies Division, highlighted that a comprehensive strategy for digital transformation entails digital infrastructure, digital industrial policies, a targeted approach towards digital start-ups and digital innovation hubs, building of digital data analytical skills, as well as developing digitally informed foreign trade policies.

She explained that information and communication technologies are just the first step in digital infrastructure. Along with that, countries need to develop digital skills, build mass market Internet software applications and programs, develop big data infrastructure and cloud computing, and consequently utilize data in artificial intelligence processes.

Data infrastructure is at the heart of the digital infrastructure, she said. National data regulatory policies, including data processing infrastructure, are a core to digital industrialization, she added.

Without such preparedness, the digital revolution might translate for many developing countries as a growing digital divide and loss of competitiveness.

Banga also stressed the importance of investing in cooperation at the regional level, including in building regional cloud computing infrastructure, regional broadband infrastructure, promoting e-commerce at the regional level, regional digital payments, advancing regional digital markets, sharing experiences on e-government, forging partnerships for building smart cities, developing digital innovations and technologies, as well as collecting statistics for measuring digitalization.

She also noted that the potential revenue from customs duties on electronic transmissions is estimated by UNCTAD at $10 billion per annum for developing countries, including $2.6 billion per annum for countries of Sub-Saharan Africa. This could form a source of financing for investing in digital infrastructure and transformation, she stressed.

Vahini Naidu, Counsellor in the South African Permanent Mission to the WTO, underlined that digital transformation requires state-led policies that treat data as a valuable economic resource.

She pointed out a number of regional options for supporting digital transformation in Africa, including the contribution of national and regional development banks, such as the African Development Bank, and the role of regional economic communities of the African Union in enhancing cross-regional cooperation, including in supporting smaller countries of the African continent and advancing regional digital innovation hubs.

Naidu stressed that the promise of aid should not be used to influence developing countries into accepting new multilateral rules on e-commerce. She pointed out that aid promises have often not materialized and that aid should not be conditioned on accepting rules that negatively impact developing countries’ policy space.

(The rules on e-commerce proposed by some WTO member states participating in plurilateral negotiations under the informal joint initiative on e-commerce include: a permanent ban on customs duties on electronic transmissions; prohibition of mandatory source code/algorithmic disclosure requirements; enhanced market access and national treatment for digital service providers; adoption of an unrestricted cross-border data flows regime, including prevention of data localization and of requiring the use of domestic computing facilities or network elements; restrictions on technology transfer requirements; and restrictions on governmental intervention in regard to determining appropriate electronic authentication methods.)

Caution on new rules

The Ambassador of India to the WTO, J.S. Deepak, participating from the floor, highlighted that e-commerce rules proposed for negotiations at the WTO could result in the withering away of existing rules and commitments under the General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS).

The proposed rules would restrain developing countries from undertaking regulatory measures that could one day allow them to take a leadership role in digital trade, he added.

The immense costs associated with such constraints cannot be compensated by any kind of aid schemes. At the same time, aid should not be utilized as a tool to convince developing countries to agree to e-commerce rules, he stressed.

E-commerce is already flourishing and witnessing tremendous growth without the kind of e-commerce rules being proposed for negotiations at the WTO, Deepak emphasized. If a country has the needed infrastructure and skills in place, then it can access and benefit from e-commerce.

He questioned the reasons behind the urgency that some countries project in regard to agreeing to new multilateral rules on e-commerce. He cautioned that this hurry makes one wonder whether the idea is to lead developing countries into signing an extensive set of multilateral rules before understanding their implications on development.

Deepak said developing countries should not get into negotiations on e-commerce rules before having the needed domestic policies in place. In the meantime, potential revenues from customs duties on electronic transmissions, if the current moratorium is lifted, could be used to invest in digital infrastructure, electronic government and other needed digital investments.

He also spoke of the importance of considering the role of a digital tax, pointing as an example to the proposed tax on large digital technology companies in France.

French Finance Minister Bruno Le Maire was reported by the Deutsche Welle website as saying on 3 March that the tax was a matter of “fiscal justice” aimed at companies with worldwide digital revenue of at least €750 million and French revenue of more than €25 million. It was expected to yield French tax authorities some €500 million per year.

According to the article, “The tax would apply to commissions that internet platforms charge on sales made through them, and to revenue from targeted advertising and the sale of user data – but not to direct internet sales to consumers. That would mean Amazon earning money as a digital intermediary between a producer and a client would have to pay, but French electronics retailer Darty which sells directly to customers wouldn’t”. (SUNS8941)           

Third World Economics, Issue No. 684/685, 1-31 March 2019, p16