“Friends of the system”seek extension of e-commerce and TRIPS moratoriums

A number of WTO members have proposed that the current moratoriums on customs duties on electronic transmissions and on “non-violation and situation complaints” under the TRIPS Agreement – of interest mainly to developed and developing countries respectively – be extended until the WTO’s next Ministerial Conference in June.

by D. Ravi Kanth

GENEVA: The developed and several developing countries at the WTO which characterize themselves as “friends of the system,” worried over the prospect of an end to the moratorium on customs duties on electronic commerce by the end of this year, have sought an extension by six months until the WTO's 12th Ministerial Conference, which will take place in June 2020.

The “friends of the system” – which include Switzerland, Australia, Norway, New Zealand, Iceland, Chile, Colombia, Costa Rica, Georgia, Hong Kong-China, Mexico and Singapore among others – have also sought a similar extension for the moratorium on “non-violation and situation complaints” (NVSCs) under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The two moratoriums will come up for consideration at the WTO’s General Council meeting on 11 December.

The “friends” chose to link the two moratoriums on the assumption that a majority of developing and least-developed countries are seeking to continue the moratorium on TRIPS NVSCs without interruption, said a trade envoy who asked not to be quoted.

At the General Council meeting on 15 October, the “friends” – which are all members of the informal plurilateral Joint Statement Initiative on e-commerce – insisted that the two moratoriums must continue without any change until the WTO’s 12th Ministerial Conference, which will be held in Nur-Sultan, Kazakhstan.

In their proposal on the e-commerce moratorium, the “friends” said that “since 1998, WTO Members have periodically taken decisions at Ministerial Conferences to continue their practice of not imposing customs duties on electronic transmissions.”

“Recognizing the potential implications on certainty and predictability for business and consumers from the moratorium lapsing prior to the next Ministerial Conference, we propose an extension of the moratorium until the 12th Ministerial Conference and to continue the work under the Work Programme on Electronic Commerce during this period," they said.

The “friends”added that the moratorium “is without prejudice to Members' right to impose internal taxes, fees or other charges in a manner consistent with WTO Agreements.”

The proposal called for the General Council to adopt a decision to this effect at its meeting in December, with the “friends” saying they would submit a draft decision “in the near future.”

Rethink of moratorium

During an informal General Council meeting earlier in October, the “friends” had vehemently opposed a joint proposal by South Africa and India for a proper reconsideration of the moratorium (see TWE No. 687).

At the 15 October meeting, South Africa's Ambassador to the WTO Xolelwa Mlumbi-Peter emphasized “the need to have a discussion on the work programme and the moratorium on electronic commerce.”

She said that South Africa and India in their joint paper had argued for “a rethink of the moratorium on customs duties on electronic transmissions in light of the fact that prevailing realities have changed drastically since the moratorium was introduced in 1998.”

“In this regard,” said Mlumbi-Peter, “we argued that the debate on the continuation of the moratorium should be driven by concrete facts and statistics.”

She said “the impact of the moratorium needs to be understood from a revenue point of view and from a development perspective.”

“We need to analyze the impact of the moratorium on digital industrialization efforts of developing countries and LDCs,” the South African envoy said.

She added that “fundamental questions around the scope and definition of electronic transmissions, the revenue implication of the moratorium and technical feasibility of imposing customs duties on electronic transactions among others have not been answered.”

“These are critical questions that will inform decision making,” she maintained, pointing a finger at the “friends” who refused to have a “structured discussion on mandated work, with some Members giving attention to the plurilaterals.”

Mlumbi-Peter said “the decision on the moratorium on e-commerce must be made on the basis of clear evidence and concrete facts,” arguing that both India and South Africa had sought “an inclusive debate since new facts about the implications of e-commerce are emerging.”

“It is clear from the information available to us that the e-commerce moratorium is asymmetrical for developing countries both from the revenue point of view and because of the severe negative impact on efforts of developing countries towards digital industrialization,” she said.

She cited the United Nations Conference on Trade and Development (UNCTAD)’s Trade and Development Report 2019 that “confirms a loss in fiscal revenue of more than $10 billion globally as a result of the moratorium, 95% of which was borne by developing countries. Since this estimate is based on only a small number of products and digitalization is rapidly affecting an increasing number of products, this estimate of forgone fiscal revenue could rapidly multiply.”

“With the advent of Industry 4.0 and 3D printing technologies, the moratorium will erode the existing GATT bound rates, which are typically higher in developing countries,” Mlumbi-Peter maintained.

The existing literature and research also unequivocally point out that developing countries would be bearing the brunt of losses of revenue due to the moratorium, she said.

She added that “the call for a deeper discussion does not narrowly focus on the revenue implications of the moratorium”, pointing out that the developing countries are “more concerned about broader trade and industrial policy implications and the impact on our development priorities.”

“Our [developing countries’] core objective,” she said, “is to harness digital trade for our own development and to have the policy space to promote our digital industrial policies. Tariffs are an important industrial policy tool and should not be removed from the toolbox without understanding its implications. Members should have the discretion to deploy this important tool based on their developmental objectives.”

She said South Africa and India would continue with their efforts “to deepen the discussion and engage with Members to further understand and examine the various dimensions of issues surrounding the moratorium so that Members can take a well-informed decision on the moratorium in December 2019.”

India and several other countries joined South Africa to demand a detailed and thorough discussion on the moratorium to consider all the issues.

However, the “friends” largely remained indifferent to the joint proposal from South Africa and India while seeking an extension for the moratorium, according to a trade envoy who asked not to be quoted.

The “friends” want a permanent moratorium at the WTO on customs duties on electronic transmissions.

NVSC moratorium

In their proposal regarding the moratorium on TRIPS non-violation and situation complaints, the “friends” said that “WTO members have periodically taken decisions at Ministerial Conferences to continue their practice of not initiating non-violation and situation complaints under the TRIPS Agreement.”

Unlike with the e-commerce moratorium, on which they remain opposed to any further discussion despite mounting evidence of several negative impacts on developing countries, the “friends”, in their NVSC proposal, maintained that “there is a need to continue discussing this issue among the WTO Members within the TRIPS Council.”

Therefore, “we propose an extension of the moratorium until the 12th Ministerial Conference and to continue the examination of the scope and modalities for complaints of the types provided for under sub-paragraphs 1(b) and 1(c) of Article XXIII of GATT 1994 during this period”.

Earlier, India along with several other developing countries had spoken about the negative impact that "NVSCs in TRIPS can have on the regulatory policy space of Members, on TRIPS flexibilities as well as increasing the complexity in interpreting the TRIPS provisions."

"It can not only have a chilling effect on Members' exercise of their [intellectual property] regimes but also severely restrain ability of Members to achieve other public policy objectives," India said.

Further, India and other developing countries had consistently maintained that "the absence of NVSCs in the TRIPS context does not in any manner threaten or dilute the enforceability of TRIPS-related rights and obligations."

China had also maintained that "the non-violation and situation complaints should not be applicable under the TRIPS Agreement."

In contrast, the US and Switzerland, whose companies dominate the global pharmaceutical industry, have repeatedly called for discontinuing the moratorium on TRIPS NVSCs.

At the General Council meeting, South Africa maintained that "members remain divided on the question of whether non-violation and situation complaints should apply to the TRIPS Agreement at all or whether the application of these types of complaints should be subject to certain modalities."

The South African trade envoy expressed concern over the NVSC remedy that would “have the effect of expanding existing TRIPS obligations or reduce flexibilities that Members currently have."

In short, the "friends" have now brought a linkage between the two moratoriums that would be finally decided at the 12th Ministerial Conference in all likelihood, said trade envoys who asked not to be quoted. (SUNS9002)            

Third World Economics, Issue No. 688, 1-15 May 2019, p6-7, 12