TWN Info Service on WTO and Trade Issues (Jul18/17)
24 July 2018
Third World Network
India-South Africa call for re-examination of e-com tax moratorium
Published in SUNS #8727 dated 23 July 2018

Geneva, 20 Jul (D. Ravi Kanth) - India and South Africa have called for "re-examining" the implications of the current temporary moratorium on electronic transmissions from a "development" perspective at the World Trade Organization because of the changed realities in electronic commerce during the last two decades and the staggering revenue loss for the developing countries, trade envoys told SUNS.

Ahead of the General Council meeting next week, India and South Africa raised fundamental concerns about the continuation of the temporary moratorium due to various implications on the rule-making and fiscal side, particularly for developing countries.

In their proposal (WT/GC/W/747) circulated on 12 July, the two major developing countries said the temporary moratorium since 1998 needs to be reassessed in the context of rapid changes concerning "electronic transmissions" and other changes.

"These changes necessitate a re-examination of the implications of the temp orary moratorium, particularly from the development perspective," India and South Africa argued.

They maintained that there is no "definitive estimate of the volume of cross-border electronic transmissions" until now.

But, "it is likely that the volume of such transmissions has increased manifold over the past two decades," according to India and South Africa.

Moreover, electronic transmissions "were mainly used to deliver digitalized products, such as e-books, music and a variety of services," until a few years ago.

In the current context of "increasing diffusion of additive manufacturing technology through 3-D printing, electronic transmissions have now acquired an additional salience in manufacturing physical products," India and South Africa maintained.

These trends in electronic commerce "are likely to become more prominent in the near future, thereby bringing electronic transmissions closer to the center-stage of national economies," the two sponsors argued.

In short, the rapid changes, according to India and South Africa, compel WTO members to "rethink the role of the temporary moratorium on customs duties on electronic transmissions."

With "more products, which are presently traded in physical form, get digitalized and delivered through electronic transmissions," the moratorium on customs duties "would result in higher revenue loss," India and South Africa argued .

The two sponsors cited analysis conducted by UNCTAD that pointed to the loss in customs revenue that would be suffered by developing countries if the temporary moratorium is made permanent.

Besides, "a moratorium on customs duties on electronic transmissions could imply that customs duties are not imposed on products exported in digitalized form, even if the bound rate on the same product, if it is delivered in the physical form, is not zero."

Consequently, "a moratorium on customs duties on electronic transmissions could in effect undermine the existing schedule of tariff concessions of WTO Members," India and South Africa pointed out.

Also, with the developing countries having average bound tariffs well above that of the developed countries, "a moratorium on customs duties on electronic transmissions could significantly alter the negotiated balance of rights and obligations," the two sponsors argued.

Further, there is no clarity about the e-commerce moratorium despite a demand from Indonesia during the eleventh ministerial conference (MC11) in Buenos Aires in December last year.

Indonesia had said on 11 December 2017, that "in regards to the discussion on the moratorium on customs duties on electronic transmissions, it is our understanding that such moratorium shall not apply to electronically transmitted goods and services."

"In other words," Indonesia maintained, "the extension of the moratorium applies only to the electronic transmissions and not to the products or contents which are submitted electronically."

Indonesia further said "we would like to insert a footnote in the outcome document which states "it is understood that such [a] moratorium shall not apply to electronically transmitted goods"."

Against this backdrop, India and South Africa said a related issue which "merits careful consideration is the scope of the e-commerce moratorium."

Besides, "there is no agreed definition nor common understanding amongst the Membership of what is covered under "electronic transmissions"," the two developing countries maintained.

Also, the issue of electronic commerce has assumed considerable importance to "most, if not all developing countries, given the role of development and industrial policies in the digital age," India and South Africa maintained.

In a nutshell, it is imperative that members "re-examine", at the General Council, the gamut of issues ranging from the scope, definition, and the likely violation of bound tariffs on goods that can be electronically shared in a digitalized format, the two developing country-sponsors argued.

The proposal is likely to face a firestorm of opposition from a large majority of developed countries led by the United States and the European Union among others along with several developing countries who had repeatedly called for making the temporary moratorium permanent.

On 12 April 2018, the US had already proposed a maximalist agenda covering all areas of electronic commerce, including on the permanent moratorium on customs duties on "digital products and services."

In its proposal on the joint statement on electronic commerce, the US said: "WTO members have long recognized the importance of ensuring fair, non-discriminatory, duty-free treatment of digital products and services."

"Digital products like apps, songs, books, games, and videos are created disproportionately by small businesses, individual artists, and entrepreneurs - who are generally least able to overcome trade barriers," the US said.

The US urged WTO members to "protect these creators from unfair treatment and guarantee that they can sell their products on a level playing field around the world through the continued application of free trade principles to digital products."

These principles, according to the US, include "duty-free treatment of digital products" and "non-discriminatory treatment of digital products."

Under "duty-free treatment of digital products," the US wants "WTO Members [who] have agreed not to impose customs duties on electronic transmissions" to agree for "tariff-free treatment of digital products."

"Trade rules can ensure that governments continue and make permanent the practice of eschewing customs duties on digital products," the US maintained.

The US wants members to adhere to the "non-discriminatory treatment of digital products", saying it is the core of "the global trading system."

"Trade rules can ensure that these protections against discrimination apply when products are digitized and distributed electronically," the US had maintained.

This US stance on e-commerce customs duty moratorium, is at a time when the US is flagrantly violating the principle of non-discrimination through the Section 232 measures on steel and aluminum, and tariffs on imports of autos and auto products.

The US wants the WTO members to apply the principle of non-discrimination to electronic goods.

Even the WTO director-general Roberto Azevedo wants a new round of negotiations on electronic commerce in utter disregard to the 1998 work program.

In an interview to CNN on Thursday (19 July), he said the best way to answer President Donald Trump's ire on the US$5.1 billion fine on Google is to launch a comprehensive round of negotiations on electronic commerce for framing new rules.

[Presumably in Azevedo's logic, if Google or other Silicon Valley techno near-monopolies violate rules and data privacy of citizens of other nations , and are fined (as has been done in this case by the EU), rules must be altered to enable Google etc to have the right to violate! Apparently Azevedo is WTO DG for the US, and not for the entire membership of the WTO. SUNS]

Azevedo also said that President Trump is justified in launching the unilateral trade measures that violated the most-favored-nation principle and non-discrimination principle during the interview.

In conclusion, the developing and poorest countries face the biggest threat and opposition to their demands on "development" from the US and the WTO chief Azevedo, said several trade envoys who asked not to be quoted.