TWN Info Service on WTO and Trade Issues (Jun19/08)
14 June 2019
Third World Network

War of attrition on e-com duty-free talks?

Published in SUNS #8924 dated 13 June 2019

Geneva, 12 Jun (D. Ravi Kanth) – Negotiations at the World Trade Organization (WTO) on extending the existing moratorium for not levying customs duties on “electronic transmissions” appears set to become a war of attrition between the developing countries on the one side, and the developed on the other.

The developing countries led by India and South Africa among others have called for multilateral solutions in the e-commerce negotiations as mandated under the World Trade Organisation’s 1998 work program.

The WTO’s eleventh ministerial conference in Buenos Aires (MC11) in December 2017 had called for re-energizing the e-commerce negotiations based on the 1998 work program.

Yet, in a concerted show of defiance, the developed countries led by Japan, Australia, the United States, the European Union, and New Zealand among others are insisting that they will only pursue the plurilateral route for finalizing outcomes in the e-commerce.

The double standards of the developed countries is brought into sharp focus vis-a-vis their stances on e-com negotiations including on the issue of the moratorium on duty-free e-com transactions (that expires at end of this year) and negotiations for disciplines on fisheries subsidies.

The developed countries want new disciplines for fisheries subsidies to be negotiated through the multilateral process in the Doha rules negotiating body, but they are not prepared to do the same in e-commerce negotiations as mandated by trade ministers at the WTO’s eleventh ministerial conference.

[While insisting on plurilateral negotiations on e-com rules and issues, these countries at various fora have been coy in responding to pointed questions on how their plurilaterally negotiated rules can find its way into the WTO rule-book, without violating the Most-Favoured-Nation rule or without multilateral consensus decision at a Ministerial Conference for a plurilateral agreement. SUNS]

In their proposal circulated on 3 June, India and South Africa have called for reassessing the moratorium on electronic transmissions because of adverse fiscal implications arising from loss of customs revenue, and lack of clarity on what would constitute e-commerce transmissions.

India and South Africa, who are not members of the Joint Statement plurilateral group led by Japan, Australia, Singapore, the United States, the European Union and 45 other countries, have all along demanded multilateral solutions to e-commerce under the existing 1998 work program.

The joint proposal submitted by India and South Africa to the WTO’s General Council, which is the second highest forum for addressing issues multilaterally during the inter-ministerial meetings, will come up for discussion on 17 June.

India and South Africa maintained that it is not clear whether electronic transmissions include electronically transmitted goods and services.

Consequently, there is an urgent need to arrive at a common understanding on this critical issue before the e-commerce moratorium comes up for review in December 2019, India and South Africa have insisted.

According to India and South Africa, developing countries and least-developed countries faced a potential loss of customs tariff revenue to the tune of around $15 billion due to the moratorium in 2017.

Based on a study conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2019, India and South Africa have pointed out that the top six countries that face the maximum tariff revenue loss due to the moratorium are Mexico ($1.9 billion), Thailand ($1.7 billion), Nigeria ($580 million), India ($497 million), China ($493 million) and Pakistan ($367 million).

Even on issues concerning the scope and definition of “electronic transmissions”, there are differing opinions among members on whether “content” is covered in “electronic transmissions”, and the consequent significant implications this has for calculating revenue losses.

Besides, the growing internal duties imposed on digital products and services in Australia, New Zealand, the EU, Indonesia, and India among other countries showed “that imposing customs duties on electronic transmissions may also be technically feasible,” India and South Africa have argued.

Worse still, the “moratorium” will negatively impact the efforts of many developing countries, which are laggards as far as digital industrialization is concerned, to industrialize digitally, India and South Africa argued in their proposal.

“In short, with no customs duties on the imports of ET (or electronic transmissions that would include software, data and computer aided design or CAD files – which are core resource for 3D printing and which will increasingly be used in almost all manufacturing industries), the dependence of manufacturing sectors in developing countries on ET from the developed countries will considerably increase,” India and South Africa said.

Industrialization in developing countries, particularly digital industrialization, creation of local employment, and erosion of trade competitiveness of SMEs [small and medium enterprises in developing countries], will be negatively impacted due to the moratorium, the developing countries have argued.

Against this backdrop, India and South Africa had called on the General Council to “revisit” all the fiscal and other issues centering on the moratorium for not imposing customs duties on e-commerce transmissions.

Instead of responding to the joint proposal from India and South Africa for reassessing the moratorium on e-commerce transmissions at the General Council, the proponents of the informal Joint Statement Group seeking ambitious outcomes in digital trade chose to fire a salvo on a plurilateral basis.

Without naming the proposal from India and South Africa, one of the members of the plurilateral Joint Statement Group launched by trade ministers in Davos on 25 January this year circulated the “possible customs duties text” on 11 June.

New Zealand, which is an important member of the plurilateral group on e-commerce and whose trade envoy Ambassador David Walker is the current chair for the Dispute Settlement Body, issued the “possible customs duties text”, saying it supports “a robust and in-depth process for discussion of all trade-related aspects of e-commerce regulation as part of e-commerce negotiations initiated by Ministers in a Joint Statement issued on 25 January 2019.”

Instead of submitting the same text to the General Council, which is due to discuss the India-South Africa proposal for re-examining/reassessing the moratorium on 17 June, New Zealand opted for the plurilateral route.

In its one-page proposal, New Zealand argued that “a prohibition on customs duties on electronic transmissions is trade facilitating – providing more certainty and predictability for businesses and consumers.”

New Zealand also maintained that a permanent moratorium “is likely to provide opportunities for the wider adoption of e-commerce, reducing the costs of market transactions and delivering important flow-on effects, such as the creation of new markets, products and services. By increasing international trade, we support economic growth ultimately enabling governments to collect more revenue.”

New Zealand, however, remained silent on the revenue implications and loss of jobs due to the moratorium for not levying customs duties as argued by India and South Africa in their proposal.

It maintained that it anticipates “proposing text in other areas at later stages of the [plurilateral] negotiation and this proposal is without prejudice to New Zealand’s ability to make further submissions, and to New Zealand’s position on the applicable legal framework.”

According to New Zealand, “no Party [member of the WTO] shall impose customs duties on electronic transmissions, including content transmitted electronically, between a person of one Party [member] and a person of another Party.”

New Zealand, however, did not explain how any plurilateral rule can obligate all WTO members to refrain from levying customs duties on electronic transmissions.

New Zealand, however, is open to “imposing internal taxes, fees or other charges on content transmitted electronically, provided that such taxes, fees or charges are imposed in a manner consistent with this Agreement.”