TWN Info Service on WTO and Trade Issues (Oct19/18)
23 October 2019
Third World Network

"Friends of the system" seek extension on e-com & TRIPS moratorium
Published in SUNS #9002 dated 22 October 2019

Geneva, 21 Oct (D. Ravi Kanth) - The developed and several developing countries at the World Trade Organization, who characterise themselves as "friends of the system," are worried over the prospect of an end to the moratorium on electronic commerce by the end of this year, and have sought an extension by six months until the WTO's 12th ministerial conference in Nur Sultan, Kazakhstan, in June 2020, trade envoys told the SUNS.

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 an extension for the moratorium on non-violation and situation complaints in TRIPS (trade-related aspects of intellectual property rights) by six months until the WTO's 12th ministerial conference.

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 will seek to continue the moratorium on TRIPS non-violation complaints without interruption, said a trade envoy, who asked not to be quoted.

At the General Council meeting on 15 October, the "friends" - who are all members of the informal plurilateral Joint Statement Initiative on electronic commerce - insisted that the two moratoriums must continue without any change until the WTO's 12th ministerial conference.

In their proposal on the moratorium on electronic commerce (WT/GC/W/782), the "friends" maintained 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," the "friends" maintained.

Further, the "friends" claimed that the "moratorium is without prejudice to Members' right to impose internal taxes, fees or other charges in a manner consistent with WTO Agreements."

Several members of the "friends of the system" are also members of the Paris-based Organization for Economic Cooperation and Development (OECD) that has launched negotiations on internal taxes to be imposed on electronic commerce (see SUNS #8995 dated 11 October 2019).

Against this backdrop, the "friends" maintained in their proposal that "we propose that the General Council adopts a decision to this effect at its meeting in December 2019 and we will submit a draft decision in the near future."

During the informal General Council (GC) meeting on the moratorium early this month, the "friends" vehemently opposed a joint proposal by South Africa and India for a proper reconsideration of the current e-commerce moratorium because of its negative fiscal and digital-industrialization consequences for developing countries (see SUNS #8989 dated 3 October 2019).

At the GC meeting last week, South Africa's trade envoy Ambassador Xolelwa Mlumbi-Peter emphasized "the need to have a discussion on the work programme and the moratorium on electronic commerce."

In the joint paper (WT/GC/W/774), she said "South Africa and India 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, we argued that the debate on the continuation of the moratorium should be driven by concrete facts and statistics," she said, arguing that "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 trade envoy said.

She added that there are "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."

The South African envoy 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 have sought "an inclusive debate since new facts about the implications of E-commerce are emerging."

Further, "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.

Ambassador Xolelwa cited the United Nations Conference on Trade and Development (UNCTAD) TDR (Trade and Development Report) of 2019 that "confirms a loss in fiscal revenue of more than $10 billion globally as a result of the moratorium, 95 per cent 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 foregone 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," Ambassador Xolelwa 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 suggested.

Ambassador Xolelwa said "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," the South African envoy argued.

She said South Africa and India will 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."

Ambassador Xolelwa exposed the double-standards of developed countries, arguing that "it is a pity that a call for a workshop on the matter was opposed despite a clear need to consider recent research regarding the impact of the E-commerce moratorium on electronic transmissions" (see SUNS #8989 dated 3 October 2019).

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

But the "friends" largely remained indifferent to the joint proposal from South Africa and India while seeking an extension for the e-commerce moratorium, said a trade envoy who asked not to be quoted.

The "friends" want a permanent moratorium for not levying customs duties on electronic transmissions at the WTO.

On the moratorium on "TRIPS non-violation and situation complaints" as contained in document Job/GC/W/783, the "friends" argued 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 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 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," the "friends" argued.

Earlier, India along with several other developing countries had spoken about the negative impact that "NVSCs (non-violation and situation complaints) 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 Member's exercise of their IP regimes but also severely restrain ability of Members to achieve other public policy objectives," India had 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."

The US and Switzerland, which dominate the global pharmaceutical industries, have repeatedly called for discontinuing the moratorium on TRIPS NVC complaints.

At the GC meeting last week, 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 NVC 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.