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TWN Info Service on WTO and Trade Issues (Jul20/10)
15 July 2020
Third World Network


OECD suffers setback on continuation of e-com duties moratorium
Published in SUNS #9160 dated 15 July 2020

Geneva, 14 Jul (D. Ravi Kanth) – The Paris-based Organization for Economic Cooperation and Development (OECD) appeared to suffer a setback at the World Trade Organization after it failed to convince members on the need to continue with the moratorium on customs duties on electronic transmissions, participants told the SUNS.

At a workshop conducted by the World Trade Organization on 13 July, the OECD, the Brussels-based European Center for International Political Economy (ECIPE) and the United Nations Conference on Trade and Development (UNCTAD) presented their respective studies on the moratorium on customs duties on electronic transmissions.

The OECD study, which became the focal point at the workshop, is being promoted by 13 developed and several developing countries – Australia, Canada, Chile, Colombia, Hong Kong-China, Korea, New Zealand, Norway, Singapore, Switzerland, Iceland, Uruguay and Thailand – on grounds that it provided relevance in the current debate on continuing the moratorium on customs duties involving electronic transmissions.

The OECD’s study, entitled “Electronic transmissions and international trade”, called for continuing the moratorium on customs duties on electronic transmissions, as “the overall benefits of duty free electronic transmissions outweigh the potential forgone government revenues due to the E-Commerce Moratorium”.

The study was based on what is called the computational general equilibrium (CGE) model which assumes perfect competition conditions to exist in the global digital trade.

However, the OECD study did not take into consideration the monopoly patterns in the global e-commerce which is currently dominated by Google, Amazon, Facebook, Apple, Microsoft, Alibaba, and Tencent among others, said a participant, who preferred not to be quoted.

The OECD study has suggested that “by focusing on revenue implications, positive effects that digitalization can bring to the economy have not been included in the discussions that have taken place so far.”

It found that “the use of foreign value-added is associated with positive economic outcomes such as export, diversification, productivity growth and increased domestic value-added in exports.”

“Developed economies are not the only ones to benefit from such trends with ICT (Information and Communications Technology) enabled services, like telecommunication services, financial services or other business services, experiencing a growth at an average pace of 10 to 13% between 2005 and 2017 for developing countries.”

The OECD study notes that “the process of digitalization can reduce the overall costs of production and remove transportation of certain products.”

QUESTIONS POSED ON THE OECD STUDY

According to participants at the workshop, responding to the OECD study, an UNCTAD official raised several questions.

The UNCTAD official asked the OECD official whether it is proper to base the findings on the “physical” imports of digitizable products, while the moratorium does not apply to the physical imports but only to the intangible imports.

The UNCTAD official sought to know to what extent the OECD study’s results on potential tariff revenue loss are valid?

Further, the OECD was asked to clarify whether its study has widened the scope of the moratorium for developing countries by including imports of business services under Mode 1 (of GATS).

Citing the findings in UNCTAD Research Paper No. 47, the UNCTAD official said the total imports for developing countries covered under the moratorium increases from $80 billion in 2017 to $705 billion now.

Lastly, the UNCTAD official said that there were far-reaching changes in the global digital trade since 1998, when the moratorium first came into existence.

In the face of more and more products that will be digitally delivered, why should special and differential treatment (S&DT) be provided to exporters of Electronic Transmissions (such as GAFA – Google, Amazon, Facebook, Apple – and the Chinese behemoths like Alibaba and Tencent among others), the UNCTAD official asked.

According to participants, India sought to know from the OECD official whether it is proper to use internal taxes like GST (general services tax) and VAT (value-added tax) instead of customs duties in an economy with a large informal sector.

QUESTIONS POSED TO ECIPE

In a similar vein, the UNCTAD official posed several questions to the ECIPE representative about the results of its study which stated that the removal of the moratorium will lead to considerable GDP losses for India, South Africa and Indonesia based on the CGE model.

Given the CGE model’s reliance on perfect competition conditions that implies that no monopolies exist, are the ECIPE study’s results credible with the existence of monopolies like Google, Facebook, Amazon, etc. in the global digital trade, the UNCTAD official asked.

The ECIPE study applies customs duties to four broad identified services sectors like retail and wholesale trade services, recreational services, communication services and other business services.

Yet, no WTO document is referred to in the ECIPE’s study for including these services within the scope of the moratorium.

Also, it is not clear whether customs duties can be applied to services and how to calculate such duties is not clarified in the ECIPE paper, the UNCTAD official argued.

At the workshop, the ECIPE official argued that the scope of electronic transmissions depends on each country’s understanding, implying that there can be more than one understanding by members on what would constitute the scope, said several participants after the meeting.

Also, the ECIPE official spoke about the relevance of the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS) on electronic commerce.

Surprisingly, neither the OECD representative nor the ECIPE official were able to provide coherent and credible replies to the barrage of questions raised by the UNCTAD official, several participants said after the meeting.

The UNCTAD representative said that “developing countries can generate 40 times more tariff revenue than developed countries by imposing custom duties on ET [electronic transmissions], which are digitizable products.”

The UNCTAD official said that the goalposts have been shifted for developing countries with the WTO emphasizing on “Digitized” products (WTO 2003) and “Digitizable” products (WTO 2016); ECIPE suggesting services including wholesale & retail, recreational, communications and other business services (ECIPE, 2019); and the OECD stressing on “Digital deliveries including foreign business services via Mode 1 (OECD, 2019)”.

Effectively, the scope of the moratorium as covering “digitized products” was also agreed by the WTO (2003), which stated that “the products concerned consist (of) sound recordings, audiovisual works, video games, computer software and literary works, … that can be delivered in a physical form such as CDs, CD-ROMs, DVDs, videos, books, newspapers and magazines, or in an electronic form over the Internet.” (IP/C/W/128/Add.1).

According to UNCTAD’s Research Paper No. 47, the UNCTAD official said that: (1) using the new database provided by WTO, i.e., TISMOS finds that more than 90 developing countries have experienced more than 50 percent rise in their imports of services via Mode 1 since 2010; and (2) the total imports of services via Mode 1 is estimated at USD 705 billion for WTO developing members as compared to USD 80 billion of digitizable products.

Therefore, according to the UNCTAD official, “it is important to document the consensus on the scope of the Moratorium as covering those intangible goods which are shipped electronically.”

They have physical form and HS code before the importation and can take physical form after their importation, the UNCTAD official said.

Lastly, the UNCTAD official also highlighted the worst effects of the Covid-19 pandemic, particularly on rising poverty levels and inequality in Asia and Africa.

It is the time to save precious domestic financial resources and regulate imports of luxury items like movies, music and video games, the UNCTAD official said, suggesting that “customs duties are the only simple and effective policy tool to regulate as well as generate tariff revenue from these imports.”

“Custom duties will provide a level playing field to the budding digital industries in developing countries and help in their digital industrialization,” the UNCTAD official argued.

“Why provide S&DT to exporters of ET (which are mainly big digital platforms) when exporters of physical products face customs duties?” the UNCTAD official asked.

Significantly, none of the 13 countries that are promoting the OECD study raised any questions to either the OECD and the ECIPE, or the UNCTAD representatives at the meeting.

 


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