TWN Info Service on WTO and Trade Issues (Jul20/17)
22 July 2020
Third World Network

Dear friends and colleagues,

The debate on tariffs on electronic transmissions is heating up at the World Trade Organization and in free trade agreements negotiations, where there is a push for a permanent moratorium on such tariffs.

Therefore we are pleased to share with you a preview chapter from a forthcoming Third World Network publication on How ‘Digital Trade’ Rules World Impede Taxation of the Digital Economy in the Global South.

The chapter titled “The Moratorium on Tariffs on Electronic Transmissions” is written by Manuel Montes and Jane Kelsey
It supports successive UNCTAD studies that have warned that converting the moratorium into a permanent ban would have serious future economic and development impacts for developing countries.

Below is an abstract.

With best wishes,
Third World Network

ABSTRACT

Developing countries in the World Trade Organisation (WTO) and many free trade agreements (FTAs) are being asked to agree to a permanent moratorium on levying customs duties on electronic transmissions without a fully informed understanding of the possible impact on their public finances and the potential of their domestic enterprise sector to participate in those digital activities. That proposal constitutes the most immediate threat from trade rules to developing country public finances and to their industrial development.

Successive UNCTAD studies have warned that converting the moratorium into a permanent ban would have serious future economic and development impacts. This report supports that finding, although it projects a slightly lower level short-term impact. It places greater emphasis than UNCTAD on the potential for the moratorium to diminish the tax policy spaceof developing countries permanently and to disable tax policy over a wide swathe of internationally traded goods or services.

This risk arises because:

• developing countries are more dependent on trade tariffs than developed countries;
• there is considerable ambiguity in the scope of the current moratorium;
• the growth rate for digitalised products has been and will continue to be massive;
• although existing estimates of losses of tariff revenue from the moratorium appear to be relatively small at the present time, there is potential for explosive growth in the future;
• contrary estimates from developed country analysts that there would be net losses from notcontinuing the moratorium use methodologies that are laden with problematic assumptions;
• non-tariff impacts on development, and the policy space for developing countries to diversify their economies, are not adequately factored into those assessments;
• the huge range in the estimated impacts of a moratorium on a country-by-country basis across the global South and unclear future trends reinforce the importance of retaining policy space; and
• claims that it is technically problematic to levy customs duties on electronic transmissions are overstated.

All of these arguments militate against a permanent moratorium on tariffs on electronic transmissions.

This report is Chapter 3 of the forthcoming book titled How ‘Digital Trade’ Rules Would Impede Taxation of the Digital Economy in the Global South.

About the chapter authors:Manuel Montes is Senior Advisor of the Society for International Development. He was previously Permanent Observer to the UN and Senior Advisor on Finance and Development at the South Centre; Chief of the Development Strategies branch at the United Nations’ Department of Economic and Social Affairs (UNDESA). He was a founding member of the Independent Commission to Reform International Corporate Taxation (ICRICT).

Jane Kelsey is a Professor of Law at the University of Auckland, New Zealand where she specialises in international economic regulation. She is an adviser to a number of governments, inter-governmental bodies and international NGOs on trade in services, investment and electronic commerce. Jane holds an LLB(Hons) degree from Victoria University of Wellington, BCL from Oxford University, M Phil from Cambridge University and PhD from University of Auckland.