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Info Service on WTO and Trade Issues (Mar24/02) Abu Dhabi, 29 Feb (D. Ravi Kanth) — The differences over the continuation of the E-commerce moratorium appear to have worsened on 28 February at the ongoing World Trade Organization’s 13th ministerial conference (MC13) in Abu Dhabi, with Indonesia calling for the termination of the moratorium by the end of the meeting or on 31 March, said delegates familiar with the discussions. However, the United States seems to have said that it wants the reinvigoration of the E-commerce work program along with the extension of the moratorium, which has been in place since 1998, till the 14th ministerial conference (scheduled to take place in 2026). Japan, which is a strong proponent of a permanent moratorium, said that there would be no outcome at MC13 without the extension of the moratorium, according to people who asked not to be quoted. At a meeting of senior trade officials on 28 February, Indonesia, India, South Africa, and Eswatini challenged the continuation of the moratorium on customs duties on electronic transmissions on several grounds, said delegates, preferring not to be quoted. The MC12 mandate requires “countries to maintain the current practice of not imposing customs duties on electronic transmissions until MC13, which should ordinarily be held by 31 December 2023. Should MC13 be delayed beyond 31 March 2024, the moratorium will expire on that date unless Ministers or the General Council take a decision to extend.” At the meeting, India issued the strongest message yet as to why the moratorium should be terminated at MC13, asking how there can be certainty and predictability when the “scope” of the moratorium itself is not decided, said delegates who asked not to be quoted. India reminded the industrialized countries that there has been a paradigmatic shift when the moratorium was agreed in 1998 and now, suggesting that there have been transformative changes in the realm of e-commerce that warrant the imposition of customs duties, emphasizing the revenue implications arising from the foregone revenues by developing countries, said delegates after the meeting. India also debunked the constant claims made about the E-commerce moratorium having benefited MSMEs (micro, small, and medium enterprises) and women. On the argument that countries can impose value-added tax or other domestic taxes instead of customs duties, India is understood to have said that local taxes are no alternative to customs duties. India said that tariffs/customs duties are a legitimate tool in the trade toolbox, said people who asked not to be quoted. A draft text issued late evening on 28 February provides options on extending the moratorium for another two years with a reinvigorated work program or terminating the moratorium at MC13. The square-bracketed text states: “[The Ministerial Conference decides as follows: We agree to continue pursuing the re-invigorated work under the Work Programme on Electronic Commerce, based on the mandate as set out in WT/L/274, and with particular focus on its development dimension, taking into account the economic, financial and development needs of developing and least-developed countries. We take note of the constructive engagement in the Dedicated Discussions which included the exchange of experiences and submissions on several e-commerce-related topics and agree to deepen such discussions on trade-related topics as identified by Members building on work from previous Dedicated Discussions. We agree to hold further deliberations and examine additional empirical evidence on the scope, definition, and impact of the moratorium. We welcome the workshop held with different intergovernmental organizations. In that regard, we call for continued collaboration with other international organizations and relevant stakeholders, as agreed upon by Members, to engage on the main challenges faced by developing country Members and LDCs, address the need for training and technical assistance, and, as a priority, identify gaps in support of addressing the digital divide, including for micro, small and medium-sized enterprises to realize the potential of the digital economy. We instruct the General Council to hold periodic reviews on the Work Programme, including based on reports that may be submitted by the relevant WTO bodies, and to report to the next Session of the Ministerial Conference. [We agree to maintain the current practice of not imposing customs duties on electronic transmissions until the 14th Session of the Ministerial Conference [and to review this decision then].] OR [We agree to terminate the moratorium on the imposition of customs duties on electronic transmissions.]]” UNCTAD’S ESTIMATES In 2000, the Trade Division of the UN Conference on Trade and Development (UNCTAD) published a paper on “Tariffs, taxes and electronic commerce: revenue implications for developing countries”, which estimated the impact of the moratorium on developing countries in terms of the potential tariff revenue losses. The paper concluded that, “The fiscal impact of international e-commerce is likely to be felt more strongly in the developing countries: they will face higher losses from customs duties, which make up higher shares in their national budgets compared with the developed countries.” The developing countries, according to UNCTAD, will have less flexibility to replace those losses by shifting to other revenue sources, such as income taxes or social security contributions. “In the short to medium term, developing countries will be net importers of e-commerce and hence will run a greater risk of losing tariff and tax revenues if traditional imports are replaced by on-line delivery. Therefore, the development of efficient tax collection systems for e-commerce should be a priority for all developing countries.” UNCTAD’s view on the E-commerce moratorium has remained the same over the years. In its publications in 2017, 2019 and 2020 and also in its various Trade and Development Reports, UNCTAD has strongly argued for the termination of the moratorium on customs duties on electronic transmissions. In the past five years, UNCTAD has produced three papers on the E-commerce moratorium and its flagship report, the Trade and Development Report 2019, provided estimates of potential tariff revenue losses to the developing countries amounting to $10 billion every year. In 2023, UNCTAD joined hands with the International Monetary Fund (IMF), the Organisation for Economic Cooperation and Development (OECD), The World Bank, and the World Trade Organization (WTO) to publish a report on “Digital Trade for Development”. The joint report on “Digital Trade for Development” supports continuation of the moratorium on the basis that the revenue collected will be small (0.33 percent of overall government revenue on average); VAT could be a better way for taxing digital imports; and customs duties will adversely impact MSMEs and women. However, these arguments have been made before by advanced countries like the EU in various statements/ communications, such as in WT/GC/W/889. But these arguments appear to be flawed. The cited figure of 0.33 per cent on average is based on total government revenue of all countries, which include both developed and developing. The correct estimate should be on the total tariff revenue collected by the governments in the developing countries, as developed countries’ tariff revenue collection on this is near zero as their bound duties are almost zero. All potential tariff revenue losses are borne by the developing and least developed countries. Further, using “all revenue collected by all governments” as the denominator is a gross under-estimation of the potential tariff revenue collected from imports of electronic transmissions, as total revenue will include corporate taxes, individual taxes as well as revenue collected by the government from other sources. For example, the US federal government collected $4 trillion as revenue in 2023. Also, many questions are left unanswered which could have benefited the developing countries. For example, why should exporters of digital goods (which are big tech firms) be exempted from paying customs duties while exporters of physical goods pay both domestic taxes as well as customs duties?; if services trade via Mode 1 is included into the scope of the moratorium, do developing countries lose out on their GATS flexibilities where they have the right to decide whether to apply discriminatory taxes or not?; why should developing countries not apply customs duties on imports of luxury items like video games, when they want to discourage these imports, especially in the face of food, fertilizer and energy crisis?; in future as more and more products leave their physical carriers while crossing borders, how significant will the tariff revenue loss become?; how can governments in developing countries provide a level playing field for their domestic producers if they do not use non-discriminatory tariffs and use only VAT?. As countries are lagging on the UN Sustainable Development Goals (SDGs), and only 12% of SDGs are on track, it is important that countries explore all the possible sources of generating revenues to enable them to close the funding gap. As more and more goods are digitalized, removal of the moratorium will provide the governments with a continuously growing source of revenue which can be used to build their digital infrastructure, and progress on their Agenda 2030. The revenue which is generated from the removal of the moratorium can help the governments to bridge their growing gender digital divide. The gender digital divide has been found to be rising steadily among developing countries and within developing countries, especially in Africa. Furthermore, the SMEs are exporters of mostly tangible goods in all countries. It is important to provide them with a level playing field with the big exporters of digital products. Customs duties have always been used as a policy tool for protecting and nourishing infant industries in developing countries. The digital sector, especially MSMEs in the digital sector, need protection and a level playing field, which can be provided to them only with the removal of the moratorium. More importantly, as awareness about the possible adverse impacts of artificial intelligence (AI) is growing, advanced countries are making efforts to put in place regulations around the use of AI, but developing and least developed countries lack the capacities to regulate AI, which may enter their countries as electronic transmissions. Developing countries therefore need to start regulating and monitoring the imports of electronic transmissions. Removal of the moratorium will help in this process. The moratorium on customs duties on electronic transmissions has benefited a handful of digital giants such as Apple and Amazon and increased their profits exponentially. Removal of the moratorium will help governments in all countries, including advanced Member States, to gain regulatory space and track the sales and profits of digital giants. As the digital revolution is still unfolding and digital technologies are still evolving, taking binding commitments for not regulating imports of electronic transmissions in the future may have adverse consequences for digital transformation of countries, including in many developed Member States. +
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