The necessary extension of the WTO Moratorium on E-Commerce

Pascal Kerneis
Managing Director
European Services Forum (ESF)
Brussels, Belgium

At the WTO Ministerial Conference (MC12) that took place in Geneva on 12-17 June 2022, and after 5 days of intense negotiations, many decisions have been taken, including the extension of the WTO Moratorium on E-Commerce. Why was this extension so crucial for global trade?

India, Indonesia and South Africa nearly succeeded in making it harder and costlier to engage in cross border trade by ending the moratorium on imposing duties on internet traffic that has been in place for the last 25 years. If this would have happened, governments around the world could have for the first-time imposed tariffs at the border on all kinds of services that can be digitally delivered, hiking prices and worsening global inflation and making the internet less accessible.

WTO members finally agreed to continue the Work Programme on Electronic Commerce that was initiated in 1998, and to maintain the current practice of not imposing customs duties on electronic transmissions (the Moratorium) until the 13th Ministerial Conference. This decision gave some sense of relieve to the business community. But only temporarily, since it had been extended only until the next ministerial, which is expected to take place in December 2023. And if delayed, the Moratorium will end automatically by 31 March 2024, unless WTO Ministers or General Council act. Nothing therefore guarantees the continuation of the Moratorium in some 18 moths, as the lack of consensus on that matter could happen then.

Indonesia, notwithstanding its role as G20 Chair in 2022, and its stated goal of promoting the digital economy, reportedly has already an administrative mechanism in place to impose such tariffs, should the Moratorium be ended. The India (which will chair G20 in 2023) and South Africa argument looks simple: if you can put duties on shoes or apples, why not try to profit off digital inflows, whether they take the form of a podcast or R&D data?
Yet it’s not nearly so simple, as shown by the ranks of more than 80 countries that were pushing to maintain the current WTO E-Commerce Moratorium. Those countries are a big and diverse group, encompassing not only members that one might expect to support the status quo, like Japan, United States, and the European Union, but also major developing countries like Brazil, China, Nigeria, the Philippines, and Malaysia, as well as smaller WTO members ranging from Costa Rica to Thailand and Kazakhstan. This broad group of WTO proponents is backed by statements of support from over 100 business associations from Europe to Asia and the Pacific, India, Latin America, Africa, Canada and the US.
Reams of economic research make clear that greater access to the internet makes countries more economically competitive. It helps businesses of all sizes and in all sectors, from services to manufacturing and agriculture, tap into online marketing, financing, and logistics applications, as well as cloud data processing and storage, and aids their becoming exporters. The cost advantages of such tools are all the greater for smaller firms.

Not surprisingly, an OECD study estimated that governments that imposed tariffs on electronic transmissions would lose more in consumer welfare and export competitiveness than they would gain in tariff revenues.
Allowing members to raise tariffs on digital services would be a blow to the initial mission of the WTO and would seriously hamper its credibility as an international organisation created to facilitate trade. And this would not just be a local WTO technicality, but it would be a major setback on promoting digital trade. It would have an impact on all aspects of global trade, since nowadays, there is not a single international trade of goods or services transaction without multiple cross-border data flows.
Furthermore, ending the WTO Moratorium would likely spell the end of the 25-year-old WTO E-commerce Work Programme. This is an important forum where WTO members, especially developing countries, can air their views on all various issues related to the growth of the digital economy. The Moratorium and the E-Commerce Work program have been linked since their inception, so if one falls so will the other. Why would India, South Africa and Indonesia want to bring about an end to the Work Programme while advocating to help developing countries?

Sadly, the opponents’ motivation for bringing down the Moratorium appears to be purely and simply to impose duties on imports – in other words, protectionism. But their local SMEs and their consumers will be hit hardest by any new digital customs duties. The result can only be damage to their own digital innovation, export competitiveness and access to global digital value chain opportunities.

It must also be remembered that a WTO decision to let members start imposing new digital tariffs would also put at risk the agreement on a global minimum digital services tax reached last year by over 130 countries—including India and Indonesia. Seen as a rare bright spot amidst heightened trade tensions and weakening global institutions, the multilateral tax deal aimed to halt a proliferation of unilateral digital service taxes. But it would be hard to uphold if individual governments, with the WTO’s blessing, started imposing duties on internet transmissions.

Global business considers that there is no case for WTO members to take the self-destructive step of not continuing the Moratorium. The business community is now asking to set a ban on custom duties on electronic transmission on permanent basis, as the world trade cannot go on by trembling on the possible end of such a Moratorium at every WTO Ministerial. It was agreed in Geneva that the WTO will conduct in-depth studies on the impact of the WTO Moratorium (possible loss of revenues, increase of local price, digital divide, etc.) particularly on developing economies. The results should pave the way for a permanent solution by MC13.END.

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