WTO: E-Commerce Moratorium Debate

The United States, the European Union and other proponents on Monday apparently failed to provide any convincing reasons as to why the World Trade Organization’s 1998 moratorium on customs duties on electronic transmissions should be continued beyond the 13th ministerial conference, which is going to be held in Abu Dhabi in February 2024, said people familiar with the developments.

At an informal meeting convened at the request of India, Indonesia and South Africa on Monday, the three opponents set the ground by revealing the incalculable damage that the moratorium has created for pursuing digital industrialization and denying the policy space to the developing countries, said people familiar with the proceedings at the meeting.

Right at the beginning of the session, Indian trade envoy Ambassador Brajendra Navnit shared his disappointment with the Secretariat and narrated that the three countries had put in a
proposal for this discussion in the WTO Public Forum but their proposal was not accepted.

Maybe, he said, the Secretariat did not think the countries had the expertise to discuss this issue or because the minutes of the Public Forum were already written to forward the agenda of the advanced countries and these countries’ narrative did not fit that agenda.

The “Informal Session on WTO Moratorium on Customs Duties on Electronic Transmission: A Development Perspective” brought to the fore several issues stemming from the implementation of the moratorium over the past 25 years. The moratorium was agreed at the WTO’s second ministerial conference in Geneva in 1998, and ever since then, it has been extended every two
years.

At the WTO’s 12th ministerial conference held last June, trade ministers agreed “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 31March 2024, the moratorium will expire on that date unless Ministers or the General Council take a decision to extend.”

At the informal session, Ambassador Navnit pointedly asked the proponents not to tell the developing countries what is good for them, instead, they should “tell us how much your industry has benefitted from the moratorium and then we will negotiate.”

Growing Digital Divide
The three trade envoys of India, Indonesia and South Africa acknowledged that the digital economy is growing rapidly and so is the digital divide between countries and between sectors. Against this backdrop, the three trade envoys in varying emphasis that it is now important for developing countries to revisit the decision on the WTO E-commerce Moratorium, which will end in March 2024, if no consensus is reached before that. Ambassador Navnit said there is a need for using the customs duties as a strategic policy tool
for building digital sectors in developing countries, going beyond the debate on how much tariff revenues are lost due to the Moratorium.

The Indonesian trade envoy Ambassador Dandy Eswara shared the experience of Indonesia in the digital economy indicating that the growth has been rapid. Indonesia, he said, has always maintained that the Moratorium is on the electronic transmissions and not on the ‘content’ of the transmissions.

Accordingly, Indonesia has introduced Chapter HS 99 and successfully recorded the imports of digital content into the country. South Africa’s outgoing trade envoy Ambassador Xolelwa
Mlumbi-Peters highlighted the use of discriminatory taxes like customs duties as a simple and effective tool for boosting digital industrialization and providing a level playing field to nascent
digital industries.

At a time when major industrialized countries are repeatedly using customs duties to protect their already established sectors, the three developing countries said it is somewhat meaningless for them to argue against the use of tariffs by the developing countries when it comes to the digital economy, said people familiar with the proceedings.

They emphasized that developing countries know what is good for them and don’t need pointers from advanced countries.

The three countries said what is needed is a clear recognition that the Moratorium has helped the private sector in the digital economies of the advanced countries who now want access to
the larger markets of developing countries.

Even though the moratorium is supposedly built on the basis of leaving electronic transmissions free without any customs duties, it soon morphed into the supply of digital goods and services through the cross-border supply of services under Mode 1 of the WTO’s General Agreement on Trade in Services.

The recent proposals by some industrialized countries to include services into the scope of the Moratorium show that the developed countries also want to take away the GATS flexibilities of the developing countries and force them to open all their services sectors, the three developing countries maintained in varying emphasis.

Further, India, Indonesia and South Africa noted that much has changed since the Moratorium was put in place in 1998 when no one knew how to collect duties on digital goods. Today many
developing countries know how to do it. Indonesia’s trade envoy said from Indonesia’s perspective, “the application of customs duties becomes a precise and effective policy tool to regulate the import of digitally transmitted goods.”

More importantly, the imposition of customs duties “serves as one of the primary forms of fiscal rights of a state,” and “taking into account its strategic importance, such application should be left to the discretion of individual WTO members,” the Indonesian envoy emphasized.

Further, according to Indonesia, “the application of customs duties will enable the respective country to monitor data and transmission, record trade statistics, assess digital risks, support MSMEs (micro, small, and medium enterprises), and thus create conducing environment for all stakeholders.”

Accordingly, Jakarta argued that Imposing customs duties on digital goods will not lead to any trade distortions at the global level, nor will it create any undue administrative burdens for the
importation process of digital goods that are transmitted electronically.

The provisions of digital goods importation, which Indonesia has implemented, accommodate usefulness and easiness to the importers in declaring import declaration.

There are no obstacles or complaints so far from the importers of digital goods in fulfilling the regulation, Indonesia informed members.

As a result, there has been a significant increase in the import declaration of digital goods since the implementation of the regulation in January 2023.

At the meeting on Monday, the United States questioned Indonesia’s figures and approach, suggesting that it fails to capture the dynamics of digital trade, said a person, who asked not to
be quoted.

In response, the Indonesian official said the data presented at the meeting reveals the overall dynamics of the digital sector, the person said.

The EU said it took note of the presentations made by the three countries, including on the issue of digital industrialization, said people present at the meeting.