Understanding the benefits to developing countries resulting from the moratorium on duties on electronic transmission

10 Oct 2019 02:00h

Event report

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Ms Christine Bliss (President, Coalition of Services Industries and Member, Global Services Coalition (GSC)) started by mentioning a statement on e-commerce negotiations and the moratorium on duties on electronic transmissions produced by the GSC. According to her, the moratorium provided a basic multilateral pillar that helped to promote the global growth of e-commerce. It affects a broad range of products and services, such as manufacturing that relies on software, professional services, and business process outsourcing. WTO negotiators need to understand the benefits of the moratorium from a broader social perspective. Any amount of revenue gained by ending the moratorium is outweighed by the loss in GDP and jobs.

Mr Hosuk Lee-Makiyama (Director, European Centre for International Political Economy (ECIPE)) presented the results of a study he authored on the economic losses from ending the WTO moratorium on electronic transmissions. He explained that every change in trade policy has an impact on other factors, such as GDP and employment, which can be calculated by economic modelling. When countries negotiated the moratorium, they chose to introduce a strategic ambiguity: there is no agreement on what an electronic transmission means. The lack of clarity is the reason why countries reached an agreement. The expression seems to go beyond digitised products and also encompasses digital flows. It could encompass all forms of cross-border activity: data hosting, data communication, video, audio, and searching for information services online. Because of this ambiguity, if countries revoke the moratorium, they will not reach an agreement of what to impose a tariff on. Each state will determine the scope of the tariff, creating a patchwork of rules.

Mr Nigel Cory (Associate Director, Information Technology and Innovation Foundation) explained that duties, directly and indirectly, affect productivity growth, both in the sector of goods and services. The indirect impact of duties corresponds to raising administrative costs and technical barriers. Customs authorities cannot inspect a digital import directly, so there will probably be a mechanism for actors to declare customs on electronic transmissions. Small and medium-sized enterprises (SMEs) would carry the burden of examining where their provider is based to determine the country of origin (which is difficult to ascertain in the digital economy) and make a declaration of the import. Because of the distributed nature of the Internet, the digital product could come from several different countries, creating problems for ascertaining the country of origin. Cory provided several examples to illustrate the difficulties in applying customs duties. He concluded that the pressure to end the moratorium is part of a broader trend of protectionism.

Ms Devi Ariyani (Executive Director, Indonesian Services Dialogue Council) mentioned that the Indonesian government made an effort to classify electronic transmissions. They have created some categories, such as the operating system, applications, multimedia, and supporting data of machinery systems. The end of the moratorium would have a decisive impact on services and competition. Companies also fear that there will be double taxation. SMEs, in particular, would lose competitiveness to export. Governments are providing incentives to digitalisation of SMEs, but the moratorium would raise the cost of products that are key to this digitalisation.

Ms Jane Drake-Brockman (Industry Professor, Institute of Trade, University of Adelaide) mentioned that digitally-enabled services are the fastest-growing component of world trade. The World Trade Report 2019 shows that services have become the backbone of the digital economy, that the share of developing countries and least developed countries (LDCs) in global trade has increased and that the participation of SMEs in trade has been facilitated by digital technology. If developing countries do not stop progress by ending the moratorium, they will be able to get a larger portion of trade benefits in the future. Many jurisdictions attempt to level the playing field between domestic suppliers of digitally enabled services through other ways, like sales tax. We need to put in place the best regulatory practices for the digital age. The moratorium is a standstill that allows companies everywhere and particularly SMEs to participate in the digital economy. We should not unleash a wave of protectionism in the services sector, the fastest-growing component of world trade.