Empowering Inclusive and Sustainable Trade in Asia-Pacific: Perspectives on the WTO E-commerce Moratorium

Arguments

The difficulty in small companies distinguishing domestically produced and imported digitally delivered things

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Many operations in the business models discussed during the case studies are intermediate activities.

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Most of the Indian start-ups in the digital space have foreign clients.

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Adopting digital tools led to a 31% increase in customer reach.

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Trade decisions are made without adequate input from stakeholders.

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Everything is going digital and digital taxation needs to be addressed.

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VAT is problematic for small and medium enterprises.

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Report

During the discussion, several prominent issues were brought to light. Firstly, a member of the audience raised the concern that small companies struggle to differentiate between imported and domestically-produced digital services. This was seen as a significant challenge, as it can impact the ability of these companies to compete effectively in the digital economy.

The importance of a bottom-up approach for small businesses was also emphasized, with one audience member expressing agreement on its significance. This approach focuses on empowering small businesses and giving them a voice in decision-making processes, leading to better economic growth and job creation.

Case studies further highlighted the crucial role of intermediate activities in business models, where both imported and domestic materials are used in the value chains. This finding underscores the interconnected nature of the global economy and the reliance on cross-border collaborations for businesses to thrive.

In relation to start-ups in the digital space, it was noted that many Indian start-ups primarily serve foreign clients. This highlights the international nature of the digital economy and the potential for global expansion and opportunities for these start-ups. The adoption of digital tools was shown to have a significant positive impact on businesses, with evidence indicating a 31% increase in customer reach.

This demonstrates the effectiveness of digital tools in driving business growth and enhancing market presence. Furthermore, the increase in exports was found to be a reflection of the effectiveness of digital tools. This suggests that digitalisation plays a crucial role in enabling businesses to expand their reach and access international markets.

The use of digital inputs and final products in the production process can have potential cost implications. This observation raises questions about how the incorporation of digital technology in the production process may affect overall costs and profitability. Trade decisions were highlighted as an area that often lacks adequate input from stakeholders.

This raises concerns about the inclusivity and transparency of decision-making processes and the potential impact on various stakeholders in the digital economy. The need to address digital taxation was also highlighted. It was noted that the shift towards digital transactions necessitates the development of appropriate tax policies and frameworks to ensure fairness and reduced inequalities.

Complexities in VAT structures and the need to outsource VAT handling to larger entities like Amazon were identified as challenges for small and medium enterprises. This underscores the need for streamlined and simplified tax systems that accommodate the unique circumstances of small businesses.

Lastly, there was a plea to eliminate the moratorium in order to allow tax decisions to be made at the national level, based on national circumstances. This call to action emphasizes the importance of national sovereignty and tailoring tax policies to suit specific countries' needs and circumstances.

Overall, the discussion shed light on various challenges and opportunities in the digital economy. It highlighted the need for small companies to effectively differentiate between imported and domestically-produced digital services, the significance of a bottom-up approach for small businesses, and the crucial role of intermediate activities in business models.

It also acknowledged the international nature of start-ups, the positive impact of digital tools on business growth, and the implications of digital inputs and final products on production costs. Additionally, concerns were raised about trade decisions, the need for digital taxation policies, and the challenges faced by small and medium enterprises.

The plea to eliminate the moratorium underscored the importance of national-level tax decisions tailored to specific circumstances.

Arguments

A lot of Indonesian MSMEs rely heavily on digital goods and services.

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Positive impact of digital goods and services on MSMEs

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Most digital goods and services used by SMEs in Indonesia are imported

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The VAT has been implemented in Indonesia for digital goods and services

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The customer expansion of businesses is both local and international

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Report

A recent survey in Indonesia has shown that micro, small, and medium enterprises (MSMEs) heavily rely on digital goods and services. This reliance has led to increased productivity and cost efficiency, positively impacting MSME operations. The use of digital technology has also facilitated business expansion, both locally and internationally, with a 31% increase in customer expansion reported.

However, the continuation of the moratorium on digital goods is crucial for MSMEs, while challenges such as limited access, increased trade costs, and threats to inclusivity need to be addressed. The survey revealed that most digital goods and services used by SMEs in Indonesia are imported, highlighting the country's reliance on foreign technology.

Furthermore, the implementation of an 11% value-added tax (VAT) on digital goods and services is an important consideration for the digital economy. A moratorium on digital goods may also impact business planning and international transactions, emphasizing the need for careful management.

Overall, the survey demonstrates the importance of digital goods and services for Indonesian MSMEs, while highlighting the potential challenges and implications associated with their regulation.

Arguments

Hara is a blockchain-based data exchange for the food and agriculture sector aiming towards visibility for farmers and accelerating digital financial inclusion

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Insight on the Agriculture Practice in Indonesia and the need for digital transformation

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Sustainable sourcing and traceability is essential and can be achieved through Blockchain technology

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Cross-border data transmission becoming a burden is a challenge for businesses striving for growth

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The impact of cross-border data restrictions needs to be understood deeper and more studies need to be conducted

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Impending increase in costs due to cross-border data regulations will impact customer prices and company budget

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Report

Hara is a blockchain-based data exchange that aims to bring visibility to farmers and promote digital financial inclusion in the food and agriculture sector. The company utilises young and technology-savvy individuals in villages to collect data about farmers and their lands.

This data is securely stored on the blockchain, ensuring its integrity and protection. The objective is to create a network of data that can be used to establish partnerships, such as with financing and insurance companies, to enhance the value and support provided to farmers.

One specific area of focus for Hara is traceability within the palm oil supply chain. By implementing blockchain technology, Hara seeks to develop a system that can track palm oil production from the source to the end consumer. This traceability can help ensure sustainable sourcing and responsible production, aligning with the Sustainable Development Goals of Zero Hunger and Responsible Consumption and Production.

However, there is concern regarding the potential implications of Singapore's data moratorium on Hara's operations. As Hara stores and processes its data in Singapore, any regulations or restrictions imposed by the government could directly impact the functioning of the business.

The outcome of these regulations remains uncertain, but it is an element of uncertainty that Hara needs to consider and monitor closely. In addition to the challenges posed by data moratoriums, cross-border data transmission also proves to be a hurdle for businesses aiming for growth.

The current business model of continuous innovation and rebuilding may be hindered by the burden of transmitting data across borders. Not only does this process incur costs, but it also limits the speed and efficiency of innovation. This is particularly relevant for businesses heavily reliant on digital goods and services, as any restrictions on cross-border data flow would need to be thoroughly examined and studied to understand their impact.

The potential increase in costs due to cross-border data regulations is another key concern. These additional expenses might have to be shouldered by both the company and its customers. As a result, customer pricing and company budgets may be affected, potentially hampering business growth and profitability.

While it is essential to keep businesses profitable, some suggest that passing on a portion of the rising costs to customers may be necessary to maintain financial stability and sustainability. Overall, Hara's blockchain-based data exchange has the potential to bring significant benefits to the food and agriculture sector by providing visibility for farmers and promoting digital financial inclusion.

However, challenges such as data moratoriums and cross-border data transmission need to be addressed and monitored. Further research and analysis are required to fully understand the implications of these challenges and recommend appropriate strategies to mitigate any negative outcomes.

Arguments

Entrepreneurship presents challenges and digital entrepreneurship brings specific difficult situations.

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Governments are increasingly focusing on digital regulation.

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Startups and MSMEs are frequently the most affected and least prepared for digital regulation.

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The DPA wants to provide them with a platform to engage with governments.

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Report

The discussion explored various aspects of entrepreneurship, digital regulation, startups, and government partnerships. A key point that emerged is the recognition of the specific challenges posed by digital entrepreneurship. It was emphasised that this form of entrepreneurship brings about unique and difficult situations that require innovative solutions.

Furthermore, the conversation highlighted the increasing focus of governments on digital regulation. This shift in attention can be attributed to the growing significance of the digital economy in driving substantial parts of national economies. This observation underscores the need for governments to adapt their regulatory frameworks to effectively govern this evolving landscape.

In relation to digital regulation, startups and micro, small, and medium enterprises (MSMEs) were identified as particularly vulnerable. These entities were deemed to be most affected by digital regulation and often ill-prepared to navigate its complexities. This highlights the challenges faced by such businesses in adapting to regulatory requirements in the digital sphere.

As part of the effort to bridge the gap between governments and businesses, the Dialogue and Partnership Alliance (DPA) aims to provide a platform for engagement between startups and MSMEs with governments. This initiative serves to facilitate communication and collaboration between these entities, fostering an environment conducive to addressing the challenges posed by digital regulation.

In addition, it is worth mentioning that Gareth Tan, a participant in the discussion, expressed dissatisfaction with the management of the Q&A session. While the details of his grievances were not provided, his discontent suggests that the session may have been ineffective in addressing participant concerns or facilitating productive dialogue.

In conclusion, the discussion shed light on the challenges and opportunities associated with digital entrepreneurship, the increasing focus of governments on digital regulation, the vulnerability of startups and MSMEs to regulatory changes, and the DPA's efforts to foster partnerships between businesses and governments.

Gareth Tan's dissatisfaction with the Q&A session serves as a reminder of the importance of effective facilitation in ensuring meaningful and productive discussions.

Arguments

The majority of the surveyed MSMEs were not aware about the WTO moratorium on customs duties and electronic transmissions or its possible implications on their businesses.

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The lack of awareness and consultation between MSMEs and policymakers can lead to difficulties when it comes to compliance costs, competitiveness, and overall growth potential for MSMEs.

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Many governments are concerned about their revenue and how they're going to service their debt.

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Digital economy could become a revenue source for governments.

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Looking at the digital space for revenue could be premature

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The conversation about digital taxation must continue even if it's about keeping the moratorium

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Innovation in companies is commendable and has far-reaching impact in terms of growth potential and future revenue.

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The need for more evidence-based research when making policy decisions

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The deadline for the WTO e-commerce moratorium

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More study is needed on the cost implications of the moratorium

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Importance of local regulations and consultations

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Report

The analysis highlights key points regarding trade policies, revenue concerns, and the potential of the digital economy. Firstly, a significant number of surveyed Micro, Small, and Medium Enterprises (MSMEs) were unaware of the World Trade Organization (WTO) moratorium on customs duties and electronic transmissions.

This lack of awareness could have negative implications for their businesses, as it may result in additional administrative costs passed on to customers. Moreover, approximately 74% of MSMEs reported not being consulted about potential changes in import tariffs on electronic transmissions, indicating a lack of communication between MSMEs and policymakers.

The analysis emphasises the importance of inclusive trade and bottom-up analysis. Katrin Kuhlmann, who conducted an empirical study, believes that understanding how trade policy decisions would affect MSMEs is crucial. The study revealed the significant impact of changing trade policies on MSMEs, highlighting a lack of knowledge concerning the WTO moratorium among MSMEs and concerns about the lack of consultation with the government.

Concerns about revenue and debt burden prevail among many governments, particularly in African countries. Therefore, governments are exploring the potential of the digital economy as a revenue source. However, caution is advised as the digital space differs from physical goods, requiring a deeper understanding of its revenue potential and effective administration.

The analysis also highlights the positive impact of business innovation on growth potential and future revenue. Companies making innovative strides are commended for contributing to economic growth. Furthermore, evidence-based research is essential for informed policy decisions. For example, a feasibility study in India demonstrated that digital imports led to an increase in jobs, while an OECD study found that the revenue implications of digital imports are relatively small in terms of total government revenue.

The analysis draws attention to the approaching deadline for the WTO e-commerce moratorium. Research indicates that ending the moratorium could decrease consumption and harm GDP. Therefore, maintaining the moratorium while conducting further research on the implications of e-commerce is suggested.

Lastly, the analysis stresses the need for more study on the cost implications of the moratorium and the importance of greater consultation and engagement before revoking it. Local regulations and consultations are also deemed important in shaping policies. Overall, the analysis provides valuable insights into the challenges and opportunities related to trade policies, revenue concerns, and the digital economy.

It underlines the importance of awareness, consultation, and evidence-based decision-making to support the growth and sustainability of MSMEs and effectively manage revenue and debt burdens.

Arguments

The India Electronics and Semiconductors Association is striving to integrate India into a global ESDM and semiconductor manufacturing supply chain.

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There is a need for bridging the gap between Academia and Industry.

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The future of India depends on how successful MSMEs and startups are.

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A sustainable model for digital transformation and cross-border data movement is necessary.

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A blanket categorization of a moratorium as either good or bad isn't possible

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The data involved in such a process (its volume, accuracy, security) is massive and must be handled carefully.

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GST has reasonably normalized the components like sales tax and value-added tax

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A mechanism to provide credit for the customs duty that has been paid can help offset the additional cost burden

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Report

The India Electronics and Semiconductors Association (IESA) is working towards integrating India into the global Electronics System Design and Manufacturing (ESDM) and semiconductor manufacturing supply chain. This initiative is crucial for India's economic growth. By aligning with international industry standards and practices, India can attract investments, create job opportunities, and foster innovation in the electronics and semiconductor sectors.

To ensure successful integration, bridging the gap between academia and industry is essential. Due to the rapid advancements in deep technologies, even educational institutions are finding it challenging to keep up with the pace. Therefore, collaboration and knowledge exchange between academia and industries are needed to facilitate the efficient transfer of technology and promote skill development in emerging fields.

The success of micro, small, and medium-sized enterprises (MSMEs) and startups is key to India's future. India has built a significant startup ecosystem, making it one of the largest globally. Supporting and nurturing these businesses will contribute to economic growth, job creation, and technological innovation.

Policies and initiatives that create a conducive environment for MSMEs and startups are crucial for India's economic prosperity. A sustainable model for digital transformation and cross-border data movement is also essential. Every day, terabytes of data, including chip design data and licensed technology transfers, cross borders.

Developing secure and efficient mechanisms for data handling while ensuring privacy and protection is crucial for fostering global partnerships and achieving industry, innovation, and infrastructure goals. India's policy on data privacy and protection is seen as a step in the right direction.

With ongoing discussions and deliberations on the policy, India acknowledges the importance of robust regulations to safeguard personal and sensitive data. Strengthening data protection measures will enhance trust, promote the growth of the digital economy, and contribute to achieving peace, justice, and strong institutions.

Regarding moratoriums, a clear definition and implementation process are necessary. It is not possible to categorize a moratorium simply as good or bad. Establishing distinct classifications and definitions for the goods and services involved and conducting systematic studies are essential to better understand and address the complexities surrounding moratoriums.

The volume, accuracy, and security of data involved in the digital landscape present significant challenges. As large amounts of data are transferred between points, concerns about its accuracy, correctness, and security arise. Careful handling and effective data management strategies are imperative to address these concerns and ensure the integrity and reliability of data in various digital processes.

The Goods and Services Tax (GST) has played a significant role in normalizing tax components such as sales tax and value-added tax in the technology industry. Over the past 15 years, the technology industry in India has experienced tremendous growth and has become a major contributor to the economy.

The implementation of customs duty should consider both the input and output side of products or services to ensure fair and equitable taxation. Providing credit for paid customs duty can help offset the additional cost burden on businesses. This mechanism will promote competitiveness and encourage businesses to participate in global trade.

Initially, excluding MSMEs and services from customs duties and gradually including them can be a viable approach to support their growth and prevent undue burdens on these sectors. Finally, there are concerns about the impact of customs duties on the technology industry in India.

Given its significant contribution to the economy, any policies or decisions regarding customs duties should carefully consider potential consequences to maintain the industry's growth and competitiveness. In conclusion, the IESA plays a crucial role in integrating India into the global ESDM and semiconductor manufacturing supply chain.

Bridging the gap between academia and industry, nurturing MSMEs and startups, ensuring sustainable digital models, and implementing effective tax and customs duty policies are key priorities for India's economic development. With the right strategies and initiatives, India can position itself as a global leader in the electronics and semiconductor sectors, promoting innovation, job creation, and economic growth.