Developing countries such as India, South Africa, Türkiye, Argentina and Indonesia among others are pushing back against attempts by a group of countries, including the European Union and Australia, and supported by the United States, insisting that electronic transmissions “covers anything transmitted by telecommunications” and also include “content” through the internet under the World Trade Organization’s e-commerce moratorium, our correspondent writes.
The e-commerce moratorium is mandated to be terminated at the WTO’s 13th ministerial meeting in Abu Dhabi in February 2024 if members do not reach an agreement on extension. At a dedicated session on the work program on electronic commerce which was convened by the facilitator on Tuesday, members remained divided on whether electronic transmissions exclude or include content.
For more than 27 years, industrialized countries have not addressed the issue, even though it was raised time and time again, particularly since Indonesia brought the issue to the center stage at the WTO’s 11th ministerial meeting in Buenos Aires in December 2017, said people who took part in the meeting. Indonesia’s submission at the Buenos Aires meeting was not clarified by former WTO Director-General Roberto Azevêdo, and the issue was left hanging until the 12th ministerial meeting.
Ministerial Decision
The ministerial decision agreed upon at MC12 that was held last June says:
“We agree to reinvigorate the work under the Work Programme on Electronic Commerce, based on the mandate as set out in WT/L/274 and particularly in line with its development dimension. We shall intensify discussions on the moratorium and instruct the General Council to hold periodic reviews based on the reports that may be submitted by relevant WTO bodies, including on scope, definition, and impact of the moratorium on customs duties on electronic transmissions.”
More importantly, trade ministers said they “agree 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.”
It is against this backdrop that 14 members – the European Union, Australia, Canada, Chile, Costa Rica, Hong Kong, Japan, Korea, Norway, Peru, Singapore, Switzerland, Taiwan and the United Kingdom issued a proposal (WT/GC/W/889), titled “Work Program on Electronic Commerce- Moratorium on Customs Duties on Electronic Transmissions.”
The proposal apparently indicates that the moratorium on electronic transmissions is primarily aimed at cross-border services under Mode 1 of the General Agreement on Trade in Services, which could undermine the specific flexibilities availed by developing countries, specifically the positive list approach, said people familiar with the discussions.
Article XIX of GATS emphasizes that the process of liberalization of trade in services shall take place with due respect for national policy objectives and the level of development of individual members, both overall and in individual sectors. There shall be appropriate flexibility for individual developing country members for opening fewer sectors, liberalizing fewer types of transactions, progressively extending market access in line with their development situation and, when making access to their markets available to foreign service suppliers, attaching to such access conditions aimed at achieving their national objectives.
The United States, which is assiduously campaigning for a permanent moratorium on electronic transmissions, seems to have concurred with the 14 countries that electronic transmissions include content. Washington criticized Indonesia for its e-commerce regulations, including levying customs duties on digital goods, said people familiar with the discussions.
Proposal on Content
Coming back to the proposal circulated by the 14 countries on the scope and definition of the moratorium, the proponents argue that there is “a widespread understanding that the moratorium applies to all electronic transmissions, including their content.”
They said that “If the moratorium does not cover content, this would imply that the moratorium would have been intended to only prevent the imposition of customs duties on telecommunication signals”which “would effectively render the moratorium meaningless, given the common understanding that the value of a telecommunications signal is not the signal itself but the content it carries.”
The proponents add that “While no specific definition of ‘electronic transmissions’ is attached to the relevant ministerial decisions, it is commonly understood to cover anything transmitted by telecommunications, including over the internet, and from emails and software to digital music, blueprints, movies, and video games.”
The 14 countries maintained that “the moratorium does not cover physical goods (e.g., clothing or books ordered from an online platform), which may be subject to applicable import tariffs. Nor does the moratorium limit the application of internal taxes (e.g., Goods and Services Taxes (GST) or Value Added Taxes (VAT)), as the moratorium is only concerned with customs duties. In several FTAs, participants have explicitly included language clarifying that internal taxes are not part of the scope of the equivalent discipline.”
Arguing that in free trade agreements of both developed and developing Members, the practice of not imposing customs duties on “electronic transmissions” is a standard feature of most e-commerce chapters and/or digital economy agreements, the 14 countries maintained that “none of the existing (FTA) agreements applying to e-commerce specify that the moratorium applies only to the electronic transmission as carrier medium, i.e., excluding content.”
“There are a variety of approaches to the way that FTA moratorium provisions are drafted,” the 14 countries maintained, insisting that “Regarding content, some trade agreements/provisions specify that deliveries by electronic means are considered to be the provision of services while others refer to digital products.”
“Even though these approaches may differ, they similarly result in the content of the electronic transmission not being subject to customs duties,” the EU-led group argued.
The 14 countries touted the benefits of the moratorium. “The benefits of the moratorium for businesses around the world, including in developing-country Members and Least Developed Countries (LDCs), are significant. This is particularly the case for micro, small, and medium-sized enterprises (MSMEs), which are the lifeblood of the global economy.”
They argue that “the moratorium reduces the cost of engaging in trade, for instance with respect to transport costs which can amount up to 30%, increases access to knowledge and digital tools such as software, and facilitates participation in global and regional value chains.”
The moratorium, according to the proponents, “reduces the barriers to MSMEs' (micro, small and medium enterprises), participation in international trade, provides businesses with legal certainty and facilitates investment decisions.”
Opponents Speak
India and South Africa have consistently demanded the termination of the moratorium. At the meeting on Tuesday, they pointed out the weaknesses of the arguments put forward by the 14 countries. India stated that Paragraph 2.2 of the paper states that the moratorium “is commonly understood to cover anything transmitted by telecommunications.” This interpretation leads to an implication that all services which are delivered via Internet, i.e., via Mode 1 are included in the scope of the moratorium, it said.
However, trade in services is covered under the GATS disciplines. The application of the moratorium can neither alter the GATS commitments and flexibilities i.e., the positive list approach from developing countries, nor introduce the concept of customs duties in the GATS context, it argued.
India gave the example of the music industry, highlighting that while the submission talks about the benefits of the moratorium for MSMEs, there has been a surge in imports of music in developing and least developed countries with the unprecedented growth of streaming services, which face no customs duties and governments have no control over their imports.
This has also led to the concentration of markets and three companies dominate the global music market, earning more than 70 percent of the total revenue generated. In fact, MSMEs working in this industry have been wiped out due to the structural transformation of the industry.
India pointed out that while there are concerns expressed about MSMEs in developing countries, they do face tariffs in the normal course of trade. In fact, the same MSMEs are increasingly being subject to stiffer non-tariff barriers by the developed countries in every sphere of trade. They are being subject to unilateral measures like border carbon adjustments and other trade measures linked to the environment, creating existential challenges for these firms. This should be clear from the discussions happening in the bodies of the WTO dealing with goods and agriculture trade.
Both India and South Africa highlighted that in many FTAs, the decision to not impose customs duties on electronic transmissions has been subjected to the equivalent WTO decision.
Once the WTO e-commerce moratorium ends, it will also imply that this provision will come to an end in many bilateral and regional FTAs as well. They argued that removal of the moratorium will increase the regulatory and fiscal space of developing and least developed countries which will bring fiscal gains to the countries both in the short term through tariff revenues and in the long term because of improved competitiveness. Removal of the moratorium will bring more certainty for the developing and least developed countries as they will be able to monitor and regulate what enters and leave their national boundaries.
Argentina apparently said though it supports the continuation of the moratorium, it does not reckon that transmissions would include content, while Türkiye maintained that “the moratorium lacks clarity and causes different interpretations by Members,” said people familiar with the discussions.
Türkiye said more work is needed “to better understand the scope and effects of the Moratorium,” suggesting that it is preparing a paper to circulate with members which contains questions on how to interpret the moratorium and how we can make it more clear. “As the Moratorium remains ambiguous,” said Türkiye, “ we believe the so-called evidence-based studies that have been cited are not credible as even those studies highlight the fact that the scope is not available and they base their results on various different interpretations of possible scopes.”
Therefore, said Türkiye, “We believe it is the job of this house to define and agree upon what actually the Moratorium wants to say, and then we can discuss the effects of the Moratorium on e-commerce and trade revenues. That way it would make it a lot easier to conduct internal consultations as well as form a definitive position with regard to the continuation of the Moratorium or making it permanent.”
Türkiye said, “given the non-binding and ambiguous nature of the current Moratorium, Türkiye will not object a renewal as it is but also not support making it binding and permanent without clarifications.”
Indonesia’s E-Commerce Regulations
Against this backdrop, Indonesia presented its current e-commerce regulations at the meeting on
Tuesday. Indonesia’s presentation is summarized here below:
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