Questions are being raised about a new report on the relationship between digital trade and development issued jointly by the World Trade Organization along with the International Monetary Fund, the Paris-based Organization for Economic Cooperation and Development, the United Nations Conference on Trade and Development.
Some of the major findings in the report seem flawed on several grounds, raising serious questions about the use of the report for WTO members, said people engaged in the negotiations.
Several issues concerning the impact of the moratorium on electronic commerce tariffs are flawed as they do not show what the impact of the current moratorium on tax revenues is, particularly on customs revenue, sources said.
The report reveals there is a lack of clarity or disagreement among WTO members on the scope and product coverage since 1998. The report also seemingly failed to provide any assessment of the moratorium on digital industrialization, said people familiar with the findings of the report.
The 47-page report released yesterday seems to have covered a lot of ground, somewhat selectively, said a negotiator who asked not to be quoted.
The major findings of the report are as follows:
1. The report acknowledges that the mandate of the WTO’s 12th ministerial conference is the only provision that applies to e-commerce at the WTO’s 13th ministerial conference in Abu Dhabi which commences on February 26, 2024.
2. WTO members’ views about the renewal of the moratorium on customs duties differ, with a lack of consensus among the proponents seeking the continuation of the moratorium on the one side, and countries that want the termination of the moratorium as per the MC12 mandate on the other.
The opponents seeking the termination of the moratorium “have expressed concerns about the lack of clarity regarding the scope of the moratorium and the definition of electronic transmissions as well as the opportunity costs of the moratorium. These include the potential foregone customs revenue and the desire to maintain policy space in light of the uncertainty associated with rapid technological change. They have also expressed concerns about the impact of the moratorium on their ability to use customs duties for industrial policy purposes.”
3. The impact of the moratorium on government revenue is estimated to be below 0.33 percent of overall government revenue on average. Value added tax represents another way to collect revenue from digital trade that does not discriminate between domestically supplied and imported products, is more uniform across different products and does not impose a tax burden on intermediate inputs used by domestic producers.
However, 0.33 percent is based on a proportion of total revenue collected by the governments including tax and non-tax revenue while it should be based on tariff revenue collected by the government. Furthermore, the entire loss of revenue is for developing countries and only minuscule for developed countries, said a negotiator who asked not to be quoted.
The report says that “Beyond trade rules, other regulatory issues also require global solutions such as cross-border data flows, competition and consumer protection.”
The regulatory issues include:
A. Growing number of measures condition the cross-border data flows that underpin digital trade. But deeper and inclusive international cooperation is needed for a balanced approach to global data governance, which ensures data can flow across borders as freely as possible while addressing public policy concerns.
B. The features of digital markets, including network effects, economies of scale, and scope, give rise to concerns about market power and anti-competitive behaviors. Governments around the world are seeking ways to effectively regulate such behaviors by adapting their legislative frameworks and strengthening enforcement against anticompetitive practices. Efforts should continue to encourage exchange of information and knowledge, collective responses when feasible, as well as innovative approaches and consensus-building to promote competition in digital markets.
C. The lack of appropriate policies and regulations on consumer protection and resources for effective enforcement hinders trust in the digital economy. Enacting adequate legal frameworks, enforcing regulations, and addressing cross-border disputes are essential to creating a safer and more inclusive digital environment for consumers. Key challenges include insufficient information and education of online consumers, misleading advertising, unsafe products and payments systems, unauthorized collection and use of customers' data and inadequate dispute resolution and redress mechanisms.
There are several major flaws in the report, according to negotiators engaged in the e-commerce discussions. First, the tariff revenue loss in 49 products that are being digitalized as a proportion of government revenue does not capture the real impact on customs duties.
The report, for example, suggests that “the impact of the moratorium on government revenue is estimated to be below 0.33 percent of overall government revenue on average.”
However, it inexplicably did not suggest the impact of the moratorium on customs revenue, or tax revenue, which would have revealed the negative impact of the moratorium on customs revenues.
In fact, by taking the overall government revenue based on a huge denominator, the report seems to have trivialized the impact. “They are trying to trivialize it by taking a large denominator,” said another negotiator.
If the report is serious about the impact of the moratorium on customs revenues it should have also provided a figure on it, particularly when it is concerned with the impact of the moratorium on customs duties, the negotiator said.
In a similar vein, if there is no consensus on the scope of what would constitute electronic transmissions, then, what are they asking the trade ministers to sign on to, the negotiator said.
“Since every country has its interpretation of what the scope is, how can you ask ministers to sign when there is no consensus or common understanding,” the negotiator said.
Impact of Moratorium
More importantly, there is hardly any discussion on the impact of the moratorium on digital
industrialization as sought by developing countries. The effect of the moratorium on digital industrialization is considerable according to an UNCTAD study which estimated a loss of customs revenue to the tune of $55 billion in 2020.
Also, customs revenue is critical for infant digital industrialization in developing countries and hence, the demand for the termination of the moratorium that caused incalculable damage to developing countries since 1998.
Incidentally, UNCTAD consistently opposed the moratorium since 2000 but due to alleged pressure from major industrialized countries the current dispensation in UNCTAD took a U-turn to collaborate with the WTO, said several developing country representatives who preferred not to be quoted.
Also, “it needs to be emphasized that when you talk of electronic transmissions today, the proponents of the moratorium say that it includes everything that is electronically transmitted over the internet,” said a G77 member who asked not to be quoted.
“But today there are so many things that can be electronically transmitted, particularly the way AI is evolving, so much of electronic data can be transmitted and the fast pace of the evolving digital technologies would require countries not to take any binding commitments on anything involving electronic transmissions now, because the way they technologies are rapidly evolving,” the member said.
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