Andrea Andrenelli
Andrea Andrenelli
Trade Policy Analyst at the Organisation for Economic Co-operation and Development (OECD).
Over the past two decades, digital transformation has brought about tremendous changes to globalization. During this period, the WTO suspended tariffs on electronic transmissions, the only WTO provision that explicitly applies to digital trade, providing a stable, predictable, and duty-free environment for digital trade to flourish. At the last WTO Ministerial Conference, after difficult negotiations, the moratorium was extended, and WTO members agreed to continue discussions on its scope, definition and implications.
What is an e-commerce moratorium and why is it controversial?
The WTO moratorium on e-commerce is a commitment to continue the current practice of not imposing tariffs on electronic transmissions. However, since "electronic transmission" has never been defined, there is room for interpretation as to the exact scope of the commitment.
Recently, some World Trade Organization members have questioned the opportunity cost of the moratorium. Chief among them is the possible loss of "policy space" in the context of rapid technological change, and the loss of customs revenues due to the "dematerialization" of trade in goods. For these WTO members, it is difficult to understand the potential value or opportunity cost of a moratorium because of the unclear scope and definition of the moratorium.
What can be known from RTAs about the scope and definition of a moratorium?
Some WTO members have questioned whether the moratorium applies to the transmitted "content" (i.e. the movie or e-book that is actually downloaded) or its "carrier" (the bits and bytes that carry the content). It was also questioned whether the "moratorium" affected the ability of countries to collect domestic taxes other than tariffs, or whether the "moratorium" would weaken other commitments made at the WTO.
A study of how countries deal with the issue of electronic transmission tariffs in trade agreements can provide a better understanding of the potential scope of the moratorium. An analysis based on the Provisions of Electronic Commerce and Data Trade Agreements (TAPED) database shows that by the end of 2022, 100 of the 105 RTAs with e-commerce chapters included provisions that did not impose tariffs on electronic transmissions (NICDET clauses). A more detailed analysis of these clauses reveals that:
The majority of NICDET's commitments (88%) are not related to e-commerce moratoriums. Specifically, 54 high-income countries and 33 developing countries continue to be tariff-free on electronic transmissions, at least on a reciprocal basis, even if the moratorium expires.
Most NICDET provisions make it clear that domestic taxes are not covered by their commitments. Most countries do not believe that the commitment will affect other forms of taxation, including VAT or GST.
The digital trade chapter generally reiterates that measures related to electronic delivery fall within the scope of service-related obligations and exceptions (e.g., commitments and flexibilities remain in place under the General Agreement on Trade in Services (GATS) or regional trade agreements). This suggests that the moratorium is unlikely to go beyond tariff exemptions to limit "policy space".
Since 2015, Member States have made it clear that NICDET's commitment applies to electronic transmissions. There is currently no trade agreement that explicitly applies to the NICDET clause to "carrier media".
Some countries define electronic transmissions as "digital goods", which include computer programs, text, video, images, sound recordings and other digitally encoded products. Still others explicitly stated that "electronic delivery shall be deemed to be the provision of services". Still others used only the term "electronic transmission" without further clarification. However, differences in definitions do not preclude the conclusion of NICDET clauses between countries with different definitions. For some, the lack of a precise definition may be seen as a challenge, while for others it is a way to bring various perspectives together.
What are the potential financial implications of a moratorium?
Some WTO members are concerned that not imposing tariffs on electronic transmissions could lead to a loss of tariff revenues. That is, when a country imports a movie through electronic transmission, it gives up the tariff income from importing the film through a physical medium such as a DVD. They argue that the rapid pace of digitalization has magnified the problem, especially for developing countries, which tend to impose higher tariffs on these items.
However, imports of "digitizable goods", i.e. physical goods (e.g., CDs, books, calendars, videotapes) that can be digitized and subsequently sent digitally across borders, have been growing over the past decade overall, especially in developing countries, which continue to generate tariff revenues.
Given that the scope and definition of a moratorium cannot be determined, it is not easy to accurately assess the loss of revenue that a moratorium may cause. However, we believe that the existing empirical studies do not address three important issues that lead to the current overestimation. The first is that existing commitments and practices, such as the NICDET clause or other preferences granted in regional trade agreements, limit countries' ability to increase tariffs on digitizable goods and electronic transmissions, even in the absence of an e-commerce moratorium. Second, not all trade that can be transmitted electronically will be electronically transmitted (as noted above, imports of digitizable goods have actually been increasing in many countries). Third, the assessment needs to consider the potential offsetting effect of VAT/GST on the growing number of digital imports.
We found that the loss of tariff revenue due to the moratorium was very small, averaging 0.68% of total tariff revenue or 0.1% of total government revenue. Due to higher tariffs and lower levels of commitment, the impact is on average higher for low-income countries (0.33 per cent of government revenue) and lower for high-income countries (0.01 per cent). Nonetheless, 77 of the 106 countries analysed imposed standard VAT/GST on "naturally digital" digital services imports, fully offsetting the impact of the moratorium on customs revenues.
These findings highlight the potential for finding fiscal solutions on the basis of excise taxes to levy non-physical import duties in accordance with widely adopted internationally accepted standards. These taxes are highly efficient and have proven to be able to increase tax revenues. In addition, because a single tax rate is often applied, there is no need to spend resources to determine how to classify products in detail or determine their origin. It is very important that these taxes are also targeted at final consumption, not intermediate consumption.
Original link:
https://cepr.org/voxeu/columns/understanding-scope-definition-and-impact-wto-e-commerce-moratorium
(Chang Changsheng/excerpt)
The above views and remarks do not represent the position of this platform.
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