WTO extends e-commerce customs duty moratorium despite opposition from developing countries

At the 13th Ministerial Conference held recently, the World Trade Organization member countries once again agreed not to impose customs duties on the trade of digital goods

By Naandika Tripathi Forbes India Staff

Published: Mar 11, 2024 01:33:08 PM IST

Updated: Mar 11, 2024 01:52:01 PM IST

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The 164 members of the World Trade Organization (WTO) have yet again agreed to maintain the current practice of not imposing duties on electronic transmissions until the 14th Ministerial Conference (MC14), scheduled to happen in March 2026. WTO members held MC13 in Abu Dhabi, United Arab Emirates, from February 26 to March 2, 2024.

India, South Africa, and Indonesia have been voicing uncertainties about the extension or a permanent moratorium, citing a huge loss of revenue and hurting digital development as domestic players face intense competition from global big tech companies. The losses of developed countries are minimal as compared to those of developing countries.

Since 1998, WTO member countries have agreed not to impose customs duties on e-transmissions (the trade of digital goods). It is the only WTO provision that applies explicitly to e-commerce and has been in place for 26 years. The members have been temporarily extending the moratorium every few years during the WTO Ministerial Conference. The last extension took place in June 2022 at Geneva.

Any data or information delivered electronically without a physical medium, such as software accessed online, cloud services, e-books, e-music, online videos, and games, is termed electronic transmission. The absolute definition, however, is still unclear, which is leading to uncertainty around it.

The renewal of the moratorium also included a call to revive the 1998 Work Program, which members will develop further in the coming two years. “We agree to hold further discussions and examine additional empirical evidence on the scope, definition, and impact that a moratorium on customs duties on electronic transmissions might have on development and how to level the playing field for developing and least-developed country members to advance their digital industrialization," the WTO said in its draft ministerial decision dated March 1, 2024.

Ministers adopted a Ministerial Decision instructing the General Council to hold periodic reviews on the ecommerce work program with a view to presenting recommendations for action to the Ministerial Conference. “We agree to engage on the main trade-related challenges faced by developing and least-developed country members in the development of their digital economy, including the need for training and technical assistance, and, as a priority, identify gaps in support of addressing the digital divide, including for micro, small, and medium-sized enterprises to realize the potential of the digital economy,” it added.

A study conducted by the United Nations Conference on Trade and Development (UNCTAD) suggests that the fiscal impact of international ecommerce is likely to be felt more strongly in the developing countries: they will face higher losses from customs duties, which make up higher shares in their national budgets compared with the developed countries. It was also estimated that the potential tariff revenue loss to developing countries from the moratorium would be $10 billion in 2017.

International organisations, including the IMF, OECD, UNCTAD, World Bank, and WTO, collaborated to look into the revenue concerns. Their research estimated that the effect of the moratorium on government revenue would be below 0.33 percent of overall government revenue on average. The study proposed value-added taxes (VAT) as an alternative way to collect revenue from digital trade.

Experts believe the extension is a good move because customs duty imposition would heavily impact semiconductor chip design in India. This is a double-edged sword, as the timing is not ideal when the government is looking to push for Digital India, semiconductors, and design PLI with reliance on cross-border global tech giants. This could bite back, and the timing is not right now for the push to import tariffs on digital transmissions, explains Neil Shah, vice president of Counterpoint Research.

“I believe this is a more measured move, as the government should be prudent about it and do it in a phased manner and not run before learning to walk,” he adds.