The WTO E-Commerce Moratorium: Good Riddance
It is time for WTO Members to stop tying their hands on rational fiscal policy for e-commerce
In 1998, when fax machines1 and Walkmen were everywhere, WTO Members agreed to “continue their current practice of not imposing customs duties on electronic transmissions.” The rationale for this moratorium was that each Member creating its own tariff regime for digital transactions would complicate the tasks of a “comprehensive work programme” on “global electronic commerce.” Members should hold their fire until a comprehensive multilateral agreement on digital trade is concluded among them.
Such an agreement is now but a neoliberal pipe dream. While the moratorium has been continually renewed, E-Commerce talks at the WTO have evolved into a plurilateral initiative, that does not include all WTO Members. Indeed, barely over half of the WTO Membership has joined in these discussions. The United States announced last October its intention to withdraw from active involvement in these proposals; India, a BRICs tech giant, has never participated. The fundamental premise of the moratorium, that a negotiated multilateral agreement on e-commerce is in the offing, has long lacked plausibility. The original basis for the moratorium has evaporated, and the moratorium should finally expire. Indeed, as a legal matter, Members could probably argue, with some force, that since the conditions of the moratorium no longer exist they are no longer bound by it anyway.
The continuing renewal of the moratorium reflects the increasing global power, hence lobbying power, of the big players in digital trade, rather than any sound rationale (See this great article by Wendy Li about regulatory capture and e-commerce at the WTO). There is no reason of economic principle to exempt transboundary digital transmissions from tariffs, while permitting customs duties where value is traded through the movement of goods across a physical border. The moratorium has become a boondoggle for Big Tech, and related businesses, which not surprisingly, are pushing hard again for its further extension.
Elimination or prohibition of customs duties has never been a legal principle of the WTO, although it is perhaps part of a fantasy world of what the WTO might be in the minds of some fundamentalist liberals (libertarians) or neoliberals.
As always, when it comes to customs duties, the usual arguments are trotted out-consumers will pay more, transaction costs will rise for operating global value chains, and so forth. On the other hand, estimates from studies from UNCTAD suggest there could be a huge revenue loss for governments from not imposing tariffs on digital transactions (while other studies, with different assumptions, come up with different numbers; this reflects a defect of the moratorium from the get go-imprecision on its actual scope given the lack of definition of what transactions are covered by “digital transmissions”).
Removing the moratorium will not require that all WTO Members enact tariffs on digital transactions. It will simply liberate countries to begin domestic policy discussions about the optimal approach to this issue. How to trade off the benefit to social programs from additional revenue against some potential increased cost to consumers will be a judgment of each country. It is hardly imaginable that there are not a few WTO Members who need the revenue for urgent fiscal requirements such that some additional cost to consumers is worth it. (The tariff in any case would likely not be fully born by consumers but that gets into a lot of economic assumptions; tariffs could create additional incentives to reduce costs of digital transactions through innovation).
One recent article defending the moratorium creates a nightmare scenario of hugely cumbersome customs procedures to collect digital tariffs: “Firms will have to fill out customs forms, submit these documents to customs authorities, and prepare to pay duties (and probably domestic taxes) on transactions. The burden will fall mostly on services firms that have not had prior experience managing customs transactions.”
Yet all firms in a country actively involved in commerce, even purely domestic commerce, would be expected to report on revenues as part of tax collection. Given that the physical border is not involved, why would the needed formalities be more than filling out a few more boxes on a tax form to list transboundary transactions subject to duties? Indeed, customs facilitation in trade in goods might be improved through learning how to further reduce time-consuming formalities at the border by using other means to collect duties on physically-traded products.
Certainly, if it were to become widespread, imposition of duties on digital transactions would create challenges for global economic governance, such as coordination of such tariff schemes with the implementation of the global minimum tax, as well as other digital taxes. But the moratorium is simply holding states back from experimenting towards optimal fiscal policies for digitally-created value in their economies. Its time has passed.
Fax machines continue to be used in some special settings, health care and real estate being two examples I’m familiar with.