The decades-old global consensus that’s allowed e-commerce and a growing tidal wave of data to cross borders without tolls is at risk of falling apart.
Every couple of years since 1998, ministers at the World Trade Organisation have renewed a moratorium on digital customs charges. It’s kept online transactions — a Netflix movie streamed in South Africa, an international Zoom call with a doctor in India, an e-book downloaded on a beach in Bali – free of tariffs throughout the internet age.
Maybe not for much longer. The WTO meets in Abu Dhabi next week with the latest moratorium set to expire in March. At least three large developing economies are signalling they’ll oppose another extension. Because the WTO operates on consensus, all it takes is one to kill it.
The tariff ban has helped fuel the fastest-growing segment of world trade: digital goods and services. They’re key to the success not just of tech companies like Amazon.com and Netflix but also the growing number of traditional firms that collect data and conduct e-commerce in foreign markets.
Now, emerging economies cite concerns about the dominance of US-based Big Tech – and other worries including risks from artificial intelligence, the need to protect data privacy, and the loss of customs revenue into the ether of the digital economy.
“It’s not a done deal,” John Denton, secretary-general of the International Chamber of Commerce, said of efforts to renew the arrangement. He cited Indonesia, the largest economy in Southeast Asia, as a major holdout, with South Africa and India likely to follow. “We think this will go down to the wire,” Denton said.
Not bluffing
It’s not the first time that countries have threatened to let the moratorium lapse to win concessions from major exporters of digital services like the US. But there’s a sense they’re not bluffing this time.
Indonesia believes governments need to be free to impose tariffs in response to rapid change in the digital world, said Askolani, director-general of customs and excise at the country’s ministry of finance. India has signalled a similar position. A spokesman for South Africa’s trade ministry declined to comment.
One difficulty is the lack of an international legal framework or standard definitions for digital trade. That means it’s not clear how governments would apply tariffs — whether they’d charge per transaction, per byte or per digital product, like a song, for instance.
Read: OECD publishes treaty that would replace national digital taxes
The sums they’d raise aren’t huge. An October study by the Organisation for Economic Cooperation and Development found that taxing digital transfers would only add about 0.1% to government revenue.
Still, ending the moratorium “will send a shockwave through the WTO”, an organisation dedicated to lowering trade barriers, said Keith Rockwell, its longtime spokesman.
“For the first time since the WTO’s founding, members will have opened the door to applying new tariffs,” said Rockwell, who’s now a Geneva-based senior research fellow for the Hinrich Foundation.
More than 180 business groups around the world, including the US Chamber of Commerce, wrote an open letter backing the status quo. They said countries seeking to impose tariffs will harm themselves in the long run, by sending a negative signal about their business climates and openness to investment.
Some corporations worry that the Joe Biden administration isn’t fully committed to defending the tariff ban. The US in October pulled a negotiating proposal from related WTO e-commerce talks about the flow of data across borders. Earlier it withdrew its text for the digital chapter of a trade pact with allies in the Indo-Pacific.
US trade representative Katherine Tai recognises that there’s a debate going on within the WTO about the moratorium, and looks forward to working with members on a solution, according to a senior US trade official.
EU vice president Valdis Dombrovskis, who oversees the bloc’s trade policy, told a parliamentary committee this week that the prospects of extending the moratorium in Abu Dhabi “remain uncertain”.
Among the government agencies pushing for renewal is the United Nations Conference on Trade and Development, which promotes the interests of developing countries in world trade. Unctad says digital inequality widened during the pandemic.
It’s “increasingly important to countries and businesses to be able to adapt to digital trade”, said Torbjörn Fredriksson, head of the agency’s e-commerce group. “Unfortunately, the rapid speed of digitalisation tends to outpace the ability of many countries to do so.”
Fragmented
With global trade increasingly fragmented amid growing great-power competition between China’s national firewall model and the more open US system, getting a deal in Abu Dhabi to keep the internet tariff-free won’t be easy.
“It’s a bad time for multilateralism,” said Martina Ferracane, a research fellow with the European University Institute, which recently launched a digital trade database. “It’s not a moment in which countries are willing to create a new global consensus on almost anything.”
Denton, who represents 45 million companies with the international chamber, made trips to Indonesia and Brazil in recent weeks arguing the case for keeping the moratorium. Scrapping it, he said, could open up a protectionist abyss with “the capacity to break the internet”. — Brendan Murray and Eric Martin, with Grace Sihombing and Ntando Thukwana, (c) 2024 Bloomberg LP
