India and South Africa challenged the United States, China, and other giants of global electronic commerce at the World Trade Organization over the negative financial implications of the moratorium on customs duties on electronic transmissions or digitizable products.
They said the practice of not levying import duties on products traded online across borders could result in revenue losses USD 10 billion for developing countries, according to people familiar with the development.
The US, China, the EU, and a couple of other countries, who dominate the digital trade, opposed the joint proposal from India and South Africa for a “re-think” on the moratorium on electronic transmissions saying any attempt to discontinue the moratorium will cause a disruption in global digital trade. Surprisingly, the proponents such as the US, China, and Japan among others stuck to their positions that the moratorium should be made permanent without offering any credible technical or empirical evidence, said a trade envoy.
At a WTO General Council meeting specifically convened to discuss a joint proposal – “Moratorium on customs duties on electronic transmissions: Need for re-think” by India and South Africa, New Delhi’s trade envoy Ambassador J.S. Deepak offered evidence from several studies, particularly studies conducted by the United Nations Conference on Trade and Development, about the likely fiscal havoc that will be caused by the current moratorium on levying customs duties on electronic transmissions or digitizable goods.
WTO Members had agreed to a temporary moratorium on customs duties on electronic transmissions for the first time in 1998 and since then, it has been extended biennially at the WTO ministerial meetings.
Given the huge transformation in the digital trade over the past 20 years, Deepak said the time has come for a thorough examination of the moratorium from the larger development perspective and how it is “impacting the efforts of developing countries and LDCs, to industrialize digitally.”
He said a study conducted by the WTO on “fiscal implications of the customs moratorium on electronic transmissions: the case of digitizable goods” failed to capture the overall fiscal and other implications, particularly on developing and poorest countries.
The WTO study issued in December 2016 has stated that the share of trade in digitizable goods being traded in physical form to total trade is less than 1 percent of total goods trade. According to the WTO study, all digitizable goods are physical goods which have the potential to be electronically transmitted.
“In other words, these are physical goods, currently being traded physically across borders on which the WTO members can apply their bound customs duties,” India maintained. Surprisingly, ‘digitizable physical goods obviously are not the subject of the e-commerce moratorium,” India said, pointing out that “the e-commerce moratorium applies to electronic transmissions which is online, cross-border trade in these products.” Citing the example of one digitizable product, books, India said the WTO study concluded that “trade in books in physical form is low and if they were to be traded exclusively in electronic form the loss of revenue would be small.”
Further, there is no assessment of the “burgeoning online trade in video games, e-books, music and video downloads and software,” India maintained. Also, the WTO study which is based on applied rates of customs duties for various products” is not a proper gauge for the loss of revenue since it does not take into account the bound rates,” which members have the flexibility of applying anytime, and in this era of protectionism, are increasingly resorting to,” India said.
Worse still, the developing and least developed countries are unable to impose “internal charges” due to online trade. Since all products imported into a country are subjected to “internal duties such as manufacturing tax, sales tax, value added tax (VAT) or goods and services tax (GST),” governments find it difficult to levy such taxes on electronic transmissions.
At a time when e-commerce is dominated by super platforms such as Amazon and Alibaba among others, the developing and least-developed countries find it difficult to tax these super platforms, India suggested.
India cited several OECD studies that focused on tax challenges of the digital economy, including the concept of ‘Base erosion and profit shifting’ (BEPS) which refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no tax locations.
Deepak quoted the case of Facebook saying it “generates huge profits from its India operation where almost 20 percent of its global users are located, but pays an abysmal 0.06 percent of its total tax outgo to the Indian government.” Around USD 200 billion of goods are traded through the online that are exempted from customs duties.
Therefore, he said, “the moratorium deprives developing countries and LDCs, which are large recipients of online traded goods or ET and have higher tariff rates bound at the WTO, of huge customs revenue.”
“Given low levels of broadband penetration and the fact that only 5 percent people in developing countries use e-commerce platforms, the probability of domestic e-commerce to grow in the developing countries and benefit their SMEs appears to be low,” India argued.
“The monopoly pricing powers of behemoths that run platforms and can force sub-optimal contracts on SMEs. Thus, in these countries digital trade or ETs is harming rather than helping the cause of SMEs, contrary to what some would want us to believe,” India maintained.
South Africa said it is important to reconsider all the issues in a manner that would address the concerns expressed in the joint proposal. But several industrialized countries opposed the joint proposal by South Africa and India.― Livemint