Decades of global consensus that has allowed e-commerce and a growing tsunami of data to cross borders for free is at risk of collapsing.
Since 1998, World Trade Organization (WTO) ministers have renewed moratoriums on digital tariffs. Whether it's a Netflix movie streamed in South Africa, an international Zoom call with a doctor in India, or an e-book downloaded on a beach in Bali, online transactions have remained duty-free throughout the Internet era.
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Maybe it won't last very long. The WTO will meet in Abu Dhabi next week, and the latest moratorium is set to expire in March. At least three large developing countries have indicated they will oppose further extension. The WTO operates on consensus, so all we need to do is destroy it.
The tariff ban is helping to facilitate digital goods and services, the fastest growing sector of global trade.
These are key to the rise not only of technology companies like Amazon.com and Netflix, but also of traditional companies collecting data and conducting e-commerce in overseas markets.
Emerging economies are now raising concerns about the dominance of US-based Big Tech and other concerns, including risks from artificial intelligence, the need to protect data privacy, and the loss of customs revenue to a world of digital economies. They also raised concerns.
John Denton, executive director of the International Chamber of Commerce, said of efforts to renew the agreement: “This is not a done deal.” He said he singled out Indonesia, Southeast Asia's largest economy, as the main holdout, with South Africa and India likely to follow.
“We think this will be finalized,” Denton said.
The “shockwave” of global trade
This is not the first time countries have threatened to lift the moratorium to win concessions from major exporters of digital services like the United States. However, this time I don't think it's a bluff.
Askolani, Director-General of Customs and Goods at the Indonesian Ministry of Finance, said Indonesia believes that governments should be free to impose tariffs in response to the rapid changes in the digital world. India has also taken a similar position. A spokesperson for South Africa's Department of Trade declined to comment.
One problem is that there is no international legal framework or standard definition for digital trade. That means it's unclear how governments will apply tariffs, charging them per transaction, per byte or per digital product, such as a song.
The amount they collect is not that large. An October study by the Organization for Economic Co-operation and Development found that taxing digital transfers would only increase government revenue by about 0.1%.
Still, Keith Rockwell, a longtime spokesman for the WTO, an organization dedicated to lowering trade barriers, said ending the moratorium would “send a shock to the WTO.”
“For the first time since the creation of the WTO, member states will be opening the door to new tariffs,” said Rockwell, now a senior fellow at the Geneva-based Heinrich Foundation.
More than 180 business organizations around the world, including the U.S. Chamber of Commerce, wrote an open letter supporting the status quo. They said countries seeking to impose tariffs would harm their countries in the long run by sending a negative signal about their business environment and tolerance for investment.
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Outlook is “uncertain”
Some companies are concerned that the Biden administration is not fully committed to defending the tariff ban. In October, the United States withdrew its negotiating proposal on cross-border data flows from related WTO e-commerce talks. Earlier, it withdrew the digital chapter text of its trade agreements with allies in the Indo-Pacific region.
U.S. Trade Representative Katherine Tai is aware of the ongoing debate within the WTO over the moratorium and looks forward to working with members on a solution, according to a senior official at the Office of the U.S. Trade Representative. That's what it means.
Vice President Valdis Dombrovskis, who oversees the European Union's trade policy, told a parliamentary committee this week that the prospects for extending Abu Dhabi's moratorium “remain uncertain.”
“Breaking the Internet”
Among the government agencies pushing for renewal is the United Nations Conference on Trade and Development, which promotes the interests of developing countries in global trade. UNCTAD says the digital divide has widened during the pandemic.
“It is becoming increasingly important for countries and businesses to be able to adapt to digital trade,” said Torbjorn Fredriksson, head of the agency's e-commerce group. “Unfortunately, the rapid pace of digitalization tends to outstrip the digitalization capacity of many countries.”
As great power competition intensifies between China's national firewall model and the more open US system, global trade is becoming increasingly fragmented and a deal to maintain internet tariff-free in Abu Dhabi will be difficult to reach. Probably not.
“This is a bad time for multilateralism,” said Martina Ferracane, a researcher at the European University Institute, which recently launched a digital trade database. “This is not a time when countries are trying to create a new global consensus on almost everything.”
Denton, who heads the chamber's 45 million companies, has traveled to Indonesia and Brazil in recent weeks to advocate for the moratorium to remain in place.
Abandoning it could open an abyss of protectionism with “the ability to destroy the internet,” he said.
© 2024 Bloomberg
