The WTO is the preeminent rule setting and negotiating forum for global trade. It is the ultimate arbiter of inter- country trade disputes and its rules are binding. WTO’s three main functions are; monitoring and transparency, negotiation, and dispute settlement.

Trade agreements are negotiated through a number of ‘rounds’ where countries are invited to put in offers to reduce trade frictions, in particular customs tariffs, as well as non-tariff barriers to trade. The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1993, embracing 123 countries.

This led to the creation of the World Trade Organization, with the GATT remaining as an integral part of the WTO agreements and a current membership of 164 countries and economies. Since China joined the WTO in 2000, global trade has more than doubled primarily because of the enhanced channels of trade that have been opened due to lower tariffs. However recent trade spats between the biggest members and trading blocs threatens this growth. This has been made worse by supply chain disruptions from the fallout of the COVID – 10 pandemic where expenditure for services, in particular travel and outside entertainment, was redirected by consumers onto physical goods. This has led to a spike in shipping costs, shortages of containers and inflation.

With respect to the wider concept of digital trade, the Geneva Ministerial Declaration on Global Electronic Commerce in 1998 gave the impetus for a more inclusive trade agreement for international digital commerce[1]. The first line of business was to continue not to impose customs duties on electronic transmissions. This moratorium is not set in stone: every two years governments need to agree to extend the moratorium at the biennial WTO Ministerial Conference. The next review will be at the twice delayed WTO MC12 conference in November 2021[2].

While the term “electronic transmissions” is not defined, it is commonly held to encompass anything from software, online advertising, emails, and text messages to digital music, movies and videogames. At the time of the declaration only about 2% of the global population (147 million – half in the US) had access to the Internet[3]. E- Commerce was a minuscule part of world trade, but the groundwork was being laid. For example, in 1998 General Electric Co.’s TPN Register spent $1 billion on supplies using a proprietary web based system[4].

The moratorium has enabled exponential growth in use of the Internet and the flourishing of the digital economy, leading to ingenious products and services that have generally benefited society and led to productivity gains in all facets of the global economy. The loudest question being raised by some members is what outcome is in the best interests of the LDC and developing countries to harness E-Commerce for sustainable development?

Some countries want to end the moratorium[5] which may lead to the unilateral imposition of tariffs on cross-border data flows and E – Commerce[6]. Their argument is that the digitalisation of previously physical goods, such as CD-ROM’s, and DVD’s has led to losses in customs revenue at the border, which is supported anecdotally.

Many of these products however were illegally copied or smuggled, thus evading customs duties and supporting transnational criminal syndicates, many of which have evolved their activities to online crime such as ransomware. It has been argued the WTO is playing catch-up with rapidly evolving technologies; think how streaming has displaced compact CDs for films, music and games and downloadable software. All have implications for customs duties and border control[7].

Digital trade also applies to software updates, and digital services relating to manufactured products. These may include services monitoring mining equipment in remote parts of the globe or the digital tracking of aeroplane systems and engines performance as they fly across the world. These and the implementation and monitoring of Internet of Things (IOT) devices and services may now be managed across borders.

Rather than go back to the blunt tool of border duties, a more effective and workable combination of internal taxation and international tax reform needs to be agreed. The recent agreement by 136 countries for a minimum 15% global tax on large transnational companies is a good start.

Other proposals, such as the OECD, tax reform blueprints. The first has a focus on profit allocation rules; a proposal referred to as ‘Blueprint for Pillar One’[8]. The second, Pillar Two reflects an approach that is focused on the remaining base erosion and profit shifting (BEPS) challenges[9].

The intention is that enterprises should pay appropriate taxes where they conduct sustained and significant business, even when they do not have a physical presence, which is currently required under most existing tax rules. This provides a fairer, more practical and a more inclusive way forward for governments seeking to protect national revenue bases in the context of the move to the rise of the digital economy.

However progress in the negotiations for a WTO agreement on the Global Electronic Commerce round ground to a halt in 2017 over differences raised primarily by the US and China[10], but also by India and others[11].  In mid-2018 the EU endorsed the negotiations of enhanced WTO rules on Telecommunication Services in the context of the Joint Statement Initiative (JSI) on Electronic Commerce[12].

In January 2019, 76 members of the WTO, confirmed intentions to launch negotiations on trade related aspects of E-Commerce under the JSI on E-Commerce. The JSI got a further boost from the G20 Osaka summit later that year where 22 countries plus the EU launched the “Osaka Track” [13] a commitment on international rule-making on trade-related aspects of E- Commerce at the WTO.

The number of participating members now stands at 86, with Japan, Australia and Singapore acting as co-conveners of the JSI[14].

The Twelfth Ministerial Conference (MC12) will soon take place in the week of 29 November 2021 in Geneva, Switzerland.  Given the background of the importance of digital commerce, what comes out of MC 12 therefore will be pivotal for digital trade between members.

 

Michael Mudd is a digital trade economist and Senior Digital Trade Adviser to International Economics Consulting Ltd. He specialises in analysis and advisory, providing opinion and insight into policy, knowledge management, data security and digital transformation for trade in Asia-Pacific, Africa and the Middle East.

He is an appointed IT standards expert to JTC-1 of the ISO, a member of the policy committee of the Hong Kong Computer Society and a member of the Government of Hong Kong’s Expert Group on Cloud Computing. He is also Chairman of the Public Policy Working Group of the Middle East & North Africa Cloud Alliance (MENACA).

 

References

[1] https://www.wto.org/english/tratop_e/ecom_e/mindec1_e.htm

[2] directdoc.aspx (wto.org)

[3] http://edition.cnn.com/TECH/computing/9902/12/globalnet.idg/index.html

[4] http://web.mit.edu/ecom/www/Project98/G11/15_963.html

[5] https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?id=254708&filename=q/WT/GC/W774.pdf

[6] https://www.politico.eu/article/oecd-digital-tax-france-us-steve-mnuchin-bruno-le-maire-europe/

[7] https://www.cigionline.org/articles/the-challenge-of-updating-institutions-for-digital-trade/

[8] https://www.oecd-ilibrary.org/docserver/beba0634-en.pdf

[9] http://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-two-blueprint.pdf

[10]https://www.mfat.govt.nz/assets/Trade-agreements/WTO-e-commerce-negotiations/WORK-PROGRAMME-ON-ELECTRONIC-COMMERCE-Ministerial-Decision-December-2017.pdf

[11] https://www.iasparliament.com/blogs/pdf/wto-negotiations-on-electronic-commerce

[12] http://trade.ec.europa.eu/doclib/docs/2018/october/tradoc_157456.pdf

[13] http://www.g20.utoronto.ca/2019/osaka_declaration_on_digital_economy_e.pdf

[14] https://www.meti.go.jp/english/press/2020/1215_001.html