Business Bayani PH

The fate of the digital economy faces a crucial moment as the World Trade Organization (WTO) prepares to address the looming expiration of the WTO E-Commerce Moratorium. This agreement, in place since 1998, prohibits customs duties on electronic transmissions, including software and online shopping. With February approaching, the possible end of the moratorium poses a major threat to e-commerce and digital trade globally.

The upcoming 13th Ministerial Conference, scheduled for 26-29 February in Abu Dhabi, holds the key to the moratorium’s renewal. The International Chamber of Commerce (ICC) is actively urging WTO members to extend the agreement permanently, emphasizing its pivotal role in safeguarding the digital economy. 

In a statement, ICC secretary general John W.H. Denton AO warned, “Allowing it to lapse would be a historical setback, hurting small businesses and consumers the most, driving up costs and reducing access to knowledge, information, and digital tools.”

Without an extension, the absence of the moratorium could lead governments to impose unilateral tariffs on digital services such as software, cloud services, and data supporting streaming services. This could disrupt the digital economy, impacting businesses worldwide that rely on these services for their operations.

Denton stressed the potential severity of the situation, saying, “Not only would such a move add to a damaging pattern of escalating tariffs; it would also wreak potential havoc on the online economy. Tariffs really could ‘break the Internet’.”

The WTO Moratorium on Customs Duties on Electronic Transmissions faces renewal every few years at the WTO Ministerial Conference. The last extension occurred in June 2022, and the fate of the agreement will be decided at the upcoming conference in February 2024. 

The term “electronic transmissions” encompasses a wide range of digitally delivered products and services, playing a crucial role in the Internet’s growth by keeping tariffs off these transactions.

However, the discussion focuses on how the moratorium might affect customs revenues. Some WTO members worry about potential lost income as the digital economy grows. A 2019 UNCTAD study projected tariff revenue loss for developing countries, ranging from $280 million to as high as $8 billion.

Although the numbers may appear significant, the Organisation for Economic Co-operation and Development notes their minor impact on overall government revenue. For developing countries, potential lost customs revenue represents about 0.08%-0.23% of government income. The majority of foregone revenues, nearly $7 billion of the estimated $8 billion, is concentrated in 15 countries, including seven G20 members.

The discussion goes beyond revenue, focusing on the negative effects of taxing digital transactions. If tariffs are imposed, consumers and small producers in importing countries would be the most affected, leading to less demand for digital goods and services. This could harm developing countries, where the quality of digitally enabled services plays a big role in boosting exports.

Taxing digital transmissions may hurt trade, especially for developing countries that contribute globally to digitally enabled goods and services. Moreover, jobs in digital services have significantly increased in low-income countries, surpassing growth in other sectors.

Martin Perez, founder and CEO of Petchef, emphasized the negative impact of taxing digital transmissions on businesses, saying, “Governments thinking of taxing digital transmissions create uncertainty, which makes companies like mine less willing to innovate and puts my business at risk.”

Jane Kaleha, founder and sales director of Rehani Fresh Ltd., echoed the sentiment, cautioning against hindering innovation for the short-term gains of collecting tariffs: “Don’t muzzle the ox while it is treading the grain—the long-term benefits of a permanent moratorium are much greater than the instant gratification of collecting tariffs.”

As countries decide whether to keep the moratorium, they must think about additional costs like economic and administrative burdens. The potential expenses of handling customs for digital transmissions could be higher than the relatively small customs revenues foregone.

The upcoming decision on the WTO E-Commerce Moratorium at the 13th Ministerial Conference holds significant implications for the future of digital trade. 

Balancing the potential loss of customs revenues against the collateral costs of imposing tariffs on digital transmissions is crucial to ensuring continued innovation, competitiveness, and job growth in the global digital economy.◼