The World Trade Organization’s (“WTO”) 13th Ministerial Conference (“MC13”) has extended the e-commerce customs duty moratorium for another two years, providing another short reprieve for digital services companies from the imposition of tariffs.1 The extension of the moratorium comes as the multilateral e-commerce work program has continued to make little progress in the WTO. Responding to the slow pace of the WTO’s negotiations, a separate, plurilateral effort to advance an e-commerce trade agreement on the sidelines of the WTO is coming together and may yield a result in the next few months.
Extending the moratorium on imposing customs duties on electronic transmissions
The main success of MC13 was an agreement by WTO Members to renew once again the moratorium on the imposition of customs duties on e-commerce until the next Ministerial Conference (“MC14”) or March 31, 2026, whichever is earlier. The extension was achieved in the face of strong opposition from some developing countries, most notably India, South Africa and Indonesia.2 The Ministerial decision stated that “the moratorium and the Work Programme on Electronic Commerce will expire on that date [MC14 or March 31, 2026, whichever is earlier].”3 Further renewals of the moratorium could be agreed on in 2026 subject to it receiving the unanimous agreement of all WTO Members, but the default position has now been set as its expiry which could make negotiating another renewal more difficult.
Members first established the moratorium as a temporary measure in 1998 as a part of the WTO’s multilateral work program on trade-related aspects of e-commerce. The overall objective is to examine all trade-related aspects of e-commerce and to give recommendations for further action. The work program has made little progress since then, but Members have nonetheless repeatedly extended the moratorium at each Ministerial Conference. Securing the renewal of the moratorium was a key objective of the United States, European Union, other developed countries — as well as many developing countries — at MC13 (although the United States did not sign on to the original proposal to extend it since it was unwilling to see it used by India and others as a bargaining chip at MC13 to achieve results in other areas, notably agriculture). A group of 32 developed and developing countries together proposed a standard extension of the moratorium.4 The coalition of developing countries in the African, Caribbean and Pacific Group also proposed an extension of the moratorium together with intensified work on e-commerce-related economic development issues at MC13.5 The US and European services industries have welcomed the moratorium’s successful extension, though industry concern will continue about the long-term sustainability of what was supposed to be a temporary bridge to a permanent settlement.6
Discussions on the scope, definition and impact of the moratorium
MC13’s renewal of the moratorium also included a call to reinvigorate the 1998 Work Program, which Members will develop further in the coming two years. The ministerial decision specifically calls on Members to “hold further discussions and examine additional empirical evidence on the scope, definition, and the impact that a moratorium on customs duties on electronic transmissions might have on development, and how to level the playing field for developing and least-developed country Members to advance their digital industrialization.” This appears to be aimed at responding to longstanding complaints by India, South Africa and Indonesia that the moratorium deprives developing countries of significant customs revenue on e-commerce imports (such as media and professional services) and perpetuates the digital divide affecting developing and least developed countries. In its proposal calling for an end to the moratorium, South Africa had proposed setting up a fund that could provide developing and least developed economies with targeted support to address the digital divide.7 Other Members have opposed the funding proposal, arguing that it lies outside the scope of responsibility of the WTO.
The countries opposing the moratorium often cite United Nations Conference on Trade and Development (“UNCTAD”) studies that have concluded, “[t]he fiscal impact of international e-commerce is likely to be felt more strongly in the developing countries: they will face higher losses from customs duties, which make up higher shares in their national budgets compared with the developed countries.”8 An UNCTAD research paper published in 2019, estimated that the potential tariff revenue loss to developing countries from the moratorium was $10 billion in 2017.9 Seeking to recover these losses, Indonesia has already introduced legislation imposing customs duties on digital goods (such as software, electronic data, multimedia, etc.) delivered via the internet.10 While it has currently set the MFN tariffs on such digital goods at zero, a revocation of the WTO moratorium on e-commerce duties could provide the legal cover for Indonesia to raise these duties.
On the other hand, the WTO Members in support of extending the moratorium (which includes both developing and developed countries) highlight the harm customs duties on electronic transmissions would have on the global digital economy, particularly through increasing operating costs for exporters resulting in higher prices for consumers.11 Members cite a 2019 study by the European Centre for International Political Economy (“ECIPE”) which found that the imposition of custom duties on electronic transmissions would increase prices and reduce consumption, resulting in slowed economic growth and reduced tax revenues.12 Investigating the revenue concerns, a collective of international organizations (IMF, OECD, UNCTAD, World Bank and WTO) collaborated for a comprehensive study of the issue. In their final report, the study estimates that the effect of the moratorium on government revenue will be below 0.33 percent of overall government revenue on average.13 The study proposes value added taxes (“VAT”) as an alternative way to collect revenue from digital trade. VATs do not discriminate between domestically supplied and imported products, are more uniform across different products and do not impose a tax burden on intermediate inputs used by domestic producers.
Debate on the scope, definition and impact of the moratorium has been ongoing at the WTO without resolution for many years and further negotiations will prove to be difficult. Members appear to have become entrenched in their positions. The extension of the moratorium itself, a straightforward decision at prior Ministerial Conferences, has become increasingly fraught with difficulties in the last two Ministerial Conferences (MC12 and MC13). Alternatives to the multilateral decision, in the form of a commitment among likeminded WTO Members that favor not imposing customs duties is being considered in a plurilateral initiative among a subset of WTO Members (see Section 2) and in free trade agreements among certain countries.14
Negotiations for a plurilateral agreement on e-commerce
Informally, since 2019, a group of 90 like-minded WTO Members have been negotiating a plurilateral Joint Statement Initiative (“JSI”) agreement on e-commerce trade (“e-commerce agreement”). Members launched the Initiative to work around opposition to any new WTO negotiations from some WTO Members, notably India and South Africa, and to overcome the difficulties that the WTO consensus principle creates in trying to conclude a negotiation successfully and in a timely manner. Despite not including all WTO Members, the e-commerce agreement’s participants account for over 90 percent of global trade, including South Korea, China, Brazil, the United States and the EU. Since this negotiation is plurilateral, it has proceeded informally on the sidelines of the WTO’s multilateral work program. As such, it was not part of MC13’s formal agenda.
The current draft e-commerce agreement
The three countries that are leading and chairing the negotiations — Japan, Australia and Singapore — announced at the end of 2023 the “substantial conclusion” of the negotiations on 13 articles of the draft agreement covering three main areas: digital trade facilitation, open digital environment and business and consumer trust.15 The agreement includes a draft article on data privacy, which had been controversial but which negotiators resolved by adopting a light touch approach that would require all participants to have regulatory frameworks on data privacy in place but which would not prescribe what these frameworks should cover. The joint-chairs stated that more negotiations are needed to complete a handful of remaining issues related to telecommunication services, electronic payments and some information and technology products that use cryptography, and that these negotiations will be conducted “in a timely manner” in 2024. In January 2024, the joint-chairs circulated a “chairs text” that “reflects our best assessment of a viable and commercially meaningful package,” which includes both the concluded chapters and notes on the remaining areas of disagreement.
The 13 articles of the draft e-commerce agreement cover the following issues:
- online consumer protection;
- electronic signatures and authentication;
- unsolicited commercial electronic messages – or spam;
- open government data;
- electronic contracts;
- transparency;
- paperless trading;
- cybersecurity;
- open internet access;
- electronic transaction frameworks;
- electronic invoicing;
- single windows for submission of data; and
- data privacy.
The progress that has been made in these negotiations and the completion of draft articles on 13 issues represents a considerable accomplishment, but it falls short of the early harvest agreement that some participants had been hoping to present to WTO Ministers at MC13. Participating Members plan to hold further talks in March and April, hoping to complete an agreement in the next few months.
A permanent settlement to the moratorium
One unresolved issue is whether the draft agreement should include a permanent moratorium on the imposition of customs duties on electronic transmissions. The three countries chairing the e-commerce agreement negotiations have urged the participants to support the moratorium and said that it would “add to the commercial impact” of the eventual agreement. Incorporating the moratorium into the e-commerce agreement is favored by many participants in the negotiations, but some have been reluctant to decide this matter while it remains unresolved on a multilateral level. The strong opposition to extending the moratorium at MC13 may motivate the moratorium’s supporters to shift their efforts toward the e-commerce agreement as a permanent solution.
Cross-border data flows in the e-commerce agreement
The chairs’ text states that the Members need “[s]ubstantially more time for discussions” on the three issues of cross-border data flows, a ban on data localization requirements and the protection of source code. The United States unexpectedly withdrew its support for the inclusion of these issues in late 2023, saying that it needed “policy space” for domestic political discussions on how the government should regulate the activities of its “Big Tech” companies. Some US lawmakers and industry groups have strongly criticized this decision, suggesting the action will leave the door open for greater Chinese influence over international e-commerce rules and harm US exports. All the same, while the United States’ opposition was significant it was far from being the only factor preventing progress on these issues in the negotiations, with deep divisions on their inclusion existing among many of the other participants. Most probably, negotiators will drop these items from the exercise for the time being.
JSIs in the WTO legal architecture
Participants in the e-commerce agreement negotiations will also need to decide on the legal architecture of the eventual agreement in 2024, meaning what its relationship to the WTO Agreements should be. Most participants want to see the agreement integrated into the WTO framework, possibly by adding it to Annex 4 of the WTO Agreement which covers plurilateral agreements, such as notably, the Government Procurement Agreement. Adding the e-commerce agreement to Annex 4 would require the support of all WTO Members to amend the WTO through Article X.9 of the Marrakesh Agreement, and for now this has been opposed by some WTO Members, notably India and South Africa. Other options for bringing the e-commerce agreement into force will need to be worked through by participants in the coming months.
India and South Africa have objected to any plurilateral negotiations taking place under the WTO umbrella since, in their view, plurilateral agreements weaken and detract from the value of the consensus-based multilateral WTO system.16 India demonstrated this at, and in the lead up to, MC13 by objecting to the integration of the JSI plurilateral agreement on Investment Facilitation for Development into Annex 4 of the WTO Agreement and is threatening to treat all further plurilateral efforts in the same way.17 However, a plurilateral agreement on Services Domestic Regulation did manage to overcome India’s opposition on the sidelines of MC13, because its implementation required simply the adjustment of WTO Members’ services schedules rather than the adoption of a new agreement. Something similar might prove possible in the case of the e-commerce agreement.
MC13 and continuing negotiations in Geneva
WTO Members held MC13 in Abu Dhabi, United Arab Emirates, from February 26 to March 2, 2024. MC13 ended with limited results that fell short of most WTO Members’ expectations. Besides extending the moratorium on e-commerce, Members also adopted the JSI on Services Domestic Regulation, extended until MC14 the moratorium on non-violation and situation complaints under the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement), and welcomed the accessions of Comoros and Timor-Leste. The Ministers did not conclude several other agreements that Members had hoped to achieve at MC13, including a proposed expansion of the TRIPS COVID-19 waiver, integration of the JSI on Investment Facilitation for Development, an agreement on dispute settlement reform, a roadmap for an eventual outcome on outstanding agriculture issues, and the long-awaited second agreement on fisheries subsidies. Negotiations will continue in Geneva over the coming months. While questions about the dispute settlement system and the future path of important negotiations remain unresolved, the accession of two least-developed countries, the progress of the plurilateral JSIs, and strong leadership in advancing the latest negotiations by many developing countries point to how the WTO can remain relevant in setting the basic rules of international commerce.
1 The Abu Dhabi Ministerial Declaration, WT/MIN(24)/DEC; and the Work Programme on Electronic Commerce – Ministerial Decision, WT/L/1193; WT/MIN(24)/38.
2 See India and Indonesia’s proposal to extend the e-commerce work program without continuing the moratorium, WT/MIN(24)/W/7/Rev.1; and South Africa’s proposal to expand the e-commerce work program and end the moratorium, WT/MIN(24)/W/6/Rev.1.
3 WT/MIN(24)/38
4 See the proposal by 32 developed and developing countries to extend the moratorium, WT/MIN(24)/W/8/Rev.1.
5 See the African, Caribbean and Pacific Group’s proposal for the moratorium extension, WT/GC/W/916/Rev.1.
6 See, e.g., the Global Services Coalition’s statement on MC13.
7 Communication from South Africa, Work Programme on Electronic Commerce, WTO General Council, December 1, 2023, WT/GC/W/911.
8 While this conclusion first appeared in a study published by UNCTAD in 2000 (Susanne Teltscher, “Tariffs, Taxes and Electronic Commerce: Revenue Implications for Developing Countries,” UNCTAD Policy Issues in International Trade and Commodities Study Series No. 5, 2000, p. 25), this position was reiterated in later studies published in 2017 and 2019.
9 UNCTAD, “Growing Trade in Electronic Transmissions: Implications for the South,” UNCTAD Research Paper No. 29, UNCTAD/SER.RP/2019/Rev.1.
10 Communication from Indonesia, Indonesia’s Perspective on Customs Duties On Electronic Transmission Communication From Indonesia, WTO General Council, December 13, 2022, WT/GC/W/859.
11 See Communication from Australia; Canada; Chile; Costa Rica; European Union; Hong Kong, China; Japan; Korea, Republic of; Norway; Peru; Singapore; Switzerland; Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; and United Kingdom, WT/GC/W/889.
12 Hosuk-Lee Makiyama and Badri Narayanan, “The Economic Losses from Ending the WTO Moratorium on Electronic Transmissions,” ECIPE Policy Brief No 3/2019.
13 Report by the International Monetary Fund, the Organisation for Economic Co-operation and Development, the United Nations, The World Bank and the World Trade Organization, “Digital Trade for Development,” 2023, p. 4.
14 Provisions prohibiting the imposition of customs duties on electronic transmissions are present in FTAs signed by the EU and the United States. See, e.g., Article 193, EU – Armenia FTA; Article 119, EU – CARIFORUM FTA; Article 127, EU – Georgia FTA; and Article 14.3, US – Singapore FTA; Article 14.3, US – Panama FTA; Article 15.3, US – Peru FTA. The US FTAs however explicitly allow the imposition of internal taxes on digital products: See Article 157, Chile–US RTA; Article 14.1 CAFTA-DR; fn1 to Chapter 15, KORUS; Article15.1, Peru-USRTA; and Article15.1, Colombia–US.
15 See “Co-Convenors of the WTO Joint Statement Initiative on E-Commerce announce substantial conclusion of negotiations on a number of global digital trade rules,” December 10, 2023.
16 Communication from India, Namibia, and South Africa, “The Legal Status of ‘Joint Statement Initiatives’ and Their Negotiated Outcomes,” WTO General Council, April 30, 2021, WT/GC/W/819/Rev.1.
17 Communication from India, WTO General Council, Statement by India on Agenda Item 18 (Information On Investment Facilitation For Development – Request From Chile and the Republic of Korea) General Council Meeting – 13 – 15 December 2023, December 21, 2023, WT/GC/262.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2024 White & Case LLP
