By Deborah Elms, Head of Trade Policy, Hinrich Foundation, Singapore
How many global rules exist to govern digital trade? It’s a bit of a trick question. The answer is that, aside from one specific measure, there really aren’t any.
This deficiency arises because the government members of the World Trade Organization (WTO), the global trade rule body, have struggled to reach consensus on new trade rules since 1995, coinciding with the public emergence of the World Wide Web.
This digital void poses an escalating challenge. In the absence of global rules to structure consistent regulations and laws for the digital economy, governments are independently addressing issues, resulting in a rising level of fragmentation that proves increasingly difficult for businesses to navigate.
While the WTO governments have acknowledged the issue, their attempt to address it dates back to 1998 when they initiated a work program to discuss what was then termed electronic commerce. The group established one important rule, prohibiting WTO members from imposing customs duties or tariffs on electronic transmissions. Although this rule was initially put in place for a two-year period, it requires renewal every time trade ministers convene. The most recent ministerial conference (MC13) in Abu Dhabi at the end of February saw the moratorium on customs tariffs renewed, potentially for the last time, with an expiration date set for 2026.
Despite the lack of clarity surrounding the term “electronic transmissions,” it is expansive enough to cover many digital trade activities, including cross-border delivery of software subscriptions, entertainment streaming, digital payments, and online education. The intentionally vague language adopted in 1998 aimed to allow internet-enabled transactions to continue across borders without tariff impediments.
In the decades since, digital trade has burgeoned with applications that were inconceivable in the 1990s. Despite the absence of customs forms or potential tariffs for cross-border activities, if the moratorium expires, WTO members could demand customs paperwork and impose tariffs or duties on each transmission.
While some argue that WTO members wishing to impose tariffs on digital trade may face practical challenges, such as the inability of customs departments worldwide to track and trace online transactions, the moratorium’s expiration may still lead to attempts to collect duties, especially from larger firms engaged in significant cross-border activities. Although the difficulty in collecting customs tariffs might not be a sufficient barrier, the costs of collection will likely outweigh tariff amounts, particularly for transactions bundled into larger payments like subscriptions or professional service fees, or for those delivered for free.
It is crucial to note that the moratorium exclusively applies to customs tariffs. Governments can already levy other forms of taxes on digital transactions.
The WTO rule book, crafted primarily before the internet’s pivotal role in cross-border trade, contains few rules directly applicable to the digital economy. Many internet-delivered services are covered by commitments made for postal mail or fax delivery across borders. A few updated rules for intellectual property apply to digital trade. Governments have adapted commitments originally intended for offline use to fit online trade situations, but this is undeniably a suboptimal approach to managing the digital economy.
Despite agreeing at MC13 to “reinvigorate” the original work program on electronic commerce, 90 WTO members have spent several years negotiating new e-commerce rules under the “Joint Statement Initiative” (JSI). Expectations for significant conclusions at the ministerial level were unmet due to substantial gaps among JSI members on sensitive issues such as cross-border data flows, data localisation, source code protections, overall agreement scope, and permitted exceptions. Consequently, members opted not to advance any JSI activities for consideration at the ministerial meeting. Even if JSI members reach an agreement, it remains unclear how these rules will be incorporated into the global rule book.
The global business community has fervently called for an extension of the moratorium, emphasising the need for consistent efforts to prompt WTO members to agree on global digital rules that better suit the 21st century.
The views and recommendations expressed in this article are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.
About the writer:
Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).
