Ashwani Mahajan
Moratorium on customs duties on electronic transmissions has got another lease of life at the World Trade Organisation’s 12th Ministerial Conference (MC12), despite India making ‘vocal efforts’ since the beginning of MC12. Some say, this has happened due to pressure exerted by the United States, others think that India has bargained this for other ‘gains’.It’s notable that India had pronounced that it would oppose this moratorium on custom duties, as the same is causing huge loss of revenue, apart from hurting our digital development, as domestic players face intense competition from global big tech companies.
This was the time to make efforts to do away with the ‘temporary provision’ of tariff moratorium on electronic products, which has been going on since the inception of the WTO. Significantly, at the time of the start of the WTO, trade in electronic products was very limited. In such a situation, the tariff on the trade of electronic products was temporarily suspended and it was decided in the Second Ministerial Conference of the World Trade Organization in 1998, to study the issues related to the global electronic trade with reference to the development needs of the developing countries and was proposed that tariffs on electronic products be postponed till the next ministerial conference.
It is unfortunate that the developed countries, kept suspending the decision on imposing tariffs on the import of electronic products, on several pretexts. Today the situation is that more than US$ 30 billion of electronic products are being imported into India alone. That is, even if 10 percent tariff is imposed, then the Government of India will get revenue of more than US$ 3 billion. According to a recent study, developing countries could have generated $56 billion from imports of just 49 digitalised products in the period 2017-2019. Least developed countries could have generated $8 billion in this period, which is double the amount they need for giving double dose of COVID vaccine to their populations.
The issue here is not only about loss of revenue, it’s a much larger issue for a country like India, where our start-ups and software companies are able to make a variety of electronic products, where we can make movies and other entertainment products in our own country, but when all such products are imported undeterred, without tariff, there is little incentive to produce them indigenously. This tariff moratorium on e products is actually killing our efforts of Atmanirbhar Bharat, benefitting US, European countries and China.
At the beginning of MC12, India started with a bold stance and the Commerce Minister said: “I think this moratorium, that has been continuing for 24 years, must be reviewed and re looked at. The work programme needs to be reinvigorated, and must provide regulatory space for developing countries to provide a level playing field to domestic SMEs in the digital sector while continuing to contribute to their economies.”
However, decision on moratorium in MC12, is read as follows:
“We reinvigorate the work under the Work Programme on electronic commerce based on the mandate as set out in WT/L/274 and particularly in line with its development dimension.
We shall intensify discussions on the moratorium and instruct the General Council to hold periodic reviews based on the reports that may be submitted by relevant WTO bodies, including on scope, definition, and impact of the moratorium on customs duties on electronic transmissions.
We agree to maintain the current practice of not imposing customs duties on electronic transmissions until MC 13, which should ordinarily be held by 31 December 2023. Should MC 13 be delayed beyond 31 March 2024, the moratorium will expire on the date unless Ministers or the General Council take a decision to extend.”
In the earlier Ministerial Conferences of WTO, in the last 24 years, developed world has been easily getting the moratorium on electronic transmissions, conference after conference. MC12, was the first such conference where they faced some resistance from the developing countries. With this, a hope had arisen that moratorium would end ultimately. But, this battle was also lost, in MC12; and gain of policy space, which was looking nearer, again slipped out of the hands of developing countries, including India, South Africa and all others who could have gained from ending the moratorium.
Since 1998, digitisation has gone much ahead, and digital revolution has changed online trade, apart from emergence of big tech companies and their products, which own a big chunk of the markets of social media, online trade, search engines and others.
There are digital products, which are fast replacing physical products. Many of the digital products in health, fintech, public services and many others, incorporating artificial intelligence, 3D printing, have been changing the demand patterns for these services. Failure to tax them in innovative ways is likely to impact the Government finances adversely, apart from hurdles for manufacturingthese digital products indigenously.
Digital revolution with revenue growth
In this digital era, India has made significant strides in the field of digitised commercial and public services, digital payments and government transfers among others. In software, India’s strength cannot definitely be undermined. Recently, India has started making efforts in indigenous 5G. We have started developing our own digital products and Production Linked Incentives (PLIs) scheme has been designed to nurture our infant digital products industries. Imposition of custom duties can help providing level playing field for our digital industries, which are in infant stage right now. If we see, lot of video games, music, movies and other such items including OTT contents etc are being transmitted free from custom duties, due to moratorium. If moratorium ends, conspicuous consumption of such luxury items would be reduced. This will help saving valuable foreign exchange and Government can benefit by way of revenue, which could be used for development and public welfare. This is no secret that Government revenue has been under severe stress in the post pandemic period, leading to huge fiscal deficit, which is causing inflation hitting our masses.
Game of the big tech
Since the time, it became known to big tech, that India and other developing countries are pushing for discontinuing moratorium, they started making efforts to foil these efforts, through their respective governments. On the fear that India may also face higher duties on its export of digitalised products, we should note that the developed countries have almost zero bound duties on these products. This also means that due to this moratorium the loss of developed world is minimal, as compared to developing countries.
Based on the responses from their big tech companies, developed countries made a strong push and as usual they used all diplomatic and arm-twisting tactics to renew the moratorium in MC12. It’s notable that this makes international trade highly unequal, where big tech, especially the digital platforms, have enjoyed nearly 25 years of duty-free exports while small and medium firms exporting physical products face custom duties. This implies that, whereas, developing countries have been demanding ‘Special and Differential Treatment’ (S&DT), the fact is that developed countries have been enjoying reverse S&DT. This must end. Though, MC12 is over, the goal post has been shifted to MC13, India should leave no stone unturned, to achieve ending of this moratorium, with firm approach towards the same. Issues like definition of electronic transmission, its scope and impact must be studied thoroughly.
(The author is Professor, PGDAV College, University of Delhi)
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