For the past quarter-century, the digital economy has been exempt from the kind of tariffs that apply to trade in physical goods.
That era may come to a screeching halt this week as a handful of nations threaten to scrap an international ban on digital duties in a game-changing bid to draw more revenue from the global e-commerce market that the UN has estimated at $26.7 trillion.
If governments fail to re-authorise the World Trade Organisation’s e-commerce moratorium, it could open a regulatory can of worms and increase consumer prices for cross-border Amazon purchases, Netflix movies, Apple music and Sony PlayStation games.
“Absent decisive action in the coming days, trade diplomats may inadvertently 'break the internet' as we know it today,” International Chamber of Commerce Secretary General John Denton wrote in a Hill opinion piece published last week.
The WTO’s e-commerce agenda dates back to 1998, when nations agreed to avoid taxing the then-fledgling market for digital trade. WTO members have periodically renewed that ban at their biennial ministerial meetings and are considering whether to do so again at this week’s gathering of ministers in Geneva.
But some nations such as India and South Africa argue that the growth of the internet justifies a rethink about whether the WTO’s e-commerce moratorium remains in their economic interests. In 2020, they introduced a paper that said the moratorium prevents developing countries from gaining tariff revenue from transformative technologies like 3D printing, big-data analytics and artificial intelligence.
While nations could draw somewhere between $280 million and $8.2 billion in annual customs revenue, new digital tariffs would also harm global growth by reducing economic output and productivity, according to the Paris-based Organisation for Economic Co-operation and Development.
The International Monetary Fund previously calculated that a splintering of the digital economy could ultimately deliver a 6 per cent hit to global economic output over the next decade.
If the moratorium lapsed, “it could set in motion a stampede to impose tariffs on digital flows across borders, put an unnecessary strain on an already battered global economy, and signal to the world that inflation be damned”, said John Neuffer, chief executive of the Semiconductor Industry Association.
It is not immediately clear how exactly a government would impose customs duties on electronic transmissions.
It would probably be “prohibitively expensive” for customs officials to track and quantify the value of the countless data packets that bring these products to consumers’ devices, Mr Denton said.
“While viewing a single movie, a device could receive as many as 5 million data packets from nine jurisdictions,” Mr Denton wrote.
“How, then, would countries accurately (and impartially) calculate the tariff on a single viewing session, byte of data or file size — let alone on the endless stream of data and messages that enable modern business-to-business transactions?”
Furthermore, the WTO does not define the scope of e-commerce transmissions so there is no clarity as to which online services would be subject to new duties — be it Bitcoin cryptocurrency transactions, Airbnb lodging, Uber car rides, DoorDash food delivery or Peloton fitness classes.
Finally, the proliferation of virtual private network applications that mask internet protocol addresses would complicate, if not render impossible, efforts to identify the origin of many digital commerce transactions.
Some believe that India is using the threat of new tariffs as a negotiating tactic to persuade other nations to concede to its demands for unrelated trade concessions.
India previously threatened to scrap the e-commerce moratorium during the WTO’s last ministerial in 2019 but backed off after nations agreed to avoid initiating disputes over certain questionable intellectual-property practices. The e-commerce debate may also be used as leverage for India’s demands to water down WTO subsidy rules for public stockholding food programmes.
Such brinkmanship is made possible by the WTO’s principal of consensus, which allows any one of its 164 members to block any agreement for any reason.