ICC draws line in sand on customs duties on digital trade

The business case for a permanent prohibition on customs duties on electronic transmissions – part of a series on various aspects of the WTO plurilateral Joint Statement Initiative on Electronic Commerce (JSI) – is the first of its kind to fully articulate the concerns of global business following recent indications by some states of a desire to lift the moratorium on customs duties on electronic transmissions.

The moratorium has been in place since the WTO’s Second Ministerial Conference in 1998. In this time the world has seen unprecedented growth in digital trade, with the moratorium preventing the creation of trade barriers and burdensome customs duties or tariffs. As a result, consumers have gained unprecedented access to new products and services, and businesses the world over – particularly micro-, small- and medium-sized enterprises – have gained access to new markets.

In recent months, however, three countries have signalled a desire to break from the practice of extending the moratorium, with Indonesia going so far as to create tariff codes for ‘software and other digital goods transmitted electronically’ in its Customs Tariff Book. Absent an agreement from all 164 WTO Members the moratorium will lapse at the end of 2019.

The brief explores the economic disruption that will inevitably occur if the moratorium is lifted. ICC’s analysis also highlights that benefits to countries from tariff revenue on electronic transmissions will be vastly outweighed by the disruptions to business and economic losses that would result from lifting the moratorium, echoing a recent report by the European Centre for International Political Economy.

ICC Secretary General John W.H. Denton AO said:

“The possible expiry of the moratorium on customs duties on electronic transmissions looms like an iceberg in the already treacherous waters of international trade. The potential disruptions caused by the imposition of tariffs on data could far outweigh any impacts we’ve seen from recent protectionist escalations. It is vital that governments address this issue with the urgency and attention it requires.”

The ICC paper also highlights a number of other challenges that would arise were the moratorium to lapse – including the technical difficulty of implementing customs duties on the cross-border flow of data and the risk of creating unnecessary fragmentation to the global trading system.

Mr Denton added:

“The moratorium is now an indispensable aspect of the multilateral trading system, creating the conditions necessary for the flourishing of digital trade. The irony is that a prohibition on customs duties on electronic transmissions is now routinely a part of free trade agreements. Ending the moratorium will therefore fragment international norms and contribute to the very ‘spaghetti bowl’ phenomenon decried by critics of free trade agreements.”