Moratorium: Customs duties on electronic transmissions

Since the Declaration on Global Electronic Commerce in 1998, the WTO member nations ceased the imposition of customs duties on electronic transmissions. Said transmissions usually refer to the online trade of digitizable products and services or the online delivery of music, e-books, films, software, and video games. While its definition remains to be unsettled, it could broadly encompass internet publishing, web search portals, info services, online retail services, photographic, motion picture, and sound recordings, digital advertising, data hosting, cloud services, and data transfers.

This moratorium will lapse in February 2024. ICC Philippines supports the initiatives of the International Chamber of Commerce in securing its renewal.

Digital trade is indubitably an immense economic driver that enhances productivity, innovation, and competitiveness. Further, it reduces the cost of doing business in an increasingly digitalized world — more so given downside risks and disruptions threatening global growth.

The imposition of customs duties causes declines in domestic output and productivity, leading to unemployment and inequality. Companies undergoing levels of innovation are highly impacted. The idea of imposing unilateral tariffs assumes the protection of nascent industries. However, the countermeasures by affected third countries, which directly interfere with the ability of MSMEs to scale and access international markets, are overlooked.

As per the comprehensive scenario modeling study by the European Center for International Political Economy, potential tariff losses are far outweighed by GDP losses that would accrue from a unilateral imposition of tariffs or the reciprocal imposition of tariffs.

Per ECIPE, if one or a couple of countries impose tariffs on electronic transmissions, “it is a political fallacy to assume that a broader group of WTO members would not follow suit and begin to consider their own tariffs.”

Using the average tariff rates assumed by UNCTAD on the Most Favored Nation basis, ECIPE’s paper shows imposing tariffs on e-transmissions in India projects a $719 million GDP loss as against an expected revenue of only $39 million. Losses tend to be more pronounced and would reach $1.9B against a $31 million tariff to be generated should countermeasures by likewise imposed by other WTO members.

OECD studies also note that the revenue implications of lifting the moratorium are likely to be relatively small and would come at the expense of more significant gains in consumer welfare and export competitiveness.

The Philippines is relatively a new migrant in the digital world where the MSMEs, which comprise more than 99% of the total companies registered in the country, are slowly but surely adopting new technologies to enable their businesses to access new markets, products, and services. The moratorium empowers these MSMEs to freely avail of, engage and flourish in digital trade without the burden of new trade barriers, customs duties, and tariffs. Moreover, these MSMEs, the often vulnerable segment of the economy, are afforded not only the much-needed ease and convenience in the “catch-up” world of digitalization but also provided a wide horizon of opportunities in digital cross-border trade.

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