WTO Members Debate Extending Tariff-Free Treatment for Digital Trade

The 13th WTO Ministerial Conference in Abu Dhabi has placed a crucial focus on extending tariff-free treatment for digital trade. Concerns have surfaced among certain member nations regarding the current framework's impact on their policy and revenue streams.

Several WTO members remain cautious about further extending or establishing a permanent moratorium, citing apprehensions over potential foregone customs revenues. These concerns have risen due to the exponential growth of the digital economy and trade.

Global digital trade surged from less than US$1 trillion to almost US$5 trillion between 1995 and 2018 and was predominantly facilitated through electronic means.

Beyond mere revenue implications, the discussion extends to the broader costs associated with imposing customs duties. These include the burden imposed on consumers in importing nations, particularly affecting small-scale producers reliant on digital transmissions.

For example, in businesses like 3D printing and cloud computing, leaders from these nations contend that the existing moratorium has leveled the playing field, eroding the traditional advantage held by developing countries. Noting that their tariff rates for physical goods tend to exceed those of developed counterparts.

Furthermore, there's a concern for the growth potential of digital products and service providers, predominantly situated in developing economies. The adverse impact on employment is also a focal point, with digitally enabled services exhibiting robust growth rates in low-income countries compared to traditional sectors like manufacturing and agriculture.

Supported advocate for extending the moratorium, citing the significant value of global trade in digitally delivered services, which reached $3.82 trillion in 2022, comprising 54% of total global services trade and 12% of total goods and services trade combined, with an average annual growth rate of 8.1%, outpacing goods and other services.

Studies from the Organization for Economic Cooperation and Development (OECD) suggest that introducing digital tariffs would likely slow down digital trade flows, offsetting any gains from new customs revenue.

While the WTO Agreements cover all types of trade, the only multilateral rule specific to digital trade is the WTO moratorium on digital tariffs, which contributes to lower policy uncertainty and facilitates investment and trade.

Despite limited studies on the potential economic impact of the WTO moratorium, the broader question remains whether it facilitates or hinders efficient policy design on digital trade.