Streaming a movie outside the US may soon come with taxes at the border

By Brendan Murray and Eric Martin

The decades-old global consensus that’s allowed e-commerce and a growing tidal wave of data to cross borders without tolls is at risk of falling apart.

Every couple of years since 1998, ministers at the World Trade Organization have renewed a moratorium on digital customs charges. It’s kept online transactions — a Netflix movie streamed in South Africa, an international Zoom call with a doctor in India, an e-book downloaded on a beach in Bali – free of tariffs throughout the internet age.

Maybe not for much longer. The WTO meets in Abu Dhabi next week with the latest moratorium set to expire in March. At least three large developing economies are signaling they’ll oppose another extension. Because the WTO operates on consensus, all it takes is one to kill it.

The tariff ban has helped fuel the fastest-growing segment of world trade: digital goods and services. They’re key to the success not just of tech companies like Amazon.com Inc. and Netflix Inc. but also the growing number of traditional firms that collect data and conduct e-commerce in foreign markets.

Now, emerging economies cite concerns about the dominance of US-based Big Tech – and other worries including risks from artificial intelligence, the need to protect data privacy, and the loss of customs revenue into the ether of the digital economy.

“It’s not a done deal,” John Denton, secretary general of the International Chamber of Commerce, said of efforts to renew the arrangement. He cited Indonesia, the largest economy in southeast Asia, as a major holdout, with South Africa and India likely to follow.

“We think this will go down to the wire,” Denton said.

World trade ‘shockwave’

It’s not the first time countries have threatened to let the moratorium lapse to win concessions from major exporters of digital services like the US. But there’s a sense they’re not bluffing this time.

Indonesia believes governments need to be free to impose tariffs in response to rapid change in the digital world, said Askolani, director general of customs and excise at the country’s Ministry of Finance. India has signaled a similar position. A spokesman for South Africa’s trade ministry declined to comment.

One difficulty is the lack of an international legal framework or standard definitions for digital trade. That means it’s not clear how governments would apply tariffs — whether they’d charge per transaction, per byte or per digital product, like a song, for instance.

The sums they’d raise aren’t huge. An October study by the Organization for Economic Cooperation and Development found that taxing digital transfers would only add about 0.1 per cent to government revenue.

Still, ending the moratorium “will send a shockwave through the WTO,” an organization dedicated to lowering trade barriers, said Keith Rockwell, its longtime spokesman.

“For the first time since the WTO’s founding, members will have opened the door to applying new tariffs,” said Rockwell, who’s now a Geneva-based senior research fellow for the Hinrich Foundation.

More than 180 business groups around the world, including the US Chamber of Commerce, wrote an open letter backing the status quo. They said countries seeking to impose tariffs will harm themselves in the long run, by sending a negative signal about their business climates and openness to investment.

Prospects ‘uncertain’

Some corporations worry that the Biden administration isn’t fully committed to defending the tariff ban. The US in October pulled a negotiating proposal from related WTO e-commerce talks about the flow of data across borders. Earlier it withdrew its text for the digital chapter of a trade pact with allies in the Indo-Pacific.

US Trade Representative Katherine Tai recognizes that there’s a debate going on within the WTO about the moratorium, and looks forward to working with members on a solution, according to a senior US trade official.

European Union Vice President Valdis Dombrovskis, who oversees the bloc’s trade policy, told a parliamentary committee this week that the prospects of extending the moratorium in Abu Dhabi “remain uncertain.”

‘Break the internet’

Among the government agencies pushing for renewal is the United Nations Conference on Trade and Development, which promotes the interests of developing countries in world trade. UNCTAD says digital inequality widened during the pandemic.

It’s “increasingly important to countries and businesses to be able to adapt to digital trade,” said Torbjörn Fredriksson, head of the agency’s e-commerce group. “Unfortunately, the rapid speed of digitalization tends to outpace the ability of many countries to do so.”

With global trade increasingly fragmented amid growing great-power competition between China’s national firewall model and the more open US system, getting a deal in Abu Dhabi to keep the internet tariff-free won’t be easy.

“It’s a bad time for multilateralism,” said Martina Ferracane, a research fellow with the European University Institute, which recently launched a digital trade database. “It’s not a moment in which countries are willing to create a new global consensus on almost anything.”

Denton, who represents 45 million companies with the international chamber, made trips to Indonesia and Brazil in recent weeks arguing the case for keeping the moratorium.

Scrapping it, he said, could open up a protectionist abyss with “the capacity to break the internet.”