Photo: AFP
Photo: AFP

Industrialized nations oppose proposal to reasses revenue loss due to moratorium

  • Developing countries suffer an annual revenue loss to the tune of $10 billion by not levying the customs duties on electronic transmissions, according to the UNCTAD
  • India challenges the claim advanced by several developed countries ‘that tariff revenue loss due to the moratorium can be balanced by imposing of other taxes and internal charges’

GENEVA : The US and several industrialized countries on Monday severely opposed a joint proposal by India and South Africa at the global trade body for reassessing the revenue and other implications arising from the existing moratorium for not imposing customs duties on electronic transmissions on developing countries.

Under a decision agreed in 1998, WTO members have not been imposing customs duties on electronic transmissions until now. The moratorium for not imposing customs duties will expire in December, 2019.

The developing countries, including India and South Africa, suffer an annual revenue loss to the tune of $10 billion by not levying the customs duties on electronic transmissions, according to an estimated released by the UNCTAD (United Nations Conference on Trade and Development).

At a specifically convened World Trade Organization General Council meeting to discuss the joint proposal from India and South Africa on Monday (17 June), New Delhi’s trade envoy Ambassador J.S.Deepak told his counterparts from the US and other countries that the magnitude of the “potential tariff revenue loss" due to the moratorium is around $10 billion for developing countries as against only $300 million for the WTO High-Income Members.

The developing countries, he argued, “have the opportunity to generate 40 times more tariff revenue by imposing customs duties on ET (electronic transmissions) as compared to the developed countries, many of which have almost zero bound duties on physical imports of digitizable products," said a participant, who asked not to be quoted.

Effectively, around 95% of world’s total tariff revenue loss due to the moratorium for not levying customs duties will be borne by the developing countries. “Why should the bulk of sacrifice of revenue fall disproportionately on the poorer Members of the WTO?" he asked his counterparts from the US, Canada, New Zealand, and Switzerland among others.

The Indian envoy challenged the claim advanced by several developed countries “that tariff revenue loss due to the moratorium can be balanced by imposing of other taxes and internal charges. " In reality, “it is very difficult to tax the digital giants operating in our countries without physical presence," he opined, suggesting that global digital behemoths like Facebook “generates huge profits from its India operations where a significant number of its global users are located, but pays abysmally low taxes to the Indian Government."

Commenting on the difficulties involved in imposing customs duties on ETs (electronic transmissions), Ambassador Deepak drove attention to taxing of “ETs and intangibles, including digital products" by many WTO members. It is technically feasible to impose customs duties on ETs according to the World Customs Organization (WCO), he maintained.

He urged the WTO Secretariat to “to disseminate to the membership, the policies and strategies adopted by Member countries such as the EU, Australia, New Zealand, Indonesia, India, etc for taxing intangible imports" so that the rest of the membership is aware of taxing intangible imports.

More important, the Indian envoy asked his counterparts to consider the “broader impact of the moratorium on trade and industrialization of developing countries" which will be negatively impacted on several grounds.

Without naming the US President Donald Trump, who argues incessantly that tariffs play an important role for industrial development in the US, the Indian envoy suggested that “tariffs play an important role in protecting infant domestic industries from more established overseas competitors until they have attained competitiveness and economies of scale. Therefore, customs duty free imports of digital products will hinder the growth of the infant digital industry in developing countries."

Against this backdrop, said Ambassador Deepak, there is “an urgent need for the developing countries and LDCs to develop their digital capacities for facing the growing challenge of digital trade." Consequently, for designing and developing national digital industrial policies which match the level and pace of their digital development, “it is extremely important for developing countries to preserve policy and regulatory space in the WTO," Ambassador Deepak emphasized.

In sharp opposition to the arguments presented by Ambassador Deepak about reconsidering the continuation of the moratorium, several developed countries led by the US stuck to their rigid position that there cannot be any re-think on the existing moratorium.

In long interventions, the US, Canada, New Zealand, Switzerland, Norway, Mexico, and Chile among others maintained that the potential revenue loss due to the moratorium is insignificant. They maintained that it should not be looked from a narrow perspective, suggesting that the UNCTAD study has overestimated the revenue implications.

The US has maintained that it is not technically feasible to impose customs duties saying it would prove to be costly and burdensome. Further, it would create new bureaucracies for imposing customs duties.

In a measured response to the criticisms and opposition from the developed countries, South Africa’s trade envoy Ambassador Xolelwa Mlubi-Peters told her counterparts from the developed countries that it is incorrect to estimate revenue losses from using effective applied tariffs instead of bound tariffs.

Even by using the effective applied duties instead of bound rates as argued by several countries at the meeting, “developing countries stand to lose more than 20 times of tariff revenue as compared to the developed countries," she suggested.

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