i3 - January/February 2020 - 74

Policy

By Meredith Broadbent, senior advisor,
Center for Strategic and International Studies (CSIS)

P O L I CY U P DAT E

Improving the International
Legal Framework
Governing Digital Trade
Step one: extend the WTO e-commerce
moratorium on customs duties

eadlines referring to the fraying World Trade
Organization (WTO) legal system because of U.S.
opposition to the Appellate Body dispute settlement
mechanism have recently populated the international trade
press. These predictions of doom for the WTO system of fair
trade rules for products are perhaps premature and exaggerated,
at least during this period leading up to the 12th WTO
Ministerial meeting in Kazakhstan on June 8-11, when a
negotiated solution to the impasse may emerge.
national treatment and "least trade
A more immediate concern is the loomrestrictive" (given domestic regulatory
ing expiration of the WTO's customs
objectives) like those that promote preduties moratorium on electronic
dictability for international
transmissions, commonly
trade in physical goods.
referred to as the
With global
The temporary exception
"e-commerce moratocross border
to this Wild West of weak
rium," in December 2019.
data flows
rules for digital trade has
Although a mouthful,
been the moratorium.
expiration of this temporeaching
Services now account for
rary agreement to forgo
$2.8 trillion
half of global trade on a
applying duties on digital
in 2014, the
value-added basis and are
products transmitted
stakes are high. growing while merchandise
electronically over the
trade is decreasing. Much
internet could have a seriof the services trade is tied
ous negative impact on
to the growth of digital trade and the rise
the international trading system, particin digitally enabled services. At the same
ularly as it applies to the tech sector.
time, trade restrictive measures, particularly in digital trade, are also growing.
Digital Trade
A relatively dependable element of
Unlike international trade in traditional
WTO rules since 1998, the moratorium
goods (physical products) which is govhas been extended successively in twoerned by a wholistic set of free and fair
year increments since then. Recently,
trade rules, the governance of electronic
however, developing country opposition
transmissions and digital trade through
to extension has hardened. India, South
permanent, binding obligations is relaAfrica, and Indonesia are increasing
tively weak. For digitally-delivered products and services, there are no permanent outreach efforts to convince other developing country members of the WTO to
agreed principles of non-discrimination,
74

JANUARY/FEBRUARY 2020

allow the moratorium to expire. They
argue that, as more products are traded
internationally in digital form, the moratorium has led to growing revenue losses
to national treasuries. In the current
world of advanced technologies such as
3D printing and cloud computing, many
leaders in these countries believe the
moratorium has diminished the developing country "advantage" of generally
higher tariff levels (than developed
countries) for physical goods.
In a recent study, the United Nations
Committee on Trade and Development
warned that if developing countries do
not actively regulate imports of data
and software, their ability to control
manufacturing and services trade will
I T I S I N N O VAT I O N

i3 - January/February 2020

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