WTO Ministerial Conference, Geneva: The pandemic spurred the adoption of digital technologies essential for user and business continuity, facilitating the recovery in 2021. The digital economy has helped drive economic development and generate new opportunities. As we continue to navigate through a period of global uncertainty and slowdown, the role of the digital economy will be more important than ever.
With the rise and fall of major multilateral trade deals such as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), the WTO is seen as a relic of a bygone era. However, it is very much alive — and the ministers of its member nations are in Geneva for the annual ministerial conference where they will get a chance to discuss the future of the international economic order.
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Tax on e-commerce tops WTO ministerial agenda
One key agenda item is the continuation of a moratorium on duties on cross-border electronic transmissions that has been in place since 1998. The moratorium has helped firms of all sizes, and across multiple sectors, to flourish during the pandemic when digital purchases ballooned. If the moratorium were to lapse, it would have a deleterious effect on these business that rely on cross-border digital trade. Indian businesses, too, would not be spared.
India, however, has vowed to oppose renewing the pledge, citing the loss of revenues due to the moratorium. India’s reasoning seems far from the reality – digital tools and technology touch practically every business which rely on tariff-free cross-border electronic transmissions guaranteed by the WTO moratorium.
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An OECD report published in May 2022 underscores how these costs are often the highest for developing countries like India. The end of the moratorium will impose significant new costs on a large number of Indian businesses that depend on production flows and supply chains. Rather than becoming the tax on foreign firms that India hopes for, the tariffs applied after the moratorium ends will instead tax Indian domestic consumers and firms.
India suffered a great deal due to the Covid-19 pandemic – an estimated 75 million Indians dropped below an income of $2 dollars a day due to the economic slowdown. The growth in India’s digital economy over the last two years has been a rare bright spot for a country whose economy was negatively impacted by the pandemic.
As India navigates its post-pandemic recovery, keeping the digital economy’s momentum going will be crucial. Keeping the WTO moratorium in place will help keep the flow of knowledge, technical know-how, and scientific and commercial information which are necessary for the digital economy to thrive. To help raise the living standards of potentially millions of Indians, pledges like this moratorium must be preserved.
As we prepare for more Covid-19 waves and other potential global diseases, lockdowns and physical restrictions will inevitably return. For small and medium business in India to avoid the negative effects of these restrictions, they will need to access and leverage digital tools. An end to the moratorium would threaten India’s booming digital services and export industry which reached $83 billion in 2018, according to UNCTAD. Encouraging protectionist measures could also have unintended consequences for India if other countries start imposing retaliatory tariffs on its exports.
India has frequently endorsed a rules-based, multilateral trading system because it helps the country’s exports and businesses, particularly in the digital economy. Opposing this decades-old pledge at the WTO Ministerial Meeting will signal a troubling message as India raises the protectionist flag. As India seeks to build new trade relationships along ecosystems of trust, opposing the moratorium would add further strain to international rules-based system and hurt the country the most.
Prachi Gupta is an Assistant Editor with Policy Circle. She is a post graduate in English Literature from Lady Shri Ram College For Women, Delhi University. Prachi started her career as a correspondent with financialexpress.com. She specialises in policy impact studies.