WT/GC/W/774  
 
4 June 2019  
(19-3837) Page: 1/5 
General Council  Original: English  
 
WORK PROGRAMME ON EL ECTRONIC COMMERCE  
THE E -COMMERCE MORAT ORIUM AND IMPLICATIO NS FOR DEVELOPING CO UNTRIES  
Communication from India and South Africa  
The following communication, dated 3 June 2019, is being circulated at the request of the delegations 
of India and South Africa.  
 
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1  INTRODUCTION  
1.1.  Last year, India and South Africa jointly introduced the proposal 'Moratorium on customs duties 
on electronic transmissions: Need for a re -think'1. The objectives included examination afresh of the 
impact of the moratorium, given that the realities prevailing in 1998, when WTO Members agreed 
for the first time, to the temporary moratorium on customs duties on electronic transmissions, have 
changed significantly. Digital trade has acquired dimensions wh ich were then unimaginable. The 
impact of the moratorium needs to be understood from the revenue point of view and, from a 
development perspective, we need to analyse how the moratorium is impacting the efforts of 
developing countries and LDCs to industria lize digitally and otherwise.  
1.2.  The proposal was discussed in the General Council on 26 July 2018 and again on 
27 November  2018. The discussions were centred around the following thematic areas:  
• Revenue implications of the moratorium on electronic transmiss ions; 
 
• Scope and definition of electronic transmissions;  
 
• Technical feasibility of imposing customs duties on electronic transmissions;  
 
• Broader impact of the moratorium on trade and industrialization and any other issue 
with respect to the moratorium.  
1.3.  The e-commerce moratorium is a very important decision by the WTO and we agree with the 
then General Council Chair that its continuation should be driven by concrete facts and statistics. In 
this context, we are very grateful to the UNCTAD for their latest re search paper, 'Growing Trade in 
Electronic Transmissions: Implications for the South'2 (hereinafter referred to as UNCTAD 2019 
Study).  
1.4.  This paper discusses the issues mentioned in paragraph 1.2., drawing largely from concrete 
facts and statistics, as pres ented in the UNCTAD 2019 Study.  
                                                
1 WT/GC/W/747 , 13 July 2018 . 
2 UNCTAD Research Paper No. 29, UNCTAD/SER.RP/2019/1, February 2019 . 
Also accessible on: https://unctad.org/en/PublicationsLibrary/ser -rp-2019d1_en.pdf  WT/GC/W/774  
 
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  2  REVENUE IMPLICATIONS  OF THE MORATORIUM  
2.1.  The UNCTAD 2019 Study is unique in so far as capturing the revenue implications of the 
moratorium is concerned, as it is the first study which estimates 'Electronic Transmission ' or 'online 
trade ' in digitizable products. All past studies, including the one by the WTO in 20163, estimated the 
impact of the moratorium on the basis of 'physical trade ' in digitizable products. But it is important 
to understand that as online trade increase s with digitization, the share of physical trade will 
correspondingly decrease, so customs revenue from  'physical trade ' in digitizable products will 
decline  and, therefore, examining the revenue impact of the moratorium on the basis of 'physical 
trade' in  digitizable products will indicate a much lower loss in tariff revenues. A more accurate 
picture may emerge if the revenue impact of the moratorium on the basis of 'online trade' in 
digitizable products is assessed.  
2.2.  UNCTAD 2019 Study: Potential Tariff Re venue Loss due to Moratorium in 2017, at a glance4: 
 
Potential Tariff Revenue Loss using 
Average Bound Duties  ($Mn)  
WTO Developing Members  10,075  
Sub-Saharan Africa  2,630  
WTO LDC Members  1,506  
WTO High -Income Members  289 
 
• The potential tariff revenue loss to developing countries is estimated at $10 billion. Tariff 
revenue loss to WTO LDCs is estimated at $1.5 billion while for Sub -Saharan African countries, 
the loss is around $ 2.6 billion.  
 
• The potential tariff revenue loss to Sub -Saharan African coun tries is almost ten times that of 
the WTO High Income countries, whereas for the WTO LDC Members, the potential tariff revenue 
loss is five times that of the WTO High Income countries.  
 
• Developing country Members can generate 40 times more tariff revenue by imposing customs 
duties on ET as compared to the developed countries, many of which have almost zero bound 
duties on physical imports of digitizable products.  
 
• The Study reveals that the top six countries which will face the maximum tariff revenue loss 
from the moratorium are: Mexico ($1.9 billion), Thailand ($1.7 billion), Nigeria ($580 million), 
India ($497 million), China ($493 million) and Pakistan ($367 million).  
 
• The estimated potential tariff revenue losses does not include additional revenue loss es accruing 
from loss of customs surcharges and additional duties, which according to UNCTAD (2000) were 
on an average 23% as compared to average tariffs of 6.9%.  
 
• Potential tariff revenue losses, as above, are conservative estimates - it has been assumed that 
import of digitizable products during 2011 -2017 has grown at the same rate as in the period 
1998-2010 (of 8%). A growth rate of 8% for import of digitizable products is a very conservative 
estimate given that the average growth rate of global revenue from music streaming, Netflix, 
video games, e -books, and the revenue of Microsoft during the same period (2011 -2017) was 
much higher5.  
                                                
3 Fiscal implications of the customs moratorium on electr onic transmissions: the case of digitizable 
goods, JOB/GC/114 . 
4 Table 3, UNCTAD 2019 Study ; Countries included in aggregate groups are listed in Table A.5, page 47 -
48 of UNCTAD 2019 Study . 
5 UNCTAD 2019 Study , page 11, last paragraph.  WT/GC/W/774  
 
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  2.3.  Some Members claim that tariff revenue loss due to the moratorium can be balanced by levy 
of other taxes and internal ch arges.  However, experience suggests that it is very difficult to tax the 
super platforms. In fact, the OECD has published a number of reports on addressing the tax 
challenges of the digital economy, including the concept of  'Base Erosion and Profit Shiftin g' (BEPS) 
which refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially 
shift profits to low or no -tax locations. For example, 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.  
3  SCOPE AND DEFINITION  OF 'ELECTRONIC TRAN SMISSIONS'  
3.1.  While the WTO Ministerial Declaration and subsequent decisions apply the moratorium to 
'electronic transmissions', ther e is no agreed definition nor any common understanding amongst the 
membership of what is covered under 'electronic transmissions'.  
3.2.  The position of some countries (as reflected in their interventions made in previous meetings 
of the General Council ) is tha t the moratorium covers 'contents' transmitted electronically, which, in 
their understanding, has been confirmed by the 2016 WTO Study and also by many Members in 
their FTA practices. According to them, not covering 'content' will render the WTO decision o n the 
moratorium meaningless.  
3.3.  However, this is not the understanding shared by all Members. For example, Indonesia has 
noted that6, "…it is our understanding that such moratorium shall not apply to electronically 
transmitted goods and services. In other wo rds, the extension of the moratorium applies only to the 
electronic transmissions and not to products or contents which are submitted electronically ." 
3.4.  Given that there is a difference of opinion between Members on whether 'content' is covered 
in 'electroni c transmissions', and the consequent significant implications this has for calculating 
revenue losses, it would be useful for the membership to arrive at a common understanding on this 
critical issue before the review of the e -commerce moratorium comes up in December 2019, to 
enable Members to take a well -informed decision on the matter.  
4  TECHNICAL FEASIBILIT Y OF IMPOSING CUSTOM S DUTIES ON ELECTRON IC 
TRANSMISSIONS  
4.1.  Electronic Transmissions / Intangibles (including digital products) are now being taxed by man y 
Members. Some such examples, as mentioned in the UNCTAD 2019 Study, are noted below:  
• New laws have been framed to tax imports of digital products and services in 
Australia and New Zealand:  In July 2017, the Australian government introduced GST on 
imports  of digital products and services7. Under this law, supplies to Australian consumers 
of digital products and services from non -Australian suppliers are to be charged Goods and 
Services Tax, provided these supplies are above 75,000 Australian Dollar. This i ncludes 
supplies from non -Australian electronic distribution platforms. This implies that all non -
Australian suppliers (of digital products or services) have to register for GST electronically. 
From 2018 onwards, these apply to B2C as well as B2B businesse s. New Zealand changed 
its GST law in 20168. Under this law, all supplies of remote services and intangibles carried 
out by suppliers outside New Zealand are subjected to GST. Suppliers outside New Zealand 
need to register for GST if the total value of sup plies exceeds 60,000 NZ Dollar. But unlike 
Australia, GST is imposed only on B2C businesses while like Australia electronic platforms 
are also liable to pay GST.  
 
• The EU has also initiated a two -stage process for taxing the intangible imports of 
goods and  services (mainly online) from outside the EU:  The first stage was 
implemented in 2015 where VAT obligations covered all companies outside EU carrying out 
cross-border online sales of goods and services to final consumers within EU, in line with the 
                                                
6 WT/MIN(17)/68 . 
7 Australia, A New Tax System (Goods and Services Tax) Act 1999 , Division 9 -25. 
8 New Zealand, Taxation (Residential Land Withholding Tax, GST on Online Services, and Student 
Loans) Act 2016 . WT/GC/W/774  
 
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  princi ple of taxation in the Member State of destination. The second stage will enter into 
force in 2021 which is known as 'VAT e -commerce package'.  
 
• The Indonesian government amended its law in 2018  bringing electronic transmissions 
into the ambit of customs du ties. Regulation 17 became effective from March 2018 which 
provided a new Chapter 99 covering intangible goods (i.e., software and other digital 
products) that were previously not covered under Indonesia's tariff system.  
 
• In 2017, India  also initiated comp ulsory registration under GST for foreign companies 
providing Online Information Database Access and Retrieval (OIDAR) services.  
4.2.  The above indicates that imposing customs duties on electronic transmissions may also be 
technically feasible.  
4.3.  On the other ha nd, if it is indeed the case that levying customs duties on electronic 
transmissions is not technically feasible, then it is not clear what purpose the moratorium seeks to 
achieve. In our view, the raison d'être  of the customs duty moratorium exists precis ely because it is 
feasible to impose customs duties on such transmissions.  
5  BROADER IMPACT OF TH E MORATORIUM ON TRAD E AND INDUSTRIALIZAT ION 
5.1.  The moratorium will negatively impact the efforts of many developing countries, which are 
laggards as far as digital industrialization is concerned, to industrialize digitally. It could also 
undermine existing industries. Tariffs play an important role in protecting infant domestic industries 
from more established overseas competitors until they have attained competitive ness and 
economies of scale. Customs duty free imports of digital products may also hinder the growth of the 
infant digital industry in developing countries.  
5.2.  We also need to understand the ruinous impact of digitization on SMEs in developing countries 
and LDCs. As the UNCTAD study of 2017 points out, three countries, namely, China, USA and UK 
have captured around 70% of the cross -border e -commerce market while SMEs in other developing 
countries are facing huge challenges. Given low levels of broadband pene tration and the fact that 
only 5% people in developing countries use e -commerce platforms, the probability of domestic  
e-commerce growing in these countries and benefitting their SMEs appears to be low. This is 
compounded by the monopoly pricing powers of behemoths that run platforms and can force sub -
optimal contracts on SMEs. Thus, in developing countries, digital trade or  ET is harming rather than 
helping the cause of SMEs, contrary to what some would want us to believe.  
5.3.  Further, with the advent of Industry 4.0, propelled by Internet -of-Things and new technologies 
like 3D printing and Artificial Intelligence, the number o f products which can be transmitted 
electronically will increase exponentially. Thus, the GATT tariff commitment of Members i.e. bound 
rates, of these digitized products will get undermined as more and more trade moves online. As a 
logical extension, if vi rtually all non -agricultural manufacturing products can be digitized and, 
therefore, transmitted electronically, the moratorium on application of customs duties on ET will in 
effect reduce bound rates to zero on all manufactured products! In other words, t he e-commerce 
moratorium will render meaningless the existing GATT bound rates, which are typically higher in 
developing countries and for which they have made payments in the Uruguay Round.  
5.4.  In short, with no customs duties on the imports of ET (i.e., soft ware, data and computer aided 
design or CAD files – which are the core resource for 3D printing and which will increasingly be used 
in almost all manufacturing industries), the dependence of manufacturing sectors in developing 
countries on ET from the deve loped countries will considerably increase. This will also negatively 
impact industrialization, particularly digital industrialization, local employment creation and erode 
trade competitiveness of SMEs in developing countries.  
5.5.  Therefore, there is an urgent  need for the developing countries and LDCs to develop their 
digital capacities for facing the growing challenge of digital trade. This will require developing 
national digital industrial policies which match the level and pace of their digital development . 
However, for designing such policies, it is extremely important for developing countries to preserve 
policy and regulatory space in the WTO.  WT/GC/W/774  
 
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  6  WAY FORWARD  
6.1.  The decision on the e -commerce moratorium expires in December 2019. The General Council 
therefore nee ds to revisit the above key issues identified in the context of the e -commerce 
moratorium with the utmost urgency and in its entirety.  
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