WT/GC/W/ 799 
26 March  2020 
(20-2469) Page: 1/4 
General Council  Original:  English  
 
  
WORK PROGRAMME ON ELECTRONIC COMMERCE  
BROADENING AND DEEPE NING THE DISCUSSIONS  ON THE MORATORIUM  
ON IMPOSING CUSTOMS DUTIES ON ELECTRONIC  TRANSMISSIONS  
Communication from Australia ; Canada ; Chile; Colombia ; Hong Kong,  China;  Iceland ; 
Republic of Korea ; New Zealand ; Norway; Singapore; Switzerland and Uruguay  
The following communication, dated 2 6 March 2020, is being circulated at the request of the 
delegations of Australia ; Canada ; Chile; Colombia ; Hong Kong,  China;  Iceland ; Republic of  Korea ; 
New Zealand ; Norway; Singapore;  Switzerland and Uruguay . 
 
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1  INTRODUCTION  
1.1.   In recent years, discussions on the extension of the Moratorium on imposing customs duties 
on electronic transmissions have intensified . Some Members have rai sed a mong the main issues a 
potential loss of government revenue associated with tariff reductions on trade in digitizable goods.  
1.2.   While recognising the im portance of this concern , we consider it timely to adopt a more holistic 
approach , by taking into account other relevant factors and their impact on consumers  and on  export 
competitiveness , and placing existing empirical evidence into a wider economic context . With this 
perspective, we wish to draw Members' attention to a publication on ele ctronic transmissions and 
international trade issued in November  2019 by the OECD  and entitled "Electronic transmissions and 
international trade - shedding new light on the moratorium debate"  (hereafter referred to as 'the 
study ').1 The study  argues that t he overall benefits of duty free electronic transmissions outweigh 
the potential forgone government revenues due t o the E-Commerce Moratorium.  
1.3.  Our submission aims to capture and highlight essential elements of this study which we strongly 
believe should be considered in the current  discussions on the extension of the Moratorium.  
2  THE ECONOMIC BENEFITS OF ELECTRONIC TRANSMISSIONS  
2.1.  By focusing on rev enue implications, positive effects that digitalization can bring to  the 
economy have not been included in the discussions that have taken place so far . The study  sheds 
light on the economic benefits associated with electronic transmissions.  
2.2.  The study note s work , which found that the use of foreign value -added is associated with 
positive economic outcomes such as export, diversification, productivity growth an d increased  
domestic value -added in exports . Developed economies are not the only ones to benefit f rom such 
trends with ICT -enabled services , like telecommunication services, financial services or other 
 
1 Andrenelli , A. and J. López González (2019 -11-13), "Electronic transmissions and international trade - 
shedding new light on the moratorium debate", OECD Trade Policy Papers, No. 233, OECD Publishing, Paris. 
http://dx.doi.org/10.1787/57b50a4b -en 
OECD trade policy brief, "Shedding new light on the debate about duties on electronic transmissions" 
(December 2019) 
https://issuu.com/oecd.publishing/docs/shedding_new_light_on_the_debate_about_duties_on_e  WT/GC/W/ 799 
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  business services, experiencing a growth at an average pace of 10 to 13 % between 2005 and 2017 
for developing countries.  
2.3.  The study  notes that the process of digitalization can reduce the overall costs of production and 
remove transportation of certain  product s. 
2.4.  The study uses an example of a record company that no longer has to bear the costs of 
physical ly producing a physical carrier medium . It notes that a good that was delivered physically, 
but is no w transmitted electronically, no longer incurs transportation costs.  
2.5.  The study  highlights work that found, on a verage,  transportation costs can represent between  
20 to 30 % of total trade costs. Given the fact that developing economies generally incur higher 
transport ation costs, such reductions could contribute to levelling the playing field . 
2.6.  The study cites that b y bringing access to an increasing amount and cheaper types of 
intermediate goods and services, the digital economy enables firms to reap input benefits and grow  
their export competitiveness . The authors of the study find that digitally deliverable services enhance 
export competitiveness  of all firms , including  SMEs.  
2.7.  Furthermore, the study highlights the effect that digitization and the adoption of digital 
technol ogies can have in enabling an increasing number of firms, including SMEs, to export . The use 
of websites by companies established in developing economies increased their predisposition to 
become exporters compared to those that do not use websites.  
2.8.  The stu dy notes that duties applied by other countries on electronic transmissions , and  their 
content , might impair  the ability of domestic SMEs to export.  
2.9.  All the benefits outlined by the study presuppose the non -imposition of tariffs on electronic 
transmissions . The latter are likely to deliver considerable improvements with respect to providing 
access to cheaper goods  and services  as well as enabling businesses to export without facing 
additional obstacles.  
3  AN INSIGHTFUL WELFARE ANALYSIS OF ELECTRONIC TRANSMISS IONS  
3.1.  Members have been referring to many different estimates in past discussions on this matter, 
which did not take into consideration the benefits associated with relevant reductions of trade costs, 
potential gains in productivity and increased consumer w elfare . The welfare analysis in the  study 
provides a clear illustration of what is induced by the absence of duties on electronic transmissions 
in terms of both revenue loss and the  welfare surplus for consumers . Taking into consideration 
consumer welfare would bring depth to the discussion and could help move them forward  
3.2.  The welfare analysis outlines that the reduction in producti on and transportation costs 
associated with digital deliveries , as well as the removal of the tariff , can lead to a red uction in price . 
In consequence , the increase in demand leads to a rise in imports and an increase in consumer 
surplus , part of which is associated with redistribution from the domestic producer and part of which 
is from government revenue to the consumer . The study is unambiguous : the overall impact to the 
economy is "positive and large".  
3.3.  The study  finds that t he imposition of equivalent duties on electronic transmissions could 
negate those positive effects  by increasing the price of the digital delivery, which shifts some of the 
consumer welfare back to the domestic producers and the government . Governments and producers 
would recover some of the revenue foregone but the amount recovered would depend on the 
elasticity of demand . The study also highlights t hat this would occur at the expense of consumer 
surplus . The positive welfare impact would decrease as the price of the digital product increases . 
Consequently, by introducing equivalent duties  on electronic transmissions, governments would 
create a "deadweight loss" to the economy . The overall benefits associated with digitization 
(i.e. lower trade costs) would be reduced and weaker economies would miss an opportunity to 
overcome their trade co st disadvantages.  WT/GC/W/ 799 
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  4  THE APPLICATION OF INTERNAL NON -DISCRIMINATORY TAXES AS AN ALTERNATIVE 
TO TARIFFS  
4.1.  The study not only provides important elements regarding who bears the burden of tariffs, but 
also regarding the potential alternative sources of government  revenue which would be better suited 
to the digital economy . The study notes that tariffs increase the price of a product to the domestic 
consumer . The extent to which the domestic price increases is dependent on the tariff pass -through, 
which ranges from  full pass -through to none . If there is no pass -through, then the foreign company 
fully absorbs the tariff through reduced revenue . If there is full pass -through, then the domestic 
price increases in proportion to the tariff . Recent work quoted by the stud y notes that quasi 
complete -pass tends to be the most common – that is, foreign companies fully pass-on the price 
increase to domestic consumers . Moreover, recent work conveyed in the study has also 
demonstrated that tariff increases , in the medium -term,  negatively affect  domestic output and 
productivity, employment and lead to higher inequality  and real exchange rate appreciation . 
4.2.   The study  highlights other means for governments to generate revenue . The use of 
consumption taxes,  such as value added taxes (VAT) or goods and services taxes (GST) could 
represent a better alternative . Examples of VAT/GST applied to digital services and intangibl es are 
provided and point out that internal non -discriminatory taxes provide  a broader tax base, and thus 
more stable.  According to the study, evidence indicates developing countries that adopt indirect 
taxes such as VAT experience 40 to 50 % less tax reven ue instability  than countries  that do not use 
indirect taxes . The OECD study  suggests that consumption taxes are a feasible alternative to 
customs duties for generating revenue.  
4.3.  In this respect, it should be noted that the OECD International VAT/GST Guidel ines have been 
adopted by the G20 leaders and endorsed by more than 100 jurisdictions and organisations . 
Furtherm ore, the OECD has  produced a report on best practices to implement international VAT/GST 
collection schemes .2 
5  PLACING PREVISIONS AND POTENTIAL REVENUE IMPLICATIONS INTO PERSPECTIVE  
5.1.  Finally, the study points out that a clear distinction needs to be drawn between potential and 
effective trade digitisation , as it is unlikely that all product categories that can be digitized will be 
fully digitized . 
5.2.  Members also need to be aware that, in all probability, the value of trade that is likely to become 
digitizable in the near future will also be smaller than expected . Even when one considers the highest 
available estimates, which i nclude a proxy for trade that has already been digitised, it  remains 
relatively modest, representing only 1.2 % of total trade . Any approach considering all trade in 
respective products to be digitizable, clearly  overestimat es the actual impact . The study provides 
the example of e -books for which the sales have stabilized to approximately 20% of all book sales.  
5.3.  Uncertainties resulting from new technologies and their impact on what could become future 
digitally deliverable produ cts have been recurrent issues in discussions on the Moratorium . In 
particular, the study  sets the question of the impact of  3D printing on trade and customs revenues 
into a realistic frame . While fears have been expressed that additive manufacturing could  be used 
to manufacture a very broad range of goods, the study  explains that the use of 3D printing has been 
increasing slowly  as the opportunities for economies of scale are limited . Only certain materials are 
suited for use as 'ink' in 3D printers  and th e size of the ir casing as well as printing time are 
parameters  limiting  the complexity and type of products that  can be printed . 
5.4.  According to a report  by McKinsey Global Institute  cited in the study,  the scope of products 
that can be made through this technology remains thus relatively low . Similarly, the amount of 
physical trade that will eventually be replaced by 3D printing in the near future is  likely to remain 
limited . 
 
2 Mechanisms for the Effective Collection of VAT/GST, OECD, 2017 
http://www.oecd.org/tax/consumption/mechanisms -for-the-effective -collection -of-vat-gst.htm  WT/GC/W/ 799 
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  6  CONCLUSION  
6.1.  The OECD  study ind icates that lifting the Moratorium would have limited effects on government 
revenue implications and that it would ultimately come at the expense of gains that are more 
significant  in consumer welfare and export competitiveness . In this perspective and for further 
discussion, we would like to encourage Members to consider carefully all the elements contained in 
that study . When reflecting on revenue implications , we call for Members to consider  internal taxes 
or internal charges in  line with WTO co mmitments which could serve as  alternative sources of 
government revenue . We continue to support open, inclusive and transparent discussions on 
electronic commerce and on the Moratorium in particular.  
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