Lexology | 22 May 2023
WTO e-commerce moratorium: FTAs as the logical next step?
by Arnoud Willems, Dr. Bregt Natens and Dr. Ines Willemyns - Baker McKenzie
The e-commerce moratorium at the World Trade Organization (WTO) continues to provide fertile ground for discussions between WTO Members (Members). In the most recent discussion round, held in April 2023 in the context of the WTO Work Programme on Electronic Commerce, Members agreed there was a need for further discussions on the definition and scope of the moratorium, and on its implications on developing countries.
The moratorium has a long history. In 1998, Members adopted the Declaration on Global Electronic Commerce, which, inter alia,included a decision on the moratorium – i.e., a decision that Members would “continue their current practice of not imposing customs duties on electronic transmissions.” Ever since, Members have continued to extend the moratorium in the context of WTO Ministerial Conferences, most recently on 17 June 2022 during the 12th Ministerial Conference.
Currently, the moratorium is set to expire on 31 March 2024, unless a decision to extend the moratorium once again is taken before that date. This decision could – but does not have to – be taken in the context of the 13th Ministerial Conference (which is set to be held in February 2024).
Over the years, the moratorium has become a repeat subject of contention between Members. Specifically, Members have disagreed:
- On the scope of the moratorium. Specifically, Members disagree whether the customs duties covered by the moratorium apply to the means of transmission (i.e., ‘electronic’ transmission), to the content that is being transmitted, or to both.
- On the nature of electronic transmissions. Specifically, Members disagree whether the content of electronic transmissions should be treated as: (a) goods, covered by the rules set out in the WTO General Agreement on Tariffs and Trade 1994; (b) services, covered by the rules set out in the WTO General Agreement on Trade in Services; or (c) as intellectual property, covered by the rules set out in the WTO Agreement on Trade-related Aspects of Intellectual Property Rights.
- Whether the moratorium is directly enforceable in WTO dispute settlement. The main argument that the moratorium cannot be directly enforced is that it is a political commitment rather than a legally binding obligation.
- Whether the moratorium should be made permanent, continue to be renewed periodically, or be revoked. The main argument for revoking the moratorium is that the moratorium has been argued to cause developing countries to forego revenue (see, for example, the communication by India and South Africa in March 2020).
Today, there continues to be controversy around the moratorium at the WTO. In order for the moratorium to be renewed again (or made permanent), Members will have to reach a consensus on its extension. India, however, continues to vocally oppose another extension and wants the moratorium to be revoked. The question therefore arises whether countries who would prefer the moratorium to continue to apply should focus (at least part of their efforts) on doing so in the context of bi- or plurilateral free trade agreements (FTAs). It seems that at least some countries are indeed taking this approach.
First, there are countries that have included a version of the moratorium in FTAs in a way that is contingent on maintaining the moratorium at the WTO. For example, the China-Australia FTA contains such a clause. This type of clause entails that failure to reach a consensus on the extension of the moratorium at the WTO also removes the prohibition to impose customs duties in the FTA.
Second, there are countries that have opted to incorporate a permanent moratorium in their FTAs. This is, for instance, the case in the EU-Singapore FTA. Such clauses are independent from whatever happens to the moratorium at the WTO.
Third, there are countries that have settled some of the disagreements raised above in their FTAs. We provide some examples below.
On the scope of the moratorium, the Japan-Australia FTA prohibits the parties from imposing customs duties on electronic transmissions and defines those as “transmissions made using any electromagnetic or photonic means” (thereby arguably limiting the scope of the moratorium to the transmission rather than its content). In contrast, the U.S.-Japan Digital Trade Agreement explicitly sets out that the moratorium applies to electronic transmissions, including content transmitted electronically.
On the nature of electronic transmissions, the U.S.-Chile FTA prohibits the parties from applying customs duties on digital products of the other party and clarifies that ‘digital products’ are “computer programs, text, video, images, sound recordings, and other products that are digitally encoded and transmitted electronically, regardless of whether a party treats such products as a good or a service under its domestic law.” The FTA specifies that this definition is without prejudice to the ongoing WTO discussions on the classification of digital products, thereby side-stepping this point of contention. In contrast, the EU-Colombia and Peru FTA indicates that electronic transmission “shall be considered as a supply of services.”
These examples illustrate the largely blank canvas that FTAs offer countries when they wish to take a bi- or plurilateral position on the e-commerce moratorium. However, choosing the FTA avenue to bypass the WTO negotiations on the moratorium raises other legal questions, such as:
- Should FTA parties extend the application of the FTA moratorium on a most-favoured-nation (MFN) basis to all Members or can the application be limited so as to only apply between the FTA parties?
- If the latter, what rules of origin apply to digital products/electronic transmissions, to identify whether they fall within the FTA moratorium?
In sum, FTAs are providing a useful way forward for those WTO Members who are adamant about the continued application of the e-commerce moratorium and who can agree with their trading partners on the precise scope of the prohibition (including the geographical scope). It is also important for companies to be aware of the FTA moratorium route, especially if discussions on the extension of the moratorium at the WTO lead to a deadlock – as this deadlock could provide countries with leeway to start imposing customs duties on electronic transmissions and their content.