Custom Duties on Digital Goods

Custom duties and the WTO

In the Geneva Ministerial in 1998, the WTO adopted the Declaration on Global Electronic Commerce, which included a commitment by states not to impose custom duties on electronic transmissions. This is typically referred to as the “Moratorium on e-commerce”. This commitment has been renewed every two years at subsequent ministerials.

There are two key challenges in this rule. Firstly there are still debates on what is classed as an electronic transmission. In some definitions this is taken to refer to products that are now delivered online (e.g. books, music, games). Broader definitions have also suggested it would include electronically delivered services (including business services, e-commerce).

Secondly, some nations feel that they agreed to zero custom duties on electronic transmissions during the early days of the internet, when the implications were unclear. Revisiting such rules would therefore be important.

Impact of rules preventing custom duties

As more products become digital, the issue of tariffs on digital trade is also becoming more crucial. Digitalization of economies expands the scope of digital flows, and debates are growing on the renewal of this moratorium.

Recent calculations from UNCTAD estimate the economic loss that countries face from being unable to impose any duties on electronic transmissions is significant. The potential impact is also skewed towards developing countries over developed countries as they have less developed digital sectors ($10bn for developing countries, $289m for top 21 developed countries).

Challenges to rules on custom duties

Linked to this potential growing impact, debates on customs duties on e-commerce have grown. Indonesia, India and South Africa have called for a rethinking of the moratorium and are lookubg to challenge this in the next WTO ministerial.

One challenge of changing commitments on custom duties is that they are not solely contained within the WTO agreement. A growing number of countries have made more permanent commitments within e-commerce and digital trade chapter of FTAs, so it may be difficult to unravel.