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Digital trade: India calls for customs duties on the internet

Developed countries are negotiating the rules of digital world trade behind closed doors. India and other developing countries criticise this harshly. They demand negotiations within the World Trade Organization – and the abolition of a 20 year old ban on digital customs duties.

The earth with trade goods flying around
Currently there are no customs duties on digital trade. That could change soon. CC public domain NARA

Currently, Geneva is in summer recess. But in a few weeks, diplomats from all over the world will once again be talking about the future of the world’s digital trade at the headquarters of the World Trade Organization (WTO) – behind closed doors and largely unnoticed by the global public. Under the vague title „e-commerce“, representatives of dozens of countries are talking about steps to regulate the internet.

One hot topic: The ban on customs duties on data traffic.

While physical goods are subject to customs duties at the border, the trade of digital goods on the internet has so far been largely unrestricted. Now resistance against this is stirring. Platform companies such as Google and Facebook sell their services worldwide, the profits flow back to rich countries. From the point of view of some NGOs this widens the global gap between rich and poor.

Several WTO agreements give the internet basic trade rules. The most basic dates back to 1998 the „Declaration on Global Electronic Commerce“. That year, Google had just been founded and Mark Zuckerberg was 14 years old.

The declaration prohibits customs on the transfer of data across borders and must be renewed every two years. The last time this happened was in 2017 in Buenos Aires, at the eleventh WTO Ministerial Conference.

Developing countries are not present

The ban on customs duties is a free ticket for companies from China and the US to mine data riches from developing countries, process them in tax havens and sell the results back to the Global South, said Parminder Jeet Singh. Singh advises the Indian government on digital issues and is founder of the NGO IT for Change, which signed an open letter against the negotiations in Geneva.

The current negotiations include 76 states, the rest of the 164 WTO members have not been invited to the table. The talks have been underway since May. Singapore, Australia and Japan, the official co-conveners, are driving them forward. Also very active: the US. The proposals of EU and US call for a permanent ban on digital customs duties.

India, South Africa and other developing countries are not included in the negotiations. They claim the negotiations don’t have a mandate and call for digital trade to be discussed in the relevant WTO bodies.

NGOs are also angry about the Geneva talks. „A self-selected group of countries took it upon themselves to rewrite the WTO’s trade in services rules in ways that intrude deeply on nations‘ right to regulate“, said Deborah James, head of the think tank Center for Economic and Policy Research.

Europe as a warning

According to India, the current negotiations are an attempt to consolidate and expand inequalities. The Indian and other governments fear that the 1998 moratorium on digital customs duties could now become permanent. This is perceived as a restriction of sovereignty and cost the states of the Global South ten billion dollars in 2017 alone, according to UN estimates.

The UN study cites music streaming, online games or cloud services as examples of digital goods. In each of these sectors, corporations from the USA or China are dominant, and their profits from the Global South almost completely vanish to those states.

India and South Africa also cite an EU VAT on digital services coming from abroad as an example for the feasibility of implementing digital customs duties.

Meanwhile in India, national e-commerce guidelines are being discussed. They are intended to „preserve our flexibility of imposing customs duty [sic] on electronic transmissions to protect domestic industry and leverage technology for creating jobs and wealth“ – a classic protectionist approach.

In the global south, the idea is popular among business owners. India and African countries need to build their own digital ecosystems to avoid following Europe down the wrong road, Bob van Dijk said in an interview with an Indian newspaper last year. Van Dijk is chairman of Naspers, Africa’s largest media corporation. „If I am blunt about it, I think Europe is a digital colony of the US“, van Dijk said in the interview.

The idea of digital customs duties is also gaining ground in Europe. In January Manfred Weber, back then EU-Commission frontrunner of the European People’s Party (EPP), spoke out in favour of the idea. „I could imagine a digital entry fee for Europe, a kind of duty on digital services, if they wanted to do business on the European market“, Weber said according to a FAZ report.

Pacific states call for free trade

The US proposal for the Geneva negotiations is not open to the public, but in parts resembles existing agreements with Canada and Mexico and the failed TPP agreement between the US and several Pacific states.

The Indian journalist D. Ravi Kanth has published excerpts from the US proposal. „These negotiations intend to bring TPP’s commitments in through the backdoor“, Kanth said to netzpolitik.org. The US allies among the rich states, including Singapore, Australia and Japan, have similar positions. The key word: free trade. States should „avoid unnecessary regulatory burden“, according to the US proposal.

TPP failed because of resistance in the US, but there is a successor agreement: CPTPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Although the US are not officially party of this free trade area, they are currently negotiating agreements with many members states that practically adopt the provisions of TPP. For example, an agreement recently signed between the US and Japan prohibits customs duties on digital services.

A lot of people sitting in a conference room looking very professional
The Japanese delegation at the WTO negotiations. Alle Rechte vorbehalten Mission of Brazil to the WTO

EU against total source code protection

While the large industrial powers agree on customs duties, there are disagreements elsewhere. The US want to make it clear in the new rules that companies cannot be forced to disclose their software’s source code. This should also apply to algorithms used by giants such as Google or Facebook.

The EU takes a different view: it demands the fundamental possibility for courts or competition authorities to inspect source code in the case of possible infringements of competition law.

In recent years, the EU has imposed billions in fines against Google in three competition proceedings, a case against Amazon is ongoing. The European push to give courts and authorities more leeway in such proceedings is unlikely to appeal to these platforms.

If things go according to European wishes, the protection of personal data and privacy will be recognized as a fundamental right in order to promote confidence in digital trade and economy. The EU proposal states: „Nothing in the agreed disciplines and commitments shall affect the protection of personal data and privacy afforded by the members‘ respective safeguards.“

The EU is the only party at the negotiating table with a „people-centric approach“, says Léa Auffret, trade specialist at the European consumer organization BEUC, to netzpolitik.org. The EU is also calling for measures against „unsolicited commercial electronic messages“, i.e. spam. States should provide remedy against companies that send spam, and spam should be clearly identified as such.

Please store data everywhere – apart from China

Where the EU and the US agree is in the choice of server locations: All companies should be free to decide where their servers store and process data. In contrast to the planned free trade agreement TiSA, special EU regulations such as Privacy Shield would probably continue to apply. In this agreement, the US assures the EU that it will protect the personal data of European citizens on American servers according to EU standards. But apparently, the EU does not want to permit such regulations with other WTO members.

If many states now start forcing companies to store data within their own territories, then companies would avoid these states because of the increased costs and risks, Japan warns.

China, on the other hand, insists on having data centres within its own borders. Of course, „in China this goes much beyond purely economic reasons,“ said Chiara Miglioli, trade expert for the Greens in the European Parliament, to netzpolitik.org. „We have to be extremely careful with China’s positions because they will always underpin their mass surveillance policies.“

Outcomes are open

The negotiations will continue in September and are supposed to be completed by next year. Their possible results are not yet foreseeable.

Consumer advocate Auffret criticizes the opaque process. Currently, there is no control against unlimited lobbying, nobody but the participants know who is sitting at the table. „Of course, there may be lunches or stakeholder events organized in the margins of the negotiations“, the BEUC wrote to netzpolitik.org.

The BEUC is calling on the EU commission to publicly report about the negotiations. On request, the commission said that it „regularly informs civil society, the industry and other stakeholders of the state of play of the negotiations“. It referred to a briefing that took place in February.

Once the negotiations have been concluded, the results could be an agreement on e-commerce or a set of commitments. All options are on the table: „It’s going to be a big mess“, a WTO insider told netzpolitik.org. The EU is calling for the results to be incorporated into the WTO rulebook. They would then be mandatory for all member states.

Time is of the essence: In December, the next renewal of the moratorium on digital customs duties is due. India, South Africa or other developing countries could decide not to renew the agreement. Afterwards there could theoretically be customs barriers on the internet. According to the Indian journalist Kanth, „there is a possibility.“

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