Alerts & Updates 23rd Feb 2024

Explainer on WTO E-Commerce Negotiations’ Draft Chair’s Text

Authors

Sanjay Notani Partner | Mumbai
Shweta Kushe Associate | Mumbai

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  • In the run up to WTO’s 13th Ministerial Conference at Abu Dhabi, a draft of the Chair’s text for the Joint Statement Initiative (JSI) on E-Commerce, dated 15th January 2024, was recently disclosed in the public domain by anonymous sources.[1] The WTO Ministerial Conference in Abu Dhabi faces critical global trade decisions, amongst them one is the moratorium on Custom Duties for Electronic Transmissions (CDETs). This 26-year-old moratorium ensures that countries do not impose custom duties on online imports of digitizable products.[2] Developed economies have advocated for its permanence, citing concerns about potential price increases and reduced consumption if the ban is lifted. Conversely, developing countries like South Africa, India, and Indonesia push for its termination, as CDETs constitute a potential source of significant revenue for them.

    The JSI’s latest text has retained the moratorium clause[3] in the following language – “No Party shall impose custom duties on electronic transmissions between a person of one Party and a person of another Party.” Clearly, the language of this provision indicates a permanent and binding commitment.

    However, the agreement also contains a clause that allows a general escape clause, Clause 7 of the Final Provisions. This escape clause states that, “This Agreement shall not apply as between any two Parties where either Party, at the time either Party accepts or accedes to this Agreement, does not consent to such application.” Therefore, if we give both the clauses a harmonious reading, the implementation of the same seems to be fraught with practical challenges. The one plausible interpretation that emerges from this is at the time of signing the agreement or accession of a new country to the agreement, member-countries can choose to select a country with whom they do not wish to maintain the obligations applicable under the agreement.

    Prima facie, the escape clause looks like a peculiar provision, but this is not the first time that a WTO Agreement has provided member-countries the opportunity to withdraw consent. The Marrakesh Agreement contains a provision which employs similar language. Article 13(1) of the Marrakesh Agreement gives member-countries the opportunity to withdraw consent in the following words – “This Agreement and the Multilateral Trade Agreements in Annexes 1 and 2 shall not apply as between any Member and any other Member if either of the Members, at the time either becomes a Member, does not consent to such application.” This article of the Marrakesh Agreement has been invoked 12 times as on today.[4]

    Therefore, if we consider the practice of invocation of Article 13(1), the aforementioned interpretation of the escape clause in the recent text of the WTO Electronic Commerce Negotiations is more tenable. In the past, Article 13(1) has only been invoked when a new member was about to accede to the WTO. For instance – the United States had famously invoked Article 13(1) to withdraw its consent w.r.t. the Russian Federation’s accession to the WTO on 16th December 2011.[5] Therefore, drawing from the practice of Article 13(1) of the Marrakesh Agreement, we infer that the escape clause in the Draft Chair’s text may play out similarly, i.e. consent can be withdrawn by member-countries only during their own accession or during accession of new members to the E-Commerce Agreement. Although, some analysts have claimed that the escape clause is in contravention of the MFN principle.[6]

    Furthermore, a lack of clarity regarding the definition and scope of the moratorium adds to the complexity of the issue. For example, debates also revolve around whether ‘electronic transmissions’ refer only to the transmission process or also include the content being transmitted, and whether the moratorium covers goods, services, or both. It is also necessary to understand that at the core of this dispute lies a divergence between the developed and the developing world’s interpretation of GATS and whether a new E-commerce Agreement is necessary by any margin. But, diverging opinions also exist between the developed world, for instance – the US and the EU don’t see eye to eye on the definition of electronic transmissions, this underscores the complexity of the E-commerce negotiations.[7]

    As WTO members converge at Abu Dhabi next week to discuss a gamut of trade issues, it is essential to contemplate the wider implications of the moratorium on Custom Duties for Electronic Transmissions (CDETs) on digital sectors. In the aftermath of these crucial negotiations, either the moratorium will be made permanent or extended for two years or a brand-new third outcome will emerge out of the discussions. We will be following all these developments as India and its partners weigh their options and hammer out an agreement for the digital future.

    We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

    Sanjay Notani, Partner – Email sanjaynotani@elp-in.com
    Shweta Kushe, Associate, Emailshwetakushe@elp-in.com

  • References

    [1] https://www.bilaterals.org/IMG/pdf/wto_electronic_commerce_negotiations-jan_2024.pdf
    [2] Digitizable products refer to products that are traded in both physical form and online form, such as music, electronic books, software, etc.
    [3] Sub-clause (3) of Clause (1), Section B: Openness and electronic commerce, Draft Chair’s Text, WTO Electronic Commerce Negotiations (January 15, 2024) (Accessed at – wto_electronic_commerce_negotiations-jan_2024.pdf (bilaterals.org))
    [4] WTO Analytical Index, WTO Agreement – Article XIII (Practice) (Accessed at – https://www.wto.org/english/res_e/publications_e/ai17_e/wto_agree_art13_oth.pdf)
    [5] Ibid
    [6] Ines Willemyns, ‘Guest Post: The WTO E-commerce Agreement and its relationship to existing WTO rights and obligations’ International Economic Law and Policy Blog (February 8, 2024) (Accessed at – International Economic Law and Policy Blog: Guest Post: The WTO E-commerce Agreement and its relationship to existing WTO rights and obligations (worldtradelaw.net))
    [7] Karishma Banga, ‘The right to tax: Can Custom Duties on Electronic Transmissions be a turning point for developing countries?,’ International Centre for Tax & Development (February 21, 2024) (Accessed at – The right to tax: can Customs Duties on Electronic Transmissions be a turning point for developing countries? – ICTD)