Compelling reasons to maintain moratorium?

On its face, the argument in favor of maintaining the moratorium appears compelling. Digitally delivered products spur innovation and productivity by facilitating access to technology and data. This boosts both business and national competitiveness. Micro, small, and medium sized enterprises (MSMEs) are especially well positioned to benefit, as the digital economy allows them to compete globally at substantially lower cost than would otherwise be the case. This has empowered an entire category of small entrepreneurs who were previously locked out of the game. And consumers are able to more easily and affordably access recreational, entertainment, and social networking content. Applying tariffs to such transmissions and transactions would only slow and reduce access to the substantial benefits they deliver.

On top of that, it is entirely unclear if applying tariffs to transmissions is even technologically or logistically feasible. A live-streamed sporting event or musical performance might entail millions of electronic transmissions across a multitude of servers in dozens of countries. How would relevant officials even begin to determine, assess, and collect tariffs?

Strong arguments against the moratorium?

At the same time however it’s hard to entirely dismiss the logic of those who call for an end to the moratorium. If it is perfectly acceptable under existing WTO rules to assess duties on a given hardback book, why is it unacceptable to assess duties on the very same book when it is digitally delivered? And as an increasing portion of book sales transition from physical to digital, the amount of potential tariff revenue involved also increases.

The debate is further complicated by an unfortunate developmental divide: the most competitive digital companies that stand to benefit from extending the moratorium are from developed countries, whereas less developed countries are the ones that will suffer the highest revenue losses if the tariff moratorium is extended, according to a recent UNCTAD report.

Yet, research by the OECD suggests that the actual amount of foregone tariff revenue – as a percentage of overall government revenue – is extremely modest for developing countries: somewhere in the range of 0.08 percent and 0.23 percent.

But irrespective of the amount of revenue involved, there is a deeper conundrum here that needs to be thought through. WTO tariff schedules are delicately balanced, negotiated agreements. Digital technologies are moving an increasing portion of trade from the dutiable to non-dutiable category (at least as long as the moratorium remains in place). In a sense, it could therefore be argued that technology is forcing countries to involuntarily provide tariff concessions beyond those they agreed to in the WTO.