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E-commerce deal at the WTO is suddenly back in play

Published 07 May 2024

Left for dead, a deal to permanently ban e-commerce duties is suddenly springing back to life as 90 WTO member-countries are defying the Ministerial Conference's decision in March to kill the moratorium. This subset of members is racing to deliver a deal whose obligations and privileges are available only to signatories. Such an outcome could shake the WTO to its foundations — but it may well save the institution from its drift into irrelevance.

Two months after a near-complete absence of tangible accomplishment at the World Trade Organization’s Ministerial Conference in Abu Dhabi, new life is convulsing the beleaguered global rule-making institution. It may herald deep and long-term shifts in how WTO business is conducted and could, in turn, lead to a renaissance of the organization.

Since MC13 concluded in early March, members’ exasperation with the multilateral body’s paralysis in advancing global trade policy has been mounting.

India, which has consistently been among the handful of members regularly blocking progress on a wide range of negotiations from e-commerce to fisheries subsidies, was the target of harsh criticism at the post-MC13 General Council, the WTO’s highest decision-making body.

In late April, negotiations among 90 members – a subset of the WTO’s full membership of 164, soon to be 166 – have moved swiftly to establish new global rules for digital trade.

The WTO has been woefully behind the times on the development of rules for digital trade. But the 90-member group’s negotiations in April appear close to delivering a deal that the full WTO membership could not – so close that a deal could be struck as soon as July, members say. Its scope may not be all that some had hoped for, but the emerging deal would be a meaningful not least because, among this subset of WTO members, a long-sought prohibition on the application of customs duties on electronic commerce transmissions would be made permanent.

In recent weeks, movement toward this prize has picked up steam as proponents increasingly embrace the reality that the future of the WTO hinges on whether countries can move ahead on issues where there is broad support, even if other members stridently object.

This concept, also called plurilateralism in contrast to the usual decision-by-consensus multilateralism, has been many years in the making but remains controversial. In 2017, large majorities of members at the Ministerial Conference in Buenos Aires endorsed a model known as the Joint Statement Initiatives (JSI), in which interested members discuss and negotiate deals in issues like electronic commerce, investment facilitation, services regulation, help for smaller companies to trade, and women’s economic empowerment. Frustration over the obstructionist tactics taken by some members, notably India and South Africa, that had for decades stymied multilateral progress on global trade issues, had reached boiling point among these smaller subsets of members. Proponents of the plurilateral approach were anxious to try something unconventional.

After MC13, this trend accelerated. At Abu Dhabi, India undermined a deal to curb environmentally harmful fisheries subsidies and, together with South Africa, did all they could to derail plurilateral agreements setting new rules for how services are regulated and how developing countries can better attract foreign direct investment.

The two countries have for years thrown sand in the gears of JSI negotiations. In Abu Dhabi, they succeeded in bringing the curtain down on a 1998 WTO agreement that stopped members from putting customs duties on e-commerce. New Delhi and Pretoria say they have a right to collect state revenue from such transmissions. The Ministerial Conference text flatly states that by 31 March 2026 at the latest, the moratorium will expire – meaning WTO members will be free to slap duties on e-commerce.1

Demand for a permanent moratorium is not universal among the JSI e-commerce participants. But such is the eagerness for a deal that a large and growing majority of proponents are ready to go ahead regardless.

What is most remarkable is that most of these 90 WTO members now favor keeping the benefits from such an agreement exclusively for those who sign on to it.

Such a premise would up-end one of the fundamental tenets of the WTO. A deal along these lines would mean discarding the multilateral institution’s traditional ‘most favored nation’ (MFN) terms, wherein all members are accorded equal treatment – so that favorable terms extended to any single partner automatically apply to all other WTO members.

What the e-commerce deal’s plurilateral proponents now want is for those who stand outside the agreement to lose both the obligations and the privileges of an e-commerce deal. Non-signatories would not be subject to its rules but nor would they share in its benefits.

This shift in stance is significant as, previously, legal arguments underpinning support for the JSIs have rested on the fact that benefits from these deals would flow to all WTO members, not just signatories. But such assurances failed to stem attacks from the likes of New Delhi and Pretoria against the process. Consequently, attitudes have hardened among those who want to press on with closing the deal.

Abandoning MFN will doubtless spark an outcry among opponents of plurilateral negotiations. Yet such are the levels of exasperation with obstructionist tactics at the WTO that enough JSI members are now prepared to ditch Marquess of Queensberry negotiating rules – a code of boxing rules that mandates gentlemanly conduct – and take on a more uncompromising posture. This hardline is favored by many, even though some members participating in the plurilateral – especially Indonesia but also possibly Brazil and Turkey – do not support making the moratorium permanent.

Those JSI participants who seem reluctant to adopt a permanent moratorium do so for different reasons. Brazil wants support in the World Intellectual Property Organization to expand coverage of intellectual property to encompass ‘traditional knowledge’, which would require patent-holders of medicines, for example, to disclose the source of the ingredients and the know-how that went into producing the product. Turkey worries that its internal taxation system may be impacted by a permanent moratorium, even though language in the current text specifically states that moratorium would not “preclude a Party from imposing internal taxes.” Proponents have not given up on these two countries joining the moratorium. Indonesia, by contrast, which wants the customs revenue and policy space to develop its own tech industry, is considered a lost cause. Nonetheless, the deal’s supporters plan to go forward.

“Members don’t want MFN especially with regard to customs duties. The members are just going to do it. If Indonesia can’t accept a permanent moratorium, too bad. Maybe we don’t have all 90 members on board, but if we have 85, that is still a lot,” said one delegate participating in the process.

The European Union has been a strong proponent of a permanent moratorium. US Trade Representative Katherine Tai has given mixed signals on supporting the moratorium, but the United States now seems to be on board. What is new is that China has come out strongly in favor of a permanent ban on duties, something Beijing had not accepted in any of its previous bilateral or regional trade agreements.

Other important elements to the pending accord have already been agreed. Members have agreed to establish global guidelines for electronic payments, for the validity of digital contracts and invoices, and the authentication of signatures. The deal as outlined would strongly promote the use of paperless trading. A committee will be established to oversee the agreement. A review will be conducted after two years and “periodically thereafter”, with an eye to enhancing the accord and ensuring it remains relevant in a fast-evolving global trade landscape.

The agreement would require countries to ban the dissemination of information pertaining to “misleading, fraudulent, and deceptive commercial activities.” The text calls on members to adopt measures curbing the use of spam. A deal would enable governments to provide special digital trade treatment for indigenous persons living under their jurisdiction.

Finding the right balance in the text on privacy has been difficult but proponents believe a deal could be struck which states that each party will work toward the provision of personal data protections while recognizing different regulatory approaches.

An unfortunate development is that language protecting proprietary information, like algorithms in the field of cryptography, will be dropped due to Chinese objections. Nonetheless, the in-depth discussions held on this topic has shed some light on how to bridge differences and may pave the way for further discussions on broader provisions barring the forced transfer of source code, an issue that had hitherto brought members to a stalemate on the broader deal.

Ambitious supporters of global rules in e-commerce may frown on the fact that the agreement sets aside negotiations on broader rules pertaining to the cross-border flow of data, the forced harboring of data on domestic servers, and the forced transfer of source code. But the plurilateral nature of these negotiations – part of a burgeoning trend toward “flexible multilateralism” – increases the likelihood that, down the road, this “organic” text can be updated to include new measures.

Interestingly, proponents say the unfortunate outcome in Abu Dhabi has actually helped the JSI. The multilateral moratorium is not the only element which will terminate in 2026 – so too will the zombie-like multilateral e-commerce work program. This endeavor – which, like the moratorium, arose from the 1998 Ministerial Conference – has been the victim of years of Indian and South African sabotage and had yielded precious little.

Plurilateral agreements are not new to the WTO or to its predecessor the General Agreement on Tariffs and Trade. There are many ways in which they can be negotiated. Article V of the General Agreement on Trade in Services, which experts strongly suggest could also apply to an e-commerce agreement, states that no member can be prevented from “being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement.” It also states the coverage of the agreement must be broad and that its terms do not discriminate against those which are not party to the pact. It is for this reason that so many favor a different tack for the e-commerce plurilateral.2

In 1997, WTO members agreed on services-related protocols in financial services and telecommunications in which the benefits were extended to all WTO members.

Other types of agreements are closed and only apply to the signatories. Such pacts are allowable under so-called Annex 4 rules. Originally, there were only four such accords, but two have expired. The remaining two are the Government Procurement Agreement which has 49 members and came into force in 19813 and the Agreement on Trade in Civil Aircraft which has 33 members and entered into force in 1980.4

These two were completed before the WTO came into being, though they are very active and continue to attract other members. Because of the closed nature of these agreements, were they to be pursued under the current WTO arrangements, a consensus of WTO members would be required for them to come into force. This is how India, South Africa, and Turkey were able to block the 127 WTO members who tried in Abu Dhabi to bring the Investment Facilitation for Development Agreement into the WTO rule book.

But the Domestic Regulation in Services agreement struck in 2021 by 67 WTO Members will enter into force because its legal status is different. All parties to the pact made specific pledges in their “schedule of commitments”, through which they outlined their legally binding assurances to the others seeking to operate in services markets. Once these schedules were certified, they became binding and the agreement entered into force this way.

The ironclad guarantees under the GATS agreement which enable members to improve their schedules shielded them from efforts to derail the deal. Stopping this accord would require challenging each schedule and proving that Indian and South African interests had been adversely affected. Given the facilitating nature of the services, this left the obstructionists on shaky legal ground. Nonetheless, it’s still an “open” agreement vulnerable to obstructionism. South Africa and India have held up the “certification” of the schedules of 17 members, effectively forcing these 17 out of an agreement they would like to join.5

Despite the inevitable legal arguments against a “closed” e-commerce agreement, proponents believe a pact agreed by more than 80 members – including the EU, China, and the United States – and which covers the vast majority of the world’s digital trade will be a formidable achievement. It also opens a route for these WTO signatories to up-end standing WTO rules at obstructionists’ expense. With the e-commerce work program soon to join the multilateral customs moratorium on the WTO’s scrap heap, the plurilateral talks are the only game in town. Even if the legal status of the plurilateral agreement is not recognized by all, it will be seen by most as the global standard. Parties to the investment facilitation agreement feel the same way.

“The investment facilitation agreement is now the standard. Annex 4 or not, it’s an agreement of three-quarters of the members and this will be the standard,” said a negotiator from one major WTO member.

For the better part of the last two decades, the negotiating landscape at the WTO has been arid terrain. A consensus-based system of decision-making once widely praised for ensuring all WTO members have a voice has shown its crippling disadvantages – any disgruntled member can stop work on dead in its tracks.

Now, a significant shift is in train and this may be just the beginning. Members are starting to discuss other new ways of operating in the WTO, from broadening the way flexible multilateralism works to developing the concept of “responsible consensus” to blunt the poisonous misuse of the consensus principle.

Singapore has been at the forefront of this movement. At the Asia-Pacific Economic Cooperation summit in San Francisco in November 2023, Prime Minister Lee Hsien Loong urged other leaders to support “flexible multilateralism” through plurilaterals and “responsible consensus… where we adopt a win-win approach to avoid undermining collective systemic interests.”

The extent to which WTO members champion this initiative will be clear later this month when the Singapore delegation puts forward at the General Council a draft decision calling on members to pursue consensus in a manner which enables governments to protect their national interests without undermining the WTO and the multilateral trading system.

The Singaporean proposal suggests that negotiations should be conducted in a flexible manner which encourages compromise and should be based on facts and evidence.

Already there are indications of support for this proposal coming from major players including the United States, China, and the EU.

Reforming the WTO’s creaky architecture will be a tall order. But if members tread the same ramshackle negotiating path they have followed for decades, it will be impossible.

Maybe, just maybe, the coming months will show a new determination to break with the past and seriously address the organization’s shortcomings. The alternative is a continued drift to irrelevance.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Keith M. Rockwell is a Senior Research Fellow at the Hinrich Foundation. Prior to his retirement in June 2022, Keith served as a Director at the World Trade Organization (WTO) and spokesperson for the organization for more than 25 years. He also is Global Fellow at the Wilson Center.

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