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Ministry of Commerce: NASSCOM Presentation on WTO Customs Moratorium on Electronic Transmissions

Initially adopted as a temporary customs moratorium on electronic transmissions, the moratorium has continued since the adoption of the World Trade Organization (WTO)’s Declaration on Electronic Commerce in 1998, being rolled over every two years (except for 2003 to 2005, owing to a lack of consensus at the Cancun Ministerial Conference).

However, the growth of global e-commerce has created a sense of urgency amongst WTO members, to conclusively decide upon the future of the moratorium. In 2019, India and South Africa expressing concerns over the effect of the moratorium on developing countries, circulated a communication urging a review of the moratorium. In particular, they highlighted considerations surrounding revenue loss, given that most developing countries were net-importers of “electronic transmissions.” At the same time, citing the growth of global e-commerce as evidence of the success of the moratorium, the European Union, and the United States, amongst others, have urged members to consider making the moratorium permanent.

The WTO General Council’s Decision of 10 December 2019 had provisionally extended the moratorium till the 12th Ministerial Conference, originally scheduled to be held in Nur-Sultan, Kazhakstan, between 8-12 June 2020. However, with the on-going global pandemic, Kazhakstan requested the WTO to defer the Ministerial Conference till further notice and subsequently offered to host the Ministerial Conference in June 2021. There has been no decision on the venue and date of the Ministerial Conference yet. Meanwhile, the language of the General Council’s Decision, which called for continuing the moratorium provisionally till the 12th Ministerial Conference, would ostensibly keep the moratorium in force till the competition of the now re-scheduled Ministerial Conference.

NASSCOM had released an Industry Consultation Paper on the subject in January 2020 and provided its preliminary feedback to the Department of Commerce (DoC) on 28 February 2020.

The Industry Consultation Paper considered various formulations of the term “electronic transmissions” and sought to arrive at an appropriate classification for “electronic transmissions,” classifying them as either goods or services. Taken together with other concurrent regulatory developments such as the OECD+G20 efforts at harmonizing rules around digital taxation, and technological developments such as the advent of additive manufacturing (3D printing), the Industry Consultation Paper also sought feedback on the potential revenue impact of lifting the moratorium or making the moratorium permanent.

Based on the feedback received on the Industry Consultation Paper, NASSCOM presented its preliminary input to the DoC on the issue on 28 February 2020. The presentation before the DoC is attached.

The presentation focussed on the spectrum of IT products and attempts to identify what is currently understood as “digitizable products” by WTO Members since most members recognize the scope of the customs moratorium as applying solely to “digitizable products.”

In the context of how software and trade rules surrounding software, have evolved over the years, it was suggested that the central subject of the moratorium – software being trade over a carrier medium – has grown irrelevant, and that “digitizable goods” would now refer to certain quasi-services – such as access to e-books, or video-on-demand services.

While the technology to enforce a customs levy on such products might be available, as witnessed by the implementation of the Goods and Service Tax (GST) levy on Online Information Database Access and Retrieval Services (OIDAR), it would be worth questioning the incremental gains from imposing customs duties on similar services. Especially after the introduction of taxes such as the Equalization Levy (EL), which tax payments to foreign e-commerce entities, from e-commerce supply or services.

Notwithstanding such an evaluation, the presentation also explored the impact of suspending the moratorium upon India’s domestic industry. Since Customs Duties have been defined only in the context of the General Agreement on Trade and Tariffs (GATT), customs duties would generally not apply to services. Accordingly, the presentation also tried to understand the classification adopted by the industry for various services provided and tries to classify them on the spectrum between goods and services, by taking aid of the proposed definitions for products and services as per the Central Products Classification (CPC) System published by the United Nations Statistics Division (UNSD).

We concluded that India’s IT exports, though services, could risk being classified as goods, whereas ITeS exports, and software product exports are likely to continue being classified as services. Accordingly, any decision on the future of, and the final scope of the moratorium should focus on ensuring minimal impact to these segments of the industry.

Note, however, that the preliminary view does not take into account the volume of imports of digitizable goods and other electronic transmissions that are potentially covered by the customs moratorium. The impact of a customs duty on these imports could have downstream repercussions on those domestic producers who rely on these as inputs. Therefore, concurrent evaluation of imports remains imperative for India to take a holistic view of the matter in the next Ministerial Conference.

NASSCOM shall shortly be organizing a Webinar to gather industry feedback on the preliminary views presented to the DoC, to finalize its submission to the Government of India on the issue.

For more details, please contact indrajeet@nasscom.in.


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