The much-awaited 12th WTO Ministerial Conference (MC12) was postponed due to the coronavirus (Covid-19) outbreak. The on-going pandemic has created major changes in global trade. On the one hand, there is growing protectionism, and, on the other, e-commerce is growing rapidly. The e-commerce market in Asia-Pacific was predicted to grow at a compound annual growth rate of 18.5 per cent from 2019 to 2025. The rise in disposable incomes, growth in internet penetration, and cross-border e-commerce trade have been factors supporting this growth.

Work programme on e-commerce

When e-commerce was still at a nascent stage, in September 1998, the work programme on e-commerce was adopted by the General Council of the WTO. This work programme was largely exploratory, focusing on examining all trade issues relating to global e-commerce, considering developing countries’ economic, financial and development needs. Under the work programme, WTO members agreed to continue not imposing customs duties on electronic transmissions. The latter, also known as “moratorium on customs duties”, has been renewed regularly at each Ministerial Conference. Many WTO members led by the USA wanted the moratorium to continue in MC 12. With the postponement of MC12, this is likely to continue. One of the reasons for implementing the moratorium is that it is technically not possible for Customs to collect duties on digitalised products like software.

India’s position has changed over time. With a vibrant software industry, India was a proponent of Mode 1 or cross-border trade. However, with the growth of e-commerce, there is a fear that developing countries, including India, are importers and thereby are losing out on Customs duty. When countries are hard-hit by the pandemic and revenue requirements are rising, can they lose revenue through e-commerce imports?

On March 10, 2020, India and South Africa circulated a paper on the need to understand the scope and impact of the moratorium. Citing UNCTAD studies, it presented the potential tariff revenue losses from goods that have become digitised, and digitisable. Based on a limited number of digitised goods, namely, films, printed matter, video games, software, and sound & music, the UNCTAD study estimated a loss of tariff revenue of more than USD10 billion globally because of the moratorium, 95 per cent of which is borne by developing countries. The study did not consider that with growing trade agreements, tariffs are reducing. India itself announced Early Harvest with key trading partners like the UK and Australia in March 2022 and relaunched India-USA Trade Policy Forum and, hence, the country is open to tariff reduction.

Largest employer of skilled workforce

As an IT/ITeS hub, India’s position is different from other developing countries. The Indian technology-based industry has grown from USD 191 billion in financial year (FY) 2019-2020 to USD 194 billion in 2020-21 and the growth has doubled between 2009 and 2019. The sector is a large employer of skilled workforce - employment increased from 300,000 employees in the FY 1999 to 4.47 million in FY 2020-21.

During the Coronavirus pandemic, 138,000 new jobs were created (NASSCOM). In recent years, with the growth of start-ups, India has become the 3rd largest technology start-up hub globally with around 12,500 technology start-ups in 2019, and 1600 new start-ups in 2020. In 2020-21, telecommunications, computer and information services accounted for nearly 50 per cent of India’s services exports and given the travel ban, much of this export was online. Several studies conducted by ICRIER shows that SMEs have benefited by on-boarding e-commerce platforms the Indian government has taken several measures to support such on-boarding.

FDI inflow

During Covid-19, when the global investment flows fell, India received one of the highest investments during the financial year (FY) April 2020 to March 2021. From April to September 2020, the total FDI inflow of USD 39.61 billion was 11.98% higher than the first six months of 2019-20 (USD 35.37 billion). The investment level reached a peak in August 2020, at USD 17 billion, due to investment by the global technology giants in the market. Therefore, the Indian technology industry is worried that if India takes a position against the moratorium on customs duty, it may adversely impact them.

In India, there is a lack of data and information on e-commerce trade and how the moratorium will affect domestic companies. While some fear that the moratorium is leading to a Customs revenue loss, there is no denying that India is one of the world’s largest exporters of software, films and music, and exports of printed matter and games are rising. Hence, India may have benefited from the moratorium and may continue to benefit as e-commerce grows due to the pandemic. Yet, only a few homegrown e-commerce giants like Amazon in the USA or Alibaba in China.

Given that we do not have data on e-commerce trade, India wants to fast-track FTAs, which will lead to lower tariffs, and most countries are already participating in WTO plurilateral e-commerce negotiations, India should take the opportunity of the postponement of the MC12 to set up an institutional mechanism for regular consultation with stakeholders like NASSCOM to firm up our position in the WTO.

(Dr Arpita Mukherjee is a Professor, Indian Council for Research on International Economic Relations)

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