Grappling with virtual reality

Big business is at it again. Three decades ago, it successfully used the GATT negotiations to protect its windfall profits through an agreement on intellectual property rights. It is now using similar tricks through the WTO to perpetuate its stranglehold on the internet and e-commerce. In pursuit of its narrow commercial objectives, global giants are also using other international forums, such as the G20, to soften opposition to launch of negotiations on e-commerce. India’s policymakers and trade negotiators need to take note.

Electronic commerce entered the WTO in 1998, when members agreed not to impose import duties on a narrow category of e-commerce — digital transmissions. This is a temporary moratorium, which is extended every two years. In parallel, WTO members decided to discuss different facets of e-commerce, without negotiating rules in this area. However, over the past few months some countries have been aggressively pushing to initiate negotiations on e commerce even before there is clarity on basic concepts.

Why are global giants in e-commerce so keen for countries to initiate negotiations on e-commerce? The answer is not far to seek.

Most segments of e-commerce are highly concentrated, with a few big players cornering most of the revenue. WTO negotiations afford a golden opportunity to the global e-commerce giants to use their deep pockets to rapidly penetrate the markets in emerging countries such as India, and throttle the prospects of domestic firms in these countries. Ask the Flipkarts and Olas. David rarely prevails over Goliath in the harsh commercial world.

WTO rules on e-commerce could also curtail the space available to the Government to regulate the market to protect consumer interests, addressing anti-competitive practices and preventing market failures. Global e-commerce giants would be the main beneficiaries of a deregulated market.

The aggressive push for market access through WTO negotiations is being disguised by the big players as an opportunity for developing countries, particularly their small and medium enterprises (SME), to enhance their exports. On behalf of global big business, the International Chamber of Commerce (ICC) appears to be leading the charge on this issue.

The ICC has, in the past, churned out inflated numbers in the context of WTO trade facilitation negotiations, which, in the words of experts at Tufts University, was based on “too many unjustified assumptions”. Hence, the ICC’s spin on gains for SMEs from negotiations on e-commerce should be viewed with caution.

In partnership with the WTO Secretariat, the ICC has organised several meetings on e-commerce over the past few months. In the next few days the ICC is organising a meeting on this issue in New Delhi. As in previous such meetings of the ICC on this issue, the director-general of WTO, Roberto Azevedo, will participate in the Delhi meeting as well.

We shouldn’t be surprised if, during Azevedo’s visit, some global players and a few Indian industry honchos join the chorus and gush about the pot of gold awaiting India if the country were to adopt a more positive approach to negotiations on e-commerce. Let us examine the reality behind the hype on the gains for India from e-commerce by seeking answers to some key questions.

At the WTO, some countries are pushing to convert the temporary moratorium on import duties on electronic transmissions into a permanent one. They could also seek to expand its coverage beyond electronic transmissions. What is in it for India?

Digital transmissions are projected to become more common and widespread among India’s burgeoning middle class. Thus, a permanent moratorium is likely to result in significant revenue leakage in the coming years. It would also not be a progressive measure, as a vast swath of consumers without access to the digital world would not benefit from it. But a permanent moratorium would inflict a more devastating impact if its scope is expanded beyond electronic transmissions to cover goods purchased over the internet, but physically delivered across borders.

Would India’s own domestic industry be able to survive in such a zero import duty regime? Extremely unlikely.

A more fundamental issue needs to be addressed: Will negotiations on e-commerce help enhance India’s exports of IT and IT enabled services (ITES)? India’s exports of IT and ITES face many hurdles in the European Union, which generally does not allow its companies to outsource data-processing work to India. On account of privacy concerns, the probability of the EU agreeing to a requirement of unrestricted data flows at the WTO is almost nil. Given this reality, the main gains for India’s IT and ITES exports from negotiations on e-commerce may remain a mirage.

This brings us to another question. Will not India’s global image take a beating if it is seen to oppose negotiations on e-commerce, particularly in the light of the Government’s initiatives under Digital India, Start-up India, Smart Cities and, more recently, cashless economy?

The outcomes of the WTO negotiations are unlikely to have a positive bearing on any of these initiatives of the Government. Embracing these negotiations would constrain Indian firms from blazing the digital trail in future. India must not be apologetic in opposing these negotiations.

So, is this an appropriate time to discuss the possibility of launching negotiations on e-commerce? Certainly not.

Trade negotiations are best conducted in an environment of mutual trust. When the commitment of the US to play by the existing rules of the game is questionable, surely it is not the appropriate time to craft new trade rules. Further, with the US threatening to wield the big stick to browbeat countries that do not fall in line with its wishes, the outcome of negotiations cannot be fair and balanced.

In conclusion, the gains for India from negotiations on e-commerce are uncertain, but losses are definite. The Government must not fall for glib talk and orchestrated views on this issue. It must build coalitions with other like-minded countries and continue to defend its interests by taking a composite view of the impact of these negotiations, instead of viewing it narrowly from the lens of supposed gains for its services exports.

Rushing into rule-making in a rapidly evolving arena of disruptive technologies dominated by a few global giants is fraught with grave risks. With the WTO creaking under its own weight, this should be a time for consolidation and not for new negotiations. With President Donald Trump threatening to tear the fabric of trade rules, the DG’s energies are best spent in trying to convince the US of the need to comply with multilateral trade rules.

The writer heads the Centre for WTO Studies, IIFT. The views are personal

COMMENT NOW