The United Nations Conference on Trade and Development (UNCTAD) released a research paper titled, “Growing Trade in Electronic Transmissions: Implications for the South,” in February 2019. Part 1 of this article provides an overview of the historical background, as provided in the paper, to facilitate a better understanding of the issue under question. This article will provide an overview of the implications of the global trade in electronic transmissions, extracted from the paper.
In 2017, 86 out of 85 countries were net importers of digitizable products. The top three net importers were Thailand ($1.8 billion), India ($1.7 billion) and Mexico ($1.1 billion). Other leading importers include Nigeria and China. The share of developing countries (excluding China) in global exports of physical digitizable products declined from 6% in 1998 to 5% in 2017. China’s share increased from 2% to 18% and became one of the largest exporters of digitizable products. The net exporters of digitizable products included China, Singapore, Malaysia, Hong Kong, China and the UAE.
Of the total $8 billion (3.5 billion is accounted for by physical imports and 4.4 billion from electronic transmissions) in potential tax losses for 58 developing countries, the revenue losses are the highest for Mexico, followed by Thailand, Nigeria, India, China and Pakistan. The potential tariff revenue loss for 33 developed countries is estimated at $212 million. India’s potential loss of revenue by not taxing electronic transmissions is around $500 million every year.
Based on the average annual growth rate of 1998-2010, the value of physical imports of 49 identified digitizable products was $116 billion in 2017, while the estimated physical imports were $255 billion.The “online” global imports or global imports via electronic transmissions of these digitizable products is therefore estimated to be $139 billion. According to these estimates, the total global imports of digitizable products comprises 55% in electronic transmissions. The electronic transmissions are found to have grown much faster than the physical global imports.
In terms of revenue implications, the paper critically reviews existing studies, arguing that “the existing literature considers custom duties only on the physical imports of the digitizable products and not on electronic transmissions and therefore does not provide potential revenue losses of the Moratorium, which applies only to the electronic transmissions.”
Some broader implications include loss of policy space to develop digital infrastructure, capabilities and software sectors, with important impacts on the manufacturing and industrialisation processes of the developing countries. To remain competitive in a digital era, the developed countries are investing massively in digital technologies like robotics, artificial intelligence, big data analytics and 3D printing. For instance, robotics has led to increasing speed of manufacturing, 3D printing is changing the nature of manufacturing and e-commerce is aiding marketing with support from Big Data analytics.
However, the developing countries are still struggling with issues like building ICT infrastructure and internet connectivity/penetration. For example, in many African countries, less than 10% of the population has internet access. India is working towards improving internet bandwidth per internet user (important for developing competitive cloud computing infrastructure) and the speed and cost of internet.
This UNCTAD study has especially gained significance in the wake of India and South Africa questioning the current practice of not imposing customs duty on electronic transmissions, due to revenue losses to the developing countries. There does exist a temporary moratorium on such transmissions to provide them with immunity from taxation in the WTO. The US, Singapore and Korea have demanded that the temporary moratorium be made permanent. These countries are also part of a plurilateral group that is negotiating globalrules to govern ecommerce trade.
Until then, it will be extremely important to regulate the trade of electronic transmissions in a manner that provides developing countries adequate policy space to level the playing field for domestic producers and protect the infant digital service providers. The UNCTAD paper further asserts that making the Moratorium on custom duties on electronic transmissions permanent will remove any scope for this policy space from the developing world, thereby making the dependent on the developed world for digital products and technologies.
In a nutshell
The developing world still needs to catch up in terms of competitiveness across multiple areas like robotics and 3D printing. This digital divide is manifested in manufacturing and production. The digital content in manufacturing products in terms of value added by digital services and use of digital technologies is rising much faster in the developed countries as compared to the developing countries. Thus, developing countries must be cognizant of the rapidly changing landscape of international trade in manufactured products.
India Outbound
May 21, 2019
source https://indiaoutbound.org/implications-of-the-global-trade-of-electronic-transmissions-unctad/
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