Beware Proposed E-Commerce Rules

By Chakravarthi Raghavan, Editor-emeritus of South-North Development Monitor SUNS, is based in Geneva and has been monitoring and reporting on the WTO and its predecessor GATT since 1978; he is author of several books on trade issues; and Jomo Kwame Sundaram, Senior Adviser with the Khazanah Research Institute, and was an economics professor and United Nations Assistant Secretary General for Economic Development. Originally published at Inter Press Service

In Davos in late January, several powerful governments and their allies announced their intention to launch new negotiations on e-commerce. Unusually, the intention is to launch the plurilateral negotiations in the World Trade Organization (WTO), an ostensibly multilateral organization, setting problematic precedents for the future of multilateral negotiations.

Any resulting WTO agreement, especially one to make e-commerce tax- and tariff-free, will require amendments to its existing goods agreements, the General Agreement on Trade in Services (GATS) and the Trade-Related Intellectual Property Rights (TRIPS) agreements. If it is not an unconditional agreement in the WTO, it will violate WTO ‘most favoured nation’ (MFN) principles.

This will be worse than the old, and ostensibly extinct ‘Green Room’ processes — of a few major powers negotiating among themselves, and then imposing their deal on the rest of the membership. Thus, the proposed e-commerce rules may be ‘WTO illegal’ — unless legitimized by the amendment processes and procedures in Article X of the WTO treaty.

Any effort to ‘smuggle’ it into the WTO, e.g., by including it in Annex IV to the WTO treaty (Plurilateral Trade Agreements), will need, after requisite notice, a consensus decision at Ministerial Conference (Art X:9 of treaty) . It may still be illegal since the subjects are already covered by agreements in Annexes 1A, 1B and 1C of the WTO treaty.

Consolidating Power of the Giants

Powerful technology transnational corporations (TNCs) are trying to rewrite international rules to advance their business interests by: gaining access to new foreign markets, securing free access to others’ data, accelerating deregulation, casualizing labour markets, and minimizing tax liabilities.

While digital technology and trade, including electronic or e-commerce, can accelerate development and create jobs, if appropriate policies and arrangements are in place, e-commerce rhetoric exaggerates opportunities for developing country, especially small and medium enterprises. Instead, the negotiations are intended to diminish the right of national authorities to require ‘local presence’, a prerequisite for the consumer and public to sue a supplier.

The e-commerce proposals are expected to strengthen the dominant TNCs, enabling them to further dominate digital trade as the reform proposals are likely to strengthen their discretionary powers while limiting public oversight over corporate behaviour in the digital economy.

Developing Countries Must Be Vigilant

If digital commerce grows without developing countries first increasing value captured from production — by improving productive capacities in developing countries, closing the digital divide by improving infrastructure and interconnectivity, and protecting privacy and data — they will have to open their economies even more to foreign imports.

Further digital liberalization without needed investments to improve productive capacities, will destroy some jobs, casualize others, squeeze existing enterprises and limit future development. Such threats, due to accelerated digital liberalization, will increase if the fast-changing digital economic space is shaped by new regulations influenced by TNCs.

Diverting business through e-commerce platforms will not only reduce domestic market shares, as existing digital trade is currently dominated by a few TNCs from the United States and China, but also reduce sales tax revenue which governments increasingly rely upon with the earlier shift from direct to indirect taxation.

Developing countries must quickly organize themselves to advance their own agenda for developmental digitization. Meanwhile, concerned civil society organizations and others are proposing new approaches to issues such as data governance, anti-trust regulation, smaller enterprises, jobs, taxation, consumer protection, and trade facilitation.

New Approach Needed

A development-focused and jobs-enhancing digitization strategy is needed instead. Effective national policies require sufficient policy space, stakeholder participation and regional consultation, but the initiative seeks to limit that space. Developing countries should have the policy space to drive their developmental digitization agendas. Development partners, especially donors, should support, not drive this agenda.

Developmental digitization will require investment in countries’ technical, legal and economic infrastructure, and policies to: bridge the digital divide; develop domestic digital platforms, businesses and capacities to use data in the public interest; strategically promote national enterprises, e.g., through national data use frameworks; ensure digitization conducive to full employment policies; advance the public interest, consumer protection, healthy competition and sustainable development.

Pro-active Measures Needed

Following decades of economic liberalization and growing inequality, and the increasing clout of digital platforms, international institutions should support developmental digitization for national progress, rather than digital liberalization. Developing country governments must be vigilant about such e-commerce negotiations, and instead undertake pro-active measures such as:

Data governance infrastructure: Developing countries must be vigilant of the dangers of digital colonialism and the digital divide. Most people do not properly value data, while governments too easily allow data transfers to big data corporations without adequate protection for their citizens. TNC rights to free data flows should be challenged.

Enterprise competition: Developing countries still need to promote national enterprises, including through pro-active policies. International rules have enabled wealth transfers from the global South to TNCs holding well protected patents. National systems of innovation can only succeed if intellectual property monopolies are weakened. Strengthening property rights enhances TNC powers at the expense of developing country enterprises.

Employment: Developmental digitization must create decent jobs and livelihoods. Labour’s share of value created has declining in favour of capital, which has influenced rule-making to its advantage.

Taxation: The new e-commerce proposals seek to ban not only appropriate taxation, but also national presence requirements where they operate to avoid taxes at the expense of competitors paying taxes in compliance with the law. Tax rules allowing digital TNCs to reduce taxable income or shift profits to low-tax jurisdictions should be addressed.

Consumer protection: Strong policies for consumer protection are needed as the proposals would put privacy and data protection at risk. Besides citizens’ rights to privacy, consumers must have rights to data protection and against TNC and other abuse of human rights.

Competition: Digital platforms must be better regulated at both national and international level. Policies are needed to weaken digital economic monopolies and to support citizens, consumers and workers in relating to major digital TNCs.

Trade facilitation: Recent trade facilitation in developing countries, largely funded by donors, has focused on facilitating imports, rather than supply side constraints. Recent support for digital liberalization similarly encourages developing countries to import more instead of developing needed new infrastructure to close digital divides.

Urgent Measures Needed

‘E-commerce’ has become the new front for further economic liberalization and extension of property rights by removing tariffs (on IT products), liberalizing imports of various services, stronger IP protection, ending technology transfer requirements, and liberalizing government procurement.

Developing countries must instead develop their own developmental digitization agendas, let alone simply copy, or worse, promote e-commerce rules developed by TNCs to open markets, secure data, as well as constrain regulatory and developmental governments.