13th WTO Ministerial Conference: What is at stake for digital trade?

The thirteenth Ministerial Conference of the World Trade Organization (MC13) will take place from 26 to 29 February, in Abu Dhabi. On this occasion, WTO members will take stock of advancements since the 2022 Ministerial, and will seek to agree on a framework to guide negotiations in the next two years.   

In general, no major breakthroughs

The list of themes on the agenda of MC13 includes a wide range of issues, such as agriculture, an extension of the agreement on fisheries subsidies, trade and development, and dispute settlement reform. On most of the issues, members do not seem close to achieving an agreement. Some of the reasons for this are external to the WTO dynamics – for example, the US is one of the main proponents of dispute settlement reform, and no progress on this issue can be expected before the upcoming US elections. Difficulty in fostering convergence also relates to the fact that WTO members seem to be increasingly inhabiting different ‘filter bubbles’. They have very different assessments on where the Doha Development Round stands at the present time, and where to go from here. Diverging opinions lead to different understandings of the present situation, as well as different views on priorities and next steps. WTO members seem to be trapped in a clash of narratives, which opposes groups of countries across fault-lines, contributing to the gloomy mood in the weeks leading to MC13. Options on the table are not clear and narrow enough for Ministers to be able to bridge gaps.

The agenda item on e-commerce

In Abu Dhabi, members will discuss the continuation of discussions taking place under the Work Programme on e-commerce, and will decide on the future of the current Moratorium on Customs Duties on Electronic Transmissions. The Work Programme, launched in 1998, involves all WTO members, and aims to build understanding around the trade-related aspects of e-commerce, including the relation between e-commerce and existing WTO agreements, and its interplay with development. The Moratorium was also introduced in 1998, and exempts digital products, such as online films, music, and software from tariffs (customs duties) as they cross borders. The Moratorium has been extended roughly every two years by consensus, and the current extension will expire at MC13.

The continuation of the Work Programme could be relatively straightforward, especially considering the 2022 Ministerial decision to reinvigorate the Work Programme, and the concrete efforts made to ensure that the discussions emphasize the development dimension. However, the issue may become embroiled in the controversy surrounding the extension of the Moratorium. While some countries hope to make the moratorium permanent, others are increasingly putting its renewal into question. A vocal group of developing countries – including India, South Africa and Indonesia, among others, claims that the Moratorium is depriving developing countries of much needed revenue, citing a study that supports this position. This revenue loss could be even more significant in the future, as digitalization continues, and new technologies, such as 3D printing, develop.   

Alternatively, the Moratorium is supported by a considerable group of WTO members, including the EU and China, and by a large number of organizations in the business sector, as can be observed from a recent Global Industry Statement. Countries often cite studies produced by the OECD, WTO and St. Gallen Endowment for Prosperity Through Trade, among others, to argue that the imposition of customs duties would not only be difficult and costly to implement, but it would actually bring reduced additional revenue to developing countries. In general terms, developed and developing countries agree on the importance of increasing governmental revenue collected from e-commerce transactions, but not on the preferred instrument to do so (tariffs or domestic taxation, such as VAT).

Rendering the Moratorium permanent is not achievable in MC13. Currently, there are split views on whether the Moratorium will be extended for another couple of years or not. While some think an extension does not seem likely – especially considering the US wavering commitment to the liberalization of digital trade – others believe that the give-and-take dynamics at the WTO will once again produce compromise. All sides agree, however, that the extension is becoming harder to approve at every Ministerial, and the multilaterally-agreed Moratorium may be coming to an end. This would not mean, however, that the topic would be absent from the WTO, since a moratorium on customs duties is also being discussed in parallel by the Joint Initiative on e-commerce, an ongoing negotiating process among 90 WTO Members aiming to produce a binding agreement on e-commerce among participants.  

The side discussions at MC13: Joint Initiative on e-commerce

A statement issued by the co-conveners of the JI on e-commerce made clear that, despite best efforts made throughout 2023, a final agreement would not be concluded by MC13. The JI officially began negotiations in 2019 with an ambitious agenda, which included enabling issues, customs duties and market access, as well as a wide range of digital policy issues, such as data flows, localisation, data protection, access to the source code, cybersecurity, and spam. A preliminary agreement has been achieved in the broad areas of digital trade facilitation, open digital environment, and business and consumer trust, covering thirteen specific issues.

Henceforth, negotiators will focus on topics in which agreement could be “within reach”, according to the co-conveners, such as e-payments, development provisions, and customs duties. Nevertheless, the future of negotiations on some of the most ‘digital’ issues, such as data flows and source code, is uncertain. These issues have been very polarized from the outset, and suffered a considerable setback when the US decided to withdraw its support for these areas in order to preserve domestic policy space.

In January, the co-conveners issued a ‘Chairs’ text’ which expresses their views about where the landing zone of potential agreement could be. This text will inspire side discussions at MC13. Negotiators will seek to take advantage of the presence of high-level officials to unblock stalemates before the March round of negotiations of the JI begins.

The indirect impact of other MC13 agenda items on digital trade

At MC13 discussions on WTO reform will continue, including on whether and how to incorporate agreements produced by Joint Initiatives into the WTO legal architecture. Some actors see Joint Initiatives as key mechanisms to make progress on trade liberalization, in a context in which consensus on rule making has been harder to achieve on a multilateral basis. Others argue that Joint Initiatives go against consensus-based decision-making and weaken multilateralism at the WTO. India, South Africa, and Namibia in particular, introduced a communication questioning the legality of Joint Initiatives and their outcomes.

During MC13, the chairs of the JI on Investment Facilitation for Development (IFD) will seek the inclusion of the recently-produced agreement under Annex 4 of the Marrakesh Agreement, which deals with WTO Plurilateral Agreements. Nevertheless, such an inclusion would require a hard-to-achieve consensus among all WTO Members. In this context, the JI on IFD will be an important test-case for other JIs, including for a JI on e-commerce agreement.

Another issue under discussion during MC13 with impact not only on digital trade, but also on digital policy, more broadly, is the ‘Draft ministerial declaration on strengthening regulatory cooperation to reduce technical barriers to trade’. The Committee on Technical Barriers to Trade (TBT) has been one of the hot spots in which geoeconomics have more clearly reverberated in the work of the WTO. In recent years, the number of trade concerns related to digital issues have been rising.  

On the one hand, domestic regulations have been questioned under the TBT Agreement, notably in fields such as cybersecurity and cryptography. On the other hand, Members of the TBT committee have discussed the role of international standards in addressing (and mitigating) regulatory fragmentation in the field of emerging technologies, such as artificial intelligence. The draft declaration states that “cooperation on emerging issues – particularly in the context of international standards development and adoption – provides an opportunity to promote regulatory convergence where appropriate”. The declaration urges the the Committee to enhance its work on emerging regulatory challenges, including in the digital economy.

Looking forward: The impact of MC13 on digital trade governance

The outcomes from MC13 are not going to significantly change the e-commerce landscape. The non-renewal of the moratorium would carry an important symbolic weight, and could be a setback against the WTO’s primary goal to remove tariff barriers to trade, contributing to sapping trust in the Organization. Nevertheless, even if the Moratorium is not renewed, many countries have already committed to a moratorium on customs duties in the context of free trade agreements that they celebrated – according to the OECD 95% of digital trade chapters include such provision. The draft Digital Trade Protocol to the African Continental Free Trade Area (AfCFTA) calls upon State Parties not to impose customs duties on digital products transmitted electronically. Moreover, if a moratorium is agreed in the JI, at least 90 countries would abide by it at the WTO. The end of the moratorium would certainly create policy space for the countries which have not committed to the non-introduction of customs duties, but it is not clear whether and how they would make use of such space.

One of the collateral consequences of MC13 could be, therefore, to highlight once more the key importance of FTAs for the legal architecture of global digital trade. In particular, FTAs could be seen as the way to “get things done” if the opposition to JIs manages to deter the incorporation of outcomes from joint initiatives into the WTO legal architecture. This could consolidate the growing perception that the most dynamic aspects of the digital economy need to be taken elsewhere and discussed separately, notably in Digital Economy Agreements (DEAs). The WTO continues to be a custodian of the baseline agreements that serve as pillars to the global trading system. However, advancements are taking place outside the WTO framework, at different speeds and geometries, enhancing the complex tapestry of trade policy and regulation.