Report explores opportunities and challenges for developing economies from digital trade
A new joint report launched on 7 December looks into opportunities and challenges for developing economies arising from digital trade. “Digital Trade for Development” is a joint publication by the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations Conference on Trade and Development (UNCTAD), the World Bank and the World Trade Organization. The report explores specific policy issues, including the WTO’s moratorium on customs duties on electronic transmissions, regulation of cross-border data flows, competition policies and consumer protection.
Speaking at a high-level ministerial roundtable on digital trade during UNCTAD’s eWeek today (7 December), Deputy Director-General Johanna Hill said: “This report leverages the respective expertise of all five international organizations to shed light on where things stand with digital trade and what policymakers can do to make it a stronger force for growth and development.”
The report notes that cross-border digitally delivered services are the fastest growing segment of international trade, with new players emerging. Digitally delivered services have registered an almost fourfold increase in value since 2005, rising 8.1 per cent on average per year over the period 2005-22. This has outpaced growth in goods exports (5.6 per cent) and other services exports (4.2 per cent) to account for 54 per cent of total services exports. With new ways of obtaining comparative advantage, opportunities arise for new players to engage in global trade, including farmers and small business.
The report sheds light on the potential benefits of digital trade for LDCs, women, MSMEs, and young people as well as the need to bridge the digital divide and strengthen the readiness of developing economies to benefit from digital trade. According to the report, more international financial and technical support is needed to build the capacity of developing economies to improve connectivity and skills and more international cooperation is needed to regulate in areas relevant to digital trade.
The report also notes that WTO members’ current practice of not imposing customs duties on electronic transmission — the so called “moratorium” — has a limited impact on government revenue.
The report acknowledges that uncertainties exist about the scope of the moratorium and the definition of electronic transmissions, but notes that existing estimates of the potential revenue that could be collected using tariffs on electronic transmissions vary between 0.01 per cent and 0.33 per cent of overall government revenue on average for developing economies, with higher losses for a handful of economies.
The report also notes that while tariffs and value-added taxes (VAT) are not mutually exclusive, recent evidence shows that, for most economies, given current rate structures and with appropriate investment in the capacity of tax administrations, VAT could generate higher revenue from taxing electronic transmissions compared to hypothetical tariffs. Moreover, tariffs on electronic transmissions would reduce digital trade and its benefits and might also impact the competitiveness and participation of firms in trade, especially micro, small and medium-sized enterprises and women-owned traders.
The report further underscores that global solutions are needed on regulatory issues such as cross-border data flows, competition and consumer protection.
Global cooperation is also highlighted in the report as necessary for ensuring that small businesses, women and young entrepreneurs and consumers in all economies can reap the benefits of digital trade. “International organizations can support these efforts by strengthening their cooperation with governments, stakeholders, and each other, and this joint report is a step in this direction,” the report says.
The report is available here.