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At the WTO conference in Abu Dhabi, the tax-exempt status of online trades in movies, music, and games is being discussed.
Economy Technology

At the WTO conference in Abu Dhabi, the tax-exempt status of online trades in movies, music, and games is being discussed.

Since late last century and the early days of the web, providers of digital media like Netflix and Spotify have had a free pass when it comes to international taxes on films, video games and music that are shipped across borders through the internet.

However, there may now be a weakening of the universal agreement on this matter.

As the World Trade Organization convenes its current twice-yearly gathering of government leaders on Monday, the moratorium on imposing tariffs on e-commerce items, which has been automatically extended every two years since 1998, is facing unprecedented scrutiny.

During the current week in Abu Dhabi, the World Trade Organization will address various important matters, including subsidies that promote overfishing, changes to promote fairness and environmental responsibility in agricultural markets, and attempts to revitalize the Geneva-based organization’s dispute resolution system among member countries.

These are all challenging tasks, but the suspension of e-commerce tariffs is likely the most pressing issue. The focus is on “electronic transmissions” such as music, movies, and video games, rather than physical goods. However, the guidelines do not provide clear information on all the products that will be impacted.

“This holds great significance for countless businesses, with a particular focus on small and medium sized ones,” stated Ngozi Okonjo-Iweala, Director-General of the WTO. “Certain members advocate for an extension and permanent implementation, while others argue for valid reasons against it.”

She stated to reporters that there has been a discussion on the matter and it is our hope that the ministers, who hold the power to impact the lives of many, will come to a suitable decision.

According to WTO protocols, significant decisions must be made by consensus. The continuance of the e-commerce suspension cannot simply be approved without proper deliberation. Nations must actively cast their votes in support of extending the moratorium.

There are four ideas currently being discussed: Two would continue to suspend duties, while the other two – proposed by South Africa and India, who have been actively advocating for their interests at the WTO – would not.

Advocates argue that imposing a moratorium has advantages for consumers as it aids in controlling costs and encourages the implementation of digital services on a larger scale, regardless of a country’s economic status.

Critics argue that it hinders the ability of debt-ridden governments in developing nations to generate tax income. However, there is a controversy surrounding the exact amount of money that government treasuries would benefit from.

According to the WTO, the estimated impact would amount to less than 0.33% of overall government revenue.

The risks are significant. According to a WTO report released in December, the export value of “digital services” increased by over 8% between 2005 and 2022. This growth is greater than that of goods exports (5.6%) and other services exports (4.2%).

There has been uneven growth in regards to digital networks, particularly in developing countries which lack the extensive networks found in wealthier nations. These developing countries may not see as much urgency in extending the moratorium and may even benefit from generating tax revenue if it were to be lifted.

The proposal made by South Africa aims to put an end to the pause on a particular activity, by calling for the establishment of a fund that will collect donations from willing parties in order to close the gap in access to technology. It also proposes that prominent platforms should increase their support for small and medium-sized businesses that have faced discrimination in the past.

The industrial sector in the United States is heavily advocating for a renewed moratorium. In a letter dated February 13th to officials in the Biden administration, twenty industry groups, such as the Motion Picture Association, U.S. Chamber of Commerce, and Entertainment Software Association, implored the country to fully back the renewal.

The letter stated that only a multilateral extension of the moratorium, applicable to all members of the WTO, would prevent the implementation of new tariffs and limitations on cross-border trade. These actions could harm workers in various industries and negatively impact the economy as a whole.

The collapse of the WTO would significantly harm its reputation and stability, as noted by the groups representing companies with a collective workforce of over 100 million. This would also be the first instance where members have altered trade regulations to greatly impede economic activity.