Why India Should Be Wary Of US Pushing For Duty-Free Digital Trade

Developing economies should guard against entering an agreement which offers duty-free digital market access.

Image used for representational purposes.

(Photo: iStock / Altered by Kamran Akhter / The Quint)

To take the negotiations forward, ministers of all the sixteen participating countries for the proposed free trade agreement (FTA) — Regional Comprehensive Economic Partnership (RCEP) — will hold a meeting on 2 August 2019 at Beijing, China. The FTA includes the ten Association of Southeast Asian Nations (ASEAN) member countries along with India, China, Australia, New Zealand, Japan, and South Korea.

The negotiations for RCEP have been going on since 2016, but the leaders are yet to reach a consensus on closing the deal.

One of the primary reasons for their disagreement is related to e-commerce or digital trade.

Japan had proposed to replicate the e-commerce provisions of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

This proposal has been strongly contested by other participants like India and Indonesia.

In this regard, let us explore how the issue of e-commerce has been addressed in the RCEP and other trade agreements like TPP so far.

India’s Disagreement With CPTPP’s E-Commerce Provisions

CPTPP — originally Trans-Pacific Partnership or TPP — has twelve members from the pacific region including five from the eastern side, and seven from the western side. From the western side, the participants are Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam.

Initially, CPTPP included the US, who withdrew its membership immediately after Donald Trump assumed presidency.

The CPTPP was the first FTA to have a highly comprehensive chapter on e-commerce. The chapter covers a large range of issues concerning to digital trade and e-commerce. Some of the major provisions of the agreement include duty-free cross-border movement of digital goods, free transfer of data and prohibition of localisation requirements, and non-disclosure of source code among others. CPTPP has been effective since December 2018 and the members have been following its principles.

Taking lessons from CPTPP on having faster and comprehensive negotiations, RCEP members set up the Working Group on E-Commerce (WGEC) in February 2015.

During the consultation of WGEC, Japan submitted a proposal which largely coincided with the CPTPP provisions. This proposal was rejected by India, Indonesia, and others.

Australia and Malaysia had also shared their reservation on a few topics. However, no public document comprising the detailed responses of other members is currently available. But, from the available reports, it seems that any sort of middle ground or agreement is yet to be achieved within the members on the e-commerce chapter.

Indonesia & Malaysia’s Opposing Stands On Similar Provisions

It is evident that the RCEP members are still grappling with the issue and are yet to resolve it. However, it is interesting to note that all the seven members of the CPTPP from the western side of the pacific region, are also participants in the RCEP. It seems highly likely that they will be in favour of including a set of principles that they are already following through another agreement. However, this is not the case.

The disagreement shared by Indonesia and Malaysia on the proposed e-commerce provisions of RCEP tells a different story. The domestic policy of both the countries requires mandatory localisation of data.

The dissatisfaction among these countries about e-commerce provisions can be easily sensed, even for the agreement they have already entered into.

Therefore, it becomes important to understand why a certain group of countries favour a set of provisions while the others oppose them. Furthermore, why would a country adopt different positions on similar matters in two different agreements?

The answer lies in the very characteristics of the e-commerce sector of the respective countries.

So, What’s In It For The US?

Members who are pushing for duty-free cross-border trade of digital goods and free movement of data are primarily developed economies and net exporters of digital goods. They have the advantage, with large technological giants that can exploit the benefits of free digital trade and seamless transfer of data.

The US — a great advocate of these hassle-free trade rules — is home to 11 of the 20 biggest tech giants in the world.

Hence, its interest in framing a new trade rule is clearly recognisable. Moreover, the share of custom duty in the total revenue collection of the developed countries are minimal compared to the developing or emerging economies. So, the withdrawal of custom duties from the digital import will not hurt them much. This stands opposite in case of developing economies who are net importers of digital goods with no big domestic firms to accrue the blessings of new trade rules.

Keeping this in mind, the developing economies should be cautious before entering into an agreement of any kind in which the provisions offer duty-free digital market access.

Participants should weigh all the possible benefits and only agree to a win-win arrangement. They should also consider the position of their respective domestic industry.

(Dr Rahul Choudhury is a visiting fellow at the Institute of South Asian Studies, National University of Singapore. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)