The 13th Ministerial Conference of the World Trade Organization (WTO), held in Abu Dhabi in February and March, received a lot of attention, especially regarding the extension of the moratorium on e-commerce for another two years. This extension until the 14th Ministerial Conference or 31 March 2026, whichever is earlier, is recognized as a positive development in digital trade. This result did not result from easy negotiations, as developing countries insisted on ensuring that they received their fair share of benefits from the agreement.
The challenge for the moratorium is that the invention of digital technologies is concentrated in certain countries, with developing countries often serving only as markets and data sources for these technologies. At the same time, exports of digitally available services are growing significantly around the world, highlighting the importance of digital trade volumes.
Governments in developing countries see this as an opportunity to generate revenue and are rushing to develop new ways to tax this new “oil.” India has imposed a Goods and Services Tax (GST) rate of 18% on digital services categorized as Online Information and Database Access or Retrieval (OIDAR) from August 2023. As recorded in this World Trade Alert Database, Indonesia imposed a different approach. Since August 2020, a 10% value-added tax (VAT) has been imposed on the use and copyright of intangible goods and services from foreign sources, and the tax has been imposed on the US-based subscription streaming service Netflix. has also started.
To overcome this hurdle, the extension of the suspension of e-commerce will come with preconditions. This means that the level of competition in developing countries will improve and digital industrialization will become possible. Developing countries can also become exporters of electronically delivered products and services. Because digital industrialization requires the integration of digital technologies into traditional industrial processes, most developing countries import these advanced technologies from the global North before they have the capacity to produce them domestically. It is considered necessary. This is also a reasonable argument for supporting free digital trade from a Global South perspective. Free digital trade enables technology transfer to developing countries and helps them achieve both of the above objectives. So, what are the channels of digital trade that influence technology diffusion and adoption in developing countries?
Digital trade is broadly defined as trade activities in which products and services are ordered and/or delivered digitally. In the services sector, digital trade will revolutionize traditional service delivery by eliminating the need for physical presence, thereby reducing face-to-face costs and facilitating cross-border service delivery. This transformation will allow companies to outsource operations within global value chains to other countries, giving developing countries the opportunity to emerge as net exporters, as labor costs are lower than in northern countries. Increased cooperation between companies from developing countries as suppliers and companies from developed countries as clients will facilitate technology transfer during service provision. Imagine a scenario where a startup in the Philippines provides data annotation services to a software company in the United States.
Along the way, the startup learns new skills and technologies, as the company needs to meet standards set by its US clients in terms of image labeling, text classification, data tagging, or skilled annotators. Production processes need to be improved. , provide new service results. Access to better data annotation services could be another door to technology spillover to the Philippines, namely the development of local machine learning models.
every Thursday
Digital trade can change the way companies innovate by reducing the information, logistics and transaction costs associated with acquiring inputs from abroad. This accessibility also expands the variety and quality of inputs available abroad, giving businesses more options in managing inputs and allowing them to increase efficiency and expand output. For example, digital trade has led the Thai automaker to import the UK's MAM Autowork Online software, his web-based application designed to simplify and manage various aspects of running a busy workshop or garage. It may be possible to do so. These high-tech and knowledge-content digital products are likely to be produced in developed countries, which could benefit more manufacturers in developing countries.
