Ongoing Goings On: A News Update on WTO

From time to time, CSIS Scholl Chair in International Business will be providing news updates about the World Trade Organization. This update centers on ongoing e-commerce and fisheries negotiations, Information Technology Agreement compliance, and trade disputes.

E-Commerce Negotiation at WTO

At the end of the 2017 Ministerial Conference (MC11) in Buenos Aires, the Work Program on Electronic Commerce produced a statement that “we endeavor to reinvigorate our work and instruct the General Council to hold periodic reviews in its sessions of July and December 2018 and July 2019 based on the reports submitted.” Since then, there has been some organization and discussion about e-commerce that will continue during MC12 in Kazakhstan in June 2020.

In 2018, the World Trade Organization (WTO) hosted two public forums to explore opinions on e-commerce regulations, one with international business leaders in June and one with members of government, private sector, and civil society in October. In June, International Chamber of Commerce chairman Sunil Mittal advocated for inclusive negotiations to ensure that the digital divide between developing and developed countries does not continue to grow because “without addressing the problems of SMEs in the digital environment, it will further marginalize them.” In October, WEF president Borge Brende noted that “the Fourth Industrial Revolution can be a very good thing for humankind, but there are currently very few protocols and regulations to secure this. We definitely need traffic rules.” Echoing those sentiments, WTO Director-General Roberto Azevedo said that “we need the right policy infrastructure, such as regulatory and payment systems.”

At the World Economic Forum at Davos in January 2019, WTO negotiations on e-commerce were held between 75 countries. It ended with 69 of them signing a joint statement stating that “[we] confirm our intention to commence WTO negotiations on trade-related aspects of electronic commerce.” Many countries were absent from the negotiations, including India and South Africa. They argue that the WTO should be working on finishing its 1998 Work Program on E-Commerce instead of re-opening negotiations.

A contested issue at hand is the moratorium on custom duties on electronic transmissions. While the WTO has renewed that moratorium annually since 1998, India, South Africa, and Indonesia are starting to waiver in their support. India and South Africa issued a statement arguing that the WTO should rethink the moratorium because of the loss of customs revenue for developing countries and suggest limiting the scope of the moratorium to be more specific than the outdated 1998 description of technology. Indonesia, on the other hand, has edited their harmonized tariff schedule to include a category for “software and other digital products transmitted electronically,” thereby breaking the WTO moratorium.

Fisheries Negotiation at WTO

Target 14.6 of the United Nation’s Sustainable Development Goals (MCG) states that the WTO must prohibit and eliminate harmful fisheries subsidies by 2020. At MC11 in Buenos Aires, the ministerial decision about fishery subsidies included a commitment to reach an agreement in line with the MCG by the end of 2019. It outlined four areas of necessary policy adoption:

  1. elimination of subsidies to illegal, unreported, and unregulated (IUU) fishing
  2. elimination of subsidies to fishing where stocks are overfished
  3. elimination of subsidies contributing to fishing overcapacity and to overfishing
  4. agreement to improve notification and transparency, dispute settlement, and institutional issues as well as keeping in mind the special and differential treatment for developing and least developed members

WTO members did not reach an agreement at the MC11 negotiations in 2017 for many reasons. Many blame India, which blocked the agreement after demanding exemption from the ban on subsidies in order to protect its artisan fishermen. Another contested issue was whether to grant special and differential treatment to developing countries. Least developed countries (LDCs) and small island nations argued that they did not have the technological capacity to monitor all fishing activity and the adverse effects on small-scale fishers would ripple most significantly through their economies. The United States, New Zealand, Pakistan, Iceland, and Norway oppose special and differential treatment to developing countries as they make up 75 percent of global fisheries, thus rendering any universal agreement less effective. Alternatively, China proposed exemptions not only for developing countries but also for areas under territorial dispute, which would give them unfettered fishing access to the South China Sea. Though India blocked the agreement initially, the issue of special and differential treatment will also continue to stymie negotiations.

In the December 2018 fishery subsidy negotiation, members agreed to meet for one week every month in 2019 to meet the upcoming deadline. As the chair of the Negotiating Group, Ambassador Roberto Zapata Barradas of Mexico, said, “if we are serious about getting this done, we have to move into the uncomfortable zone of compromise and accommodation.”

In the January Negotiating Group meeting, four delegates were selected to represent each of the four areas of policy adoption, and groups started to draft new language around fishery subsidies. There was some indication that those would be circulated either before or at the next meeting. There was an acknowledgment that this was the start of the serious negotiations.

Two new draft texts—one authored by Australia on fishing overfished stocks and the other a joint New Zealand-Iceland effort on prohibiting subsidies that lead to overfishing and fleet overcapacity—were discussed at the February Negotiating Group meeting. These drafts cover two of the three commitments the WTO has made to resolve this year, the last one being the elimination of subsidies for IUU fishing. More drafts will be submitted before the next meeting on March 25-29.

Countries Not Meeting Their Information Technology Agreement (ITA) Obligations

The WTO boasts that the Information Technology Agreement (ITA) now covers 82 countries representing about 97 percent of all ITA products. There are questions, however, about whether India and China are meeting their ITA obligations. Though no formal complaints have been made, concerns were raised in the 2017 and 2018 ITA meetings about India’s import duties on information and communication technologies—specifically cell phones and their parts—and China’s tariffs on semiconductor products.

India’s 2017 budget originally set a basic customs duty of 10 percent on cell phones in order to make locally made phones less expensive than those imported. The duty was raised to 15 percent in December 2017. India’s 2018 budget then increased its import duties on cell phones again to 20 percent as part of a recent “Made in India” campaign. Threatening to file a WTO dispute, the United States sent a delegation in January 2019 to lobby for a roll-back of the duty. Japan lodged an official protest about its duty on imported cellphones as well as its 10 percent duty on ink cartridges and some printers with the WTO in August 2018. India had argued that equipment that did not exist when the ITA was signed in 1996 (including Apple phones) do not fall under ITA rule; India opted out of the 2015 ITA-II, which broadens the IT products that fall under the ITA.

Chinese exports of semiconductors have a 5 percent share of the world market, and it can meet around 30 percent of its sizable domestic semiconductor consumption (which makes up 50 percent of global annual semiconductor demand). With continual growth in demand for semiconductors in China, Chinese officials have been seeking to grow a competitive domestic semiconductor industry. China’s protectionist semiconductor issues at the WTO go back to 2004, when the United States complained to the WTO about Chinese value-added tax refunds (VAT) in order to favor domestically made semiconductors. This ended when the WTO ruled that China must stop all VAT refunds to domestic companies. The 2013 Report to the U.S. Congress on China’s WTO Compliance also states that China’s export restraints affect the United States’ production of semiconductor chips. The United States filed a complaint in 2016 alleging that China had imposed export taxes on raw materials needed for U.S. semiconductor manufacturers. China has since reduced export taxes. One subject of dispute in the ongoing U.S.-China trade war involves tariffs on semiconductors.

On the Dispute Horizon

On February 28, 2019, a panel report was circulated on the U.S. complaint on Chinese domestic support to local agricultural producers of wheat, Indica and Japonica rice, and corn. The report found that China violated its WTO obligations because its level of support of rice and wheat exceeded the WTO’s 8.5 percent de minimis level. The panel did not find China’s level of support of corn inconsistent with WTO obligations because China lifted its administered cost prior to U.S. dispute initiation in 2016. U.S. farmers worry that the panel report decision will not hold. President Trump is currently blocking the appointment of WTO appellate judges. If China appeals the decision, the case “could be among the first to get stuck in legal limbo without a functioning appellate body,” according to the vice president of policy for the U.S. Wheat Associates.

India is contemplating filing a WTO complaint against the United States for its decision to stop providing export incentives under the trade preference scheme. On March 4, 2019, U.S. Trade Representative Lighthizer announced that Turkey and India would no longer qualify for zero-tariffs status given by the U.S. to developing countries.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jonathan Robison is a program coordinator and research assistant for the CSIS Scholl Chair. Madeleine Waddoups is an intern with the CSIS Scholl Chair.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2019 by the Center for Strategic and International Studies. All rights reserved.

Madeleine Waddoups

Intern, Scholl Chair in International Business