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Can Plurilateral Agreements deliver on the UN Development agenda?

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Picture: World Trade Organisation – World Trade Organisation (WTO) headquarters at the Centre William Rappard in Geneva, Switzerland. Alternative and complementary measures for taxation of digitalised economy, agri and fisheries subsidies are required as the WTO 13th Ministerial Conference convenes in the United Arab Emirates in February 2024, the writer says.

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By Ashraf Patel

The Global South has high expectations as the World Trade Organisation (WTO) prepares to hold its 13th Ministerial Conference (MC13) in the United Arab Emirates this month (February). The wave of strike by European farmers that started in France and now spreading to Germany, Italy and Greece is about the drastically reduced fuel and fertiliser subsidies, as well as the onerous new climate change targets that the EU has introduced. Ironically over 200,000 tons of fertiliser from Russia remain impounded at EU ports due to sanctions.

The original Doha Development Round in 2003 included agriculture as the first item for inclusion. The previous Uruguay negotiating round had successfully added agriculture as a separate topic to the multilateral agenda in a robust way. Lowering trade barriers on agriculture is always highly sensitive to domestic pressures.

In addition, the WTO dispute settlement mechanism is nonfunctional, and efforts to fix the Appellate Body have stalled.

Agriculture: According to Deborah Elms there is now just one agricultural issue on the agenda at MC13: public stockholding and subsidies. Getting this issue addressed, however, requires decisions by members on their future commitments on agricultural trade, and this is where the current EU farmers strikes will unveil further layers of differential treatment as the WTO, as when nations such as India had to increase their stockpiles, they were penalised and in dispute. As EU nations give in to their farmers on subsidies, the WTO system as we know it may unravel.

Fisheries: There is yet no agreement on the 2022 fishery subsidies – defining subsidies which contribute to overcapacity in the global fishing industry has complicated talks among groupings of members, including rules for smaller players; different treatment for developing countries again increases the the expectations of the WTO MC13.

Furthermore, regional blocs such AFCFTA, ASEAN and Mercusor APEC, are negotiating complicated Free Trade Agreements FTAs with powerful nations-blocs EU-Mercusor, EU ACP EPAs, US-Kenya free trade agreements, etc. These bring additional layers compliance complexity wherein LDCs are ill-equipped to manage.

Case of WTO E-Commerce Plurilateral Agreement

In this vacuum Plurilaterals have been a regular, semi-permeant fixture at the WTO. The notion of Plurilaterals Joint Statement Initiatives JSIs at the WTO have emerged due to the dynamic growth and diversity of global and regional trade and technology. From services to procurement, IP, Investment models to the digital economy, Plurilaterals are a unique innovation and dynamic engagement with multilateralism and multistakeholderism. However, the case of the e-commerce treaty has demonstrated that it can go against some WTO rules, and unduly restrict policy space for non-members, and marginalise the core interests of developing countries.

Since its inception with the passing of the IT Agreement and Basic Agreement on Telecoms in 1998, which and at the time paved the way for liberalisation of the ‘backbone of the information economy’ that took off in the ‘roaring 1990s’. Essentially the 164 members of the World Trade Organisation (WTO) agreed not to impose customs duties or tariffs on electronic transmissions.

Every few years since 1998, members have agreed to an extension of the moratorium. However, this e-commerce moratorium has long outlived its sell by date, and with the phenomenal growth of e-commerce, especially in the post-Covid era, the need for taxation can provide LDCs with vital tax revenue to balance national budgets, stave off national debt, fund the UN SDGs, as well as bridge the digital divide.

WTO Faces Credibility Moment at MC13

Because the WTO would require consensus to make a decision on the state of the DDA, members have opted to simply move on with differing viewpoints on past efforts. But, unfortunately, the difficulties in reaching an agreement are not so easily swept under the carpet.

At this year’s MC13 the ‘writing is on the wall’, seemingly, for the e-commerce moratorium, which has hitherto favoured large tech behemoths such as Amazon. The moratorium on e-commerce denies nation states the opportunity to tax digital services. Coupled with Big Techs ‘data extractivism’ business model, its low-zero tax strategy in tax havens and (mis)classification of IP, collectively means a massive value extraction accrues to Big Tech and from nations; and especially LDC.

Global South nations are denied crucial revenue for the development agenda; and even the North and EU have begun regulating Big Tech with an array of significant cases and fines imposed.

This regime survives due to the multiple political challenges- stagnation at the WTO and its dispute settlement mechanism and asymmetrical power of MNCs. A post-Covid work and win conflict has seen huge supply chain constrains, as well as food inflation that has pushed many developing regions into dire poverty. The high cost of servicing debt in many African nations have seen less national resources to peruse the social and SDG agenda. (UN Secretary General Stimulus report, 2023) In this context fiscal tax resources have become a core challenge in meeting the UN’s SDGs.

Promoting Digital Economy for Development, UN SDGs

In the past several years the 4th industrial revolution and AI has dominated economy industry and political discussions and dialogues, with this year’s WEF where UN Secretary General and IMF Director General raise key concerns on the pace and direction of AI and inequalities.

  1. Special and Differentiated model and capacity for Digital Economy: In line with WTOs Special and Differentiated Technical support SDTs, we argue a new dispensation and capacity is required wherein OECD (Organisation for Economic Co-operation and Development) and developed nations and corporations should contribute resources, funds and capacity for SMEs in the Developing South to scale regional markets and ensure fair competition is promoted in the digital economy. They should have a layered architecture of rights and obligations and encompass capacity-building measures. WTO members should initiate plurilateral on topics that are of particular concern to developing countries and least developed countries.
  2. Data localisation for national-regional development: One of the most powerful tools is to utilise data for national-regional development and meeting UN SDGs. However, cross border data transfers are often a key issue used-misused in free trade agreements, where LDCs sign away their data sovereignty; (JNC, 2019, UNDP, 2022, UNCTAD, 2022).
  3. The need for inclusive, fit for purpose tax systems for Big Tech MNCs: The third component is taxation in the digital economy. An e-commerce tax can generate first tier revenue into national fiscus. The revenue of Big Tech behemoths such as Amazon exceeds the GDPs of many nation states. The effective taxation of these staggering revenues, which pose fundamental challenges to the existing system of international taxation, is something with which countries around the world have been struggling. Big Tech is heavily reliant on intellectual property (IP), such as software and algorithms, to create value. The common strategy is to locate the IP in tax havens, where royalties are often highly inflated, enabling the subsidiary to declare low-zero profits in the jurisdiction where it operates, thereby escaping taxation.

Taxes on the digital economy are complex and can take a variety of forms. Some are as simple as consumption taxes on internet purchases or service subscriptions (Netflix, Amazon). Others that aim to assess profitability and separate out digital companies from other parts of the economy are more complicated.

There is also the question of how digital taxation fits in with other transatlantic tech policy showdowns over privacy, competition, and government subsidies, hence the interlocking nature of global multilateral governance of Big Tech is multi-layered.

Alternative and complementary measures for taxation of digitalised economy, agri and fisheries subsidies are required as the WTO MC13 convenes in the UAE in February 2024, and the G20 in Brazil in November. These will test the ability of multilateralism to serve the Developing South in this most challenging period as development goals are backsliding. Time is running out.

Ashraf Patel is senior research associate at the Institute for Global Dialogue (IGD)