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WTO e-commerce moratorium clarified – what it means and its impact

The recently concluded 13th Ministerial Conference of the World Trade Organization (#MC13 WTO), held in Abu Dhabi, decided to prolong the moratorium on e-commerce tariffs for an additional two years till 2026.

Approximately a quarter of worldwide trade is currently conducted through digital channels, and this proportion is expected to increase at a rate surpassing that of conventional goods trade in the coming ten years.

Since 1998, WTO members have been debating whether to apply customs duties to e-commerce and electronic transactions and decided to establish a “WTO e-commerce moratorium” which was set to expire in 2024.

While some are aware of what the WTO e-commerce moratorium is, many are not aware of what it entails.

Chad Schofield, Co-Founder & Chief Digital Officer at BoxC guides in understanding the differences and the impact this has on the e-commerce market.

SFR : Chad, could you give a simple explanation of what the WTO e-commerce moratorium is about?

BoxC : The simple explanation is that the WTO e-commerce moratorium applies to digital purchases like software and such that can be downloaded rather than physical purchases via e-commerce that are already subject to taxes and duties.

 

SFR : How do you differentiate between the logistical and regulatory challenges faced by e-commerce platforms like yourself in shipping physical goods versus distributing digital products..??

BoxC : Shipping physical goods cross-border has been subject to duties for some time whereas digital products have not been subject to duties, the most basic reason being that physical goods must be physically moved across borders where customs authorities have established control.

For digital products, there is no physical movement and customs have no established control or mechanism to collect duties much less the technology.

 

SFR : In the context of the outcomes of WTO’s MC13 do you see any implications for physical e-commerce businesses and the impact on e-commerce and digital purchases if the moratorium had not been extended..??

BoxC : Other than the extension of the digital e-commerce duties moratorium there were no other e-commerce related decisions. If the moratorium had not been extended, it would have created a lot of confusion with e-commerce sellers of digital goods and no infrastructure of support to comply with duty regulations for whatever country implemented them.

It should be noted that it will be a heavy lift as well for countries to implement the system to collect duties for digital transactions.

 

SFR : Given the increasing convergence of physical and digital marketplaces, how do you see the future of cross-border e-commerce evolving, and what role do companies like BoxC play in this landscape..??

BoxC : The current technology for customs compliance for e-commerce physical goods provided by BoxC can be adapted to e-commerce digital goods, fairly seamlessly, depending on how countries implement the regulations.

 

SFR : How does BoxC handle the complexities of taxes and duties for physical products across different jurisdictions, and what challenges do you foresee in this area as e-commerce continues to grow..??

BoxC : BoxC instantaneously calculates the taxes and duties based on the destination country for each e-commerce shipment by continually monitoring countries’ tax and duty regulations. The biggest growing challenge in cross-border e-commerce are recent reevaluation of de minimis values that allow for duty-free entry. There is a lot of pushback from these countries, and domestic retailers, to level the playing field by removing the de minimis allowances afforded to foreign retailers.

 

SFR : How is BoxC leveraging technology to address the unique demands of physical e-commerce vs digital e-commerce and what are your predictions for the future of e-commerce especially for companies that are at the intersection of physical and digital commerce..??

BoxC : Countries are becoming more sensitive to and aware of the loss of revenue from tax and duty collections from e-commerce imports, especially with the growth of Shein and Temu. With that, these countries are improving their technology to manage and increase the ability to collect taxes and duties.

Traditionally, the reason for de minimis was the fact that it was more expensive to collect the taxes or duties of low-value shipments than what would be collected. With the advance in technology, the cost of collection is almost zero, and therefore makes sense for countries to be more aggressive in collecting taxes and duties.

 

 

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