Digital trade, including software sales and streaming movies, is playing a significant role in the global economy. However, many developing countries struggle to fully participate in this trade, leading to policy reforms that promote inclusion. Digital trade offers unique benefits such as digitalization, interconnectivity, and the transmission of knowledge and innovation. It also reduces trade barriers for small firms and women-led businesses.
The value of global trade in digitally delivered products rose to $3.82 trillion last year, accounting for a record 54% share of services trade. However, many developing economies, particularly low-income countries, risk falling behind due to gaps in connectivity, information and communication technology infrastructure, and digital skills. A new report by the IMF, the World Trade Organization, and other international institutions on Digital Trade for Development highlights the need for global solutions to make global digital trade more inclusive. Domestic policies should facilitate remote transactions, boost digital market trust, promote affordable access, and facilitate cross-border deliveries, while ensuring data privacy, consumer protection, and cybersecurity for the digital trade ecosystem’s success.
International cooperation on digital trade is crucial for promoting common “rules of the road” for digital trade growth and its benefits. The WTO moratorium on customs duties on electronic transmissions is the only multilateral rule specific to digital trade, which has been periodically extended since its introduction in 1998. The moratorium prohibits tariffs on digital imports, contributing to a stable and predictable policy environment for digital trade. The WTO’s 13th Ministerial Conference in February will be a key issue, with some countries fearing the current rules could hurt their revenue potential and constrain their policy space. Recent research shows that the moratorium has a relatively small impact on fiscal revenues, between 0.01 percent and 0.33 percent of overall government revenue on average.
Domestic consumption taxes, such as value added tax (VAT), are more efficient instruments for taxing digital trade and can generate higher government revenues. VAT on digitized products could yield 2.5 times higher revenue than current tariffs, making it more economically efficient and easier to implement across all income groups. The WTO moratorium could guide developing countries’ tax reform efforts, promoting their inclusion in global digital markets.
