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Data Diplomacy and Digital Taxation

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A digital services tax can take several forms, but most commonly is a tax levied on digital platform services and the advertising revenue generated by users. More simply, foreign governments levy DST to capture revenue from digital platforms. For example, when an Indian citizen accesses Facebook, the advertising dollars they generate go back to Facebook and its U.S. headquarters, and a DST would seek to capture some of that revenue for the Indian government.

Digital services tax rates vary from 2-7.5%, and generally apply only to companies that have a certain level of global and in-country revenues. The most common European Union model, for example, levies a 3% tax on companies with at least €750 million in global revenues, and €25-50 million in domestic revenues. India’s DST, adopted in March 2020, levies a 2% tax on non-resident companies with more than Rs.20 million in global revenue. The minimum revenue requirement for these taxes by nature target U.S. tech giants, which have both the market size and global footprint that allow them to generate such high profits.

Despite these high levels of profit, most U.S. tech giants pay low tax rates relative to other multinational corporations of the same size. Thus, foreign governments levy DST as a way to capture revenue from the dominant foreign tech platforms, and protect local industries from foreign digital competition.

The European role in shaping the DST discussion and the U.S. response to DST

In response to rising popularity of DST around the world, the U.S. initiated Section 301 investigations in June 2020 against ten of its trading partners who have implemented or proposed a DST: Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.The USTR’s June 2020 Section 301 investigations note concern that DSTs “[discriminate] against U.S. tech companies” and may “[penalize] technology companies for their commercial success.”

With the exception of Brazil, Turkey, and India, the majority of these Section 301 investigations focus on European Union countries. This makes sense, given the EU’s hardline tactics against U.S. tech platforms, especially under Commissioner for Competition Margrethe Vestager, widely known for her assertive anti-trust maneuvers against tech platforms in the EU.

Notably, the USTR had already initiated Section 301 investigations against France in July 2019, following France’s announcement that it would levy DST against tech platforms. Accordingly, this tax became known as the “GAFA tax,” for Google, Amazon, Facebook, and Apple. However, France backed down on its plans to collect these taxes in 2019 following the response from the U.S. that they would raise tariffs on French exports like wine, cheese, and other popular goods. On June 17, 2020, USTR Robert Lighthizer announced that the U.S. had pulled out of DST negotiations with the European Union as talks stalled.

OECD tax rules and the digital economy

The Organization for Economic Co-operation and Development (OECD) traditionally stipulates that tax should be levied based on where a company has physical presence, as ZDNet reports. However, problems arise in the digital economy, where the borderless nature of the Internet, and increasing numbers of users connected to digital platforms around the world obfuscate the definition of “physical presence.”

In response, the OECD isdeveloping a separate tax framework for the digital economy, addressing challenges around taxing multinational companies whose customers are often thousands of miles and borders away from where the tech company has their headquarters. Virtual OECD digital economy negotiations are scheduled for October 2020, following a delay related to COVID-19. Both the U.S. and China, home to the world’s largest tech giants, are proponents of a digital taxation framework that favors the digital economy; that is, without DST. Many European Union countries, including France, have deferred implementation or collection of a DST until an OECD agreement is reached.

From one angle, a DST makes sense: you, as a government, need revenue, especially following the economic fallout of COVID-19. In the attention economy, every minute a citizen spends on a platform headquartered outside of your country is a “dollar” of attention not spent on domestic platforms or domestic issues. However, because digitization is a new issue, digital taxation and trade are also emerging fields, and thus many tech platforms are not taxed at the same level as their brick-and-mortar counterparts. What are you, as a foreign government, supposed to do when your citizens are spending all their time on Facebook?

U.S. tech platforms are sometimes perceived as being under-regulated and under-taxed relative to the influence and footprint they have. This is what has led to their meteoric rise, both domestically in the U.S. and abroad. Digital services taxes make sense as a “band-aid” for a much thornier issue that will not be fixed by taxing advertising revenue made in-country: increasing polarization and information warfare conducted on these platforms.

Global polarization and the impact of DST

Disinformation and misinformation are and will be the conflicts of the 21st-century polarized world. Information warfare results in confusion for citizens around the globe, which erodes trust in citizen-government relations and weakens democratic systems. Tech giants, with their open and generally unregulated systems, offer perfect platforms for malicious agents to conduct this information warfare, raising concern and alarm for governments everywhere. At a time when governments and tech platforms should be coming together to combat information warfare, DST further polarize relations between these two entities. Governments that implement these taxes introduce friction into their relations with tech companies at a time when collaboration should be prioritized.

Some may bristle at the concept of equating a private U.S.-owned company with a government. But the reality is that tech platforms, in many cases, have more prominence in the daily life of the average citizen around the world than governments. Think about how many touchpoints you have with a digital service or platform provided by Facebook, Amazon, Apple, Netflix, or Google every day, versus the touchpoints you have with your local government. That’s not even including the tens of thousands of websites run on AWS, Amazon’s cloud computing breadwinner.

A call to action

In the 21st-century world, tech platforms are here to stay. Governments and their diplomatic corps, therefore, should do everything they can to collaborate and cooperate with major tech platforms, and vice versa. Tech platforms, therefore, also cannot miss the mark in underestimating their own power in shaping democracy, diplomacy and political discourse.

The increasing impact of digital platforms and data privacy now prominently feature in conversations about the future of democracy. Democratic governments and tech companies urgently need an actionable framework for digital cooperation, especially with the rise of dual-use technologies like facial recognition and artificial intelligence. Both governments and tech companies must take responsibility for their own spheres of influence and explore all possible pathways to cooperation, in order to combat and dissuade the many forces conspiring to erode the pillars of democracy and citizen governance around the world.

Puru Trivedi is Meridian International’s Vice President of Corporate Affairs, with direct responsibility for the Meridian Corporate Council and leading commercial diplomacy initiatives across the organization. Prior to joining Meridian, Puru worked across the financial services, policy advocacy and consulting industries. Puru can be contacted through email ptrivedi[at]meridian.org a nd his full bio is located here: https://www.meridian.org/leadership/ Past Written Work:

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Diplomacy

Cutting Distances with a Cricket Stump

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Sports are the common threads that bind people and countries together. The interlocking rings of the Olympics rings symbolize the coming together of all nations. The former US President Nixon successfully used “ping-pong diplomacy” to open the US-China relationship leading the US to lift embargo against China on June 10, 1971. Cricket has been used in a similar manner to bring together the people of different countries, especially South Asians. Sport in South Asia is a significant part of culture. For South Asians, it is not only a sport but part of their collective identity. Some legends of Cricket in South Asia like Imran Khan, Sachin Tendulkar, Waseem Akram, Sunil Gavaskar, Kumar Sangakkara, Shahid Afridi, Shakaib Al Hasan, Shoaib Akhtar and Virat Kohli are the household names. Though, Pakistan is known as the manufacturer of the official FIFA World Cup ball, football is not popular in Pakistan. Pakistan has remained world champions in Squash, Hockey, Cricket, Snookers, Kabaddi and many other individual events of athletics, yet cricket is the most sought-after sport in Pakistan despite bottlenecks like terrorism and COVID-19.

While the overall sports spectrum went down, Pakistani cricket maintained its presence in cricketing world. Since last few years, Pakistani cricket team has been able to revive and reinvent itself internationally. I remember one of the slogans during Independence Cup 2017 in Lahore that said “It is not Pakistan vs. World, it is Pakistan vs. Terrorism”. In Pakistan, cricket is also a measure of national strength. Pakistan’s cricket teams take part in domestic competitions such as the Quaid-e-Azam Trophy, the Patron’s Trophy, ABN-AMRO Twenty-20 Cup, and the ABN-AMRO Champions Trophy. In 2015, Pakistan Cricket Board (PCB) organized a franchise based T20 cricket league known as the Pakistan Super League (PSL). The two seasons of PSL, 2020 and 2021 are held entirely by PCB. Additionally, Mr. Imran Khan, incumbent Prime Minister of Pakistan has conceived the new basic structure of the game in country.

Pakistan-World Champion

Pakistan has won international cricket events, which include the 1992 Cricket World Cup, the 2009 ICC World Twenty20 and the 2017 ICC Champions Trophy besides finishing as runner-up in the 1999 Cricket World Cup and the 2007 ICC World Twenty20. Women’s cricket is also very popular, with KiranBaluch holding the current record of the highest score in a women’s test match with her innings of 242. Mr. Imran Khan has the honour of leading Pakistan national cricket team which won the 1992 Cricket World Cup. In 2010, he was also inducted into International Cricket Council’s Hall of Fame.

Hitting Balls not Borders

In South Asia, cricket and politics are interwoven. Wars have been fought and conflicts have been de-escalated alongside the bat hitting ball. The history of India-Pakistan relations did not inspire confidence in rebuilding relations through non-political means. However, the cricket matches between them are loaded with deeper political and diplomatic meaning.

From 1947 to 1965 only three test series were played between India and Pakistan. The 1965 and 1971 wars led to complete stoppage of cricket exchanges between two countries and there was a very little window to use cricket as a tool to maintain goodwill. After a gap of 17 years, cricket was resumed between them in 1978. The first instance of cricket diplomacy was in 1987 when General Zia-Ul-Haq visited India to attend a test match in Jaipur, and the resulting diplomatic dialogue cooled relations. In 2004, Prime Minister of India, Atal Bihari Vajpayee, went to Pakistan to attend the South Asian Association for Regional Cooperation (SAARC) summit. He also allowed Indian cricket team to visit Pakistan to play and advised the cricketers to not only win the matches, but also the hearts of Pakistani public. Over the next three years, the two countries played each other three times. Cricket diplomacy again emerged when then-Indian Prime Minister Manmohan Singh and his Pakistani counterpart, Yousuf Raza Gilani, met each other for the World Cup 2011 semifinal between India and Pakistan. Peace talks started again and Pakistan toured India in December 2012 for a T20 and three One Day Internationals (ODIs). The efficacy of cricket diplomacy in Indo-Pak relations can also be gauged from the fact that it brought both states to the negotiating table to manage the issue of Jammu & Kashmir (J&K).

All for One and One for All

Any major international sporting event like a World Cup gives one a sense of belonging to a larger global community. Sportsmen have always been successful goodwill ambassadors for any country and have admirers across borders. Fans’ love for cricket break all barriers that is why the peacekeepers see cricket as a tool to bind people together. Despite tensions, Pakistani fans recently celebrated India’s historic win over Australia. Nelson Mandela also believed that “Sport can create hope where once there was only despair. It is more powerful than government in breaking down racial barriers.”In short, a link between international cricket’s revival and national resilience need to be established. Restarting international cricket in South Asia would enhance the opportunity to establish aspired will of peace and prosperity.

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Can diplomats be proactive online without becoming “wolf-warrior”?

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Photo: camilo jimenez/Unsplash

With the increasingly important digital world, traditional, offline tools and approaches are becoming less and less sufficient and effective in shaping the public conversation, influencing the global or national public opinion, and obtaining trust.

As a part of reform that veers towards revolution in a domain well known for its adherence to norms, today’s diplomacy is also experiencing functional changes in terms of what strategic communications means in the digital environment. As we are witnessing lately, the emerging diplomatic virtual presence has become a significant part of public diplomacy and policy.

Today, the undeniable power of social media lies in its fundamental role of linking the public and political sphere as part of a worldwide conversation. It is notable that the general reason behind its effectiveness and the steep rise of adoption lie in the power of this environment of building strong brands and credibility. This certainly is today’s Zeitgeist and involves the systematic cultivation of the attempt to influence the public opinion with every single action and to boost social legitimacy, in a more and more interconnected world that seeks to turn individual gestures and actions into symbols.

However, does this fully explain why social media is becoming an emerging playground for sarcasm and open battlefield for a digital war of accusations and threats? 

One of founders of today’s Twiplomacy phenomenon is the former US president, Donald Trump, who proved to be, for better or worse, one of the most vigorous and captivating presences on social media among world leaders.  What is striking in this is the gradual increase in the adoption of the new diplomatic style, known as the Wolf-warrior approach, which gained prominence in the context of the COVID-19 crisis and Chinese presence in the social media. This approach, which originated from a Chinese patriotic movie, in which the main mission of the warrior is fighting back foreigners, is characterized by a more aggressive and assertive style of conducting foreign policy.

It is argued by some that this approach is not being adopted in order to display authoritarian tendencies and to project but rather it is more often adopted by Chinese diplomats as a defense response to the repeated attacks and accusations. It seemed to be the straw that broke the camel’s back. Drastic times call for drastic measures?

Either way, the US-China digital war leads to questioning the adequate behavioral approaches to addressing the continuous global power competition and diplomatic tensions. Assertive and offensive or proactive? What makes a wolf-warrior and where do we draw the line?

When credibility and national identity are under threat, assertive approaches seem to come in handy when defending one’s stance and strengthening confidence. We know it very well from the Chinese ancient wisdom: project strength when you are weak. This general principle applies to political stances and authority in advancing agendas, as well as preserving independence in hegemonic environments. However, when increased assertiveness is taken down the wrong road, the world ends up being divided into conflicting blocs. While proactiveness is certainly the adequate modus operandi to overcome such blockages and prevent escalating disputes from bouncing back, the line is certainly crossed when it reaches bullying and propaganda levels.

What is the smart and well-balanced dose of actions when interests and sovereignty come first? Assertiveness or smart power? 

Proactiveness and high reliance on social media can also be channeled into advancing one’s objectives and consolidating strategic gains through smart use of power or through soft power. One of the best examples of this strategy is India’s Prime Minister Narendra Modi, who’s presence on Twitter proves that, most of the time, the tone defines the effectiveness of the message and that balance is to be preferred to unhinged assertiveness. In the end, the art of persuasion is not limited to the right choice of words and actions here and now but also includes the challenging task of building trust in the long run. 

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China-India Vaccine Diplomacy – Will Pakistan Learn From Neighbors?

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Modern infectious diseases and viruses have stimulated anew war and conflict along with poverty, counterurbanization (deurbanization), and climate change that need freshassessment in international relation arena. International cooperation for objective of infectiousdisease control goes back to atleast the 14th century, and to the later date of 1851, when Europe held its first International Sanitary Conference for multilateral cooperation to prevent the spread of cholera and yellow fever. Beginning in 2000, vaccine became cohesive as key tools in helping developing countries to achieve MDGs. In 2007, foreign ministers from seven countries issued the landmark “Oslo Ministerial Declaration” that formally linked health to foreign policy. Yet,in the past, there have been very few moments, as CoVID19, that assimilated such a huge number and variety of the world’s state actors at diplomatic front. The coronavirus vaccine – one of the world’s most in-demand commodities – has become a new currency for “Vaccine Diplomacy”. Vaccine diplomacy is not only the use of vaccine to increase diplomatic relationship and influence other countries but also, from a strategic perspective, vaccine access opens the door to expand long-term health security provisions.

China, one of the first countries to make a diplomatic vaccine push, promised to help developed and developing countries.Since the start of the pandemic, China used medical supplies to pursue foreign policy gains, sent masks and protective equipment to hard-hit territories,at present distributing vaccine.The vaccine diplomacy is a expansion of China’s endeavors to frame itself as the solution to the pandemic. Since the early days of the CoVID19 outbreak, China’s President Xi Jinping has focused on publicizing Chinese efforts  to supply medical aid worldwide. China’s planeloads of CoVID19 donations including hospital gowns, nasal swabs, and surgical masks etc. – were regardedoptimistically, especially in developing countries. In addition, Chinese government sent experts to support medical personnel across the continent.Correspondingly, the Serum Institute of India, one of the world’s largest vaccine producers,produced Covishield, developed by Oxford-AstraZeneca. India’s Foreign Minister S. Jaishankar said it plans to supply CoVID19 vaccine to 49 countries in Asia, Africa, Latin America, and the Caribbean. So far, the country has been distributed 22.9 million doses under its “Vaccine Maitri” (Vaccine Friendship)initiative. Mr. Jaishankar also announced a gift of 2 lakh vaccine doses for about 90,000 U.N. peacekeepers serving in numerous hotspots around the world.

The vaccine race has become a new domain for China-India strategic competition. China’s whole state apparatus is behind the drive and Beijing sprang into action “Health Silk Road” through the cooperation channels of its Belt and Road Initiative (BRI). Moritz Rudolf (German Institute for International and Security Affairs) says, “Health was one of the many subtopics of the BRI. With the pandemic, it has become the main focus”. On the other hand, C. Raja Mohan, (Director, Institute of South Asian Studies at the National University of Singapore) said, “There is no way India can match China on a lot of issues, but in this particular case, because of India’s pharmaceutical infrastructure, India is in a good position”.In reality, both countries arecontemplating vaccine diplomacy as a matter of national pride and soft-power projection.

In Pakistan, the power of vaccine diplomacy has been underexplored despite the successful facts that included promoting peace between the Cold War powers of the 1950s and 1960s.The historical and modern-day track records of vaccine diplomacy are impressive. But, it has not yet led to an overarching framework for its expanded role in foreign policy of Pakistan. At the moment, the Ministry of Foreign Affairs, the Ministry of National Health Services, Regulations and Coordination, and National Command and Operation Center should establish vaccine diplomacy framework and play an imperative role in promoting international health agreements between Pakistan and governments throughout the world. Vaccine diplomacy will not only enhance Pakistan’s reputation in international arena but also blunt the propaganda of anti-Pakistan forces within boarder and abroad. Consequently, vaccine diplomacy activities should integrated into the foreign policy of Pakistan.

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