Same Bed, Different Dreams: India and U.S. at the WTO

At the time of writing all issues are open, countries remain in violent disagreement on all these topics, and the likelihood of a global deal that will put the beleaguered WTO back on track is receding by the day.

The WTO holds its biannual Ministerial Conference next week in Abu Dhabi. In theory Ministers are meant to fly in to rubberstamp and celebrate agreements to stamp out overfishing, restore the WTO’s judicial arm, improve access to medicines, liberalise e-commerce and dismantle agricultural subsidies. But as ever, at the time of writing all issues are open, countries remain in violent disagreement on all these topics, and the likelihood of a global deal that will put the beleaguered WTO back on track is receding by the day.

Traditionally, agriculture is the make or break issue for WTO ministerials (usually it breaks them). The sector is crucial for billions of livelihoods in the developing world, while highly sensitive too in the highly subsidising developed world – witness farmers’ protests across Europe in the last two months and the unholy alliances formed between farm groups and environmental NGO’s!.

But for once agriculture looks like taking a back seat in Abu Dhabi to what has hitherto been the less conflictual subject of e-commerce, thanks to the illogical and politically-driven positioning (correct: posturing) of two major players in WTO, India and the US, the odd couple.

There are or were two subjects up for discussion at MC13.

First up: the so-called ecommerce moratorium. Ever since 1998 WTO members have imposed a moratorium on customs duties on electronic deliveries – of books, audio visual material, computer programmes, sales of financial data and the like – so as to grow the digital economy and help SMEs (often from developing countries) access new markets and expand. Each successive WTO ministerial has extended the moratorium for a couple of years or so. And to do makes eminent sense. The OECD and others have persuasively demonstrated that imposing duties on electronic transfers would make little difference to global customs revenues (an increase of but 0.68%), but rather throttle trade and development and exacerbate the digital divide.

2024 The Mother of Election Years

But in 2024, the mother of all election years, economics and politics make uneasy bedfellows. A quarter of the world’s population go to the ballot boxes this year – and in a pre-election climate, populist calls for ‘digital sovereignty’ or for curbing the excesses of BigTech are attractive slogans. Indeed, governments worldwide in the last three years have been struggling to decide their relationship with the IT behemoths. Like Shakespeare’s Caesar should they praise them or seek to bury them? Should they try to get them onside or make them the scapegoat for other ills?

Undeniably, some tech multinationals wield a market and political power that today dwarfs many nation states. By the end of 2024 only five countries in the world are expected to enjoy a GDP bigger than the market value of Apple. Not to mention that of Microsoft…bigger than the GDP of all Sub-Saharan Africa. No wonder countries are grappling with how to manage the digital economy – and its Frankenstein’s Monster AI: companies which are beyond their control and by definition largely transgress Westphalian national boundaries. Most readers will remember that telling scene in the movie “Don’t Look Up” where the world’s richest man, the creepy CEO of the company Bash, played by the marvellous Martin Rylands and modelled on Elon Musk, has so much clout that he can just waltz into a Cabinet meeting in the White House, click his fingers and say to the President “You, here, now, come here!”. It’s a comment, a satire on the power of Big Tech over nation states.

And there is as always the shadow of China, with the US in this election year putting decoupling and its desire to erect digital and manufacturing paywalls against China before international cooperation or the maintenance of global value chains.

All this to say that what should be a straightforward decision at MC13 to extend the moratorium has become politically fraught. India threatens to withhold support for an extension, as it did until the dying minutes of the previous Ministerial in 2022. It gets support from South Africa, Indonesia and some others, keen to maintain digital “policy space”, in the misguided belief that they can nurture their digital economy behind prohibitive tariff walls. So why does India behave like this? As a successful digital power it has zero interest in seeing customs duties levied on electronic commerce. Indeed the chair of India’s Electronics and Semi-Conductor Association just last week pleaded with his government to extend the moratorium. I will return to India’s position and tactics in a moment.

A WTO Agreement on Digital Trade?

The Second issue on the table of “MC13” is the so-called Joint Services Initiative on E-commerce – in essence a modest treaty to improve electronic trade – negotiated between around 100 members who together represent around 90% of world digital trade, including Europe the US and China, but significantly NOT India. The draft agreement – four years in the making – includes eminently sensible ideas like equal legal status for electronic signatures and contracts, electronic submission of customs declarations, commitments to have domestic regimes to protect consumers from unsolicited emails and spam, personal data privacy,  cooperation on combating cyberattacks, and embedding and making permanent the moratorium on tariffs for electronic deliveries.

The drivers of this Agreement – notably Singapore, Australia and Japan – sought to include some more controversial issues – rules on data localisation (preventing countries from insisting that business or personal data generated overseas be kept or processed in their territories), access to and review of source codes, and limitations to the right of enforcement and intelligence agencies to access personal data.

The Kiss of the Spider Woman

But in a move that shocked many WTO members and certainly spooked Silicon Valley, in the autumn of last year the USA formally declared that it withdrew support for these measures. I quote Katherine Tai the bland United States Trade Representative, on October 23 of last year: “the US has removed its support for proposals regarding source code… and data localisation requirements…”.

A kiss of death for the Agreement. In one fell swoop the US reversed its long-standing position in WTO supporting the free flow of data, non-localisation etc, moving from its classic business and consumer-driven philosophy to a position driven by national security and anti-China considerations. Election related? Surely. Adding insult to injury, Ohio senator Sharrod Brown just three weeks ago trumpeted his Democrat party’s opposition to the Agreement and his success in blocking the ambitions of the USTR in order to help American workers (how pulling an e-commerce agreement will support Ohio auto manufacturers is puzzling…).

Turning Tables

The US volte face on the WTO E-Commerce Agreement means that first it will not be adopted even in as a lowest common denominator in Abu Dhabi this month. More worryingly, it gave opponents or sceptics of the Agreement a perfect get-out-of-jail-card. Major emerging economies like South Africa and Indonesia are content to put to one side the agreement in the face of some domestic opposition to what is seen as a threat to their nascent digital economies. India dislikes the Agreement for three reasons. First it has strict data localisation laws that the Agreement would render illegal: and India as a country is moving in the direction of less individual liberty and privacy, not more. Two, the Agreement embeds and makes permanent the e-commerce duties moratorium that India has been fighting totemically for the last two years. And third – and here your correspondent has some sympathy – India disapproves of plurilateral WTO Agreements which could become part of the WTO rule book. Even if not a member of those agreements today, India fears it could be forced or shoehorned into them subsequently – agreements it had no role to shape to its interests. So India will if required block the necessary WTO consensus to adopt the Agreement and add it to the WTO books. For all these reasons the draft E-Commerce Agreement will not see the light of day at MC13 in Abu Dhabi. It will be put on the proverbial back burner and revived in a few months’ time. A pity.

A pity because the action will now move bilaterally. In the absence of a WTO Agreement countries and regions are negotiating bilateral ecommerce and data freedom agreements. The EU has just signed one with Japan and will do the same with Korea and Chile in the next three months. Paradoxically the EU has to some extent filled the vacuum left by the US, turning the tables on the traditional theory that the US is a freebooting digital pioneer while the EU is a constipated regulatory behemoth. A new song by Adele maybe?

Japan itself has become the unlikely pioneer of data freedom agreements with its “Data Free Flow with Trust” (DFFT) policy and its leadership of a regional Asian agreement on the digital economy modelled on the moribund WTO draft agreement. Your correspondent spoke recently to business people in Asia and was told that whereas not one company is willing to fund a study on the WTO agenda or do a conference on it, they are pouring money into consultancies, studies and confedrences on the regional initiatives in Asia. The digital business community has given up on WTO and sees more prospects for regional agreements on data free flow.

India: the country that cried wolf!

But let’s go back to the draft Decision on a renewal of the e-commerce moratorium on customs duties. In the view of this author India’s opposition to renewing the moratorium is largely tactical (as it was incidentally in 2022). It withholds support hoping to trade it for gains elsewhere in the WTO – be it on fish subsidies, the right to give otherwise unauthorised subsidies to wheat and rice farmers, or relaxing intellectual property laws. But 2024 is not 2022, the WTO membership sees through the Indian game this time round and will not pay in fish, farm subsidies or patent flexibilities to extend a moratorium which India wants anyway.

And let’s recall (or hope!) that India – or Bharat as it now tellingly describes itself – may want to display a new geopolitical maturity as it looks back on a successful G20 stewardship, and as it savours the world’s leaders beating a path to its Indo-Pacific door. Is it not out of date for this new superpower and counterweight to China to continue to play the beleaguered developing country card?  Could it be time for India to show leadership and constructiveness in the WTO, rather than throw its toys out of the pram like the petulant child of old?

So something will have to give. It is this author’s view that India will give in on the e-commerce moratorium at the end of the day –perhaps the last night of the Ministerial – in return for some symbolic or pyrrhic victory elsewhere in the WTO rule book. Symbolic rather than substantial because other countries have made clear they will not pay a high price for Indian acquiescence. India will turn inevitability into a victory of sorts. The rest of the membership – USA in particular – will be well advised to play the game and pretend that India has indeed chalked up some modest victory that the BJP can parade to its willing electorate on return to Delhi. The US in particular has limited credibility on this issue given the way in which it pulled the JSI Ecommerce Agreement as I described above.

But not just the US: India’s developing country allies – Africa in particular – will be equally well advised to keep some distance. How many times in the last thirty years has your correspondent seen India leading its acolytes to the edge of the WTO cliff only to brake sharply – and watch the rest of the Global South tumble lemming-like into the sea and rocks below?

All’s Well That Ends Well?

So, to quote T.S. Eliot, all will be well, and all manner of things will be well. But will they?  The political posturing on e-commerce that risks to dominate the Ministerial reflects a deeper malaise in the Organisation, whose members are still struggling to admit what is beneficial or inimical to development, and who through their antics risk making the WTO and other institutions irrelevant to the digital economy, the fifth industrial revolution. The multilateral trading system needs to embrace, innovate, control and frame the digital economy and not be shackled indefinitely to 19th century notions and models of commerce, unless it wishes to go the way of all flesh. And India and the USA need to break away from their twenty year old bilateral dance of death, one in which they find each other convenient but odd bedfellows. So it will be a most pyrrhic victory all round.

John A Clarke
John A Clarke
Former director of international relations, European Commission, and former head of the EU Delegation to the WTO and UN in Geneva