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 -Published: Monday, December 9, 2019- Digital products
about to lose tariff-free status
By the A.M. Costa Rica staff
At the end of the year, the moratorium on digital trade that the world's nations have imposed on themselves expires. The moratorium went into effect in 1999, and digital trade has become more extensive and more complex than anyone thought at the time. The purpose of the temporary measure was to bar nations from imposing tariffs on these transmissions. The concept is so murky that there really isn't a good definition of digital trade. In the new trade agreement, the United States, Canada and México define digital products as computer programs, text, video, image, sound records of other product that is digitally encoded, produced for commercial sale or distribution, and that can be transmitted electronically. But that definition may not be as inclusive as it should be. Costa Rica is a center for many call and financial data centers that handle international traffic. These would be vulnerable to tariffs imposed by foreign countries. In addition, Costa Ricans import large amounts of data, including movies, music and computer programs. A computer program from a foreign source is not subject to immediate import duties, but the same program mailed in disk format is. Costa Rica already is taking steps to apply its new value-added tax to digital products and services, but this is hard to do. At best residents are on their honor to report the purchase of digital products and pay the appropriate tax. The International Chamber of Commerce strongly opposes tariffs on digital products and has called on World Trade Organization members to permanently prohibit import duties on electronic transmissions. John W.H. Denton, the organization's secretary general said in a recent statement: “The possible expiry of the moratorium on customs duties on electronic transmissions looms like an iceberg in the already treacherous waters of international trade. The potential disruptions caused by the imposition of tariffs on data could far outweigh any impacts we’ve seen from recent protectionist escalations. It is vital that governments address this issue with the urgency and attention it requires.” Organisation for Economic Co-operation and Development is conducting extensive studies to identify and determine the amount of digital trade. This is the organization of major nations that Costa Rica seeks to join. The organization grew out of the 1948 Marshall Fund to rebuild Europe after World War II, and it generally supports taxation of cross-border sales. It once blacklisted Costa Rica for weak oversight of financial transactions. The organization also has pointed out the difficulties in actually defining digital trade. It noted as an example that an article produced by 3D printing may cross a border as a design service, but becomes a good at the moment of its consumption. Together, these issues pose new challenges for the way international trade and investment policy is made, it added. The international chamber said that at least three countries already are taking actions that could lead to imposing tariffs on software and other digital goods. It said that Indonesia was one such country. Other sources have suggested that India may do likewise because it is a net importer of digital products. A tariff is seen as a way to protect its own digital industries. The moratorium was last renewed at a World Trade Organization ministerial conference in 2017. The next meeting of the organization's top-level body is in June in Kazakhstan. Renewal of the moratorium would require approval of all 164 nation members. -------------------- Should countries tax digital products? We would like to know your thoughts on this story. Send your comments to news@amcostarica.com |
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