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Why the WTO moratorium on customs duties on electronic transmissions matters for startups

March 19, 2020

The World Trade Organisation (WTO) members passed a moratorium on customs duties on electronic transmissions in 1998. Over the years, the moratorium has ensured a flourishing and interconnected digital economy in which startups have been and remain the main characters.

The moratorium is usually renewed every 2 years at the WTO Ministerial Conference. Unfortunately, in December 2019 the moratorium was not renewed. Now national governments have the jurisdiction to impose taxes on data flows. For startups, permanently abolishing customs duties on electronic transmissions provide a clear commitment in their potential for growth. Customs duties on electronic transmissions, as well as impediments to the cross-border data flows, throw a wrench in the local and global innovation engine.

Startups think and operate global from day one. Today any entrepreneur can use one of hundreds of free platforms to set up, organise, manage and grow their business to sell across borders globally. For example: imagine an Indian food delivery platform that uses an Israeli platform to build its website, a US OS and a platform service in Europe to organise its team. Or imagine a South African AI startup which trains its algorithm with a dataset from Europe and sells its service across the world. The WTO moratorium allows for this to happen smoothly so that entrepreneurs can focus on what they are best at, building a product or service that improves people’s lives. 

Ending the moratorium would have negative effects on innovation and our global economy as well as on nascent local and national digital industries. The effect on startups, as small entities with unprecedented growth potential, would be worse even. Duties on electronic transmissions would disproportionately harm and slow down innovation, particularly in incipient digital economies. It would weigh heavier on startups and put their products and services at a competitive disadvantage. 

A permanent moratorium on customs duties on electronic transmissions is one important milestone that stands for a broader concept that is at the heart of technology entrepreneurs today – the seamless flow of bits and bytes between markets. What has been achieved with the free flow of non-personal data regulation in Europe can be a model globally. The certainty that entrepreneurs across the globe can leverage services from anywhere to build the moonshot projects that improve the lives of users all around the globe supports innovation in ecosystems of all stripes worldwide.