UK should worry if digital products become part of the global trade and tariff debate

Amid the global debate about trade tariffs, prompted by US president Donald Trump’s unorthodox economic policies, it’s little remarked that the digital economy is largely untouched by the international tariff regime.

In 1998 – the early days of the internet’s spread into our everyday lives – the World Trade Organisation (WTO) agreed that digital products would remain tariff-free. This is why we can download an e-book from Amazon anywhere in the world, even if the product sits in a US datacentre, without any punitive transfer charges being levied.

Twenty years later, the world is very different and much more interconnected. We’re on the cusp of a revolution in manufacturing as 3D printing becomes mainstream. But think of the implications on global trade.

Tariffs exist to protect local businesses. India, for example, will apply import duties to products from overseas to make locally manufactured items cheaper for consumers, thus supporting its own manufacturing base.

If, however, that product is instead a digital file that defines the item, which is downloaded from the internet onto a 3D printer in India, no tariffs would be applied. That’s an existential threat for many indigenous companies in any country that doesn’t have the extensive telecoms and digital infrastructure of more advanced economies.

And that’s why India and South Africa – supported by other developing countries – are calling for the WTO to review the status of digital goods. Their concerns are understandable – but inevitably the US, EU and China are in favour of the existing regime.

“At a time when we are already seeing challenges to the long-standing principle that lower tariffs are good for trade, competition and consumers, it would be deeply concerning if the international consensus on tariff-less digital trade were to come to an end,” says UK IT trade body TechUK.

Think also of the implications for the UK after Brexit. We’re one of the most digitally enabled economies in the world – the biggest online shoppers in Europe. The government has rightly identified the digital economy as an area where it hopes to expand its global influence outside the EU.

Imagine if many of the countries with which we hope to sign “ambitious trade deals” were to impose tariffs on our digital goods and services – the UK would be forced to reciprocate, potentially affecting many of the e-commerce services we use.

What if Donald Trump, in retaliation, imposed digital tariffs to protect Silicon Valley? The rest of the world would have to do the same for Netflix. It sounds like an absurd proposition, but is anything really that unlikely in a post-Brexit, Trumpian trade environment?

India and South Africa’s proposal will most likely be voted down by developed countries, but it’s an indication that the digital economy could become a future battleground in international trade relations. And for the UK, hoping to sell its digital expertise to the rest of the world, that would be a real concern.

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