III:Implications of "duty-free cyberspace" for customs revenue

III. Implications of "duty-free cyberspace" for customs revenue

What are the fiscal implications if international trade in digitizable products currently classified as goods shifts to the Internet, and if no tariffs are levied on such products? We have estimated the tariff revenue countries collect from these products. Table 3 provides our best estimate of the weighted average tariff rates applied to digitizable products currently traded as goods, the import values for these products, and the estimated tariff revenue for various countries. The estimates take into account duty-free treatment of intra-EU, intra-NAFTA and Australia-New Zealand trade, and the reduced rates for intra-MERCOSUR trade. However, they are still likely to overestimate tariff revenue as they do not take into account other tariff reductions or exemptions.

Table 3 indicates that the average applied tariff is below 10 per cent in most countries. Of the countries included in the table, only Thailand, Morocco, Korea and India apply tariff rates above 20 per cent. Total estimated tariff revenue, therefore, adds up to only about US$ 850 million for the world as a whole. The EU, China and Korea are estimated to collect half of the total. No other country collects more than US$ 100 million, and many below US$ 10 million.

Data reported in Table 4 puts these figures into perspective by comparing them with total tariff and total fiscal revenue in these countries. On average, tariff revenue on digitizable products amounts to less than 1 per cent of total tariff revenue and 0.03 per cent of total fiscal revenue. Only China and Hungary are estimated to collect more than 10 per cent of tariff revenue from these products, and not a single country collects more than 1 per cent of its total revenue from this source.

This is an important finding regarding the future customs tariff regime for electronically transmitted products (independent of any classification issues which will be discussed later). Some WTO Members have voiced concern about the customs revenue implications of tariff-free cyberspace. We can now conclude that even if all delivery of digitizable media products moved online – an unlikely prospect – the revenue loss would be minimal except for china and Hungary. India, for example, would lose 0.4 per cent of tariff revenue and 0.1 per cent of total revenue. For Chile, the respective figures would be 0.4 per cent and 0.04 per cent and for Morocco, 1.3 per cent and 0.2 per cent. Even if the trade share of such products doubled in the next few years, the revenue loss from "duty-free cyberspace" would be a very small share of total government revenue. We can therefore conclude that there is only a very limited scope for revenue loss arising from a shift towards electronic delivery of products containing digitizable information that previously were delivered via physical carrier media. This says nothing, however, about the revenue implications of "duty-free cyberspace" per se.