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Don’t Let Tariffs Break the Internet

One of the main reasons why the digital economy has been able to grow so robustly over the past two decades is that parties to the World Trade Organization have agreed not to impose tariffs on cross-border data flows. But now, in a misguided attempt to recoup lost revenues, some governments want to fix a system that isn't broken.

PARIS – Most people have never heard of the World Trade Organization’s moratorium on customs duties on electronic transmissions. And yet it may be one of the most important trade deals in recent history, given the outsize effect it has had on the growth of the Internet.

The moratorium – which has been renewed by WTO member states every two years since 1998 – has enabled the digital economy to flourish by prohibiting governments from applying tariffs to international data flows. It has thus shielded the Internet from distortions induced by levies at national borders. As such, the online sphere has been a virtual utopia, the likes of which trade economists can only dream when it comes to real-world commerce.

But this paradise will soon be lost unless cool heads prevail. A handful of countries – most notably India, South Africa, and Sri Lanka – have signaled their intention to let the moratorium lapse at the end of this year. That would leave governments free to begin experimenting with unilateral tariffs on everything from software, e-books, and cloud services to the data underlying popular streaming services.

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