Africa’s participation in international processes related to the digital economy
Participation in the WTO Joint Statement Initiative on e-commerce
As the key policy player in modern global trade, the World Trade Organization (WTO) has established a system of agreements which provides the legal architecture for the liberalisation of international trade. At the WTO, discussions on e-commerce are taking place in two parallel tracks: the WTO Work Program on Electronic Commerce (WPEC), launched in 1998 with a non-negotiating and exploratory nature,1World Trade Organization [WTO]. (n.d.). Work programme on electronic commerce. and the Joint Statement Initiative (JSI) on e-commerce, which aims to produce a binding agreement among its members.2World Trade Organization [WTO]. (2019). Joint statement on electronic commerce. The JSI on e-commerce encompasses both traditional trade topics (e.g. trade facilitation) and several digital policy issues, such as cross-border data flows and data localisation, online consumer protection and privacy, and network neutrality.
Currently, the total number of WTO members formally participating in the e-commerce JSI negotiations is 87. They account for slightly more than half of all WTO members and 90% of global trade. With regards to the participation of developing countries, some regions remain notably underrepresented. There are six WTO members from Africa participating in JSI work (from a total of 43 African WTO members): Benin, Burkina Faso, Cameroon, Côte d’Ivoire, Kenya, Mauritius, and Nigeria. Africa is, in fact, among the least represented regions in JSI, together with the Caribbean.3World Trade Organization [WTO]. (n.d.). Joint Initiative on E-commerce.
Reasons for this limited participation of African countries are diverse. Countries argue, for instance, that the JSI’s plurilateral approach may undermine multilateralism and would prefer work on potential e-commerce rules to take place within the WTO’s overall multilateral processes. They are also concerned that the approach and the resulting rules may ignore their development interests, pose challenges to Africa’s integration agenda, and marginalise them and expose them to the risk of having to accept what others decide. Other concerns are related to the issues under discussion, African countries being in favour of having development topics – such as bridging the digital divide, developing digital infrastructure, and facilitating technology transfers – tackled more prominently. Because e-commerce policy frameworks and infrastructures are still under development across many countries, some governments feel they are not properly equipped to adequately participate in the discussions and defend their interests.4Tigere Pittet, F. (2022). African Participation in WTO E-Commerce Negotiations: Policy Positions and Development Issues. South African Institute of International Affairs, Policy Insights 131, June.
The JSI’s negotiating agenda is broad, encompassing issues such as spam, electronic signatures and authentication, consumer protection, and open government data. One of the issues considered key to achieving a high-level, meaningful agreement in the JSI is data flows. Nevertheless, this has been an issue in which obstacles are significant.
No developing countries had tabled text proposals on data flows until June 2021, when a proposal from Nigeria was introduced. Nigeria is now one of the few developing countries that have presented text proposals on data flows in the JSI. Most proposals so far have been made by developed countries (Table 16).
Table 16. Countries that have made text proposals on cross-border data flows and location of computer facilities in the JSI e-commerce.
The proposal from Nigeria introduces a special and differentiated treatment to developing countries and least developed countries (LDCs), which would allow them to adopt any measures regulating cross-border data flows that the country considers appropriate. Some important points make Nigeria’s proposal unique.
First, no specific exception on cross-border data flows aiming to benefit developing countries and LDCs had been introduced before in the context of the JSI. Second, the proposal goes beyond the main policy justifications that usually motivate exceptions to free data flows – legitimate public policy objectives, privacy, security – by allowing developing countries and LDCs to adopt any measures they consider necessary. Finally, the proposal innovates by introducing a self-judging exception5In the context of self-judging clauses, states retain their right to escape or derogate from an international obligation based on unilateral considerations and based on their subjective appreciation of whether to make use of and invoke the clause vis-à-vis other states or international organisations. to free data flows, which is not common in the context of data flows provisions.
Côte d’Ivoire has advanced two proposals seeking to enhance cooperation within the field of e-commerce among members of the JSI. The proposals call for concrete commitments from developed members, as well as developing countries with the capacity, to provide the assistance and technical support developing countries need to be able to engage in the negotiations, implement the forthcoming agreement, and bridge their digital divide. It is important to recognise that due to their limited capacities, developing countries and LDCs make fewer submissions than developed and more advanced developing economies. They would greatly benefit from drafting support in JSI negotiations to crystallise, articulate, and present their interests and concerns on the issues being negotiated, bringing more balance to the negotiations and a more balanced outcome.6Ismail, Y. (2022). Cooperation, capacity building, and implementation considerations of developing countries in the E-commerce Joint Statement Initiative: Status and the way forward.
OECD tax rules
In October 2021, 136 jurisdictions approved a set of new global corporate tax rules, developed under the umbrella of the Organisation for Economic Co-operation and Development (OECD). The so-called Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from Digitalisation of the Economy with a Detailed Implementation Plan7Organisation for Economic Co-operation and Development [OECD]. (2021). Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from Digitalisation of the Economy with a Detailed Implementation Plan. covers two tracks/pillars:
- Pillar One will ensure that profits from companies generating more than €20 billion in revenues are distributed more fairly among countries entitled to tax them.
- Pillar Two will ensure healthier tax competition among countries by capping the minimum corporate tax rate at 15%.
As of November 2021, 25 African countries had joined the agreement (Figure 45).8Organisation for Economic Co-operation and Development [OECD]. (2021). Members of the OECD/G20 Inclusive Framework on BEPS joining the October 2021 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy as of 4 November 2021. Standing out among those not joining are Kenya and Nigeria. They have decided not to support the agreement, although they are part (together with the other 25 African countries) of the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing (BEPS). Under this framework, 141 countries and jurisdictions had agreed to implement several actions to tackle tax avoidance, improve the coherence of international tax rules, ensure a more transparent tax environment, and address tax challenges arising from the digitalisation of the economy.9Organisation for Economic Co-operation and Development [OECD]. (n.d.) International collaboration to end tax avoidance.
Figure 45. Members of the OECD/G20 Inclusive Framework on BEPS that joined and did not join the October 2021 statement.
With less than half of Africa supporting the new taxation rules, questions arise as to why this is the case. One reason is related to countries being concerned that, by joining the agreement, they might give up part of their sovereignty on taxation issues. The agreement includes a mandatory and binding arbitration mechanism for dispute resolution, whose applicability may mean that ‘taxing countries lose their sovereignty by having tax issues resolved in the home countries of the corporations’.10Mureithi, C. (2021, November 9). Why Kenya and Nigeria haven’t agreed to a historic global corporate tax deal. Quartz Africa. Then, several countries across the continent have or are planning their own digital service tax, but the OECD agreement would have them drop such national, unilateral measures.11Ehl, D. (2021, October 29). Why African nationals doubt OECD tax plan. DW.
As Kenya’s revenue authority explained, the deal only covers certain multinationals, whereas national taxes typically apply to a broader range of companies. In Kenya alone, 11 companies would fit the OECD requirements, whereas the country’s DST applies to over 80 companies.12Mureithi, C. (2021, November 9). Why Kenya and Nigeria haven’t agreed to a historic global corporate tax deal. Quartz Africa. Dropping national taxes in favour of the OECD deal would therefore mean that countries agree to lower the amounts they collect from taxes. There is also an overall concern that the agreement tends to favour developed countries.
Discontent with the OECD deal is leading to calls for discussions on tax reforms to happen within the UN framework. In 2021, Guinea – on behalf of G-77 (which includes all African UN member states) and China – put forward a draft resolution at the UN General Assembly on combating illicit financial flows. Adopted by the Assembly in December 2021, the resolution takes note of the OECD framework, but also ‘recognises the importance of the consideration of international tax issues at the United Nations’. It also calls on all countries ‘to work together to eliminate base erosion and profit shifting and to ensure that all companies, including multinationals, pay taxes to the governments of countries where economic activity occurs and value is created, in accordance with national and international laws and policies’.13United Nations General Assembly [UNGA]. (2021). Resolution A/RES/76/196: Promotion of International Cooperation to Combat Illicit Financial Flows and Strengthen Good Practices on Assets Return to Foster Sustainable Development.