Would a digital border tax slow down adoption of 3D printing?

The global revenues from the 3D printing (3DP) have been rapidly increasing by almost 30% a year. And it is happening from over the previous 30 years, but still they contributed less than 0.1% of global manufacturing revenues in 2018.

Till now, the higher units take more cost of manufacturing and longer production times than traditionally volume-manufactured goods, which have set the decrease in 3DP global adoption rates. This has been the case despite the fact that there is no any type of customs duties are applied to 3DP files crossing borders. But what could change if such duties became the norm?

3D printing, also known as additive manufacturing, is sometimes used to produce custom-made objects, such as dental aligners, hearing aids and shoe midsoles; or objects that have seems to have a tough or impossible forms. We naturally tend to focus on the actual physical printing. Behind the scenes, however, computer-aided designs (CAD) are the main part of any 3D printing. These are the digital files which carry all the critical information which will be required to print the object.

In this world, which have now become a globalized world, sometimes digital files often cross borders, then they are considered as “electronic transmissions”. Thus, they fall under the scope of a so called “moratorium” on duties on electronic transmissions under the World Trade Organization (WTO) framework, regardless of whether they are considered goods or services.

The moratorium came into existence in 1998. At that time all the members of WTO agreed on the concept that they will not impose customs duties on electronic transmissions for two years. Since then, it has been rolled-over at every Ministerial Conference of the WTO without much controversy, until recently.

The world we are living in have now become more technology based. As the goods and services have become more and more digital, such as e-books, streaming videos and online education. They are now traded across the borders, some countries started to argue in favour of making it permanent, to facilitate more digital and offline trade; while others want to lift it to increase customs revenues, amongst other reasons.

In December of 2019, the member of WTO had extended it again through to June 2020. On this time the next meeting will be held when the senior trade meeting will take place in Nur Sultan, Kazakhstan. At the Organisation for Economic Cooperation and Development (OECD), discussions are ongoing on international corporate taxation in the context of the digital economy. This is a very different topic if we compare it with tariffs paid at the border, on physical or virtual products.

What would keeping the moratorium mean for 3DP?

Putting a hold on digital duties would most likely begin to promote the 3DP. There will be an increase in its adoption due to it’s lower trade friction costs. This might also encourage innovation, as CAD files could be created collaboratively across the borders, for instance using a cloud-based solution. It could also contribute to levelling the playing field among countries for 3DP adoption. There will be no customs duties which may influence some firms on how to distribute their value chains around the globe.

Would digital duties slow down 3DP?

There is certainly a chance that it might happen. Moreover, as 3DP becomes integrated into the existing manufacturing processes, firms will begin to consider the fact or we should say they will search around and will find which countries tax e-transmissions. Then they are going to operate from that country just to save taxes which will eventually going to increase their profit. Thus, digital duties will not just affect 3DP adoption as a niche area, but will also have wider implications in a broader spectrum of industries and in trade.

How would countries impose digital duty for 3DP?

Applying customs duties on 3DP files will aslo require the same level of control over digital trade as we have on physical trade. Technological capabilities are likely to be needed to track down the digital flows, and their availability will differ as we go through across the countries. The cost of acquiring these capabilities will vary country by country and the actual enforcement of customs duties on e-transmissions may also vary, while in some cases it may bea bit high. This is key in order not to enlarge the “digital divide” from yet another perspective.

What other options are available?

VAT or sales tax will be a better option than custom duties. Applying VAT or sales tax will be easy and widely acceptable as it is well known in almost every single country. Some countries, such as Australia, Switzerland, India and the European Union, have taken this direction with the goal of achieving equity in consumption tax between domestic and foreign actors in digital trade transactions of goods and services.

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