Aging Tax, Tariff, and Trade Agreements
The economies of scale model needed different trade agreements. Such trade agreements is biased in favor of powerful and wealthy nations. But, today the business model of the big technology companies has made the authors of such trade agreements powerless. — Alok Singh
The trade agreements are primarily to simplify the process of tax and tariff among the trading nations. The simplest trade agreement is a bilateral trade agreement that can be executed, discussed, and negotiated between two nations for doing trade of a particular product or services for a specific period of time. It’s the most flexible trade agreement. The trade agreement is a necessity. Without it, no trade can happen between two different nations. The formats of trade agreements are many. It can be bilateral, plurilateral, multilateral, regional, or universal. World Trade organization aspired to be universal trade agreements. Unfortunately, it wished to homogenize the heterogeneous entity. The attempt failed, the reasons are many and different for different members of the WTO community.
The first culprit of encouraging the multilateral trade agreement is the economies of scale business model. This model requires a high volume of production or delivery of services so that the fixed cost is spread over many units. It means that the high volume of delivery of products and services will reduce the overall operating cost and so the end-user can pay a cheaper price for the product or service. This model feeds on vast and expanding markets. Economies of Scale model is an important factor to give birth to multilateral trade agreements. The foundation of the multilateral trade agreement was shaky so such trade agreements were bound to fail and WTO is the living example of its failure. It had hardly a shelf life of twenty years and today no one care for WTO. It has become an ornamental trade agreement
The reason for the failure of the multilateral trade agreements is many. The changing demographics, the changed geopolitics, the change in taste of consumers, the job impact, and the list goes on. The government has the tools to address it. The regular interval ministerial-level conferences of the World Trade Organization are one such platform to formulate rules and policies to address newer issues.
If we look at China it is blindly looking for one after the other trade agreements. There are trade agreements like Trans-Pacific Partnership (TPP) which was signed by around a dozen countries but could never be practically executed for trade purposes. The shelf-life of TPP is least for practical purposes. It is zero days, no business was implemented through this channel.
The relevance of trade agreements seems shaky. Something new has arrived, which do not cares for trade agreements. This something new is nothing but the arrival of big technology companies.
The big technology companies have forced the governments of the world to look for new trade policies. The trade regulators are simply unable to do anything to monitor the revenue generated out of the businesses of the big technology companies. The technology companies are smarter than the trade regulators. The trade regulations and agreements are of the Stone Age for thesebig technology companies.
The trade agreements related to e-commerce and its various types of platforms demand the regulators and the governments to rewrite the trade rules and the tax and tariff rules. In fact, rewriting and rebooting tax and tariff rules seems insufficient. The big technology companies are challenging the tax and tariff professions to research the new language, develop the new framework to match their steps. It’s a challenge thrown by the technology companies to the governments of the world. A social media company recently dared successfully to dismiss the account of the sitting president of the most powerful country in the world. The existing laws were helpless.
Today the big technology companies who are engaged in online selling are not engaged in social media business and the big technology companies who are engaged in the social media business are not engaged in selling business. Today the e-commerce companies who are engaged in the taxi business are not engaged in the food business, those in the food business are not engaged in the ticket booking business, and even within the ticket booking business, and so on. Even the e-commerce companies are identified as travel booking or movie theatre booking companies separately. The business model seems simple. One e-commerce, one identity and doing one business.
Can we dare to think about what these big technology can innovate in the future? If we think about the scope of the future business model of these technology companies then it seems difficult to guess.
Can we think of a big technology company that is in the social media business and suddenly offers its users the business of a payment bank or the business of an e-commerce platform?
The biggest social media company might be working on it and suddenly one day they will start something like a - big billion day, unmatchable discount, the service of the taxi, air tickets, train tickets, education, banking, and might be motivated by cryptocurrency to come up with their own currency. The situation seems imaginary but on a serious note, it’s not impossible.
It is possible for the social media technology company to do all these, as they have captured more raw data than any other technology company. The source of revenue of social media companies is an advertisement. If more people are using a particular social media, more advertisement, and more revenue it earns. The bigger the social media, the bigger e-commerce sellers it can be, the bigger cryptocurrency service provider it can be, the bigger food delivery service provider it can be, the bigger taxi service provider it can be, the bigger education service provider it can be, and “you name it they have it” service provider it can be. The biggest manipulator of though, food, education, consumption, culture, tradition- it can be. They can control everything.
The situation is dreadful, the big technology companies had announced without announcing that they aspire to be powerful than the democratically elected leaders. The citizens can elect a new leader and replace the earlier one, they get a chance after four or five years to participate in elections to do so. If the policymakers don’t wake up and wake up soon then the big technology companies are aiming to be invincible. It’s already delayed. The deficit in tax revenue collection of the governments of the world is proxy proof of it.
The democratically elected leaders are effectively powerless in front of these big technology companies. The big technology is beating the polity. The economies of scale model needed different trade agreements. Such trade agreements is biased in favor of powerful and wealthy nations. But, today the business model of the big technology companies has made the authors of such trade agreements powerless. The tax, tariff, and newer trade agreements are an urgent necessity to save democracy. qq
(Alok Singh is a Fellow of the Indian Institute of Management Indore and currently is faculty of general management at NICMAR, Delhi-NCR Campus.)