In a step that harks back to 20 years ago when the European Union was called the Common Market, and it was constantly battling with net importers to Europe to get some kind of quid pro quo , the EU is planning to tax mobile TV and GPS handsets.
It’s a knee jerk ‘dumping duty’ approach to international commerce, which may well be outside of the guidelines of the World Trade Organization, and which is a case of shooting industry right in the foot just as it needs to be as nimble as it can, in the teeth of the recession. WTO has been dragged into the debate already by the launching of various legal actions.
Back in the 1980s the EU was fond of propping up domestic industries which were globally uncompetitive, and indiscriminately forced multinational conglomerates into categories of ‘good European’ ‘bad European’, based on their trading and employment behavior locally.
One thing that swept much of that old world angst aside was the introduction 12 years ago of the Information Technology Agreement through the WTO, which meant that everyone could import technology, with a zero import tax, pretty much anywhere in the world.
The problem is in the wording of that agreement and we first came across this idea in June, when the European Commission began to debate tariffs on set top boxes. The agreement seems to suggest that a device which carries out more than one task and can be described as multi-function, should revert back to a default 14% import tax rate.
The current EU administration led by Jose Barroso, an ex Prime Minister of Portugal, has consistently pushed for more import duties, reclassifying LCD monitors, set-top boxes with hard drives, as well as multifunctional output devices, such printers which are also copiers, and placing them outside the ITA agreement.
This has already led to Hewlett-Packard taking its grievances to the European Court of Justice in Luxembourg which recently concluded that a multi-function machine should be taxed based on a device which has a ‘main’ function, but this has not fully resolved the case and LCD screens are next on the list and now there is a move to add smart phones, especially those with can receive TV or use a GPS signal. No one is quite sure if this same ruling might be used to create an import duty on phones with cameras or which can also browse the internet, but given that this is a separate function anything is possible.
A decision is being considered now on mobile phones, brought into question through decisions made by customs offices in both Germany and Netherlands which have begun imposing the tax, with the European Commission trying to decide if they are right or not to do so, in which case all 27 member countries will have to follow suit. The decision will be handed down early next year. If the decision is in favor of the new tax, it will almost certainly be blocked internally because other ministries, such as Viviane Reding, the European Commissioner Information Society and Media, have been trying to get mobile TV accepted in Europe, pushing the DVB-H technology as a standard. She won’t want it priced off the market.
In the past, when the PC has taken on more and more functions, none of the European states have create in import tax, though Germany and the Netherlands are both among countries which have imposed a ‘levy’ on the hard drive in PCs based on compensating copyright holders for media which might be stored on it.
The European Information & Communications Technology Industry Association this week issued a statement calling for the European Commission to honor the ITA agreement, saying that only by doing so could they protect the 6 million jobs and 10,000 companies which build communications technology and consumer electronics in Europe. Far from wanting an advantage by having imported goods made more expensive, these companies rely on Chinese made components and are also frightened of reprisals in other countries.
The move would overnight increase prices on cellphones, putting more downward pressure on sales, and slowing new services uptake in Europe (many new services rely on GPS components) and slow handset transitions to newer devices. We would expect cellular operators like Vodafone and Telefonica, as well as handset makers such as Nokia, to put their lobby weight behind crushing this new tax.