Home Latin America II 2000 E-Commerce and the WTO

E-Commerce and the WTO

by david.nunes
Lee TuthillIssue:Latin America II 2000
Article no.:14
Topic:E-Commerce and the WTO
Author:Lee Tuthill
Title:Trade in Services Division
Organisation:World Trade Organisation Secretariat
PDF size:24KB

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Article abstract

Adherents to the multilateral trading system have toiled for decades to dismantle a vast array of traditional barriers to trade – first tariff and non-tariff barriers to trade in goods and more recently impediments to trade in services. Then along comes e-Commerce, a totally new way of doing business in all its traditional and not so traditional forms. It is a phenomenon that might be described as an unprecedented opportunity for the World Trade Organisation (WTO).

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Why? On the one hand, the WTO is about engagements to progressively reduce and eliminate formal barriers to trade, minimizing trade-restrictive effects of domestic regulation, and striving for a fair and least-restrictive approach to meeting broader public policy objectives. On the other hand, the Internet and much of e-Commerce have been relatively barrier-free and self-regulating from their inception. Moreover, e-Commerce is not easily amenable to many traditional trade and regulatory controls. Likewise, it holds out such impressive potential that it has given governments reason to stop and reflect about economic and policy priorities, rather than to reflexively superimpose traditional regulation or to constrain it at their borders. “Governments appear willing to consider ways to facilitate participation in the digital economy and society by their own nationals, rather than erect protectionist barriers.” To tap the potential of e-Commerce, many governments realise that they must be willing to capitalise on this congruence between WTO ideals and e-Commerce potential. They are considering whether to relax or relinquish many forms of traditional controls. They may seek to avoid all but the most critical regulatory interventions in relation, for example, to the abuse of privacy or consumer safety. Indeed, many Governments appear willing to consider ways to facilitate participation in the digital economy and society by their own nationals, rather than erect protectionist barriers. Many observers believe this approach will be especially important for developing countries, precisely because their nationals and businesses already face a host of other disadvantages with which to contend in efforts to benefit more fully from global trade and narrow the so-called digital divide. Progress reports of the various WTO bodies involved in its work programme on electronic commerce begun in May 1998, were submitted to Ministers at Seattle. In sum, they illustrated that many WTO Members felt that various aspects of e-Commerce are already addressed by existing provisions of WTO agreements such as the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and the Agreement on Trade-Related Intellectual Property Rights (TRIPS). It was also pointed out that e-Commerce can benefit from several other of the nearly 30 agreements overseen by the WTO – for example, those relating to import licensing, technical standards, government procurement, and so on. However, at a greater level of detail and on some finer points of interpretation, there remain outstanding questions to consider. Yet, the WTO work thus far on e-Commerce has already proven valuable and instructive. It has helped raise awareness about the idea that, rather than operating in a legal vacuum “e-Trade” can already count on the benefit of a foundation of legally binding multilateral principles offered by WTO agreements. Moreover, it has highlighted the importance of WTO agreements not only to e-Commerce itself, but also for the facilitation of e-Commerce. Hence, an added emphasis has been placed on the results of both the Information Technology Agreement on tariff reductions on IT equipment under the GATT and the agreement on basic telecommunication services under the GATS on introducing market forces in the sector. What are the issues? Of the many issues that have arisen in the WTO work programme, particularly in relation to trade in services which constitute the bulk of e-Commer-ce, four deserve a special mention. These are market access, domestic regulation, exemptions for broader public policy objectives, and customs duties on electronic products or transmissions. Market Access… Each WTO Member government submits its market opening engagements under the GATS in a legally binding document called a schedule of commitments. As a result of evaluating national priorities and the dynamic of WTO negotiations, Members decide whether they are ready to commit in a particular service and, if so, determine whether to commit in all modes of supply (cross border, consumption abroad, commercial presence, and presence of natural persons). Finally, if they will maintain some limitations on market entry, these must be clearly stated in the schedule. During a trade round, Members negotiate to remove or reduce limitations and to place additional services in the schedules. This is the process by which the GATS advances the “progressive liberalisation” of services trade. To what extent do the schedules reflect commitments to allow open and non-discriminatory trade in electronic forms? A convenient indicator, though not the only one, is the extent of commitments on cross-border supply. At present, between 70 to 90 percent of industrialised countries have committed to barrier-free access to their markets for cross border supply in three broad sectors of services activity. These are computer services, tourism, and certain business and professional services (advertising, architecture, engineering, management consulting and market research). With regard to developing economies the sectors concerned are the same. Twenty five percent list no barriers to cross-border market access for tourism services, between 10 to 13 percent list no such barriers for computer services, and 6 to 7 percent offer free cross-border access for architecture, accounting, engineering and management consulting. For both developed and developing economies, commitments on cross-border access are more commonly subject to limitations, or not yet undertaken at all, for many other service sectors. This record demonstrates conspicuous gaps in a number of respects. Even the “leaders” that are forging ahead in e-Commerce, e.g. computer services, financial services, tourism, and other information services, could fare better in commitments. Also, open markets for a wider spectrum of business and professional services could greatly enhance the chances for individuals and small and medium-sized firms to benefit from e-Commerce. Notably, important social services, such as health, education and significant e-Commerce conduits such as wholesale and retail distribution services are hardly in the commitments at all, much less in their promising on-line alternatives. As for other GATS modes of supply, the role of commercial presence and movement of persons should not be neglected. They form part of the overall picture of how e-commerce will function in national economies and trade. Even in the digital age, firms are finding that person to person contact and local presence remain not only desirable in themselves but also to be indispensable complements to cross border e-Commerce. Domestic Regulation WTO consideration of regulatory issues may only begin in earnest during the course of next year. But it is already apparent that some traditional approaches to licensing, technical standards, and qualification requirements may not be easily adapted to the facilitation of e-commerce. For example, qualification and certification requirements often rule out non-resident professional service suppliers or if they do not, accommodating mutual recognition mechanisms may not be in place. Also, in some sectors licensing of non-resident and sometimes also resident service suppliers to provide their services on-line can be complex and uncertain. As a follow-on to work on disciplines for accountancy services, WTO Members recently formed a GATS Working Party on Domestic Regulation. Its mandate is to consider cross-sectoral disciplines to ensure that domestic regulations do not unnecessarily restrict trade in services. Perhaps the timing of the new effort is propitious. Having been initiated after the WTO began reflecting on e-Commerce, the Working Party could ensure that any new disciplines are framed at the outset as pertinent to all means of delivery. WTO Members have also asked themselves whether regulatory obligations such as the GATS Annex on Telecommunications and the scheduled commitments of the basic telecom Reference Paper are adequate for the e-Commerce environment. Generally, the Annex and the Reference Paper call for fair and reasonable behaviour on the part of public operators and dominant providers vis-à-vis access to basic communications networks and services that form the digital highways for e-Commerce. Certainly, many competing Internet access providers and on-line providers of all kinds of services may benefit from these disciplines. But some observers wonder if such disciplines would, or should, also apply to access to Internet services. Customs Duties Here, it is first useful to point out that WTO is not at this point considering issues related to internal, or domestic, taxes such as VAT or sales taxes. But with respect to customs or import duties, not only differences of view but also uncertainties about national positions characterise WTO discussions at the moment. Such differences mainly concern what is estimated to account for less than one percent of total world trade – trade in products, such as music, software or books, which may now be delivered in either electronic or physical form. When crossing national borders in physical packages these have been subject to GATT and its disciplines on tariff levels, but when delivered in digital form some governments believe they inherently represent services, and thus shift into the realm of the GATS rules. A certain degree of the tension on this issue is undeniably linked to this crossover capacity or fungibility of such intellectual products. For some countries, it has drawn attention to perhaps unforeseen results of contrasts between the basic structures of the GATT and the GATS. For others, particularly developing countries, it has led to worry about potential loss of customs revenue as some of such products move on line. At present, the GATS does not explicitly allow or disallow the imposition of customs duties on services trade. Rather, the GATS does not mention customs duties at all. Yet, if applied to services of any kind, customs duties would certainly represent “measures affecting trade in services” and, hence, fall within the ambit of the services agreement. The New Round of Trade Negotiations The WTO has really only just begun what may be longstanding work on e-Commerce trade issues that ultimately will become a fully integral part of everything the WTO does. Nevertheless, one of the results of the WTO work thus far, and of dialogue pursued in organisations such as OECD, WIPO, Unctad and many others, is that governments will be well aware – as they enter the next round of WTO sponsored multilateral trade negotiations – of the role of e-Commerce in the liberalisation of goods and services trade, i.e. that it will be intrinsic to the negotiations. The practical results of this greater awareness are not yet manifest, but one would certainly hope there are grounds to be optimistic. Some observers have said that e-Commerce has the potential to be a “great leveller” – to help developing countries advance economic development at an unprecedented pace. This potential should not be underestimated. And the WTO principle of non-discrimination (most favoured nation treatment) – as simple as it may seem – can be greatly instrumental in this regard. Conclusion Technology does not discriminate. And it is simply becoming less and less expensive to acquire and adopt. If technology-driven market developments witnessed recently in telecommunications are any indication, the trend is unmistakable. Increasingly wide-spread access to new technologies could well mean that predictions of a persistent information gap in coming years may severely underestimate the aspirations and resourcefulness of business and consumers around the world – particularly if their governments can provide a conducive environment. While there may be uncertainties and challenges, taking an overly cynical view at this point of who will be the “winners” and “losers” in e-Commerce is probably entirely premature.

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