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Background Note

August 1999

Electronic Commerce within the Framework of the WTO:
Implications for the Less Advantaged Countries

Introduction of electronic commerce into the WTO

Definition of electronic commerce within the framework of WTO

The General Agreement on Trade in Services (GATS)

The General Agreement on Tariffs and Trade (GATT 1994)

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

The Agreement on Government Procurement

Facilitation of Commerce

The Position of the Developing /Less-Advantaged Countries

Overview of the Principal Propositions of WTO Members in the Sphere of Electronic Commerce


I. Introduction of electronic commerce into the WTO

1. At the time of the Uruguay Round, the theme of electronic commerce was just emerging; it was too new to be put on the multilateral trade negotiations agenda. Issues directly related to electronic commerce first appeared at the first WTO Conference, held in Singapore in 1996, where the Ministerial Declaration on Trade in Information Technology was adopted. This declaration, also known as Information Technology Agreement (ITA), provides for the liberalisation of international trade with regard to a number of products essential for electronic commerce by the year 2000.

2. A Declaration on Global Electronic Commerce was adopted at the second WTO Ministerial Conference, held in Geneva in 1998. Two major points of the Declaration should be pointed out. First, the Ministers undertake the commitment to continue the current practice of not imposing customs duties on electronic transmissions. And second, the General Council is mandated to establish a comprehensive Work Programme involving the relevant WTO bodies whose activity is bound to be affected by the development of electronic commerce.

3. The Electronic Commerce Work Programme was adopted by the General Council on 25 September 1998. Giving a brief definition of the term "electronic commerce" (note 1), the General Council mandates four relevant WTO bodies to analyse the issues implied: the Council for Trade in Services, the Council for Trade in Goods, the Council for TRIPS and the Committee for Trade and Development. Furthermore, the General Council stipulates the specific issues to be examined by each of these bodies respectively. By July 1999, every one of them had submitted the conclusions of their respective discussions to the General Council.

II. Definition of electronic commerce within the framework of WTO

4. Defining the products of electronic commerce constitutes a central issue, which should be resolved prior to any debate on electronic commerce within the framework of the WTO. In fact, neither the term goods, nor the term service is strictly defined in multilateral commercial agreements. Furthermore, the distinction between goods and services was fairly evident up to now. It is no longer the case with regard to certain products of electronic commerce. From a legal point of view, however, the application of the regulations of the GATT Agreement or those of the General Agreement in Trade in Services (GATS) depends on the definition of the products of electronic commerce.

5. From a physical point of view, electronic commerce transactions take the form of a sequence of 1s and 0s. From here stems the following question: if, for example, an electronic message crosses a state frontier (regardless of its content), should it be treated as a physical entity passing from one country to another similar to a merchandise? Although this issue has not yet been resolved within the framework of the WTO, it has given a lot of food for thought. In this connection, a clear distinction should also be made between different products that one could buy or sell through the Internet. Tangible products, such as clothes, computers, flowers, etc. cannot be delivered through the Internet. They could, however, be ordered and payed for by way of the World Wide Web. In these conditions, and in international trade, these products could, without doubt, be considered as merchandise and subjected to GATT regulations. This also applies to certain services which require that at least one party to the transaction travels for its implementation. On the other hand, there is now a series of goods and services which could be digitized, i.e. reduced to a sequence of 1s and 0s. In this case, the commercial transaction, including the delivery of the product, could be fully done via the Internet. It is this specific example of goods and services which brings up the principal questions of the compatibility of the legal structure of the WTO with regard to the international nature of electronic commerce.

6. The case of computer software clearly illustrates this problem. Up to now, software could only be bought in the form of a diskette or a CD-ROM. If the software came from abroad, a tangible object (merchandise) on which the programmes were recorded, crossed the border frontier. Today, Internet provides for the downloading of software directly from one computer to another. The only elements which now cross borders are the bytes, i.e. sequences of 1s and of 0s. On what grounds, then, a CD-ROM containing a computer programme would be liable for customs duties, while this same computer programme downloaded from the Internet would not? The same goes for certain services which could today be digitised, and then sold via the Internet. Legal counselling, medical and accounting services are worth mentioning.

III. The General Agreement on Trade in Services (GATS)

7. Numerous electronic commerce transactions have already been covered by the GATS. Emphasis should be laid on the digitised services supplied via the Internet in the field of entertainment, financial counselling, telecommunication, etc.

8. Out of the four modes of delivery defined by the GATS, electronic commerce is linked especially to mode 1 (cross-border supply) and mode 2 (consumption abroad). Furthermore, it is evident that the development of electronic commerce will increasingly bring the "cross-border supply" mode to the fore among the other kinds of services. In the long run, it could lead some commercial enterprises to lose interest in having commercial presence abroad, resulting in a drop in foreign direct investment in certain countries.

9. Generally speaking, several of the GATS Articles are potentially affected by the progress of electronic commerce, a fact that will require WTO Members to take a stand on this issue. The following Articles should be noted in particular:

  • Article I (Scope and Definition);

  • Article II (Most-Favoured-Nation Treatment, MFN);

  • Article III (Transparency);

  • Article IV (Increasing Participation of Developing Countries);

  • Article VI and VII (Domestic Regulation and Recognition);

  • Articles VIII and IX (Monopolies and Exclusive Service Suppliers and Business practices);

  • Article XIV (General Exceptions for privacy, public morals, protection of human animal or plant life or health, and the prevention of fraud);

  • Article XVI (Market-access Commitments on electronic supply of services);

  • Article XVII (National Treatment);

  • Annex on Telecommunications;

  • Annex on Negotiations on Basic Telecommunications.

10. With reference to electronic commerce development, it should also be pointed out that the conclusion of negotiations on basic telecommunications has actually paved the way to building-up the physical infrastructure indispensable for the expansion of electronic commerce. In this connection, The Agreement on Basic Telecommunications and the Annex on Telecommunications could serve as ideal foundations where the subjects linked to electronic commerce could be integrated. The questions related to effective means of providing Internet services should be given priority.

IV. The General Agreement on Tariffs and Trade (GATT 1994)

11. As in the case of the GATS, the GATT Agreement could also be potentially affected in significant ways by the development of electronic commerce. The main issues at stake are the following:

  • Market access for products related to electronic commerce (Information Technology Agreement);

  • Issues linked to customs valuation;

  • Issues linked to import licensing;

  • Issues linked to rules of origin;

  • Issues linked to technical barriers to trade;

  • Classification issues;

  • Issues related to tariff concessions.

12. It is also important to note that one of the first important measures that WTO Members could take is to incorporate electronic commerce, on the basis of the ITA, (1966), into the already existing agreements of the WTO. In this respect, the evolution of discussions within the framework of the ITA should be closely followed; and special attention should be paid to the ways in which new information technology products (broadly defined) could be included in this Agreement.

V. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

13. The advent of electronic commerce has also substantially affected four aspects of Intellectual Property Rights:

  • Protection and Enforcement of Copyrights;

  • Protection and Enforcement of Trademarks, including service marks;

  • Protection of commercial on-line audio-visual products and computer software;

  • Protection of new technologies.

14. It should be possible, however, to apply the principles of the TRIPS Agreement in its present form to the electronic environment. The common ground-rules on how to protect Intellectual Property, laid down in the main WIPO International Agreements (the Berne Convention for the Protection of Literary and Artistic Workscopyrightin particular) with respect to the rights of reproduction could be similarly applied to a numerical setting.

15. However, the development of electronic commerce has given rise to new issues with regard of Intellectual Property Rights, which are likely to be further discussed among WTO Members. It should be noted that the TRIPS Agreement, at the moment does not yet contain any reference to informatics nor to unauthorised downloading.

16. In this connection, it is important to remark that two WIPO Treaties were adopted in 1996, whose application should ensure more stable legal grounds oriented toward the future in the field of electronic commerce of protected works. These are the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. It is still uncertain whether or not WTO Members will agree on their inclusion within the TRIPS framework.

VI. The Agreement on Government Procurement

17. An increasing number of countries are now proceeding to place their tender offer bids via the Internet. The introduction of this new tendering procedure has had an impact on the Agreement on Government Procurement. One of the main questions is whether parties should have the choice of publishing their tender notices by electronic means or in a traditional way.

18. From the point of view of the less-advantaged countries (LACs), this new development in government procurement could turn to be a two-edged sword. On the one hand, it could lead to an easier, more rapid access to information, thus resolving their problem of market distance. On the other, if the sophisticated tendering procedure by electronic means is introduced too rapidly, the LACs would be at a great disadvantage compared to the Industrialised countries, better equipped and accustomed to working electronically.

VII. Facilitation of Commerce

19. The emergence of the Internet and electronic commerce have an enormous potential in the area of trade facilitation and customs administration. This is one of the reasons why the WTO has taken a particular interest in this issue since 1996. In fact, this affects numerous aspects of WTO regulations. Special mention should be made of the following:

  • Agreement on Import Licensing Procedures

  • Agreement on Implementation of Article VII of the GATT 1994 (valuation for
    customs purposes)

  • Agreement on Preshipment Inspection

  • Agreement on Rules of Origin

  • Agreement on Technical Barriers of Trade

VIII. The Position of the Developing / Less-Advantaged Countries

20. The developing countries could potentially greatly benefit from the development of electronic commerce. Generally speaking, for the time being, the Internet could greatly help these countries obtain the information they lack in spheres such as trade, education, health, etc. However, the development of the Internet and electronic commerce in the developing countries and LACs still encounters major obstacles, namely with regard to the physical and human infrastructure needed.

21. Within the WTO framework, the LACs have not had a very active participation in the electronic commerce debates and initiative. In view of the fact that this issue will be of increasing interest to them in the future, it is of the utmost importance for them to devote unremitting attention to it. They should orient the gradual elaboration of regulations concerning electronic commerce within the WTO framework in the most favourable light for them.

22. Similarly, the LACs should bear in mind that the commitment of WTO Members not to impose customs duties on electronic transmissions, taken at the second Ministerial Conference in 1998, is going to appear again on the Agenda of the next Ministerial Conference in Seattle. It would be useful for them to undertake an analysis of the implications of prolonging indefinitely this standstill. It would be important to seek to define what is meant by a "customs duty" in the case of electronic transmissions. Even though the definition of a customs tariff was fairly obvious in the case of goods and there was no need to define it, in the case of electronic commerce the definition of a customs duty ceases to be evident. How can one, for example, distinguish between the bytes which circulate only within a national territory from those which "cross" a border? It would be important to arrive at the decision that an in-depth and continual examination of the effects of the decision to continue the status quo regarding duty frees access of electronic transmissions is necessary. In relation to other possible fiscal measures that could be taken on certain products related to electronic commerce, the UNDP has recently presented some proposals in its most recent Human Development Report. According to one proposal, a small tax should be imposed on electronic mail (US$0.01 per 100 e-mails) aimed at promoting development programmes in general, and New Information and Communication Technologies, in particular.

23. On the whole, LACs have insisted and could continue to insist that the scope of development should be always taken into consideration and clearly express this position in WTO discussions on electronic commerce in any one of its bodies. For this purpose, it would be advisable that countries with similar concerns on this subject elaborate an objective alliance. The possibility of creating a mechanism of consultation and exchange of information on this subject seems a good means of keeping ahead on the electronic commerce-related discussions. Additionally, this instance (or alternative ones) could aim at exploring the compatibility and coherence of the commitments LACs have already made (and those they will make in the future) in relation to the development of electronic commerce.

IX. Overview of the Principal Propositions of WTO Members in the Sphere of Electronic Commerce

24. Many WTO Members have addressed Communications to the WTO Secretariat with reference to the Work Programme on Electronic Commerce in preparation for the 1999 Ministerial Conference in Seattle. Besides the numerous Communications from industrial countries, there are two by developing countries (one by Egypt and another by Indonesia and Singapore). In examining these communications, certain tendencies for consensus can already be discerned. However, they will need to be confirmed by the Ministers in Seattle.

25. Members agree that efforts should be made to encourage greater participation of LACs in electronic commerce by developing their telecommunications infrastructure and their access to New Information and Communication Technologies (NICT).

26. The industrial country Members of the WTO, also seem to have reached consensus to confirm the decision not to impose customs duties on electronic transmissions. Various arguments have been put forward along this line: on the one hand, not to hinder the development of international electronic commerce, and on the other, the fact that such customs duty would be too expensive and difficult to administer.

27. On the whole, Members seem to agree that the products ordered and payed for through the Internet, but delivered physically, should be considered as goods, thus falling within the scope of the GATT rules. On the other hand, products directly delivered via the Internet should be classified as services and fall under the GATS regulations. It is necessary, however, to elucidate this issue. It would be a good idea to formulate a clear, precise and complete definition not only of what could be included within the definition of electronic commerce, of the traditional terms used in international trade (customs duties, modes of delivery, cross-border trade, etc.), whose definitions were not necessary when rules were established for conventional trade (of goods and services).

28. With reference to regulations to be applied to electronic commerce transactions (protection of consumers, confidentiality of transactions, etc.), all WTO Members both Industrial and developing countries / LACs seem to be convinced of the fact that the private sector should play a major role with regard to self-regulation. The State should only intervene in a light, complementary manner. An in-depth study of the prototype law on electronic commerce, elaborated under the auspices of UNCITRAL, would be to the advantage of developing countries/LACs. Furthermore, as a first measure, it is also expedient that the governments of these countries raise public awareness (both in official as well as civil society spheres) of the Internet, and on developing specific policies aimed at gaining access to the New Information and Communication Technologies.

29. Finally, strictly within the WTO framework, many Members are of the opinion that at the moment all regulations within the WTO legal structure which fall under the term "technological neutrality" should now be applied to electronic commerce transactions. Quite a few of them do not wish to create an entirely new set of regulations for electronic commerce and prefer to see them integrated into the existing documents.


Note 1 : In Paragraph 1.3 of the Work Programme: "the term ‘electronic commerce’ is understood to mean the production, distribution, marketing, sale or delivery of goods and services by electronic means" (return to text)


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