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Electronic Commerce : Implications for the Less-Advantaged Countries

(held in the Centre William Rappard, Geneva on 3 september 1999)

Introduction

E-commerce in the Global Context

E-commerce and the WTO

E-commerce and Intellectual Property Rights

E-commerce : the LACs Dimension

 

I. Introduction

1. In response to requests from less-advantaged countries (LACs) and in the current series of assistance projects, on 3 September 1999, AITIC held a workshop on the implications of WTO decisions on electronic commerce for the LACs. It was held with the sponsorship and collaboration of the World Trade Organization (WTO) and the International Law Institute (ILI) in Washington, D.C.

2. The formal sessions covered:

• E-commerce in the global context

• E-commerce and the WTO

• E-commerce and intellectual property rights

• A Round Table discussion on the LACs dimension

II. E-Commerce in the Global Context

3. This session provided an overview of e-commerce, what has happened in the last five years, the policy issues which have arisen in the context of e-commerce, most of which are not trade issues but which have trade implications. Some of the trade implications and WTO issues that representatives will face in the next six months were underscored. The general remarks which illustrate the importance of the subject included:

• The startling growth of e-commerce, illustrated by comparing how long it took a particular technology to have twenty million users: the telephone took 70 years, the radio took 35, the world wide web took less than ten.

• Furthermore, trade in global e-commerce grew from near zero trade in 1995 to USD 26 billion in 1997 with estimates of USD 330 billion in 2001 and USD 1.3 trillion in 2003.

• 80% of internet users are currently in North America and Europe and the Asia- Pacific region. Electronic commerce mirrors economic activity generally. Although it should be a global phenomenon, however, high costs and lack of telecommunications infrastructure will restrict growth in the LACs.

4. The major issues now facing governments is the extent to which e-commerce should be regulated, and whether this regulation will be trade promoting. The kinds of issues where we will see regulatory actions affecting the internet include:

i. Questions of jurisdiction. Which countries can exercise jurisdiction over transactions? Indeed, a difficult issue to resolve. As global commerce grows it makes possible for transactions which were profoundly local to become international. It is now possible to buy many ordinary consumer products from foreign suppliers. Which country is going to set the rules for those transactions? The country where the seller or the buyer is located or where the server is located. It is a hard question regarding consumer protection (European Union law says that the law of the consumer applies to distant selling transactions). On-line gambling prosecutions have occurred in the US, which has raised questions for jurisdictions which restrict gambling. Jurisdiction will become part of trade issues because as e-commerce creates losers as well as winners, the former will be looking for ways to restrict e-commerce competition and keep consumers from the internet. It will be difficult to determine when consumer protection is really consumer protection or when it is meant for protecting local industry.

ii. Privacy is already an important and sensitive issue in the context of e-commerce. Two models exist at present for privacy protection: the European Union which emphasises comprehensive regulation based on broad principles of choice about data on individuals and restricting access to it and on providing this information to third parties. The second model is that of the US, which is a combination of specific sectoral rules. The US has strict privacy rules and protection of financial and other kinds of information on the one hand. On the other hand, voluntary standards prevail on other aspects of privacy. Governments have sought access to information for law-enforcement purposes, in a mirror image of what the EU has talked about in the context of cutting data flows to countries that do not provide data protection. Are there trade issues in this area? There are. First there is the extra-territorial question. For example, in the EU case, proposals to cut off data flows to countries that do not comply with European standards has been described as Europe’s version of the Helms-Burton law. Those who do not conform to European values would not be permitted to do business with Europeans. Whether that is a trade violation and will become a WTO issue is a separate question, but it clearly has trade law implications and one can imagine trade protection motivations for such rules. However, this is not likely to become a WTO issue.

iii. Content regulation is a very significant issue from the perspective of challenges that the internet brings to governments that have previously been able to restrict the kinds of published material sold in their country. The internet is forcing every country to reconsider the extent it is willing to go to maintain certain kinds of content regulation. Every country has some form of content regulation, whether on issues related to public safety, gambling, sexual content, etc. Similarly, racist and ethnic disparagement and discrimination restrictions are common, as are political restrictions, defamation rules, etc. Some regulated industries such as pharmaceuticals and securities are restricted on what they can say. What are the trade issues on content regulation? Content regulation can have trade impact by imposing penalties or restrictions on the content that can be provided. Thus, a country can cut itself off from certain forms of competition. This is also unlikely to become a WTO issue, but trade implications exist.

iv. Encryption has been of significance as it provides total confidentiality. However, this is non-discriminatory as it would provide the same absolute confidentiality and privacy to criminals and to law-abiding citizens, raising the question as to whether absolute privacy is something that society can tolerate. The debate thus far has centred on export controls, as illustrated by the Wassenaar Arrangement. Although it has been liberalised recently, it continues to provide significant controls. The US has been able to place important controls on encryption mainly because it is the source of 95 percent of the browsers, and these do not have strong encryption on them as a routine matter. Several countries have also restrictions on the import or use of encryption because of concerns about law enforcement and security considerations. In addition, some countries (Germany) are imposing a quality control on encryption, covering the extent to which e-commerce messages can be made confidential. Trade issues related to encryption include, evidently, the export controls’ impact on countries that have been disfavoured, as well as import restrictions and quality controls used to favour domestic industry against imported products. None of them has become a significant trade issue so far. Could encryption be part of the discussions in the next round? It is unlikely, given the US has been reluctant to include them because of security and public safety considerations.

v. Digital signatures use cryptography to protect not the confidentiality but the authenticity and integrity of electronic messages, including the role of trusted third parties, e.g. credit card companies. On this, the United Nations Commission on International Trade Law (UNCITRAL) is working on a model law on how should digital signatures be recognised under the law. There are a number of difficult policy issues. The US has moved from the notion of the need of extensive laws that would regulate all aspects of digital signatures to a general view that all that is necessary is to allow people to compete with different technologies and to provide a basic legal structure that recognises any reasonably secure digital signature. That is not the direction other countries are taking. For example, Germany and to some extent all of the EU are much more intrigued by the idea of regulatory or legal standards that set for the rules for all the parties using digital signatures. Trade implications include concerns on the part of industry that individual countries regulating digital signatures may favour particular technologies that will have trade-distorting effects. This is not yet a WTO issue, but if it were to become one, it would be the first trade war where none of the participants have made a quarterly net profit.

vi. Computer crime, has become a policy issue because the internet is international and hackers move across borders and law enforcement finds it difficult to find where the originator or the crime originates from. This is an issue where international law enforcement is clearly needed. This is the area least likely to produce trade issues.

vii. Tariffs and taxation are clearly WTO issues. Traditionally taxation rules can be applied to e-commerce. It is reasonable to apply VAT to merchandise shipped to consumers inside a country. In theory it is easy. The difficulty is who is going to pay the VAT and it poses major implementation challenges, especially for VAT regimes. The same is true for tariffs, because in theory if merchandise is imported to a country it can be the subject of a local tariff. The more interesting question is when the entire delivery takes place on line. The difficulties of imposing either tariffs or VAT on that kind of transaction remain. Currently there are no countries that treat this electronic download as a dutiable import. With respect to tariffs it will have to become a new concern for countries.

6. As far as the role of the WTO with respect to e-commerce, it involves questions related to market access, TRIPS and development issues. The central problem for the WTO is whether e-commerce involves goods or services. When physical goods are the result of electronic communications and they are physically imported they can be treated as goods (e.g. music, books, software and videos) or when services such as banking are offered electronically they remain services. The hard issue is digital or electronic deliveries. The problem is that things that are electronically delivered continue to grow. How to treat them is the central question facing the WTO.

7. On the specific issue of dispute settlement will be difficult given doubts over the availability and acceptability of written evidence. The International Chamber of Commerce is drafting rules and can provide an arbitration service, but this is expensive.

8. Trust is important in e-commerce. This can be earned by the trading reputation or by the use of third parties such as accreditation authorities and credit card issuers. Credit card issuers can also provide a complaints service.

III. E-Commerce and the WTO

9. The presentation highlighted several common mistakes and misconceptions regarding both electronic commerce and the WTO. First it was stated that the WTO does not regulate trade, nor does it regulate e-commerce; the WTO’s objectives relate to disciplines on governments. The framework of WTO law in place for regulating e-commerce is found in the GATS, in the GATT and in the TRIPS Agreement. Trying to reinvent the framework may be harmful. Another common mistake was to refer to e-commerce as if it were an area of commerce in its own right, as if it were agriculture or textiles, which is not the case. E-commerce trade in goods or trade in services was not a relevant question. E-commerce is a way of selling things and what law applies depends on what is being sold.

10. Other relevant points made included:

i. There were no plans specifically to regulate e-commerce. In general the framework already exists in the shape of the GATT, the GATS and the TRIPS Agreement but there is a work programme in hand to clarify the present situation, identify weaknesses and problems and make appropriate recommendations.

ii. Many of the current problems, e.g. jurisdiction, privacy, encryption and digital signatures were issues for "private" not "public" international law and as such were best left to other organisations to consider. Many bodies other than the WTO were working on the problems and it was important for the WTO not to attempt too much, albeit virtually anything could be categorised as trade related.

iii. E-commerce is not a trade sector but rather a way of doing business. The GATS covers virtually all aspects of trade by e-commerce, but items such as music, books, software and videos delivered in digital form would be covered by the GATT. However, such classifications could be for negotiation and agreement.

iv. GATS is technologically neutral, so in theory the means of transmission is of no relevance. Therefore the commitments – schedules – under the GATT and GATS would apply to goods and services transmitted digitally, unless this form of transmission was specifically excluded at the time of the commitment. There could be dangers in reopening commitments on account of the new significance of e-commerce.

v. There were certain areas within the GATS which remained unclear. One such area was the distinction between mode one of supply (cross-border trade) and mode two (purchase of the service abroad). The remedy to this was through further negotiations.

vi. The call by some for a Duty Free Cyberspace and the related issue of a moratorium would be for future discussion in the WTO.

IV. E-Commerce and Intellectual Property Rights

10. The development of e-commerce is closely linked with the growing importance of intellectual property, as much of the trade in the internet is linked with the selling or licensing of cultural and technology products protected by intellectual property and often delivered in digital form (software, music, books, films, etc.). This has given rise to technological standards that protect against unauthorised copying. Some of the major issues related to this included:

i. The problems of e-commerce protection are international rather than local given the global nature of the transactions. There are specific problems with such as the protection of data bases, copyright and related rights, trademarks, domain names and geographical indications against copying. However, new problems of enforcement have arisen given the "borderless" nature of e-commerce. Some kinds of protection might be left to right-holders themselves and other forms of protection might require governmental action. Thus, the importance of cooperation between governments and the private sector.

ii. In the main a "minimalist" approach to new protection arrangements is being adapted by the WIPO and associated authorities. Factors are the disproportionate cost of taking enforcement action and the view of many IPR owners that revenue can more easily be produced periferally, e.g. from advertising.

iii. Several studies are underway and it is interesting that technological services rather than legal redress might in the future provide the best form of protection, e.g. in the case of music supplied on line. Also two WIPO treaties have been revised and, e.g. it is now illegal to use a device to overcome a technological constraint on copying, but it is left to IPR owners themselves to design and implement appropriate technological measures to protect their property.

iv. In the WTO the TRIPS Council has an on-going study programme which will take into account action in WIPO.

v. Further study is required to consider developments in this area. Some organisations have undertaken such a task. Of the many international organisations studying the issue, UNCTAD, ITU and WIPO will shortly open a common information web site.

V. E-Commerce: the LAC Dimension

The Round Table discussion on the LACs dimension produced the following points:

i. E-commerce is moving at great speed, both in volume and technologically, with significant future development being likely in non-English speaking countries. LACs must not be left behind.

ii. Despite a current lack of infrastructure, equipment and knowledge, with the proper investment it is possible for LACs to leap frog into positions whereby they can benefit from this future growth.

iii. E-commerce is producing different business models, e.g. distance learning, distance accounting and software development and advertising, which are already benefiting LACs.

iv. The regulation of e-commerce is also likely to be different from other trade areas in that it will be necessary, given its global nature, for international rules to be in place before countries have considered national rules. This will be difficult for all, not just for LACs.

v. It is likely that technological controls rather than legal sanctions will be important, e.g. some IPR owners are looking to benefit not from the direct ownership but from such periferal activities as advertising.

vi. For LACs, with open markets there is the potential to export expertise rather than people and income.

vii. Funding is important. There are several assistance programmes in place but the deregulation of basic telecommunications (which results in reducing costs) with a significant private sector involvement in the infrastructure is a way forward.

viii. There are problems with taxation as a means of funding. A "byte tax" would be costly to collect and technologically complex given often the multi-cross border nature of e-commerce.

ix. Developing countries find it difficult to accepting a binding Duty Free Cyberspace given that the development of e-commerce is so recent that the full consequences and implications of binding commitments are as yet unknown. There are problems with any discussions or negotiations leading to commitments whilst the state of knowledge of many LACs is so basic. "Guidelines" or other non-binding services might be the way forward.

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