Wed, 31 Mar 1999

E-commerce at global negotiation

By Wiwit Wirsatyo

JAKARTA (JP): Major trading nations, led by the United States, have systematically exercised a sort of neomercantilist strategy by introducing electronic-commerce (E-commerce) into global trading arrangements to enhance their own wealth, power and market access at the expense of others.

For example, they offered to devise a regulatory framework for E-commerce during the second ministerial conference of the World Trade Organization (WTO) in Geneva in May 1998.

Delegates at the conference issued a declaration on the establishment of a working plan for E-commerce and emphasized the need for further discussions of the issue in other international forums, including the Organization for Economic Cooperation and Development (OECD), the Asia-Pacific Economic Cooperation forum and the Free Trade Area of the Americas (FTAA) forum.

In general, E-commerce is defined as transactions or business activities, particularly the sale and supply of goods and services, using electronic and digital information mediums, such as the Internet and the World Wide Web. E-commerce operates across different technologies and embraces a wide range of forms, including electronic banking, trading, data interchange, mail (E- mail), cataloging, facsimile, video conferencing and all forms of messages between enterprises.

Worldwide E-commerce transactions are projected to reach some US$300 billion by the millennium; all to the advantage of major trading nations. As a point of illustration, about 70 percent of Internet websites are located in the United States; another 8 percent are located in Canada, 14 percent in Europe, 4 percent in the Asia-Pacific region and 2.3 percent in Latin America and Africa.

To date, the nuances of E-commerce often are perceived as a key to bridging the gap between developing and developed countries. Other issues discussed at the WTO often have pitted developing countries against developed countries in protracted and often stormy negotiations.

Developing countries are worried because they are not as technologically advanced as developed nations, so their bargaining power will be diminished. They also are worried E- commerce will make them consumers rather than producers by encouraging them to import more than they export. In the long run, this would create considerable pressure on their balance of payments.

Some developing nations also fear E-commerce will lead to the erosion of their local and national languages and cultures. They may be tempted to impose local content requirements on Internet services. This is an almost impossible measure to implement, but has political appeal in countries wishing to protect their local languages and cultures. Strong nationalistic feelings consequently may have the effect of prolonging negotiations.

Several international organizations, including the OECD and the FTAA, have said developing countries need to promote the use of E-commerce. They plan to assist these countries by providing training and educational programs.

From a negotiating perspective, the WTO's work on E-commerce heralds a multifaceted approach to global trade negotiations. Even though it is difficult and premature to forecast the outcome of the WTO negotiations, some common themes are clear with regard to the establishment of universally acceptable standards and commercial codes for E-commerce. This approach seems to be favored by governments and the private sector, and the WTO is likely to give considerable weight to a proposal which provides the flexibility to adapt to rapid changes in the development of E-commerce.

Negotiations are expected to involve not only the application of the General Agreement on Tariffs and Trade and the General Agreement on Trade in Services on the supply of goods and services by electronic means, but also the application of other multilateral agreements, especially those relating to intellectual property, telecommunications and government procurement.

This may lead to the WTO becoming the preeminent body in the international regulatory regime of E-commerce.

In this context, several crucial topics need to be discussed at various forums, particularly at the WTO's forthcoming third ministerial conference in Seattle in November 1999. The topics which need to be addressed include the following:

* Market access: Merchandise purchased electronically but delivered physically may be subject to existing WTO rules on trade in goods. Nevertheless, this may not be the case for products which are delivered as digitalized information, such as software programs downloaded over the Internet.

* Customs rules: One significant conclusion from the WTO's second ministerial conference was the agreement by WTO members not to impose customs duties on electronic transmissions. Major trading nations had sought a permanent ban on E-commerce duties.

* Taxation: Tax regulations should provide transparency, predictability and certainty. Yet certain issues remain unsolved, including whether the taxation of goods and services provided electronically should be treated the same as for products purchased off-line. There also is a need to establish tax avoidance and evasion policies because of the anonymity of the Internet. However, these policies must take into consideration traditional territorial concepts of taxation, including residence and sources of income.

* Electronic payment: A key issue is whether government regulation is needed to ensure the viability of electronic systems of payment in order to protect consumers and facilitate law enforcement. Or, conversely, should the private sector take the lead and be allowed to self-regulate. For example, the Electronic Commerce Promotion Council of Japan has been active in analyzing the potential threats to and security requirements of smart-card money systems.

* Intellectual property: One of the primary concerns in the intellectual property area is associated with the downloading of information from the Internet. The lack of enforcement of intellectual property rights around the world has been a particular concern of the United States, which has exercised the extraterritorial clause of Section 301 of the Trade Act of 1974, WTO consultations and dispute resolution procedures to ensure compliance with the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights.

Enforcement issues are exacerbated by the unregulated use of the Internet. Furthermore, the two World Intellectual Property Organization treaties on the protection of copyright issues in the digital age, adopted in December 1996, are implemented only by some countries. Moreover, the two treaties do not address issues of online service provider liability, leaving these to be addressed by domestic legislation.

* Tariff treatment: On July 1, 1997, the WTO's Information Technology Agreement came into force, involving 43 countries and representing over 90 percent of the world trade in information technology (IT) products. The organization agreed to reduce tariffs on IT products to zero by 2000.

IT products, such as semiconductors and printed circuit boards, are covered by the tariff reduction, but items such as computer-based scientific and analytical equipment and global positioning systems are not covered. In addition, there is no provision for various types of inputs and manufacturing equipment for information technology products, such as those designed for the production of printed circuit boards.

In this connection, developing countries should play a constructive role by adopting specific strategic approaches to equipoise the uneven interests of international society.

In addition, developing countries have to close ranks in two important ways. First, they should have a solid political determination to work together in pursuit of their interests. Second, they should identify the points of their current strengths and utilize them to get concessions in negotiations.

For developing countries to participate effectively in negotiations it is not enough that they fulfill the requirements for legislation. They should be able to formulate integrated positions and carry out sustained educational programs to ensure their officials and businesspeople are equipped with sufficient knowledge and skills to apply the new rules, to tap new trading opportunities and to defend national trading interests.

In the same vein, because we believe E-commerce can serve as a trade facilitator leading to economic growth, major trading nations should earnestly extend their facilities and technical assistance to developing nations to promote an understanding among business networks and to enhance the capacity and development of human resources.

In light of the aforementioned realities, a set of anticipative steps need to be taken by Indonesia to further socialize the optimum benefits and mitigate the disadvantages of E-commerce. Eventually, the national competitiveness of both public and private sectors will be further modernized. These endeavors require a synergistic approach led by a competent chief negotiator and supported by a qualified multidisciplinary team. Their task should be to pursue a balanced multilateral framework and improve the environment for E-commerce development based on the principles of mutually beneficial, genuine partnership and equitably shared responsibility.

The writer is an international economics law observer. He holds a master of law degree from the University of London.