Electronic Commerce Has Caused a New Revolution. It Is Defined As Doing Business Over The

Introduction:

Electronic Commerce has caused a new revolution. It is defined as doing business over the internet. It covers all commercial transactions and trade that is affected via electronic means such as: facsimile, telex, EDI, Internet and telephone.

E-commerce is going to change the business of every one. There are many reasons for the governments and private institutions to become interested in Electronic commerce. However from government perspective, e-commerce is a new phenomenon; particularly from international point of view, as from government point of view the rules applying on “Global trade and electronic commerce should be capable of harmonious coexistence and efficient integration”[1].

In recent years, electronic trade in digital content has become extremely important. The rising importance of digital content can be defined in two factors[2]: 1- the traditional contents is becoming digitalized rapidly, in addition internet is becoming a global distribution platform for digital content.[3] 2- The economic behind e-commerce, the high fixed costs of distribution are decreasing on the internet distribution; hence duplication and distribution of digital content become tradable. [4]

Globalization and the dismantling of trade barriers, the development of technology and the internet are some reasons[5] which have led to growing potential of import and export of digital content, such as software, music, films and e-books; moreover process innovations, products innovations, and also market innovations help growth of e-commerce. In general the physical distance between supplier and consumer is over passed, market entry barriers are reduced.

E-commerce has the characteristics of cross-border supply; consequently people are interested in this new phenomenon. They do not need to invest and pay huge amount of money for taxes, they do not need to have a representative in other countries and they can sell their products on the Net easily.

The e-commerce transactions around the world are increasing dramatically. In 1999, the Secretary of World Trade Organization (WTO) predicted that the turnover of global electronic commerce which included production, Webvertising, sale of goods and distribution of products via electronic network would amount to £150 billion. Forrester Research, Inc. USA, a consultancy firm in E-Commerce stated that the e-commerce business would reach a figure between $1.4 trillion and $3.2 trillion in 2003 - up from a range of $55 billion to $80 billion in 1998[6]. [7] It shows growth of globalize electronic commerce.

E-Commerce and the WTO

The WTO has recognized that commercial transactions can be divided on three stages: "The advertising and searching stage, the ordering and payment stage, and delivery stage."

The term "e-commerce" is defined by the WTO as the "production, distribution, marketing, sale, or deliver of goods and services by electronic means. The work programme will also include consideration of issues relating to the development of the infrastructure for electronic commerce."[8] However, there is not a precise definition for Electronic Commerce and as Cathrine L.Mann has stated “it embraces a complex amalgam of technologies, infrastructures, process and products.” The element of infrastructure is important in understanding the meaning of Electronic Commerce. Mann continued that three types of infrastructure are of special importance for having Electronic Commerce, and one of them is telecommunication infrastructure such as cable, satellite, etc.[9]

Due to this new phenomenon, WTO has been required to establish a new trade policy. At the Second Electronic Commerce, In September 1998, the WTO members issued a Declaration on e-commerce and called for establishment of a global electronic commerce “to examine all trade-related issues relating to global electronic commerce, taking into account the economic, financial, and development needs of developing countries...”[10] . Also, on 20 May 1998, in the Ministerial Conference, it was decided to establish “a comprehensive work program to examine all trade-related issues relating to global electronic commerce…”[11]. In 2001 in Doha they agreed that electronic commerce has created a new challenge and “opportunities for trade for members at all stages of development”[12]. At the forth Conference in Doha in 2001, Ministers agreed to continue the work program.[13] As the Ministers declared to the General Council of the Fifth Ministerial in Cancun in 2003, they agreed to continue and also practice on custom duties.

Because e-commerce comes across on very broad area which included services, intellectual property rights, and trade of goods, in regarding, the WTO councils include the Council on Trade in Goods, the Council on Trade in Services and the Council on Trade-Related Intellectual Property; hence the Committee on Trade and Development is studying the effect of e-commerce on world trade.[14] The Committee provided some reports by July 1999. The aim of these reports is to assess the effect of e-commerce on the various Council Responsibilities and they try to answer the following main questions:

1-  How do existing trade agreements affect electronic commerce?

2-  Whether there are any loopholes in the existing legislation. ?

3-  Does electronic commence create new fields of responsibility for the WTO members and whether they need to legislate new trade rules?[15]

Contrary to many other tradable goods and services, the trade of digitally-delivered content supplier does not yet face trade barriers created by governments that discriminate between content suppliers of different national origin.

GATS or GATT: Determining the boundary Between Goods and Services

Defining the boundary which lies between goods and services particularly in the WTO is very problematic as it is unclear from the jurisprudence when the panel and Appellate Body will apply the rules on goods in the GATT or the rules on services from the GATS.[16] The distinction between GATT and GATS means that member’s obligation differ if the product is classified as goods or services.

The WTO panel and Appellate Body Jurisprudence have ambiguous views on this issue. Moreover, the question of determination of such boundary has arisen in the comparable bodies such as the European Union (EU). Considering that the European Court of Justice (ECJ) has studied carefully the distinction between goods and services in the interpretation of EU rules, the European Union has some advantages.[17]. Consequently, there is some judicial consideration within the EU which can affect the panel and the Appellate Body decision.

As such, there is one way to identify the boundary between goods and services which could be by reference to scheduling.[18] However, still there is considerable ambiguity in classification of products traded online and in audiovisual products. In these sectors, members of the WTO could not agree on the appropriate classification methodology which originates from their desire to protect their domestic market interests. The members of the WTO must decide whether the General Agreement on Tariffs and Trade (GATT) or General Agreement on Trade in Services (GATS) should be applied to international electronic commerce,[19] particularly digitally delivered content.

The WTO members can regulate and tax international trade and it depends on the WTO discipline and policy which the members decide to apply. The digital content on the internet could be considered as goods or services. Choosing each of them will determine whether this trade is subject to the rules which Applicable to GATS, GATT or both.[20]

Before creation of the WTO in 1995, only trade in goods was covered by the General Agreement on Tariffs and Trade which governed the multilateral trade rules.[21] All the GATT principles are about two non-discriminatory provisions: MFN (the Most Favored Nation Clause) and National Treatment Provision.[22] However, GATT principles have some exemption regarding the imposition of the trade barriers in limited circumstances which contained some non trade issues.[23] As the result, the provisions of GATT do not govern the multilateral trade in services; hence the General Agreement on Trade in Services was introduced.

GATS reduce the barriers to trade in services in two ways:[24] fist, it eliminates the restrictions adopted by domestic regulations and second, GATS resolve the issues by presenting particular service sector though specific annexes.[25] However, GATS principles have been drawn on the basis of GATT provisions which include MFN Principles[26] and National Treatment Provisions[27] and General Exemption Clause[28].

Interpretation of the WTO rules and their application is exercised the WTO rules and application is governed by the Appellate Body and the panels and they should make a distinction between trade in services and trade in goods. There is a little guideline in the WTO rules which is defined trade in service. Under article I(1) of the GATS, “Trade in Service” has been defined and it draws a distinction between trade in goods and trade in service. Article I define trade in service as the supply of the service.[29] Accordingly, article I(2) of the GATS, describes four modes of service delivery: [30]

Mode 1: The service is exported from a member of the WTO to the other member;[31] (Cross-border Supply)

Mode 2: The service is supplied and consumed by the consumer in the county of origin (Consumption abroad)[32]

Mode 3: The service is delivered by the provider of a WTO member for the other WTO member, in other word; service supplier from a territory of one member provides services in the territory of any other member through commercial presence. (Commercial Presence)[33]

Mode 4: The service is delivered by a natural person of one WTO member to another WTO member (Presence of natural persons)[34]

The emphasis for distinguishing a product as goods or services is placed on the way in which the product is treated rather than on its inherent characteristics.[35] As indicated in paragraph 2 of the preamble of the GATS, the scope of the definition will be drawn with due consideration of the economic element or legal nature of the transaction.[36] The aim of the GATS is to “establish a multilateral framework of principles and rules for trade in services with a view to the expansion of such trade under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners…”[37]

The same argument was confirmed by the panel and in the case of Mexico—Measures Affecting Telecommunications Services case[38] the panel decided that the definition of trade in services in article I(2) was comprehensive.[39]

However, as Lorna Woods and Finoa Smith argued, there is a difficulty with the above view which It stresses the method on the method of transfer without describing the characteristics of the products itself, as article I of the GATS is silent on these points. Here some problematic issues arises when viewed against the Appellate Body’s approach in Canada—Autos[40] where it is clearly stated that the inherent economic characteristics of the product were relevant to the scope of the MFN obligation in GATT and GATS, as both agreements covered different subject matters. On this view, the essential characteristics of the product only appear relevant once the substantive obligations are assessed rather than when the threshold criteria for the application of GATS are considered.”[41]

Placing an order and transacting on the internet and delivery of physical product is treated as goods trade and the GATT rules apply on them. On the contrary, any content delivery on the internet would seem treated as services trade and GATS discipline applies. The products delivered on the internet are considered as goods, for example books, videos, music CDs, software and magazines. When these products are imported in physical from, the GATT discipline applies to them; however the question remains whether they can be treated as services when the digital content is delivered on the internet or because of its similarity with goods it should be treated as goods.[42]

One extreme possibility is that to treat all transmissions on the internet as goods which in this case GATT discipline would apply. Such view would be accompanied by the principle of imposing custom duties on the transmission.

However, the WTO E-commerce Declaration included a statement which requires members to “…. Continuities their current practices of not imposing customs duties on electronic transmissions” (the WTO Duty-freedom Moratorium on Electronic Transmissions).[43] This is because the national treatment and MFN statues are general obligation under the GATT. Under national treatment rule, members must not accord discriminatory appropriate treatment between imports and the like domestic products with the exception of the imposition of tariffs. Members would give up their rights to discriminate against Internet imports as far as domestic taxes are concerned.[44]

There is an opposite hard-line view which suggests that we could leave both GATT and GATS and develop entirely new regulations for e-commerce. Nevertheless some argue Internet services, included Internet service providers and telecommunication providers, are already subject to the GATS and Annex of Telecommunications. As such the rules which are necessary to regulate electronic commerce can be found in GATS or GATT.

In some instances, the transmission may be turned into the physical goods such as a book or a CD. For example, recipient of digital content may store it in digital medium such as books which may be read on the screen or the music which may be listened to directly on the computer.

Accepting the cross-border definition has the key advantage. It minimized possible dispute that may be created countries that have certain transmission classified as intangible goods or as services.

In any electronic commerce dispute, it should be determined whether the object of dispute is goods or service. Accordingly the GATT or GATS regulations would apply. Imposing domestic tax, as long as the cost of the electronic transmission is lower than physical delivery, could be a solution for developing countries. However, still the electronic transmission would effectively offers a price lower than that available at the cross-border physical delivery.

In developing countries most consumers do not have access to computers or Internet in order to use digital content which is transmitted around the network. In these countries most independent entrepreneurs would receive the product through the Internet, then convert it into physical form such as software and music CD and sell the product to consumers. Nevertheless, these activities will add some additional cost to the product.

As Panagaria argued:[45] if music or any digital content is transmitted electronically without any tax paid to cross border, then entrepreneurs import it electronically and convert it from digital form into CDs or a physical goods, then sell them to consumers, the marginal cost of conversion, production and distribution are positive and leading to make the trade inefficient.