The Philippine IT Law Journal

The 1948 General Agreement on Tariffs and Trade (GATT), now supported by more than 120 countries, led to the formation in 1995 of the World Trade Organization (WTO).

GATT practices the following principles in international trade:

Trade of goods dominated international trade when GATT was established. Much later, trade of services (such as transportation, travel, banking, insurance, and telecommunications) and trade of ideas (like inventions and designs) became important commodities of international commerce. In keeping with these developments, GATT was amended and updated into new WTO Agreements along side with the General Agreement on Trade in Services (GATS), Agreement on Telecommunications Services (ATS) and the Trade Relation Aspects of Intellectual Property Rights (TRIPS).

On 12 June 1996, the United Nations Commission on International Trade Law (UNCITRAL) adopted the "Model Law on Electronic Commerce" in furtherance of its mandate to promote the harmonization and unification of international trade iaw and remove unnecessary obstacles to international trade caused by inadequacies and divergence in the law affecting trade.

The Model Law was prepared in response to a major change in the means by which communications are made between parties using computers or other modern technology in doing business. It also serves a guide for the establishment of relevant legislation in nations where none presently exists.

In March 1998, the WTO released a study entitled: "Electronic Commerce and the Role of the WTO". The study examined the potential gains to international trade arising from the increased use of the Internet for commercial purposes. ^{[ 1 ]}

The WTO study also contended that the Internet, as an Instrument for international trade, should fall under GATS. The study emphasized that it is not always clear from GATS how the market access and national treatment commitments of member countries cover the supply of Internet access services. A distinction should be made between the supply of Internet access services, and the supply of other services using the Internet as a medium of delivery: whether the supply is in the GATS or GATT regime. ^{[ 2 ]}

With the tremendous potential for growth in e-commerce and the new opportunities it creates in international commerce, Trade Ministers at the Second Ministerial Conference of the WTO in Geneva on May 20, 1998 have adopted a "Declaration on Global Electronic Commerce" to establish a work program to examine all trade-related issues relating to global electronic commerce. Member-nations also declared that they would continue their current practice of not imposing customs duties on electronic transmissions.

WTO Director-General Renato Ruggiero Indicated at the Ottawa Ministerial in October 1998 that the goal of the WTO was not to create a set of new rules to govern the electronic marketplace, but rather to use existing frameworks already in place. He said that existing agreements such as the GATS, TRIPS and ATS are WTO agreements that already in one form or another deal with e-commerce related issues. ^{[ 3 ]}

Certain exceptions are provided under GATS in relation to the GATT standards or principles. The member states can choose the services in which they make market access and 'national treatment' commitments. They can limit the degree of market access and the national treatment they provide. They can even take a limited exception even from the 'Most Favored Nation' clause obligation, for a period of ten (10) years. Use of quotas where government wishes to maintain limitations on market access are permitted, unlike in GATT. ^{[ 4 ]}

In June 2000, the Asia Pacific Economic Cooperation (APEC) also agreed to a moratorium on the imposition of customs duties on electronic transmission among member-nations.

On November 14, 2001, a Ministerial Declaration was adopted during the Doha WTO ministerial meeting declaring "that members will maintain their current practice of not Imposing customs duties on electronic transmissions until the Fifth Session."

In the United States, the thrust of the government with respect to electronic commerce is to ensure that trade over the Internet remains unimpeded. Thus, the United States has sought to keep cyberspace "duty free" -- that is, free from tariffs or customs duties on electronic transmissions (the data streams that constitute products and services in cyberspace). ^{[ 5 ]}

A cyberspace free of customs duties does not mean that physical goods ordered over the Internet are free from customs duties. Nor does it mean that items ordered electronically are exempt from internal taxes. Duty-free cyberspace merely means that electronic transmissions corning from abroad are not subject to customs duties at the border. A delivery mechanism based on an open network, where borders are meaningless, imposing customs duties at the border would be a burden that would slow the growth of electronic commerce. ^{[ 6 ]}

While no country currently imposes duties on electronic transmissions. the United States is the only WTO member that has formalized this commitment by specifying it in its tariff schedule. The United States is encouraging all WTO members to make a similar, internationally binding commitment. It has also urged member nations to formally adopt the understanding that electronic commerce falls within the scope of existing WTO rules. This will ensure a predictable, trade-liberalizing environment, promote the growth of e-commerce, and create opportunities for trade for WTO members at all stages of development. ^{[ 7 ]}

At the center of e-commerce trade dilemma is the definition of goods and services. There is a consensus that a book ordered online, but delivered physically, for the purposes of international trade rules, is considered as "goods". This concept Makes the book subject to the international rules for trade in goods, the GATT. However, when the same book is delivered electronically (by downloading it to the computer) there is no agreement whether this digital product should be treated as a good under GATT or a service, which would make it subject to a GATS regime. Not a trivial distinction, since there are important differences between the rules covering goods and services, including the type of market access granted and non-discrimination between national and foreign suppliers. For example, discrimination against foreign suppliers is, in general, forbidden for trade in goods, but not for trade in services. The status of these e-products is as yet to be agreed by governments in the WTO. ^{[ 8 ]}

Another issue is whether commitments made under WTO agreements - in particular related to services - are "technologically neutral" - i.e., whether they also cover electronic delivery. Generally, WTO members and commentators argue that a country's commitment to open its market for cross border supply of accountancy services, for instance, applies equally whether those services are provided by letter, fax or over the Internet. However, some question whether specific commitments made during the Uruguay Round, predating the e-commerce era, should include supply over electronic networks. ^{[ 9 ]}

There is much to be done also by way of international regulatory cooperation with the expected growth of cross-border trade in e-commerce. Data privacy, encryption technology, development of secure payments systems and taxation, among others, would raise legitimate public policy questions that should not result to restrictions in electronic trade. ^{[ 10 ]}

With the borderless nature of cyberspace, negotiations and understanding among member-countries will play a vital role in the emergence of information technology as a more effective medium of international trade.

1. p. 23-26, Sax, Michael M., "International Electronic Trade Carrying out Consumer and Commercial Transactions on the Internet", originally submitted as LL.M. requirement to Osgoode Hall Law School York University, Toronto, Canada International Trade and Competition Law program, 4 January 1999.

5. Marantis, Demetrios, and McHale, Jonathan, Office of the US Trade Representative (USTR), "The Internet and Customs Duties"

8. Nielson, Julia and Morris, Rosemary, "E-Commerce and Trade: Resolving Dilemmas", OECD Observer, 30 March 2001.