The WTO, the Internet and Trade in Digital products: EU-US Perspectives

The trade in content and products that are delivered digitally has taken off significantly over recent years. The short-lived dot com boom deservedly went to bust in 2000, after some commentators pursued the asinine notion that business had entered into a new phase – there was no need to make a profit. Reality quickly regained control, and the difference between profit and loss continue to exercise the minds of entrepreneurs.

However, the political stage has yet to catch up with the speed at which the Internet has become the mother of all shopping catalogues. The problems of the physical world dominate the present Doha round of trade talks, which are in danger of failing unless realistic compromises are agreed. In the meantime, the WTO risks undermining its relevance if it does not get a grip on how to deal with goods and services delivered over the Internet.

The main work of the WTO is to initiate action in an attempt to remove trade barriers. Yet here is an opportunity for the WTO to grasp a unique opportunity, by focusing on avoiding the creation of obstructions to trade in the digital world. Unfortunately, the politicians appear to have failed in this task, and the prognosis is not good.

It all began at the Geneva Ministerial Conference in 1998, when a grand declaration on global e-commerce was agreed, establishing a comprehensive Work Programme on E-Commerce to examine the trade related issues. A political statement included in the declaration requested members to continue their practice of not imposing customs duties on electronic transmissions. The General Council defined e-commerce as ‘the production, distribution, marketing, sale or delivery of goods and services by electronic means’ and provided a detailed list of issues for discussion.

The report was subsequently passed to the Seattle Ministerial Conference in 1999, having been unable to resolve whether the temporary duty-free moratorium should remain in place, and what trade rules and obligations should apply. Neither the Seattle conference nor the 2001 Doha conference achieved anything of note. With nothing further to report, the Cancún Ministerial Conference in 2003 did not even consider the topic.

On the surface, e-commerce seems straightforward, yet with so little having been undertaken by so many over such a long period of time, the hidden agenda is obviously taking its toll.

At issue is a significant difference of opinion between the United States and the European Union, although the discussions are made more complex because of problems between the industrialised and developing countries. In essence, there are two central issues: uncertainty respecting the proper customs valuation of digital content products, and the lack of agreement as to what trade rules and obligations should apply. Although the duty-free moratorium expired in 2003, disagreement continues whether the trade rules for digital goods and services come within GATT or GATS. If commitments under GATS are relevant, it is not clear which ones will apply.

There are four areas of fundamental concern between the US and EU that prevent the WTO from making any progress.

1. The US wish to make the moratorium permanent, whereas the EU will only agree to make it permanent if all digitally-delivered content products are categorized as services.
   
2. The US proposes a tariff on the value of the carrier, not the value of the content. The EU will only agree if digital products are considered services, and therefore fall outside the ITA and GATT.
   
3. The US favour GATT treatment, whilst the EU prefers GATS categorization.
   
4. If GATS is to be accepted, the US wants digital products under value-added telecom services, but not exclusively under audiovisual services. Software to be under the ITA or computer services. The EU wants all content to be outside telecommunication and computer services.

The author exposes the complex range of politics and cultural issues that lurk under the surface. The EU, and France in particular, wish to preserve linguistic and cultural diversity, using the carve-out achieved during the Uruguay Round. In comparison, the US has a clear mandate to preserve a free global trade environment for e-commerce and goods delivered digitally. To this end, the US has begun to by-pass the WTO with a series of bilateral and regional trade negotiations.

It appears that the paralysis at the WTO is serious, covering, as it does, a multitude of trade areas. In pursuing bilateral negotiations, the US may demonstrate how to deal with this particular issue, but at what cost in international terms? Sacha Wunsch-Vincent, who seems to be the one person in the world who knows more about this than anybody else, remains sanguine, even after the exhaustive analysis of the process and politics involved in attempting to provide for a digital trade environment. The text provides an exceptional level of detail that clearly demonstrates the issues facing the WTO today. Although most lawyers may not have time to read the book in full, nevertheless it offers a clear explanation as to why trade over the Internet may become a mess if the politicians do not grasp the issue quickly.

© Stephen Mason, 2006