Trade and E-Commerce
The rapid development of electronic commerce (e-commerce) and its real impact on world trade has brought a range of legal and political problems to the fore, both at the domestic and the international levels. This paper seeks to highlight some of the main trade related problems associated with the growth of e-commerce. However, the examination of all aspects of e-commerce as it pertains to international trade is beyond the scope of this paper.
Thus, this paper examines the current issues raised by e-commerce in the context of the General Agreement on Trade and Tariffs (GATT) and World Trade Organisation (WTO) and the current international practice in the regulation of the distribution of encryption technology and the tension between the competing objectives of the GATT and the protection of national security. The paper analyses how such tensions may be resolved through the WTO or externally and how best to achieve harmony in State practice in the utilisation of export controls on encryption technology.
Briefly, the significant bulk of western scholarship and statements by international organisations, extol the virtues of e-commerce due to the nature of its medium, and argue that open international market access is the key to realising its global benefits.1 The key feature of cyberspace is that it “places each and every user in a single global market place” and “makes it easier for business to surmount barriers traditionally created by national borders.”2
This is especially true in the sale and purchase of digital products, where there is no physical handling of the good in question. Whilst some scholars argue that attempting to regulate the use of the technology involved in facilitating trade over cyberspace is pointless, as the rules of the transaction are determined by the technology in question3 there is still a need, from society’s perspective to regulate transactions in spite of the medium, for traditional reasons in the traditional market place – certainty, predictability and knowing “the field” in which one engages. As e-commerce continues to expand globally, there are is greater awareness for the realisation of two interconnected requirements for trade:
* the easier distribution of the facilitative means by which trade can be conducted over cyberspace (failing which it could only serve to create an insurmountable divide between the wealthier and poorer nations4); and
* the harmonisation of international laws to ensure all market players have an equal understanding and expectation of their rights and obligations in relation to conducting trade in cyberspace.5
Thus, it is important to identify some of the general problems the international community faces when seeking to adopt a uniform approach towards e-commerce and examine how international trade regimes such as the WTO can initiate or assist in bringing about some form of harmonisation in this rapidly growing and changing area.
(a) Defining “E-Commerce” Internationally
A fundamental problem in creating and implementing an international trade regime on e-commerce involves finding an internationally acceptable and working definition of ‘e-commerce.’ Only once a uniform definition is established, can the volume (hence impact) of e-commerce, as a part of international trade, be properly measured.6 Achieving consensus on a uniform definition remains a problem for the following reasons:
* the rapid rate of growth and development in technology and the means of trading over the internet outpaces the law making capabilities of the international community;
* the importance of e-commerce on the international trade agenda is of varying priority amongst developed and developing countries; and
* the current disparity in regional and State approaches as to what transactions or exchanges of information are encompassed by e-commerce.
A significant international document on e-commerce and international trade, the UNICTRAL Model Law on Electronic Commerce 1996, does not attempt to define the concept rather focusing on “Electronic Data Interchange” as a catch all definition for a variety of related aspects to e-commerce.7 Finding an internationally recognisable definition is necessary to be able to determine which of the existing multilateral trade agreements would apply, to influence State regulation of certain transactions over the internet, or over specific trading networks.
(b) Classification of Transactions
A business to consumer (B2C) or business to business (B2B) transaction over the internet may involve the placement of an order and making the payment (via credit card or online checking system). If the product ordered can be delivered physically, then ordinary tariffs may apply (depending on the product) and national policies on the imposition of tariffs or quotas on that product, will be addressed by GATT or the other WTO Agreements. However if the transaction involves the “importation” of the product electronically (e.g. purchasing and downloading an entire music album on to a computer hard drive (a B2C transaction) or the transfer of a series of files essential to the development of a corporate risk assessment software package (a B2B transaction)) then governments will be concerned about potential loss of revenues or potential damage to local industries,8 because these products are no longer physically imported and hence would not attract tariffs that may ordinarily apply.
A working paper commissioned by the WTO analysing the future impact of the growth of e-commerce as a significant means of trade, noted in relation to ‘digitizable products’ that “significantly lower prices offered through the web should have a strong impact on the physical trade in these highly substitutable products.”9 Again, this is of greater concern to developing countries, where only a limited proportion of the population may have access to e-commerce facilities. It is not surprising that those States whose nationals run enterprises which have the means and the opportunity to gain from the lack of import controls on trade through cyberspace, obtained a moratorium on imposing customs duties at the WTO Ministerial Conference at Geneva in 1998.10 This was subsequently extended in the 2001 Doha Conference and is currently presumed to remain the case, with the failure of Members to conclude a substantive Ministerial Statement or Declaration at the Cancun Conference in September 2003.11
(c) Application of the Appropriate Trade Agreements
Another issue that the WTO faces is determining whether or not electronic products can be classified as either “goods” or “services” for the purposes of applying the provisions of GATT or the General Agreement on Trade in Services (GATS). Currently, the WTO General Council uses a working definition of e-commerce that defines the concept as “the production, distribution, marketing, sale or delivery of goods and services by electronic means.”12 The OECD, which has undertaken a significant amount of work in developing a model definition and statistical indicators that may be used to measure e-commerce, also makes no distinction between a “good” and a “service.”13
An illustration of the problem national and international regulatory regimes might face in distinguishing between “goods” and “services” is the “fusion” product. For example, a software company based in one country provides a risk management monitoring program. To be able to implement the program, a purchaser in another country must either purchase the physical manifestation of the program (usually contained in a diskette or CD-Rom, packaged with instructions etc.) or download the software on to their computer system.
However, for ongoing implementation and updates, the program must be accessed online (usually through a subscription service) from the manufacturer’s website. This is not an uncommon example as many of the major anti-virus software programs operate on this basis. If a State can and wishes to impose a tariff or quota restriction on such a product some form of determination will be needed as to whether it was a “good” or “service” for GATT or GATS purposes.
In drafting GATS, negotiators were keen to apply the principle of “technological neutrality” (i.e. drafting the Agreement in such a way so that it applied regardless of the technology used and any developments or changes in technology). However as some publicists note, a separate classification schedule would have to be drafted (using the Central Products Classification) and where specific technologies or modes of delivery are used which do not sit within a recognised category, they are described as “other services” – a classification that is “arbitrary and questionable.”14 The obvious result is that States will interpret or classify e-products according to their own interests for business or revenue purposes.
It is in the context of these broader problems that this paper examines a current and very important area of debate in relation to e-commerce and trade – the importance of cryptography and how, national policies controlling or restricting the export and international distribution of encryption technology can be viewed as being inconsistent with the objectives and provisions of the GATT and is symptomatic of the disparity in State resources and access to the area of e-commerce.
Undertaking a legal analysis of the GATT and its application to the export control regimes in place, will enable policy makers at the national and international level, to closely examine and modify the regulatory framework for international trade that ought to result in a greater degree of consistency (and equality) for those engaging in international trade. The ultimate benefit of setting an appropriate framework is to allow the market to develop at its own pace and to allow greater access to the benefits new technology can offer to the global community.
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