Aileen Kwa*
The WTO’s second Ministerial Conference took place on the 18th and 20th May. The 19th had been set aside to commemorate the 50th anniversary of the GATT. As it turned out, the ‘celebration’ looked more like a self-congratulatory event led by the United States and several other developed nations. Most of the other participants were critical or reluctant guests, many forced to join in the ‘party’ they did not want to attend. They were only there because the commemoration had been reshuffled and cleverly sandwiched between the on-going Ministerial Conference.
A large number of Member countries were concerned about implementation issues from the Uruguay Round and the continued high levels of protection developed countries maintain in areas developing countries have a comparative edge in, such as in textiles and clothing. Instead, much time was spent on acquiring the trophy US was pushing for -- the adoption of a Declaration on Electronic Commerce -- yet another new issue.
Below is a brief summary of the main developments during the Ministerial Conference. It will be clear that the agenda weighed heavily in the interests of the developed countries.
1) The launching of the next phase of the WTO’s work, which will include ‘further liberalisation sufficiently broad-based to respond to the range of interests and concerns of Members’ in preparation for the 3rd Ministerial conference (Ministerial Declaration 20/5/98). Several items are due for review in 1999 and 2000, such as agriculture, TRIPS and services. No formal decision was taken as to whether negotiations on this built-in agenda, as well as on new issues would be sectoral or comprehensive after the 3rd Ministerial. However, the US made it clear that the scheduled reviews for the agreements on agriculture (1999) and services (2000) would take place on time and that the preparatory work for these issues would be completed by the next Ministerial. Bill Clinton and US Trade Representative Barshefsky reiterated that even if negotiations following the 3rd Ministerial were comprehensive, it would not require all issues to be concluded before one issue is concluded.
2) The actual workplan from the 2nd to the 3rd Ministerial will be under the direction of the General Council, which will meet in a special session in September 1998 and by the 3rd Ministerial will present recommendations regarding the ‘scope, structure and time-frames’ of the work programme (Ministerial Declaration 20/5/98). The negotiations during this interim period between the 2nd and 3rd Ministerial is therefore critical in determining whether or not there would be a ‘Millennium Round’, and the extent of liberalisation mapped out for the various issue areas.
3) US Trade Representative Charlene Barshefsky was appointed Chairperson of the next Ministerial, as well as the negotiations leading up to it. It was also decided that the 3rd Ministerial will be held in the US in the third or fourth quarter of 1999. Now that the US is officially taking the reins of leadership for the WTO, developing countries will have to work extremely hard in submitting proposals and in synergising their collective energies if they want their agenda to be included.
4) Adoption of the Declaration on Electronic Commerce barring members from introducing tariffs on e-commerce until the Declaration is reviewed at the next Ministerial. Consensus would be necessary at the next Ministerial if it is decided that the tariff standstill continues. A work programme was also launched to ‘examine all trade-related issues relating to global electronic commerce’.
5) In the up-coming review on agriculture, the US and Cairns Group of exporting countries are targeting reduction in tariffs, an increase in tariff rate quotas, the elimination of export subsidies, the tightening of rules on domestic support, more disciplines on state trading enterprises, and a reaffirmation by Member countries of the Sanitary and Phytosanitary Agreement.
The US and Cairns Group have also decided on a common strategy to put pressure on the EU’s Common Agricultural Policy (CAP), generally seen as being too protectionist. They intend to put pressure on the following soft spots:
- that the CAP is draining EU Treasuries
- high prices for EU consumers
- consequences of CAP policies on the environment
- that CAP has to change in order to incorporate other European countries into the EU.
6) Also significant at this Ministerial was the concerted efforts by the WTO and the US to spruce up the image of the WTO. The WTO, it was promised, will be made more transparent and accessible. The participation of civil society in the dispute settlement system should be made possible. It remains to be seen, if any real change will materalise from these efforts.
*Aileen Kwa is a Research Associate with Focus on the Global South
US Brings in Yet Another New Issue at WTO: Electronic Commerce
Aileen Kwa*
E-commerce stole the limelight of the show this time. Similar to the first Ministerial Conference in Singapore where US pushed for the completion of liberalisation of Telecommunications and the Information Technology Agreement (ITA), this time it was none other than the Declaration on Electronic Commerce.
‘Pardon me, but what is that?’ was in fact the response of many government delegations. Many had not heard of the proposal which was only was put before them at the Ministerial. And indeed, it has been so new an issue, so little discussed, and so vague, that it remains unclear exactly what it is about, much less how it will affect member countries.
The E-Commerce Declaration bars governments from imposing tariffs on the sale of electronically transmitted goods and services. It does not cover internet shopping, where goods are ordered over the net and delivered by traditional, non-electronic means. But a huge range of products and services can be electronically transmitted, and that range will only be expanding in the years to come, from software, music, movies, to legal, travel, accounting, educational, medical, architectural and other consultancy services.
To date, no country has implemented tariffs on its electronically purchased goods and services. The Declaration seeks a political commitment from governments to maintain this zero tariff standstill.
So how did it come to pass? The talk along the corridors was that the WTO wanted Bill Clinton to come to town, to lend legitimacy and glamour to GATT’s 50th birthday celebrations. The US in turn, took the opportunity to push for a new business deal. If Bill is to come, surely the WTO must give him due reason, such as a new agreement. Hence, the birth of this latest ‘new issue’, electronic-commerce only in February 1998, barely three months before the ministerial.
At the final press conference by the Director General of the WTO, Ruggiero, was asked by a journalist why the e-commerce issue had taken up so much time. Was the time-use warranted, given that it was not an area the other member countries found to be a pressing issue? (Only 10 out of 132 members had been involved in the negotiations on it prior to the Ministerial).
His reply was that in only a few weeks, the US had managed to get support from all countries. This showed that ‘everybody understands that they all have a stake in this issue. There is a sense of shared interest’. But was this really the case?
Precisely this business of pulling off a totally new issue within ‘only a few weeks’ graphically illustrates the disproportionately large share of power the US commands in WTO negotiations. The Draft Declaration that trade negotiators had been working on up until the Ministerial did not contain any mention of e-commerce. However, by the end of the Ministerial, the US’ trophy was the ‘Declaration on Global Electronic Commerce’ stating that by September 1998, there would be a ‘comprehensive work programme to examine all trade-related issues relating to global electronic commerce...we also declare that Members will continue their current practice of not imposing customs duties on electronic transmissions’ until the Declaration is reviewed in the 3rd Ministerial in 1999.
But how did the US manage to get consensus on it? Apparently, the proposal had been rejected by government trade negotiators. The US then cleverly called together a high-level meeting of ministers and managed to get agreement there.
As it stands, the document differs slightly from its original statement, that consensus would be needed should the standstill on tariffs be discontinued. Ministers instead agreed that consensus at the next Ministerial will have to be given before the standstill of tariffs is continued. Certainly a consolation for developing countries, but should governments of developing countries have agreed to it in the first place?
Certain developing countries did voice worries. Munir Akram, Ambassador to Pakistan, for example, said: ‘We ask if such an issue should be parachuted into the WTO at short notice without full consideration of all its aspects...We don’t know if it is compatible with our laws’.
E-commerce Spells Dollars and Jobs for US
So in dollars and cents, how much is this deal worth, and what percentage of it will accrue to the US alone? At present, it is the possible tariffs charged on US$8 billion worth of goods and services US companies have sold. This US$8 billion is only 0.1 per cent of all economy-wide sales. In the next 5 years, internet sales are expected to double each year. ActivMedia and IDC (two internet research companies) project worldwide sales of US$200-300 billion by 2001.
From the glossy covered publication of the WTO (1998) entitled ‘Electronic Commerce and the Role of the WTO’, are some statistics and facts to illustrate the economically strategic role of this latest issue for the US.
By the year 2000, 30-40 per cent of US businesses will be expected to use electronic Data Interchange (EDI) by the year 2000. EDI refers to the exchange of documents and information between the computers of two businesses without human intervention. It has already speeded up the processes of bidding, order taking, invoicing, etc.
World-wide, e-commerce is predicted to account for 13 per cent of consumer ‘shopping’ by 1999. This share will double to 26 per cent by 2007 (Financial Times, 3/7/97). The internet is expected to expand its market share from 2 per cent of all electronic sales today to about 50 per cent in 10 years time.
In only a few years, it is believed that 25 to 30 per cent of economic activity in industrialised economies is likely to be strongly affected by electronic commerce. This will include the wholesale and retail sectors, financial services and business services (without real estate), educational, recreational and cultural services, and entertainment industries in countries such as Canada, the Netherlands, Sweden and the US. Other sectors, for example, manufacturing, are also likely to experience change in business practices and communication patterns.
The US will benefit most from these changes as their businesses and IT service providers are best poised to take advantage of the IT infrastructure and services demands the growth of e-commerce will create world-wide. This is especially obvious in the light the following:
In 1997, 70 per cent of internet websites were located in the US; 8 per cent in Canada; 14 per cent in Europe; 4 per cent for Asia / Pacific and 2.3 per cent for Latin America and Africa. Over 85 per cent of world internet revenue in 1996/7 was generated in the US, while only 62 per cent of the users were located in the US. According to the WTO,
‘This suggests that the US is probably a net exporter of products through the internet. Much of the expected worldwide internet transactions of maybe $300 billion by 2001 will fall on the United States’ (1998 p. 33)
The WTO estimates that by 1999, 70 per cent of sales are expected to come from retailers in the US.
As e-commerce grows, the infrastructure and information technology sectors which enable companies and consumers to access the Internet will radically expand. There will be a great demand for computer programmers, website producers, internet service providers. In the US, Internet-related employment reached almost 400,000 in the first quarter of 1997.
The US economy therefore stands to benefit with e-commerce. Electronic exports will increase and so will the demand for IT related jobs. Already in 1995, 1.8 million jobs in the US were IT-related and US IT exports amounted to $90 billion. These figures will certainly balloon with wide-spread use of e-commerce.
A Strategic Progression: Telecommunications - Information Technology Agreement (ITA) - E-commerce
It is clear from the above section, the interconnections between Telecommunications, IT, and e-commerce. Therefore, while the e-commerce Declaration seems to have been thrown into the WTO agenda suddenly, it is in fact a strategic progression from the Basic Telecommunications and ITA Agreements which were the main issues discussed at the first Ministerial Conference in Singapore, and, which were concluded in 1997.
The Information Technology Agreement removes a range of tariffs on information technology products essential to the infrastructure for electronic commerce and the Internet. Through the General Agreement on Trade in Services (GATS), commitment on market access, national treatment and regulatory principles in the basic telecommunications sector have been negotiated. That is, the US, which has an edge over the provision of telecommunications and IT infrastructure, has already ensured that markets of developing countries are open to their services. The spread of e-commerce will make the installation of the required infrastructure increasingly necessary. These changes will therefore be extremely lucrative for the US.
In pushing for further inroads, the ITA II and the Basic Telecommunications II Agreements are already in the pipeline. Liberalising these sector will certainly be tabled when the GATS (services agreement) is reviewed in 2000. Added pressure will also come in the form of attempts to institute the issues of competition policy and government procurement into the WTO.
At the 2nd Ministerial, Barshefsky has already stated the US’ position, that
‘In a highly regulated sector like basic telecom, many participants recognised that providing GATS market access and national treatment commitments were insufficient. Governments also needed to provide guarantees to prevent anti-competitive behaviour by dominant suppliers, maintain open and transparent licensing procedures, and ensure the impartiality of the government regulatory body. We look forward to working with other WTO Members to explore whether this or a similar approach may be appropriate elsewhere.’
US Pushes for Telecom / IT Liberalisation and Duty Free E-Commerce at APEC
Concurrent to the inroads made at the WTO, the US is also actively pushing the same agenda through at the APEC, and achieving even greater results. The third APEC ministerial meeting on telecoms and information industry took place right on the heels of the WTO Ministerial, in the first week of June 1998. Ministers adopted an action programme to promote e-commerce among member countries by harmonising the region’s policies and regulatory practices. The working group on telecoms was also directed to look into the development of ‘compatible and sustainable international charging arrangements for Internet services as electronic transactions become increasingly conducted over the Internet’ (Business Times 6-7/6/98).
The current crisis in Asia was even used as a reason why Asia must liberalise its telecommunications immediately. Asia Pacific countries were called upon by the International Telecommunication Union (ITU) to ‘redouble telecommunications privatisation and sector reform plans now and not scale back, as these efforts may well help the region out of the current slump... Policies designed to attract foreign investment coupled with targeted market entry abroad may hold the answer to the region’s recovery. (Business Times 2/6/98)
The ITU, in offering to help developing countries design their own information infrastructure development, is encouraging partnerships with foreign telecommunications companies because ‘partnerships with foreign investors hold the added attraction of injecting much-needed outside funds into the region’s markets’ (Business Times 2/6/98).
And certainly, the object of their interest is the estimated US$200 billion of investments Asia would have to spend on infrastructure in order to raise the number of telephone lines from 6 per 100 to 9.4 per 100 by 2000.
The US of course welcomed these inroads into the region’s Telecom / IT sectors, with USTR Barshefsky stating that it will boost trade in telecoms and information equipment to the tune of US$45 billion in current trade flows, that is, one-third of the global market. The biggest beneficiaries would certainly be exporting equipment manufacturers. One such, US multinational company, Hewlett-Packard, no doubt working hard behind the scenes, was right on hand to congratulate the APEC ministers.
The issue of duty-free e-commerce was a key topic of discussion at this APEC meeting. E-commerce is valued at US$500 million in 1997 and is forecasted to jump to US$40 billion by 2001 in the region (Business Times 2/6/98). The US and Australia pushed for a no tax position. Many of the other APEC members, however, disagreed, and the need for revenue for infrastructure development was cited as a reason for wanting taxation. No decision on the matter was made, with the ministers stating that the matter would be left to the finance and trade ministries (Business Times 6-7/6/98).
APEC ministers, however, committed themselves to an electronic commerce action plan that will be worked out in the next few months. The plan will be presented at the APEC meeting of national leaders in November 1998.
Implications of Duty-Free E-commerce for Developing Countries
The US and some of the higher income countries are pushing the rest of the world on a fast-track to a duty-free, IT business revolution, which mainly benefits their own business interests. Most developing countries do not realise the impact e-commerce will have on the Northern businesses and the repercussions on their consumers and businesses.
E-commerce is ideal for businesses because payment is immediate or close to it. For consumers, it could be the preferred way to purchase goods and services because delivery time of the product is also immediate, or extremely short.
E-commerce has the added advantage that it does not require physical space, hence businesses can slice off a tremendous portion of their overheads which would otherwise have to go to rents.
The overhead costs for international trade are estimated at about US$350 billion in 1996, or 7 per cent of the value of world trade. In some instances, 100 documents and 20 different organisations are involved in conducting international transactions. According to the ITU, savings from more efficient data processing could be as high as US$100 billion (WTO 1998).
Despite these advantages, the fact remains that businesses in most of the developing world are not poised to take advantage of e-commerce, save the privileged few in the South. 80 per cent of the world’s population have never even made a telephone call (The Guardian 20/5/98). Cyberspace is as much a reality to many, as is going to the moon. The current pattern of US businesses exporting their products electronically will increase in magnitude, but it is unlikely that the same will happen for businesses in the South in the near or medium-term future, given the absence of adequate infrastructure and skills.
Unfortunately, businesses in the South will have to compete with the global reach of e-commerce from the US and other developed countries. The minority in the South with access to the internet (also the financially well-off) will increasingly turn to the wide range of products offered to them on the internet. Given the lower costs of electronic retailing, these products could easily be more competitively priced.
With a standstill on tariffs, Southern governments will not be able to use tariffs to protect their local industries. It amounts to developing countries giving full market access to corporations mostly from the North.
Furthermore, it will mean a great loss of income through tax revenues for the South, which, as ministers in APEC observed, could be well channeled to the building of expensive IT infrastructure the South needs.
Another area which does not seem to have been discussed is financial transactions. With a standstill on tariffs, will it be law that electronic trading of stocks and shares always be duty-free? It was quipped by some that this was the US’ strategy to prevent Southern countries putting in place taxes on currency trading, in order to protect themselves against another Asian style-like crisis. With this tariff standstill, would it mean that countries will have no room to protect themselves against the huge inflows and outflows of electronically transferred capital that leave national economies teetering between collapse and growth spurts?
From the negotiations at the WTO, developing countries have shown reluctance in agreeing to a permanent tariff standstill. The challenge ahead, though, is not to buckle under the pressure of the powerful at the WTO and compromise their own countries’ interests. This is a challenge developing country governments are still grappling with.
*Aileen Kwa is a Research Associate with Focus on the Global South