WTO implications of classification issues

L. Lee Tuthill Trade in Services Division World Trade Organization

Implications? Three different questions...

Revenue implications:

q q

of E-commerce

Customs duties, internal taxes, forex earnings Customs duties, internal taxes (but, level
of access & benefits is also a main concern)

of GATT vs. GATS treatment of the Moratorium on customs duties

Customs duties only

Where do we Stand?

... GATS
q q

The vast majority of on-line trade clearly involves trade in services GATS defines services through modes of supply, making no distinctions concerning technologies involved in delivery. This would mean that GATS benefits apply:
MFN, transparency, domestic regulation, competition safeguards, etc Market access & national treatment commitments in GATS Schedules of Members

Where do we Stand?

... GATT
q

It is clear that traditional GATT obligations & benefits apply to physically delivered goods that may have been purchased on-line But... How to characterize end-to-end electronic delivery of products now tradable in both physical and electronic form?

What is at issue
q

Covered by GATT or GATS? A narrow range of media products that may be currently imported under HS classifications -- &/or downloaded on-line

Involving approximately 1% of total merchandize trade and 1% of total duties collected world wide q But, no specific problems or disputes have yet arisen in this
q

What is not at issue

q q

The vast majority of services All media/information products that never did cross borders in physical formats, i.e. being clearly in the purview of GATS For example, most media/entertainment forms - - are and always have been clearly regarded as services, e.g. broadcast TV programming, radio programming Approximately 99% of trade in

On-line shopping... goods and services

Computer products Travel

in
$323

(3rd) (close 2nd) (1st)

$103 $89 $78 $75 $194 $276

Entertainment
Gifts & Flowers Apparel Food & Drink Other

Latest rank ( - )
Year-end 2001
World Online shopping revenues by category 1997
In millions (US$)

Source: ITU Challenges to the Network 1999: Internet for Development

What are we talking about?

On tape, diskette, cassette, CD-ROM, DVD, etc:
q

Without physical carrier medium:

Videos Software

Downloadable films
- limited use permanent use... - Pay per view? Streaming?

q q

Recorded music Books, magazines newspapers

Downloadable Interactive on-line software? Downloadable cuts..entire albums? Streaming? Downloadable books

GATS W/120 vs. HS Code

S e rv ic e D e s c rip tio n
W /120 UNCP C HS CO DEC o m m o d ity

Examples of classification questions

D e s c rip tio n

M o tio n p ictu re p ro d u ctio n 2.D .a. 9611 & d istrib u tio n ? P rin tin g an d p u b lish in g ? 1.F .r. 88442

37.06C in em ato g rap h film , exp o sed an d d evelo p ed , P rin ted M atter B o o ks, p am p h lets, m ap s an d g lo b es, p rin ted 4903 C h ild ren 's pictu re, d raw in g o r co lo u rin g bo o ks 4901.1P rin ted b o o ks, b ro ch u res, leaflets an d sim ilar p 4901.9D ictio n aries an d en cyclo p ed ias, an d serial in sta 4902 Oth er b o o ks, b ro ch u res an d sim ilar p rin ted m at 49.02N ew sp ap ers, jo u rn als an d p erio d icals B ab y carriag es, to ys, g am es an d sp o rtin g g o o d S o ftw are im p lem en tatio n ? 1.B .b . 824 9504.1V id eo g am es o f a kin d u sed w ith a televisio n rec M u sical in stru m en ts, p arts, accesso ries th ereo f S o u n d reco rd in g ? 2.D .e. reco rd s, tap es, sim ilar reco rd in g s etc 8524.21,22,23 M ag n etic tap es reco rd ed * 8524.1Gram o p h o n e reco rd s* S o ftw are im p lem an tatio n ? 1.B .b . 8524.9R eco rd ed m ed ia, n .e.s.* On -lin e d ata b ase access? 2.C .j. *In clu d in g reco rd ed so ftw are su p p o rt item s.

Goods and/or Services

What exactly is information? GATT covers:

q

Print media, software, videos, music...

GATS covers:
q q q q q

Physical carrier medium

including content? Irrespective of content?

? ?

New forms of carriage Content, itself

Development & production of Distribution of Live performance of Adaptation of Radio/TV broadcast transmission of (live or not)

? ?

New forms of transmission Content, itself

Market Developments Software

Quicken 2002 Deluxe Intuit Our Price: $59.99 Special Offers: $40.00 Price After Special Offers: $19.99 Platform: Windows 95 / 98 / Me / XP / NT 4 / 2000 Media: CD-ROM

Other Media: Download

Usually ships within 24 hours

Books
Star Wars: The New Jedi Order: Recovery [DOWNLOAD: ADOBE READER]
by Troy Denning List Price: $2.99 Our Price: $2.99

Availability: Available for download now. Digital: 108 pages; 1 edition (October 2001) Customers who bought this book also bought: Darth Maul: Saboteur (Star Wars) [DOWNLOAD: MICROSOFT READER] by James Luceno Star Wars: Darth Maul: Saboteur [DOWNLOAD: ADOBE READER] by James Luceno Traitor (Star Wars: The New Jedi Order, Book 13) by Matthew Woodring Stover Jedi Quest - Path to Truth (Star Wars) by Jude Watson

Magazines

Print, web, e-mail or mobile

Music
NECHUNG MONKS Recorded Live in Dharamsala
The Nechung Monks List Price: $16.99 Our Price: $16.99
Audio CD (January 25, 2002) Original Release Date: January 1, 2001 Number of Discs: 1

Genres: International/Far East & Asia,International/India & Pakistan Free Downloads Download free music from this album: "Prayer to the Three Jewels & Prayer to the 25 Founders of Tibetan Buddhism" "Sacred Instrumental Offering"

Videos

Rent, purchase, download or view

Movies start as often as every 30 minutes and are only $3.99 each when you order with your remote control.

In brief Role of classification

It has become a pivotal issue because of structural differences between GATT and GATS... Why?
q

The essence of GATT is to reduce or eliminate tariffs over time through binding of tariff concessions. National treatment for internal taxes is obligatory Tariffs were so uncommon in services trade that GATS does not even mention them. National treatment for internal taxes is negotiated Levels of benefits extended by GATT can differ significantly from those available under GATS in the short term. In the long term? Overall, scope of GATS is far wider

Classification: Services, Goods or ..?..

Tariffs Licensing
Quantitative restrictions
-Progressive elimination -Of the imports: rules in place -Prohibited -Obligatory -Disciplines -Imports

GATT/ Goods GATS/ Services

-Not recognized, but national treatment may apply -Of suppliers: principles exist -Progressive elimination -Progressive implementation -National treatment applies (see above) -Services & suppliers in all modes of supply

N ational treatm ent+ Subsidies Trade covered

applies to internal taxes

With full commitments ..?..

GATT/ Goods GATS/ Services
Tariffs Licensing Quantitative restrictions N ational treatm ent+ Subsidies M easures covered
-None -Imports: Non trade restrictive -None -Full -Non-trade distortive
-None -Suppliers: Non trade restrictive -None* -Full* -Non-discriminatory (Nationat treatment) *Affecting services & suppliers in all modes of supply

-Tariff and nontariff barriers on imports applies to internal taxes

GATS vs. GATT Difference in scope?

Modes of supply: 1) Cross-border supply 2) Consum ption abroad 3) Com ercial presence 4) Presence of natural persons m

Sector or subsector
8. SECTOR A. Subsector (CPC Number or other defining characteristics)

Limitations on market access

Limitations on national treatment

Additional commitments

GATS Schedule

1) -------2) 3) 4)

1) ------2) 3) 4)

GATT scope

limited to what in GATS is mode 1

Cross Border Access GATS Commitments...

T otal C m ents om itm N lim o C o its n ross B rder o

65

63

(By number of governments)

41
20

38

24
17

22
9

10

12 4
ion ut rib ist

s o g es pl. ide n ing hin cc v m s a rd i o o e ei bl e & ributi ec ar as Pu ur t b , t s tw dr g f ic di n ata in So ou n p ion & int ed S tio Pr ct lin nM o rodu O p

Status quo?

Some of these products can and do enter markets under both GATT & GATS at the same time depending on the carriage or delivery vehicle used. This may continue to be the case for some time to come In some cases the content is similar or even identical but receives different treatment depending on whether GATT or GATS applies. Does this send conflicting signals to markets. Does it distort the commercial decisions of traders?

Yet, the status quo may be a viable option. If so, explicitly confirmation of such an approach would, at least, offer some legal clarity and predictability for trade

Possible alternatives?
Classification of such products as goods?
&

May clarify situation with respect to tariffs and national treatment, etc. for the products concerned Could have serious unintended consequences for the scope of the GATS, e.g. for the status of other on-line services beyond those actually at issue

Classification of such products as services?

&

May clarify the status most forms of e-commerce Leaves open the issue of differing treatment of similar products delivered by physical and electronic means Could raise questions on the GATT status of the content

For consideration...
1. Tariff revenue
q q

How significant is the value of GATT tariffs on these products? What is the status of tariffs under GATS? Are they feasible & at what cost? Might they take the form of discriminatory internal taxes? Either way, is it desirable to start down this path? Members are entitled to non-discriminatory internal taxes under GATT & GATS. On-line products feasibility? ...desirability? Discriminatory taxes in GATS? What would be the impact on products now benefiting from GATT in this respect? What would be the impact on other services never before subject to tariffs?

2. Tax revenue
q q

For consideration...
3. Levels of benefits
The implications of classification concerns for products traditionally subject to sensitivities and trade restrictions are very different from the implications for products for which freer trade has been the norm q Is it reasonable that a determination on classification, in itself, might result in the removal of barriers on certain products or in the evaporation of benefits, heretofore available for others? q Is there a case for possible consideration of sector-specific solutions for certain products? The work program began as an examination. And it would be ideal if classification issues were resolved on a purely conceptual basis. But, because Members views on many of these questions vary so considerably, it has instead become a negotiation
q

and finally the broader picture

q

What are the implications of e-commerce for the promotion of economic development? What are the implications for development of erecting barriers to e-commerce? What are the implications for expanding trade and economic growth of legal uncertainty about how WTO agreements apply to e-business & e-trade? Transparency, legal certainty, predictability and spreading the benefits economic growth equitably are what the trading system is all about... Does WTO risk becoming falling behind as our commercial players continue apace to adopt & employ the new advances in technology in commercial trade?