Electronic Commerce on WTO

1999.5.18

Ministry of International Trade and Industry

Tokyo, May 11, 1999

Maintaining the cyberspace free from unnecessary regulation is an indispensable precondition for the development of electronic commerce. In this regard, the Japanese Ministry of International Trade and Industry would present the following points as food for thought in our future discussions.

1. Application of GATT principles such as National Treatment, the Most-Favored-Nation Treatment and the General Elimination of Quantitative Restrictions

In dealing with electronic commerce, it is important to bear in mind the conceptual distinction between "digital content" itself and "the act of providing digital content".

-The GATT disciplines concern governmental actions related to the treatment of goods. In other words, the rules are defined in rem ("against the thing"). In contrast, the GATS rules are about governmental actions regulating supply of services. The rules are thus defined in personam ("against the person").

-There is no question that GATT principles, such as national treatment, MFN treatment and the general elimination of quantitative restrictions, are applicable to physical media in which the digital content is recorded (e.g. pre-packaged software, music CDs). Now, we need to examine whether these principles can equally be applied to the content per se that is supplied through electronic means.

-We do not question that "the act of providing" is provision of services and therefore is covered by the relevant GATS obligations. However, this does not mean that we have a clear set of in rem rules regarding digital content within the current WTO framework.

-Given that trade-distortive government regulations can abate the benefits of economic growth driven by electronic commerce, we should not exclude the possibility of additional WTO rules, specifically designed to address the treatment of digital content, which would contribute to the expansion of global electronic commerce.

-Developing countries should be able to gain from this initiative. The regulation-free cyberspace will bring about increasing trade in goods and services and the subsequent development of technology, thereby contributing to economic growth in developing countries. The benefit is not limited to globalized business based in developed countries. Small and medium enterprises locally based in developing countries can also reap the benefit as long as they are linked to the regulation-free cyberspace..

2.Customs Duties on Electronic Transmissions

WTO Members should continue their current practice of not imposing customs duties on electronic transmissions. This moratorium should continue while Members proceed with the review of this issue from legal and technical points of view, including on how this commitment should be treated in the WTO framework.

-Discussions on how customs duties are treated on electronic transmissions need to take into account the legal and technical points of view. For many customs services (particularly those located in developing countries), it may be important to start the discussions from the recognition that levying customs duties on electronic transmissions is not denied a priori.

-It is important that this discussion reach a well-balanced conclusion, taking into account the needs of developing country Members as well as the necessity to maintain the regulation-free cyberspace.

3.Protection of Privacy, Competition, Intellectual Property Rights, Consumer Interests and Other Issues

In advocating the regulation-free cyberspace, we are not claiming that no regulations are necessary in this area. We fully recognize the need for legitimate regulations over electronic commerce. In this regard, it is necessary to discuss how we should apply the existing rules on the protection of privacy, competition, intellectual property rights and consumer interests in order for them not to constitute unnecessary impediments to trade in goods and services through electronic commerce. Depending on the outcome of these discussions, we may need to consider whether it is necessary to establish new rules in these areas as well. We should also cooperate with other international fora such as the OECD and UNCITRAL, which are currently examining various aspects of electronic commerce.

4.Future Work

While some of these issues discussed above may be elaborated under the current work program on electronic commerce under the auspices of the WTO, in view of its deadline (July 1999), we may not be able to complete the discussions in time. In order to explore the issues further, we propose that we continue discussions at the interdisciplinary experts level within the WTO, taking into account comments from the business communities.

(1) Only the order is placed online, while the product is delivered physically.

(2) The order is placed online and the products (digital content) is also delivered electronically, particularly through the Internet.

(3) Typically, provision of professional services (legal, medical, architectural, etc) online. We are aware, however, that with the advance of information technology, the distinction between (2) and (3) is getting blurred. For instance, you can receive "customized" information from a news Web site.

Application Range of Rules

Explains that existing regulations on services are in effect in each country and that it is necessary to discuss digital contents separately.

(1) Book sales

(2) Online book sales (our position)

Information (content) itself has commercial value and must use hardware for acts of electronic transmission. Therefore, digital contents should be considered as separate from mere services.

(3) Online services (considering everything as services)

Not only is it possible that all existing regulations and rules in each country will remain, it is also necessary to interpret the extent of application of GATS of existing reservation and exceptional registration through case-by-case interpretation. Clearly, there will be uncertainty in markets in the future. Discussion is necessary in the case of (2) and (3). At least, in cases of (2) addressing great numbers of consumers, we should apply similar rules (GATT-level regulations) which are applied to information distributed by a physical recording medium.

• Regulations on items provided as conventional goods
  - Off-shore regulations: tariffs
  - Domestic regulations: technological standards, distribution regulations (Note that quantitative restrictions and subsidies are prohibited by the GATT. In principle, MFN and NT are applied in regard to regulations.)

For example, in the case of an imported music CD, domestic impact can be relaxed through
i) Tariffs imposed regardless of content;
ii) Regulations on import CD retailers;
iii) Regulations on possession of CD players (high VATs, high tariffs); etc.

• Regulations in the case of impact through communication lines
  - Off-shore regulations: tariffs (currently impossible)-national borders not recognized
  - Domestic regulations: Regulations on possession of modems and other equipment necessary for communication (high tariffs, high VATs)

These and other regulations may appear in the future.