Apr 28, 1998

ANOTHER HIJACKING OF WTO AGENDA?

Geneva, 26 April (Chakravarthi Raghavan) -- Even as developing countries are struggling to ensure that the WTO Ministerial meeting address the problems and difficulties of developing countries from the implementation of the WTO agreements, it appears that there will be another attempt to hijack the agenda.

In the run up to the Singapore Ministerial meeting, there was a great deal of talk that the prime focus would be on the problems of implementation.

But at Singapore itself, while this issue was relegated to speeches from Ministers at plenary meetings, mostly to empty halls, the major attention was on the US agenda of liberalization and zero-tariffs for "information technology products".

An issue that had been talked about outside the WTO, among the Quad countries (Canada, EC, Japan and Canada), suddenly dominated the Singapore meeting -- with most other negotiations held up as the Quad countries negotiated among themselves and sought to draw in other developing countries, several of whom joined in willy nilly.

A similar process seems to be at work now -- to reach an accord that could be signed at the Second Ministerial meeting of the WTO in May, on the US proposal for "free trade on internet".

The earlier vague US proposal for trade on internet being kept free of any governmental regulations, tariffs or taxes etc, has now been somewhat modified and presented as a decision asking countries to commit themselves not to levy any "tariffs" on internet commerce -- that is goods and services that are made available on internet/email and can be delivered by internet/email. 

The US move, or its variations by Canada, EC etc, would require countries committing themselves permanently, or for a while, not to levy any tariffs or fees and collect government revenues on such commerce.

The United States wants an accord now from countries that they would keep internet commerce, namely delivery of any product or service via internet (without any physical delivery across customs frontiers) free of any tariffs.

The US had raised the issue at an earlier meeting of the General Council and since then has been holding plurilateral consultations at its mission, calling in delegations in groups and 'briefing' them on the advantages and arguing that countries are not now levying any tariffs and it should be kept that way to enable to internet commerce to develop, rather than stifling such commerce before it can develop.  

The US is pushing for an accord now, holding out the prospect that if an accord is reached, President Clinton would some to attend the WTO Ministerial 50th anniversary celebrations to sign such an accord.

"Perhaps it is a price to be paid for this photo-opportunity, just as US Presidents collect money for party funds to attend dinners and coffee clutches," one trade official said. 

Informally, the US move is being presented with the argument that at a time when the WTO and 'free trade' are under assault in the US Congress and elsewhere, an agreement like this that Clinton could come and sign would give a boost to the trading system, and others nations should make concessions to help achieve this!

At Friday's General Council meeting, Canada, under any other business, introduced a paper calling for a "tariff standstill" on this issue, and the situation should be reassessed after 1 January 2000. The Canadians clearly have in mind their (and EC objective) of a new round at that time, involving both the existing issues and new issues.

The Canadian move, with the support of Japan, is aimed at having a standstill, but provide for its continuance on the launching of a new round.

But the US has not yet decided on whether a 'sectoral' approach would benefit or a general round of negotiations. Hence, it wants a standstill, but without a time-limitation or any indirect reference to a new round.

Egypt has put forward its own paper, calling for a study of this entire issue of electronic commerce and its implications, with the study to be undertaken at the WTO Committee on Trade and Development, and in other relevant organizations with competence such as UN Conference on Trade and Development.

So far no developing country has questioned or raised the fundamental issue of the competence of the WTO to deal with this issue, and preempt developments in this entire area or the priority being attached to it.

When at the very first meeting of the Council a few weeks ago, the subject was broached and India expressed some reservations and raised some doubts, the US said that India would be one of the beneficiaries as it is a net exporter of computer software, which can be delivered by internet.

Some Indian lobbies have taken up this view and are supporting it.

At the present stage of the development of internet, the internet commerce would cover financial services transactions, drawings and delivery of industrial designs, architectural designs, computer software, music etc.

Even in some of these areas where they have some expertise and exportable products, a major advantage of these few developing countries is in their lower labour costs -- costs even of such highly skilled labour.

In computer software, for e.g. the costs in the US and Europe are said to be several times higher than those in India, Brazil etc. 

In areas like music, there are attempts by some developing countries to develop a niche market with their cultural specialities, and hope they can break into the tight global monopoly of a few corporations, by marketing and delivering their 'product' by internet.

However, none of these are areas where they will get a special advantage or benefit through 'tariff free' or tax-free internet commerce.

Their comparative advantage lies either in the speciality niche itself, which they alone can cater to, or in the lower-labour costs as in software or computer aided design etc.

In this particular sector, the industrialized countries generally, and the United States in particular are the net exporters. The developing countries are the importers and consumers.

According to a WTO study, some 85% of internet revenue is generated in the US, while only 62% of users are located there. The US is "probably a net exporter of products through internet". And to put "future internet commerce into perspective", said the WTO study, much of the internet transactions of some $300 billion by 2001 will fall on the USA, and international trade via internet may reach $60 billion by year 2001.

Also, such electronic commerce is neither a 'product or goods' nor a 'service'. At best it is a mode of delivery that is sought to be given a privileged position, with countries frozen in.

While one or two developing countries may develop exports (such as on software, architectural designs, computer-aided industrial designs etc) in one or two niche areas, on the whole even they will be net importers and consumers.

But the net imports, and consumption, in developing countries would really be aimed at the rich elites. Even in a rich country with wide computer and internet usage as the United States, recent studies show that disadvantaged minorities like the blacks are out of this stream.

In the developing world, the importers and consumers of sophisticated financial services, or the cultural activities like music etc, will be the very rich. Should they be left to enjoy this benefit without a tariff on their 'imports' via this 'mode of delivery'  

Though it is not a question of 'protection' of an existing industry or to enable development of a new industry, it is a case of whether their rich consumers should or should not contribute to the state revenues for their consumption. It is a question of equity.