WTO implications of classification issues

1
WTO implications of classification issues

• L. Lee Tuthill
• Trade in Services Division
• World Trade Organization

2
Implications?Three different questions...

• Revenue implications
• of E-commerce
• of GATT vs. GATS treatment
• of the Moratorium on customs duties

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

3
Where do we Stand?...GATS

• 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

4
Where do we Stand?...GATT

• 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?

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What is at issue

• 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
• But, no specific problems or disputes have yet
  arisen in this regard

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What is not at issue

• 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 merchandise and
  more than 99 of duties collected world wide

7
On-line shopping... in
goods and services
Computer
(3rd)
323
products
(close 2nd)
276
Travel
(1st)
194
Entertainment
Latest rank ( - ) Year-end 2001
103
Gifts Flowers
World Online
89
Apparel
shopping
revenues by
78
Food Drink
category 1997
In millions (US)
75
Other
Source ITU Challenges to the Network 1999
Internet for Development
8
What are we talking about?

• On tape, diskette, cassette, CD-ROM, DVD, etc
• Videos
• Software
• Recorded music
• Books, magazines newspapers

• Without physical carrier medium
• Downloadable films
• - limited use permanent use...
• - Pay per view? Streaming?
• Downloadable
• Interactive on-line software?
• Downloadable cuts..entire albums?
• Streaming?
• Downloadable books
• Read on-line print media

9
GATS W/120 vs. HS CodeExamples of classification
questions
10
Goods and/or ServicesWhat exactly is
information? Print media, software, videos,
music...

• GATT covers
• Physical carrier medium
• including content?
• Irrespective of content?
• New forms of carriage
• Content, itself

• GATS covers
• Development production of
• Distribution of
• Live performance of
• Adaptation of
• Radio/TV broadcast transmission of (live or not)
• New forms of transmission
• Content, itself

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Market DevelopmentsSoftware
Quicken 2002 DeluxeIntuit 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
12
Books

• Star Wars The New Jedi Order Recovery
  DOWNLOAD ADOBE READERby 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

13
MagazinesPrint, web, e-mail or mobile
14
Music
NECHUNG MONKS Recorded Live in DharamsalaThe
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
DownloadsDownload free music from this album
"Prayer to the Three Jewels Prayer to the 25
Founders of Tibetan Buddhism" "Sacred
Instrumental Offering"
15
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.
16
In briefRole of classification

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

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ClassificationServices, Goods or ..?..

applies to internal taxes
18
With fullcommitments ..?..

applies to internal taxes
19
GATS vs. GATT Difference in scope?
GATS Schedule
GATT scope limited to what in GATS is mode 1
20
Cross Border AccessGATS Commitments...
(By number of governments)
production distribution
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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
• However, classification work might still be
  needed. Neither GATT nor GATS classification
  schemes may fully or unambiguously cover some of
  the products or content concerned

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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 of digital products that remain traded on
  physical formats

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For consideration...

• 1. Tariff revenue
• 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?
• 2. Tax revenue
• 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?

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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
• 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?
• 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
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and finally the broader picture

• 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?