WORLD TRADE
ORGANIZATIONWT/GC/W/486
4 December 2002
(02-6700)
THIRD DEDICATED DISCUSSION ON ELECTRONIC COMMERCE
UNDER THE AUSPICES OF THE
GENERAL COUNCIL ON 25 OCTOBER 2002
Summary by the Secretariat of the Issues Raised1
At the Fifth Session of the Ministerial Conference in Doha Members agreed to continue the
Work Programme on Electronic Commerce, and instructed the General Council to consider the most
appropriate institutional arrangements for handling the Work Programme and to report on further
progress to the Fifth Session of the Ministerial Conference.
With regard to future work on e-commerce, at its meeting on 15 October 2002 the General
Council agreed to maintain, for the duration of th e work until the Fifth Ministerial Conference, the
current institutional arrangements for handling the Work Programme on Electronic Commerce,
namely, that the Councils for Trade in Services, Trade in Goods and TRIPS, and the Committee on
Trade and Development would examine and report on aspects of electronic commerce relevant totheir respective areas of competence, and that the General Council would play a central role in the
entire process, would keep the Work Programm e under continuous review and would consider any
trade-related issue of a cross-cutting nature.  The General Council also decided on a notional schedule
of future dedicated discussions on cross-cutting issues under the auspices of the General Council as
follows:  25 October,  late December,  late February 2003;  and the May-June 2003 period.
The third dedicated discussion on cross-cutting issues took place on 25 October 2002 under
the auspices of the General Council and was chaire d by Mr. R. Yerxa, Deputy Director-General, with
the aim of building on the examination of the issues undertaken in the second dedicated discussion of
this matter on 6 May 2002 (WT/GC/W/475).
There were two items on the agenda for this meeting:  (i) Classification of the content of
certain electronic transmissions, and (ii) Fiscal implications of e-commerce.  Members also discussed
the format for the reports on the dedicated discussions.
At the end of the discussion, it was agreed that the Secretariat would prepare a factual report
on the discussion under its own responsibility, and that Mr. Yerxa, Deputy Director-General, would
make an oral report on the discussion to the General Council at its meeting in December 2002.  The
main views expressed by delegations in the course of the discussion are summarized below.
1. Classification of the content of certain electronic transmissions
• It was suggested by one delegation that while many Members sought a definitive answer
to the question of whether digital products were goods or services, the fact was that they
could be either.  In its view, all WTO agreements applied to digital products.  The fact
                                                     
1 This document has been prepared under the Secret ariat's own responsibility and is without prejudice
to the positions of Members or to their rights or obligations under the WTO.WT/GC/W/486
Page 2
that services might be involved in the deli very of a product, such as the downloading of
software, did not make the product a service.  For example, an automobile was not a
service simply because design services, computer and related services, and distribution
services were involved in its production.  To determine that all digital products were
services would lock in the highest level of barriers for these products, and would thus notbe the most trade-liberalizing way to classify them.  Much of the debate centered around
software, and Canada's May 2002 non-paper raised interesting points and highlighted
some of the key issues for consideration, namely, that producers and exporters of digital
software products want to ensure the following:  the most efficient method of delivering
their products;  that a product delivered electronically was treated in a manner no more
restrictive – and possibly better – than if it were delivered physically;  that the current
liberal trading environment in which they operated was maintained;  and that tradeliberalization, expansion of e-commerce, transparency, and predictability were respected
regardless of the means of delivery.  The focus should be less on whether a product was a
good or a service and more on how existing WTO rules achieved these objectives, and
should include how the multilateral trade environment could best address the barriers to
meeting these objectives.
• An approach based on greater liberalization of all services critical to e-commerce would
meet many of these objectives.  For example, increased market access for
telecommunications and computer and related services would ensure that countries could
develop the means to deliver digital products efficiently.  E-commerce was evolving
rapidly, and hasty, premature conclusions on classification would not serve to furtherdevelop the opportunities it offered to all economies.  Members should continue to study
these technical issues with a view to their potential impact on trade, and these discussions
should be guided by certain principles that would foster the continued growth of e-
commerce.  For example:  non-discrimination;  greater market access and national
treatment commitments across a broad range of relevant goods and services sectors;ensuring that any domestic regulations affecting electronic commerce were transparent,
non-discriminatory and not a barrier to trade.  Further, in light of the importance of trade
liberalization for e-commerce, the moratorium on customs duties on electronic
transmission should be made permanent and binding.
• Several delegations agreed that guiding principles might be usefully explored, and
suggested that greater detail be provided on these.
• Another delegation was of the view that th e main question to be addressed was how to
classify electronic deliveries.  Once this question was resolved, the logical next step wasto look at market access for these products, but the latter was not the purpose of these
dedicated discussions.  The technical issue should be resolved first, and then Members
could see what market access should be provided to foster trade in electronic products.  It
asked for further detail regarding the principles suggested, particularly regarding thereference to transparent and non-discriminatory regulations in the area of e-commerce.
• One delegation recalled that it had submitted a paper in 2001 in which it had explained its
position that in cases of cross-border transactions of digital contents thorough carriermedia such as a diskette, it was appropriate that the same digita1 contents transmitted
through the Internet should be granted GATT-level treatment, such as unconditionalapplication of MFN, national treatment, and the general prohibition of quantitative
restrictions.  Members should discuss not only the classification issue per se, but also how
to ensure GATT-level treatment for transac tions involving digital contents, and which
principles or rules could be developed in this regard.WT/GC/W/486
Page 3
• In the view of one delegation, a product delivered in physical form would fall under the
scope of the GATT, and the same product delivered electronically would fall under the
GATS.  All modes of delivery, particularly Modes 1 and 2, were covered by the concept
of e-commerce on an equal footing.  In cases where a product could be provided either
electronically or physically, the mode of delivery would determine whether that productfell under the GATT or the GATS.  This was an important aspect of technological
neutrality, which this delegation defended within the framework of the GATS.  Regarding
classification, it was important to look at the "limit" cases, where the physical and
electronic aspects of a product were linked, and this should be further clarified.  It
favoured the extension of the moratorium on customs duties on electronic deliveries.
• Another delegation recalled that it had submitt ed two papers in 2001 and said its position
remained the same as then – products that were transmitted over the Internet should be
considered as services and treated under the GATS.  Its paper distinguished between two
separate stages in the supply of digitized products.  The first was the transmission of the
product over the Internet to the consumer, and the second was storage of the product in a
carrier media for future consumption.  What was important was the transmission of the
product from the territory of one Member to the territory of another, for which therelevant disciplines were those of the GATS.  Canada's paper raised a number of pertinent
issues, one of which was the lack of appropriate classification in either the Harmonized
System or MTN.GNS/W/120
2 for digitized products.  However, the broad CPC3 84
heading would be sufficient to cover digitized products that were transmitted over the
Internet.  His delegation supported the suggestion that the focus be on how to ensure thatWTO rules helped to create a liberal environment for e-commerce, and felt that the
guiding principles mentioned would be useful.
• One delegation said it was not convinced of the classification of the products in question
as a good or a service, and queried how this matter might be examined from an analytical
point of view.
• Another delegation stressed that the approach to classification should be as simple and
objective as possible.  E-commerce remained commerce, and the WTO had a patrimony
of strong rules for non-discrimination and market access.  What was under discussion was
a small portion of the content sold and delivered electronically, as there was consensus in
the WTO that all the rest of such content was services.  For his delegation, the focus ofthe present discussions was software.  In its view, trade in these kinds of digital deliveries
was a service, and thus came under the existing disciplines of the GATS.  As far as it was
concerned, this issue was settled.  It was currently being dealt with in negotiations
mandated by Ministers in Doha, which included requests and offers in sectors of interest
where delivery of digitized products was impor tant, such as computer-related services.
This delegation had noted the reference by one Member to guiding principles, but the fact
remained that e-commerce as discussed in the WTO was the flow of information over
electronic means, and the case had not been made that there was a problem, in the form of
restrictions being applied by Members.  Thus, it was not convinced of the need for any
rule-making action by the WTO for this mode of international trade.
• One delegation cautioned Members against digging a hole they might not be able to fill,
and losing the forest for the trees.  While it remained to be convinced there was a problem
                                                     
2 This WTO document carries the Services Sectoral Classification List, which is the basis for sectoral
entries in Members services' schedules.
3 Central Product Classification (Provisional) of the United Nations, 1991 version.WT/GC/W/486
Page 4
with the classification of electronic transmissions as services, it realized the need to focus
on what Members were trying to achieve.  In fact, the classification issue would not be
important, should Members be able to achieve a substantial level of market access and
national treatment under both the GATT and the GATS.  It would reflect on the guiding
principles suggested, and would be interested to hear further as to how these principlesmight help Members achieve the overall objective, which was to maintain an open and
liberal trading environment for e-commerce and to ensure that the potential for its
expansion would not be jeopardized by regulatory barriers or other measures in future.
• In one delegation's view, Members needed to address both the classification issue and the
concept of high-level principles;  one did not exclude the other.  Several delegations hadmade useful contributions on classification, and there was a need to address the “grey”
areas, i.e. classification of electronically delivered products with a physical equivalent.  Inparallel, there was a need to explore further the notion of guiding principles, which it
would come back to at a future dedicated discussion.  The application of such principles
could then be addressed on a sectoral (i.e. case-by-case) basis in the services negotiations.
Regarding one delegation's request for further clarification regarding the view that CPC
84 did not cover packaged software, “software” was defined in the context of CPC 84 forthe purposes of providing clarification in instances where a reference to “software” was
included in 3-digit level descriptions.  Thus, packaged software, when delivered in a
physical format, was not covered under CPC 84.  For this delegation, the liberalization of
trade with respect to a number of relevant goods and services sectors was a priority, but it
also wished to stress the importance of achieving greater legal certainty in respect ofrules, market access and national treatment.
• In one delegation's view, points had been identified which should be defined, such as
classification of digitized products.  Regarding guiding principles, it would be happy tolook at the proposals put forward.  It had repeatedly heard that electronic transmission
was merely a tool for conducting trade in services or goods.  However, whether theproducts in question were determined to be goods or services, there were already covered
by existing WTO rules.  This delegation would like to hear other delegations' specific
ideas with respect to the principles that had been suggested.  These dedicated discussions
were the proper forum for technical discussions related to classification and other issues.
Other matters that were more political in nature should be taken up at the proper time, andas the Cancún Ministerial approached, Members would determine what contribution
could be made at that Conference regarding e-commerce.
• One delegation referred to a recent session of the Asia-Europe Meeting (ASEM) and said
that this process provided an opportunity to promote e-commerce among the ASEM
partner countries through their commitment to achieve a set of mutually agreed regulatory
objectives, including the following general principles:  (i) The development of e-
commerce should be market-driven and based on effective competition;  rules affecting e-commerce should be developed in a collaborative manner through a multi-stakeholder
dialogue;  and the development of and adherence (through accreditation or certification,
including trust-marks) to standards or best practices should be based on voluntary,
market-driven processes.  (ii) Competition and the free flow of information should be
balanced with the need to protect society and the rights of individuals.  (iii) Rules for e-commerce should be non-discriminatory, technologically neutral and proportionate.  (iv)
E-commerce should not be treated as a ne w form of commerce but as a new and
continuously evolving, supplementary co mmunication and delivery channel, and
consistent with this approach, and without hindering the further development of e-
commerce, rules and principles that applied offline should apply online.WT/GC/W/486
Page 5
(v) Governments, business and civil society should cooperate to ensure effective
education on the benefits and risks of using the Internet and conducting e-commerce, in
particular vis-á-vis consumers and small and medium enterprises.  (vi) Governments, in
close collaboration with their national and international business partners and civil
society, should cooperate internationally and bilaterally with a view to ensuringcoordination and cross-border recognition to facilitate the flow of information, as well as
the protection of consumers and society.  (vii) In view of the speed of change inherent in
e-commerce, regulatory efforts should always seek to build in appropriate incentives for
timely review.  (viii) Non-discriminatory treatment of electronic transactions under both
substantive and procedural law, in particular with reference to the UNCITRAL Model
Law on Electronic Commerce, should be urgently ensured.
• Another delegation, which had not previously expressed a position on the classification
issue, said it shared the view that produc ts delivered in physical form fell under the
GATT and those delivered electronically fell under the GATS.  It urged the delegation
which had proposed guiding principles to table this proposal in written form, and was
open to considering these principles.
• Similarly, one delegation felt that if digitized products were traded by means of a physical
carrier, they should fall under the GATT, and that classification of all such products asgoods could risk having serious unintended consequences for the scope of the GATS and
the status of other on-line services beyond those actually at issue.  This delegation wished
to know if it would be possible to compile a list of tariff lines under the HS code for the
digitized products at issue, as a clear and specific definition of digitized products wouldmake possible a fruitful discussion of classification issues.
• In another delegation's view, CPC 84 covered the whole activity of designing, producing
and implementing software, which was defined in CPC 84, and it could not accept thatthe delivery aspect of these products would not be covered as well.  The GATS stated
clearly that the supply of a service included the production, marketing, sale and deliveryof the service.  Thus, the design, production, debugging, testing and implementing of
software was the service, and this included the delivery of the software.  Negotiations
were under way on this, which was key to the development of e-commerce.  As explained
in its submission in November 2000, services were very important to the infrastructure of
e-commerce, and it was necessary to promote the liberalization of those services in orderto have an efficient e-commerce structure.  In this regard, it supported the principle of
promoting infrastructure for e-commerce in orde r to make it more efficient, available and
cheap.  However, it could not accept that delivery of such products would not be covered
by the GATS;  otherwise, none of its commitments under computer-related services for
CPC 842 would have any meaning.
• In response, one delegation said that if the argument were accepted that because software
involved services in its design and delivery, the software itself was a service, one would
also have to accept that an automobile was a service, as it too involved services in its
design and delivery.
• The view was expressed by one delegation that the present discussion should be restricted
to the limited number of products in question.  Software was in a different category from
other products because it could be digitized and traded electronically.
• One delegation shared the view that premature classification of the products in question
could be a mistake.  This issue should be studied in more detail.  Regarding the guidingWT/GC/W/486
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principles that had been suggested, such as  national treatment, MFN and transparency,
these should be taken into account.  However, electronic means were just one tool for
carrying out trade in goods and services, and there were already existing principles in
both areas.  Nevertheless, it remained open to proposals on these principles.  In addition,
the development aspect of e-commerce should be borne in mind, as this was extremelyimportant.
• In response, one delegation said that the development aspect of e-commerce was even
more important for developing countries, because all sectors of an economy could,through the effects of electronic networks, help expand e-commerce and economic
growth.
• It was suggested by one delegation that two types of principles should be considered:
(i) broad, political principles, potentially applying to several areas of the WTO;  and
(ii) technical principles, which might be more specific to the services negotiations.  There
was a distinction to be made between these two types of principles.  The various
suggestions on principles should be provided in writing so as to allow for an exchange of
views and an eventual consensus on them.
• Another delegation said that in the case of software, a company designed, produced,
tested, debugged and implemented the software by sending it over the Internet.  As theGATS clearly explained, the supply of that service was not only selling it, but marketing
it, producing it and delivering it.  The delivery of the software was actually the supply of
the service, which under CPC 84 was called the "implementation of software".
• Another delegation expressed serious concern about separating the content and the
carriage in e-commerce.  In this sense it agreed that where a good existed prior to e-commerce and could be delivered in a way that was not electronic, it remained a good.
Otherwise, there would be problems regarding equivalence.
• One delegation said that while the submissions had been very helpful in carrying the work
forward on this issue, it remained to be conv inced of the need for classifying the products
in question, and felt that more educative and exploratory work was necessary.
2. Fiscal implications of e-commerce
• One delegation expressed the view that the focus under this agenda item on the
imposition of customs duties on electronic transmissions was misplaced, since most of the
studies to date showed that the revenue generated by duties on products that could bedigitized was very small.  Instead, the focus should be on how liberalizing key services
sectors could help improve overall economic efficiencies and thereby increase GDP.
Examples included lowering costs, enhanc ing the trade and investment climate, and
improving established systems – for example, using the Internet to establish stable and
transparent regulatory conditions that would be attractive to investors, and lengtheningthe reach of small and medium enterprises so as to create more business opportunities.
Information technology was a dynamic source of economic growth and had a positive
effect on all other industries.  A duty-free environment for electronic transmissions was
only one element of that.  The economic and revenue-generating aspects of e-commerce
in increased business activity for sectors that relied on information technology far
exceeded the minimal revenue that could be generated by customs duties, and the cost of
collecting such duties would likely far exceed the gains that could theoretically beachieved.WT/GC/W/486
Page 7
3. Procedural matters – Format for reports on the dedicated discussions
• In the view of several delegations, the format for reports on the dedicated discussions thus
far, i.e. an informal summary of the discussion by the Secretariat on its own
responsibility, was satisfactory and should be retained.
• Another delegation added that while there were ongoing negotiations on services, these
dedicated discussions were not meant to be a negotiating forum, and the current informal
process was more conducive to a fruitful exchange of views.
• One delegation recalled that these dedicated discussions were held under a Work
Programme on Electronic Commerce that was part of the Doha Ministerial Declaration.In raising this issue it merely wished to flag the need to maintain coherence in the way the
various bodies were reporting under that Declaration.  This delegation was flexible, and atthe present stage the factual report prepared by the Secretariat was sufficient, provided all
positions were reflected.
• It was added by another delegation that these discussions took place in a special format,
since they were the held under the auspices of the General Council but were not meetings
of the General Council.  Thus, it could accept that the method of reporting on these
discussions was also different.  However, an important point had been raised based on
paragraph 34 of the Doha Declaration.  This delegation queried whether, as the date of theCancún Ministerial approached, the reporting format would be changed, for example by
including attribution of positions to delegations.
• This view was shared by another delegation which said that while it was flexible on this
issue, the present format could be confusing, as positions were not attributed.  At some
stage in future, it would like to see the delegations indicated.
• One delegation suggested that since it seemed to be the wish of a majority of delegations,
and since the discussion was at present at the technical level, the current format could be
retained, and Members could return to this matter at a later date.  It should be kept in
mind, however, that the present forum of the dedicated discussions was part of the Doha
Ministerial Declaration.
• Delegations agreed to maintain the current reporting format, on the understanding that
this issue would be revisited as the Cancún Ministerial Conference approached.
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