WORLD TRADE
ORGANIZATIONWT/GC/W/492
8 April 2003
(03-1930)
FOURTH DEDICATED DISCUSSION ON ELECTRONIC COMMERCE
UNDER THE AUSPICES OF THE
GENERAL COUNCIL ON 27 FEBRUARY 2003
Summary by the Secretariat of the Issues Raised1
At the Fourth Session of the Ministerial Confer ence in Doha, Ministers 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.
The fourth dedicated discussion on cross-cutting issues took place on 27 February 2003 under
the auspices of the General Council and was chaire d by Deputy Director-General Mr. R. Yerxa, with
the aim of building on the examination of the issues undertaken at the third dedicated discussion on
this matter on 25 October 2002 (WT/GC/W/486).
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 discussedthe 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 Deputy Director-G eneral Mr. Yerxa would
make an oral report on the discussion to the General Council at its meeting in May 2003.  The mainviews expressed by delegations in the course of the discussion are summarized below.
1. Classification of the content of certain electronic transmissions
• One delegation said that because e-commerce was a multifaceted topic involving many
areas of existing WTO agreements, the Work Programme on Electronic Commerce
should try to identify how the relevant ongoing negotiations could spur the advancementof e-commerce, and that Members should endorse general objectives on e-commerce
                                                     
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/492
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applicable to all negotiating groups, and report this progress to Ministers at Cancún.
Examples of such objectives were:  adhering to a liberal and open trade environment;
committing to greater market access and national treatment for goods and services that
would promote trade in products and services using electronic networks;  transparent and
non-discriminatory domestic regulations;  making permanent the moratorium on customsduties on electronic transmissions;  and coordinating with other international institutions
on technical assistance and capacity building related to infrastructure and other
requirements for e-commerce.  Other inte rnational fora were already examining e-
commerce in such a manner;  for example, in October 2002, a majority of leaders of
APEC had agreed to adopt a series of trade policies for the digital economy, and had
highlighted key general objectives in this area, similar to the ones set forth above.
• In support of this initiative, one delegation agreed that a statement at Cancún in this
regard might be desirable.  Principles such as those suggested were by definition cross-cutting, and the mandate for the dedicated discussions was to examine and discuss cross-
cutting issues.  It noted that preparations were under way for the World Summit on the
Information Society to be held in Geneva in December.  E-commerce was a critical
component of the economic dimension of the Information Society, and had broad-ranging
benefits from a development perspective.  Emerging economies and developing countries
had been active in the discussions on the declaration and action plan for this Summit, and
there was merit in referring, in the declaration at Cancún, to the theme of an information
society for all.  This delegation looked forward to a detailed proposal on
principles/objectives and suggested that this should be an item on the agenda for a futurededicated discussion.
• One delegation recalled that at the most recent dedicated discussion, it had queried why –
if e-commerce was merely trade carried out through electronic means – particularprinciples should apply just to it.  Given th at the classification issue remained unresolved,
Members should tread carefully in looking for principles to apply, as this might be puttingthe cart before the horse.
• In the same vein, a number of other delegations cautioned that Members should not rush
into examining objectives at the present stag e of the work on e-commerce.  Regarding the
idea of developing general objectives on e-commerce with a view to presenting these to
Ministers in Cancún, they felt that discussing and agreeing on such an issue – whichmight impact not only on work in the dedicated discussions but also in some subsidiary
bodies – would require more time than was available.  Anything sent to Cancún in terms
of proposals or general objectives would have to be discussed in great detail by the
relevant bodies concerned.  Much further work was necessary before any kind of
commitment could be made.  The cross-cutting issues on the agenda of the present
discussion were only two of those identified, which also included competition,
development-related issues and legal issues.  These delegations were very interested inpursuing the issues already under discussion.
• Another recalled it had been among those w ho had invited the delegation in question to
flesh out its ideas on general objectives.  However, it shared the concerns of othersregarding the need to exercise caution and to proceed slowly.  The objectives suggested
were a matter for negotiation, and this should not be done in the dedicated discussions.The proper body to raise such an issue would perhaps be the General Council itself.
• Regarding the reference to the principles agreed by APEC in the area of e-commerce, two
delegations recalled that APEC was a non-binding initiative and on a voluntary basis.WT/GC/W/492
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Due to the different legal nature of the two bodies, there should be no linkage between the
WTO and APEC.
• In one delegation's view, while it had been suggested that Members examine how various
WTO negotiations could contribute to e-commerce, the mandate of the present forum was
to see how e-commerce impacted on those negotiations.  The objective under the WorkProgramme was not just to promote e-commerce, but rather to approach it in a more
systematic way.  Another said it was important to have information on the experience of
Members where e-commerce had significantly developed, in order not to repeat past
mistakes in regulating this form of trade.
• Another delegation said the issue just raised, while important and an initiative it
supported, was not a classification issue.  It would be premature to discuss general
objectives when Members had not yet come to any conclusion on the classification issue.It also noted that there were already rules on domestic regulations.  Members should
focus on the existing agenda items and add, as a separate item, the issue of objectives.
This delegation had already included this issue in a submission it had made in 2000
under the Work Programme on Electronic Commerce (S/C/W/183) on how the
negotiations were relevant for e-commerce, especially as e-commerce had given someservices a more important role because they constituted the infrastructure of e-commerce.
Members should build on previous discussions and submissions on classification, and
focus on concrete questions, such as how Members considered the electronic delivery of
software or architectural designs. This dele gation had stated clearly that for it, the GATS
– especially the commitments on computer services – would apply.  It wished to hearothers' views on this and other concrete cases.
• In responding to these comments, one delegation said it did not view the question of
objectives as something to negotiate, but that objectives could be useful in assisting theongoing negotiations.  This was why it was suggesting that the dedicated discussions look
generally at how to proceed with deciding issues that were as yet unresolved, and endorsea higher level of principles to guide Members' thinking.  APEC was an example of an
international forum that was looking at these issues and had moved forward on endorsing
objectives.  Regarding classification, products such as software currently flowed
seamlessly across global networks and could be permanently retained on an end-user's
computer, yet still retained their underlying function.  The downloadable product'sfunctional characteristics did not change merely because of a different means of delivery.
Thus, the focus should not be on how to classi fy these products, but rather how to provide
them with the most liberal trade treatment.  The Secretariat Background Note
(JOB(02)/37) highlighted that e-commerce thus far had been conducted successfully
within and across borders by businesses in many Members, subject to either GATT or
GATS, with no specific problems or trade disputes arising.  This counseled against
prematurely establishing new trade rules for e-commerce.  The Secretariat Note usefullyoutlined how the GATT and the GATS could be applied in a trade liberalizing manner to
achieve the highest level of market openness for digital trade.  If the most trade-
liberalizing aspects of the key market-access provisions in the WTO were applied to e-
commerce, the WTO rules would support an aspect of trade from which all Members
would gain, and would avoid spending years to reduce market-access barriers.
• Attention was drawn by one delegation to the submission on the classification of software
delivered electronically (JOB(02)/38), which it said was very useful.  Regarding the
penultimate sentence in paragraph 35 on alternative ways to approach electronic
deliverables, which read, "Members could also consider adopting a targeted approachWT/GC/W/492
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which would allow them to tailor their approach to electronic deliverables according to
the specific needs of an industry", it asked if this implied that Members should classify e-
commerce as both goods and services simultaneously and then specify industry-wise
whether it was a good or service.  In response, the delegation which had made the
submission said its main intent had been to open a debate as to whether all electronicdeliverables should be treated in the same manner, e.g. whether the classification of
software delivered electronically applied to the electronic delivery of other offerings such
as books, music or film.
• Commenting on the process in which Members were engaged, one delegation said it was
important to remember that this was under the Doha Development Agenda.  Inaccordance with paragraph 34 of the Doha Declaration, in these dedicated discussions
Members were to discuss technical and other issues related to the Work Programme onElectronic Commerce.  They then had to report to the General Council on their work, and
the General Council itself would report on progress to the Fifth Session.  Members should
continue to discuss technical issues and to present papers and ideas, but it was the General
Council that would report to Cancún.
2. Fiscal implications of e-commerce
• Regarding the question of the technology necessary for implementing duties on e-
commerce, one delegation noted that the submission in JOB(02)/38 stated that there was
currently no readily available technological means of applying customs duties on
software delivered electronically;  however, various recent newspaper articles indicated
that the EU was to endorse new rules on the taxation of e-commerce.  It and several otherdelegations wished to know more about the EU's tax and its method of application.  One
of these delegations said that while a past study of the revenue implications for its own
economy of foregoing a tax on e-commerce had indicated that the revenue loss would not
be substantial, many things, including technology, had changed substantially.  Another
said that regarding trade in services through Mode 1 supply, i.e. operations taking placethrough electronic means, it would be very difficult to implement trade defense measures.
Thus, the EU tax system and its operation was of keen interest, and was exactly the type
of issue the present forum should be discussing.
• The delegation in question explained that its authorities had decided to apply a VAT sales
tax on cross-border supplies of electronic supplies.  For years, VAT had been collected on
the cross-border supply of goods ordered electronically, and operators from third
countries had been registered to do that.  The proposed tax was on electronic deliveries,
and a system had been designed for a central authority to collect the taxes on sales above
a minimum threshold amount.  The tax had nothi ng to do with customs duties.  It was
already collected on all sales by suppliers within the territory, but not on sales by other
suppliers.  Thus, there had been, in some cases, substantial discrimination in favor of
these other suppliers, which would be remedied by the tax.  Sales taxes were the bulk ofthis Member's fiscal revenues, and foregoing them on e-commerce could mean a
substantial loss of revenue.  However, little revenue  was at stake regarding customs
duties on electronic deliveries, as an UNCTAD report had explained in detail.  For further
details, this delegation referred Members to the discussion in the seminar organized by
the Committee on Trade and Development in May 2002 and to the documents it hadprovided.
2
                                                     
2 A report on this Seminar was circulated in annexes to document WT/COMTD/M/40.WT/GC/W/492
Page 5
• Another delegation said it would be counter-intuitive for an organization committed to
trade liberalization to contemplate endorsing the imposition of tariffs in an area of tradethat had emerged in large part because trade barriers had been minimal.  Most Members
agreed that e-commerce was something they would like to develop further, and one of the
most positive actions the WTO could make to this end would be to make the moratorium
on imposing these duties permanent.  This delegation was not questioning the right to tax;however, certain proposals to impose a VAT could have a discriminatory impact on
suppliers outside the territory in question.  It would be wise to look carefully at some of
the proposals, including the VAT just described, for potential discriminatory impact on
suppliers of digital products, be they a good or a service.
• In response to a question from one delegation as to how the tax collection system in
question was devised and whether technology was an important factor, it was explained
that what was intended to be implemented was a system where suppliers outside theterritory had to register and to identify their buyers, so that taxes could be collected for
the whole territory.  While there would always be a certain amount of tax evasion, and it
would not be possible to monitor every sale  on the Internet, the ability to enforce
intellectual property rights would be an incentive for companies to respect their tax
obligations.  However, it remained to be se en how the system would work, as it had not
yet been implemented.
• One delegation said it was not entirely obvious that a customs duty was discriminatory
and a sales tax not.  It queried whether the moratorium on customs duties on e-commercemight have been decided because of the technological difficulty of levying such duties.
In many countries there had been a diversion of customs duties to sales taxes, andrevenues were more dependent now on sales taxes.  This delegation wished to know from
those with more experience with sales taxes how this had affected their policy-making.
In light of the shift away from customs duties as a source of revenue, perhaps the
moratorium was not necessary.
• Another delegation said that the question wa s no longer one of technology but whether a
Member wished to impose customs duties on e-commerce.  Most developing countriesdid not have internal taxes as high as in, for example, the EU, so the revenue implications
were not as important.  In this delegation's experience, even though a non-discriminatory
sales tax was levied on both goods and services, companies doing business online often
did not pay this tax, while the service suppliers operating conventionally did.  This waswhere there could be revenue implications for developing countries.  The fact that
customs duties were discriminatory did not mean they could not be used.  This was linked
to the question of classification, as some imported digitized products could be converted
back into a good.  Financial services were another example.  While these examples might
not involve large sums of money, in many developing countries a little revenue went along way.
• Two delegations asked if the Secretariat could compile a list of recent publications or
studies on the issue of revenue implications relevant to e-commerce.
• One delegation reiterated its understanding that the moratorium on customs duties on
electronic transmissions applied only to digitized products such as computer software, e-books, videos etc., and not to goods ordered online.  This understanding was confirmed
by another delegation.WT/GC/W/492
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• Regarding the types of revenue collected, one delegation said the reason the bulk of fiscal
revenues in most countries was from sales taxes was to allow businesses to compete onequal terms.  In its case, for electronic supplies, the taxes had for several years been
discriminatory against its own operators, and this had had to be remedied.  Business-to-
consumer e-commerce, which was the only type of e-commerce that was to be taxed, had
developed a lot in past years and had begun to introduce very substantial discriminationbetween its own operators and other operators.  The need, or not, to apply such a tax
depended on how cross-border business-to-consumer e-commerce had evolved, as it
would be cumbersome for fiscal authorities to put such a tax in place for very little
revenue.  When cross-border business-to-consumer e-commerce developed more
throughout the world, it would probably be important not to forgo sales taxes on it.  In
addition, for some countries which did not recognize electronic supplies as services, there
could be discrimination between operators providing services online and those not.  Thisshould be remedied in order not to favour one form of commerce over another.
Regarding customs duties on such commerce,  an UNCTAD report had indicated that
these represented a small percentage of the overall tax revenues of developing countries.
Thus, a sales tax would seem to be more appropriate than a customs duty in such
countries.  It noted that it had never applied a VAT to financial services because therewas no agreement on how to compute the value-added for such services.
3. Format for reports on the dedicated discussions
• Two delegations recalled that they had expressed a desire for, at some point in the future,
a more detailed record of these meetings that would attribute positions to delegations, as
this would be useful for capital-based offici als.  Another preferred to maintain, for the
record of the present meeting, the current practice and to take this question up again at the
next dedicated discussion.  Participants agreed to do the latter.
4. Next dedicated discussion
• A number of delegations expressed concern over the overlap of the present dedicated
discussion with other meetings and asked that in future such overlap be avoided.
• It was agreed that the next dedicated discussion would be held in the May/June period in
proximity to the cluster of Services Council meetings but not in conflict with any of those
meetings.
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