JOB/GC/171, JOB/CTG/13  
JOB/SERV/278, JOB/IP/30  
JOB/DEV/54  
16 February 2018  
(18-1033) Page: 1/5 
General Council  
Council for Trade in Goods  
Council for Trade in Services  
Council for Trade -Related Aspects of  
 Intellectual Property Rights  
Committee on Trade and Development  Original: English  
 
WORK PROGRAMME ON EL ECTRONIC COMMERCE  
HOW CYBERSPACE "INTR UDES" ON THE PHYSICA L SPACE?  
CASE STUDIES: 3D PRI NTING  AND THE SHARING ECONOMY  
Non-Paper from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu  
The following non -paper, dated 15 February 2018, is being circulated at the request of the 
delegation of  the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu.  
 
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1  INTRODUCTION  
1.1.  Since the WTO Ministerial Meeting in 1998, Members have agreed to temporarily maintain 
their practice of not imposing customs duties on electronic transmissions, a decision which has 
been renewed in subsequent Ministerial Conferences. On 20 December 2016 , the WTO Secretariat  
circulated a report  (Job/GC/114 ) study ing the fiscal implications of the customs moratorium on 
electronic transmissions, focusing on the case of digitisable goods, which includes cinematograph 
film, books , newspapers and journals , other  printed matter , video games , computer software , 
musical records, tapes and other sound or similar recordings , and other recorded media.  
1.2.  The results of th is WTO study show that the digitisable goods' share of the total trade in 
goods in both developed and developing countries is less than 1% ; the average MFN duty on 
digitisable goods was 6.7% in 2014, which is only one -quarter lower than in 2000; and, the fiscal 
revenues estimated to be collected from these goods are small, averaging about a quarter of 1% 
of all customs revenues in 2014.  
1.3.  The above -mentioned  study, however, also confesses to one major gap in the information 
collected - it cannot capture the amount of trade in digitisable goods that has already moved to 
trade in digital form. 
2  THE UNOBSERVED CH ANGES IN TRADE PATTE RNS 
2.1.  In reality, most digitisable goods are  already traded on -line, and this is the main reason why 
the digitisable goods' share of total trade appears in the WTO report  as being so insignificant that 
the fiscal impact of the customs mor atorium on electronic transmissions would be limited . 
Moreover, the WTO's analysis has not taken into account the shifting effect of activities, either 
from physical space to cyberspace (such as in the case of 3D printing ), or from organized 
businesses to part-time individuals (such as in the cases of the sharing economy ), or from 
traceable local firms to untraceable paper companies registered in tax havens . 
2.2.  A major feature of t he new e -commerce trade is that, due to its digital nature, many of the 
transactions are by -passing  the controls traditionally made by border measures.  JOB/GC/171 • JOB/CTG/13 • JOB/SERV/278 • JO B/IP/30 • JOB/DEV/54  
 
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  2.3.   In "trade -in-goods", for example, the advent of 3D printing  make s it possible for a digital 
blue-print to be sent electronically from one country to anywhere in the world, an d the physical 
product s to be "locally manufactured" in the "consumer country" by a 3D printer from that blue -
print.  These kind s of goods will be identified as "local products ". The GATT rules, which used to 
deal with border measures , cannot entirely apply  to these new trad ing and manufacturing 
pattern s. 
2.4.  In "trade in services", if a foreign tourist uses an on -line matching service to book a private 
room in his/her  destination country, and pays the service provider by foreign credit card, the local 
governmen t of the destination country cannot trace the transaction and therefore cannot regulate 
it. No tax will be paid, either. The GATS rules cannot fully apply to these situations.  
2.5.  We would like to suggest that WTO Members focus on discuss ing the problems raised by 
these new technology and e-commerce trading patterns as a matter of some urgency . Below, w e 
elaborate  further by way of two  case studies.  
3  CASE STUDY NO.1: 3D PRINTING  
3.1.  3D printing is an emerging technology that makes three -dimension al solid objects from 
digital blueprint files by adding material layer -upon-layer. 3D printing makes it possible to create 
very complex products; the spectrum of products is constantly expanding along with the advances 
in materials sciences. These technolo gies have become widely used in a large number of sectors, 
including electronics, motor vehicle parts, medical and dental parts, industrial machines and 
aerospace. The practice of 3D printing is also spreading rapidly and transforming the current 
manufactu ring supply chain as well as international trade as it grows. According to a World 
Economic Forum Survey in 2015 , the really big breakthrough for 3D printing products is expected 
to come in 2025.  
3.2.  3D printing is changing the location of where the production  takes place, what is traded, and 
who participates in the production and trade. Moreover, 3D printing involves  many service tasks, 
namely, the design and transfer of the digital blueprint files. The m anufacturing process may be 
shifted to the final consumer market , and  data transfers could replace some  of the physical 
activities that are currently part of the value -added chain . Thus, we can expect increase s in the 
services trade and decreases in the trade in manufactured good s. Typically, 3D printing radically 
changes  some key aspects of traditional international trade. Take a commodity like a t able, for 
example,  which previously had to be transported  physically  through custom s borders . 3D printing 
changes that trading method  into a combination of 1) the possible import ation of the printing inks 
(raw material) and (one -time) importation of the machine, 2) the local "printing " (manufacturing) 
of the table, and 3) the international transmission of the design blueprint.  
3.3.  In the tra ditional trading model, a producer make s physical goods and ship s them to the 
importing country . The importing country  has the opportunity  to levy a tariff and other  taxes upon 
the traded goods at the border. As the physical products move across the border , the customs 
administration can easily collect the customs duty and value -added tax ( VAT), etc. on the 
imported goods.  
3.4.  However, the situation is not the same when the production process is made by 3D printing. 
Let us suppose that this printing happens in the consumer market. Figure 1 below shows how a 
seller /designer with 3D printing blueprints  in a tax haven could easily  avoid certain  taxes.  After 
receiving a customer's order via the Internet, the seller /design er can transmit the (IP-protected) 
blueprint digitally to a local producer , who then  produces the final product using a 3D printing 
machine and ships it locally  to the consumer. The key point is that 3D printing divides the 
traditional trade into a digital  transmission (of the blueprint) and a local production (printing) of 
the object . 
3.5.  If the overseas seller /designer  make s a tax registration to the government, the tax 
administration of the government can impose VAT on the overseas seller as well as the local 
producer. However, in the case of an unregistered overseas seller, the tax administration has 
difficulties in tracing  the whole transaction process and in finding out the value of the transaction 
on which VAT should be levied.  JOB/GC/171 • JOB/CTG/13 • JOB/SERV/278 • JO B/IP/30 • JOB/DEV/54  
 
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  3.6.  Because the transmissi on of a blueprint is duty-free according  to the  1998 WTO Ministerial 
Declaration on Global Electronic Commerce  and the subsequent  Ministerial Decisions , this 
technological division seems to become a window for avoiding taxes.  Furthermore, 3D printing 
shifts the need for inputs from intermediary goods to raw materials, such as the printing  "ink". 
And, because custom duties on intermediary goods and finished goods  are generally heavier than 
those on raw materials, the trend to 3D printing will also result in a reduction in  total tax 
revenues.  
3.7.  While the combination of 3D printing technology and the digital environment shrinks the 
physical trade  domain , the trade in cyberspace  will be increased . The tax erosion issues brought 
about by this new trade pattern  will pose great challenges to many Members , especially developing 
countr y Members whose customs duty accounts for a large part of their total tax revenue . 
3.8.   There are also some regulat ory problems  to be found . If the locally p rinted -out product fail s 
to work, where should buyers go for  compensation or repair services - to the local printer or the 
oversea s blue-print company? In the  3D printing  example , if the product (say , a child's toy) causes 
harm to children, which company should take the final respons ibility for possibl y heavy  damages  - 
the local printer or the blueprint holder? Since product liabilit y in many countries is strictly 
imposed , are we going to allow such new business model s to avoid the strict liability doctrine ? 
Figure 1  3D printing produ cer model with e -commerce  
 
 
4  CASE  STUDY NO.2: THE SHAR ING ECONOMY  
4.1.  The sharing economy is another potentially significant new trad ing pattern  within the digital 
economy , which is  basically manifested by the peer -to-peer sharing of goods and services.  
Advances in technology have reduced the transaction costs, increased  the availability of 
information, and provided greater reliability and security  for consumers . Recent years have seen 
the emergence of numerous innovative sharing applications using differ ent business models and 
focusing on one particular service or product, such as accommodation or motor cars.  
4.2.  It should be noted that most individuals who participate in the sharing economy are not 
doing so mainly to make a living, but to serve a cause that  inspires them, or simply in order to 
"make ends meet". Because the supplementary income is a net benefit, and often does not involve 
much quantitative cost -benefit analysis, amateur providers have a tendency to share their 
available resources at a lower p rice than that which professional s might have charged, thus 
bringing down overall prices, including those of the professionals. Through time, as certain 
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  platforms attract substantial numbers of individuals, these platforms become the prime access 
point for  customers via the online market, and they have the potential to provide s erious  
competition for traditional business applications operated by professionals, which may find they 
have to cut their profit margins further.  
4.3.  Here w e take the accommodation  match ing service as our  example. This is a peer-to-peer 
accommodation market -place that connects hosts (the vendors of rooms/accommodation) wit h 
guests/travellers (the potential customers) via the website. This type of on-line matching service  
enables transactions between the two entities by charging a service fee without directly owning 
any rooms themselves.  
4.4.  Traditionally, when foreign tourists  travelled to a country their consumption abroad was 
classified as "mode 2 supply " as defined by the GATS of the WTO, and they needed to find local 
accommodation for their stays. The foreign tourist would usually book a room in a local hotel and 
pay the lo cal hotel directly. With this former "local hotel " method, the tax administration could 
easily collect the tax revenue generated by this activity from the hotels (which are virtually all 
registered businesses).  
4.5.   Now, with the help of  on-line matching servi ces for accommodation (as  shown in Figure 2 
below ), the foreign tourist can find a local private vendor and stay in  a cheaper spare room. The 
tourist is required to pay the accommodation fee by credit card straight to  the on -line serv ice 
provider,  not direct to the local private house owner  of the room. Therefore, it is very difficult for 
the regulatory authorities to trace the transaction or the payment for accommodation, which all 
happen s abroad, and it is almost impossible to impose any taxes or  regulations  on this business 
model.  
Figure 2 Foreign tourist s using the on-line matching  service  
 
 
4.6.  Not surprisingly, this type of on-line matching service is becoming popular, and local hotels 
will have more competition from private vendor s with cheaper prices for their spare rooms. Total 
sales and profits of traditional hotel services will be reduced as a whole, and total tax revenues will 
decline  as well.  
4.7.  Besides the tax issue, there are also regulation problem s with this "sharing economy " 
business mode l. Regular hotels are usually subject to various emergency exit and safety checks, 
environment al and  hygiene checks, food security checks , etc. But, for private vendors who  provide 
the service  on a casual basis , probably none of these are required. Thus, t he cost advantage of 
this service may partly result from  avoid ance of  many of the regulations. One fundamental issue 
here, therefore, is that this new business  model changes the traditional trade pattern so 
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  significantly  as to confront many of the existing  domestic regulations, of which taxation is just one 
example.  
5  CONCLUSION  
5.1.  The WTO has seldom talked about taxation issues. The current practice may no longer be 
appropriate or feasible  as more and more new forms of e-commerce and digital trade arise . Thus, 
we suggest Members start to think about this important issue.  
5.2.  In the case of 3D printing and the trade in goods involved, the implication is that the 
production location must be changed. WTO Members may consider the possibility of requiring the 
localizatio n of the 3D printing machine. This would mean that the new manufacturing site, 
identified by the location of the 3D printing machine, must register to the local government. Then, 
at least, the manufactures’ responsibilities are covered by regulation s, and some taxes c ould be 
levied.  
5.3.  As for the demander -supplier matching service s, WTO  Members  may want to consider  a 
process whereby  once the amount of matching service within a country reaches a certain 
threshold, mandatory local registration is required,  with no possibility of local regulations being 
waived . The cost advantage of any new service model could be based on the true and genuine cost 
advantages, not on the cost-saving of avoiding the regulations.  
5.4.  Should  the WTO choose not to look into the problems raised by these new e -commerce trade 
patterns, the authorit ies will continue to have increasing difficulty  in levying customs duties  and 
internal taxes, as well as implementing the due regulations and liabilities. As a consequence, e-
comme rce could  enjoy lower cost s and offer lower pric es than the traditional trade in goods and 
services. This asymmetric regulatory treatment  will create  a business environment of unfair 
competition between the new and traditional trad ing models. Furthermore, t his particular problem 
of unfair trading cannot be solved entirely by the current GATT and GATS  rules. We therefore 
suggest that the WTO face s up to this situation and deal s with it as a matter of urgency, before  
international trade competiti on descends into becom ing "a race to the bottom ".  
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