RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/68
16 November 1998
(98-4585)
Council for Trade in Services
THE WORK PROGRAMME ON ELECTRONIC COMMERCE
Note by the Secretariat
1. This paper has been prepared to assist the Council for Trade in Services in its examination of
the treatment of electronic commerce in the GATS legal framework.  Because there is considerableoverlap between the list of points remitted to the Council in the Work Programme and the subject-
matter of the earlier Secretariat Note WT/GC/W/90, some of the content of the present paper will be
familiar from the earlier note.  The paper addresses the points in the Council work programme in
terms of the relevance to them of GATS provisions .  It does not provide authoritative interpretations
of these provisions, which can only be made by the Ministerial Conference.
Scope (including modes of supply) (Article I)
2. The GATS applies to "measures by Members affecting trade in services" (Article I:1).  In
order to examine the applicability of the Agreement to electronic commerce, we need to consider in
turn the definition of trade in services, the measures falling within the scope of the Agreement and itssectoral coverage.
3. The Agreement defines trade in services as the supply of a service through any of four modes:
cross border supply, consumption abroad, commercial presence and presence of natural persons
(Article I:2).
1 These modes distinguish between services transactions on the basis of the territorial
presence of the supplier and the consumer of the service.  The Agreement makes no distinction
between the different technological means by which a service may be delivered - whether in person,
by mail, by telephone or across the Internet. The supply of services through electronic means istherefore covered by the Agreement in the same way as all other means of delivery.  Because of the
way in which it can render the distance between supplier and consumer virtually irrelevant, it is
perhaps natural to think of electronic commerce essentially in terms of cross-border supply.  But it is
important to bear in mind that Modes 2,  3 and 4 also cover the electronic delivery of the service.  For
instance, a foreign bank established locally may supply its services to consumers electronically, or aforeign natural person present locally may use electronic means to deliver consultancy services. It is
also important to note that the "supply" of a service is defined to include the production, distribution,
marketing, sale and delivery of a service (Article XVIII(b)).
4. Legal obligations in the GATS apply to all measures affecting trade in services. Measures
affecting the electronic delivery of services, such as a charge on the import of a service by electronicmeans, are "measures affecting trade in services", just as they would be if imposed on delivery by any
                                                     
1 The four modes of supply are defined as follows:  (1) cross-border, where the service is supplied from
the territory of one Member into another;  (2) cons umption abroad, where the consumer purchases a service
which is delivered in the territory of another Member;  (3) commercial presence, where the service supplier of
one Member establishes a subsidiary or a branch in another Member to supply a service;  (4) presence of natural
persons, where the service is supplied by a person working in the territory of another Member.S/C/W/68
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other means.  It is important to note that the te rm "affecting" has been interpreted to cover not only
measures which directly govern the supply of a service but also measures which indirectly affect it. 2
5. Furthermore, measures by Members are defined broadly to include measures taken by central,
regional or local governments, as well as non-governmental bodies in the exercise of powers
delegated by the government.  Therefore, governments can be held accountable in the WTO fordecisions or actions affecting trade in services by non governmental bodies, such as those regulating
particular service sectors, which exercise delegated powers.  This may be particularly relevant, for
example, if such bodies were to have responsibil ity for the administration and assignment of domain
names, a function that is analogous to the numbe ring assignments in telecommunications, and may be
governmental or delegated by governments.
6. The GATS covers any service in any sector (Article I:3(b)) with only two exceptions: services
supplied in the exercise of governmental authority, neither on a commercial basis nor in competitionwith one or more service suppliers; and most air transport services.
Distinguishing between modes 1 and 2
7. Even though it is clear that the delivery of services by electronic means may take place by any
of the modes of delivery mentioned above, it is not always easy to specify whether a transaction takes
place under mode 1 or mode 2.  The difficulty of  making a clear distinction between cross-border
supply and consumption abroad was noted in the fi nancial services context (see S/FIN/W/9) where so
many transactions are done electronically, but it is clear that the same difficulty arises for other forms
of electronic commerce.  According to the Sc heduling Guide (MTN.GNS/W/164), the distinction
between cross-border supply and consumption abroad hinges upon whether the service is delivered in
the territory of the Member or outside.  It is di fficult to make this rule operational when electronic
delivery makes a transaction possible without the movement of either the supplier or the consumer.
8. A large part of the problem here may be that the Scheduling Guide focuses on the wrong
question.  There is no operational need, in the administration of the GATS, to classify transactions
according to the modes of supply, though it might be interesting to do so for statistical purposes.  Thereal function of the modes is to categorize commitments in national schedules.  The question of the
mode under which a transaction takes place only becomes important if there is disagreement about the
legitimacy of a measure taken by a Member affecting the transaction, in which case the measure
would be judged against the Member's commitments.  Seen from this viewpoint, the distinction
between modes 1 and 2 becomes clearer, and is operationally effective.  If a Member has entered
"None" under mode 1 for a particular service, any measure restricting the ability of a foreign provider
to supply the service from across the border would be illegitimate;  if it has entered "None" under
mode 2, any measure restricting the domestic consumer's ability to buy the service abroad would beillegitimate.  The four modes should therefore be seen essentially as the framework within which
commitments are made, and which defines the freedom of Members to take particular kinds of
measures.  This is not a complete answer to the problems arising from the application of the modes,
which certainly merit discussion, but it may be a helpful approach to the matter.  In the context of
electronic commerce, it means that in considering the consistency with national commitments of a
measure affecting electronic supply, one would ask first on whom the measure impinged – the
                                                     
2 See paragraphs 7.277-7.286 of the report of the Panel on "European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Complaint by the United States" (WT/DS27/R/USA) and
paragraphs 217-222 of the report of the Appellate Body on "European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Complaint by the United States" (WT/DS27/AB/R).S/C/W/68
Page 3
provider or the consumer  – and judge its consistency in the light of commitments under mode 1 and
mode 2 3.
MFN (Article II)
9. Article II (MFN) is a general obligation which applies to all services sectors and all measures
by Members affecting trade in services – unless, of course, a Member has listed a specific MFN
exemption. The obligation requires each Member to accord immediately and unconditionally to
services and service suppliers of any other Member treatment no less favourable than that it accords to
like services and service suppliers of any other country.  The standard of no less favourable treatment
has already been interpreted to prohibit de jure  as well as de facto  discrimination between like
services and service supplies of Members of the WTO.4
10. In principle, likeness depends on attributes of the product or supplier per se  rather than on the
means by which the product is delivered.  If two like services were treated differently because they
were delivered in different ways, then such treatment could be challenged as being inconsistent with
the MFN obligation.  By way of illustration, consider a goods example.  If country X imposed a
higher duty on a shirt sent by air than on a shirt sent by sea, then any exporter using air transport
could legitimately claim that X was extending less favourable treatment to its product than to the likeproduct of some other Member (who happened to use maritime transport).  The situation would be no
different if country X imposed a higher tax on legal advice delivered electronically than on the same
advice delivered by post.
5  However, Members may wish to consider further the issue of likeness.
Transparency (Article III)11. Like the MFN obligation, Article III (transparency) is a general obligation that applies to all
services sectors.  Members are required to publish all relevant measures of general application which
pertain to or affect the operation of the GATS.  These measures would include those which affect the
electronic supply of services, and would also incl ude measures taken by non-governmental bodies in
the exercise of designated authority.  The other obligations contained in Article III (the notificationrequirement in paragraph 3 and the requirement to establish enquiry points in paragraph 4) would also
extend to measures of general application affecting the supply of services through electronic means.
The field of electronic commerce is in general lightly regulated at present, but any existing
regulations, or any which might be adopted in future would need to be notified under Article III.
                                                     
3 Establishing the locus of a transaction for legal purposes may be important, however, for reasons
which go beyond GATS disciplines.  Issues concerning the country of legal jurisdiction of a transaction have
already begun to arise in e-commerce, especially in re lation to consumer protection, policing of illegal activities
such as on-line gambling and obscenity, and, perhaps most importantly, determining the jurisdiction of validityand enforceability of commercial contracts and obligations. In business-to-business electronic commercetransactions, the parties (at least the larger firms) usually  draft contracts indicating the agreed locale of
jurisdiction for the matters concerned. But for other transactions, the locus of legal jurisdiction is an open
question.  However, this is not a matter relating to the scope of the GATS.
4 See paragraphs 7.299-7.304 of the report of the Panel on "European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Complaint by the United States" (WT/DS27/R/USA) andparagraphs 231-234 of the report of the Appellate Body on "European Communities – Regime for theImportation, Sale and Distribution of Bananas – Complaint by the United States" (WT/DS27/AB/R).
5 It is, of course, true that a Member may make inter-modal  distinctions if its commitments with respect
to the four modes differ.  Thus it may allow cross-border delivery but not the establishment of commercial
presence.  But intra-modal  distinctions based on the technique of delivery would in principle be open to
challenge.S/C/W/68
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12. Electronic means can be used to disseminate information on measures affecting trade in
services, including through enquiry points.
Increasing participation of developing countries (Article IV)
13. Effective participation in electronic commerce requires access to computers and related
equipment at world prices, to efficient telecommunication services and to training.  Article IV is
concerned with enhancing the participation of developing countries in world trade.  This is to be
facilitated through negotiated specific commitments relating to strengthening their domestic service
capacity inter alia  through access to technology on a commercial basis, the improvement of their
access to distribution channels and information networks, and the liberalization of market access in
sectors and modes of supply of export interest to them.  In principle, all these elements are relevant to
electronic commerce.  For instance, liberalization by the developing countries themselves in areas liketelecommunications can lead to the development of the domestic infrastructure needed for electronic
transactions.  At the same time, liberalization by their trading partners of the cross-border delivery
mode should facilitate sales of certain labour-intensive services in which developing countries have a
comparative advantage which they have so far been unable to exploit because of restrictions on the
movement of natural persons.
14. Under Article IV:2 developing countries service suppliers have access to contact points which
are required to provide information related to the commercial and technical aspects of the supply of
services, including by electronic means.  Information on registration, recognition and obtaining of
professional qualifications is likely to be particularly important, since fulfilling these requirements is
likely to be a pre-condition for supplying many services irrespective of the mode of delivery.Developing country suppliers can also obtain information on the availability of relevant services
technology, which may be particularly useful in the context of electronic commerce.  Again,
electronic means can be used to enhance the functioning of these contact points.
15. Issues relating to the transfer of technology would also be highly relevant in an area where
technology is developing rapidly, as here.
Domestic regulation (Article VI)
16. Article VI requires that in sectors where specific commitments are undertaken, each Member
should ensure that all measures of general application affecting trade in services are administered in a
reasonable, objective and impartial manner.  It also requires that each Member create judicial, arbitral
or administrative tribunals or procedures which provide, at the request of an affected service supplier,
for the prompt review of, and where justified, appropriate remedies for, administrative decisionsaffecting trade in services.  All of these provisions apply to regulations or standards affecting the
electronic supply of services.  The question of standards is likely to be particularly important, since
one of the basic characteristics of the Internet itself is the use of common frameworks and standards
for interconnectivity and interoperability in orde r to maintain "universal" communication.  To a
degree perhaps not found it any other area, there is a need to ensure that technical standards do notconstitute unnecessary barriers to trade in services.
Recognition (Article VII)
17. Article VII of the GATS, dealing with recognition, attempts to strike a difficult balance
between its trade creating and trade diverting effects.  On the one hand, Article VII:1, notwithstandingthe general MFN obligation, allows Members to extend recognition unilaterally or through
agreements to the education or experience obtaine d, requirements met, or licenses or certifications
granted in another country.  The remaining paragraphs of Article VII seek to ensure that the rights of
third countries are protected - and that recognition does not have an unduly trade-diverting effect.S/C/W/68
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Article VII:2 requires a Member who enters into a mutual recognition agreement (MRA) to afford
adequate opportunity to other interested Members to negotiate similar agreements.  If a Member
grants recognition autonomously, then it is obliged to give any other Member adequate opportunity to
demonstrate that education, experience, licenses, or certifications obtained in that other Member's
territory should be recognized.  Article VII:3 stipul ates that a Member must not grant recognition in a
manner which would constitute a means of discrimination between countries in the application of its
standards or criteria for the authorization, licensing or certification of services suppliers, or a
disguised restriction on trade in services.6
18. The role of recognition may change with the development of electronic commerce.  On the
one hand, the possibility for distant transactions make s it more difficult for the regulatory authority to
make recognition of qualifications a pre-condition for entry into the market.  Thus it is possible for
doctors and financial institutions from countries whose qualifications/regulations are not recognizedby country X to offer their services over the Internet to consumers from X.  On the other hand,
distance may imply greater consumer ignorance of the true attributes of the supplier, so that the
consumer becomes more reliant on quality signals such as recognition of the foreign
qualifications/regulations by the home government. T hus we would expect recognition to continue to
influence the pattern of trade, but more by playing an information role vis-à-vis the consumer than by
acting as an entry condition for the supplier.
Competition-related Provisions
(a) Monopolies and Exclusive Services Suppliers (Article VIII)
19. Article VIII requires each Member to ensure that any monopoly supplier of a service does not
"in the supply of the monopoly service in the releva nt market" act in a manner inconsistent with the
MFN obligation and the Member's specific commitments.
7  There are at least two respects in which
Article VIII is relevant to electronic commerce.  First, where the basic telecommunications service is
still monopolised but market access has been granted to competitive Internet access providers, Article
VIII would require governments to ensure that th e monopolist does not discriminate against rival
Internet access providers. They would, for example be entitled to reasonable terms and conditions for
their access to and use of leased-circuits obtained from a public telecom operator when operating in a
country that has taken commitments on their services.  Secondly, Article VIII requires that exclusive
suppliers of Internet services do not frustrate commitments made on other services which are being
supplied by Internet.
20. The telecommunications sector is the focus of two additional sets of rules:  the generally
applicable Annex on Telecommunications, and the Reference Paper on regulatory principles in basictelecommunications which has been incorporated into their schedules of commitments by around
60 WTO Members.  At the risk of some oversimplification, we can see the first as primarily a
response to the central role of telecommunications as a medium of transporting services, and the
second as a response to the particular difficulties in achieving liberalization in a sector characterized
by dominant suppliers of network infrastructure in the foreseeable future.
                                                     
6 It is worth noting that Article VII:5 states that "wherever appropriate, recognition should be based on
multilaterally agreed criteria" and requires Members to  work towards the establishment and adoption of such
criteria.  The issue, of course, is how much discretion the phrase "wherever appropriate" gives Members indeciding whether to follow their own rather than internationally agreed criteria.
7 A monopoly supplier of a service is defined in the GATS as any person, public or private, which in
the relevant market of the territory of a Member is au thorized or established formally or in effect by that
Member as the sole supplier of that service (Article XXVIII(h)).S/C/W/68
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(b) The Annex on Telecommunications:  Reinforcing Access Guarantees for Users
21. The Annex on Telecommunications is of particular significance for electronic commerce.  It
was drafted during the Uruguay Round by negotiators realizing that, despite Article VIII, telecom
operators were in a unique position in having the potential to undermine commitments undertaken in
schedules in any service sector in which telecommunications were essential to doing business. Threeaspects of the Annex make it a more powerful defender of the rights of users of telecommunications
services than Article VIII.  First, it is silent about market structure and therefore applies to publicly
available basic networks and services regardless of whether these are supplied by a monopoly or
through competition.
22. Secondly, the Annex carries its own non-discriminatory disciplines on telecom service
suppliers and, unlike Article VIII, does not depend on whether a Member has undertaken a national
treatment commitment in the sector.  The Annex requ ires governments to ensure that other Members'
suppliers are afforded reasonable and nondiscriminatory access to and use of public
telecommunications transport networks and services (PTTNS) for the supply of a service included in
its schedule.
8 The term "non-discriminatory" refers to most-favoured-nation and national treatment as
defined in the Agreement, as well as to sector-specific usage of the term to mean "terms and
conditions no less favourable than those accorded to any other user of like public telecommunicationstransport networks or services under like circumstances".   The suppliers of any service listed in a
government's schedule, say financial services, are thus assured of non-discrimination with respect to
access and use to telecom services even if a member has not committed to national treatment with
respect to that particular service.
23. Finally, the Annex offers greater specificity in certain areas than Article VIII. For instance, it
elaborates further on transparency obligations for the sector. It requires Members to ensure that
relevant information on conditions affecting access to and use of public telecom transport networks
and services is publicly available. It also lists examples of such measures. These include tariffs and
other terms and conditions of service, specifications of technical interfaces with such networks and
services,  and conditions applying to attachment of terminals or other equipment.
(c) The Reference Paper:  Ensuring Competition in the Supply of Telecom Services
24. In the basic telecommunications negotiations, there was concern that despite the
commitments to liberalize both trade and investment, telecommunications markets would still
frequently be characterized by dominant suppliers that controlled bottleneck or essential facilities.
9
Dominant players in the telecom market, left free to make decisions about how to treat othersuppliers, would be capable of frustrating the market access and national treatment commitments
made by governments in the negotiations.
10   Therefore, additional commitments on the behaviour of
                                                     
 8 In Annex definitions: "Public telecommunications transport service" means any telecommunications
transport service required, explicitly or in effect, to be offered to the public generally and typically involving the
real-time transmission of customer-supplied information without any end-to-end change in its form or content.'Public telecommunications transport network' means the public telecommunications infrastructure permittingtelecommunications between and among network termination points.
9 Participants felt that neither Article VIII nor the Telecom Annex would be adequately equipped to
deal with potential anti-competitive practices.  First, Article VIII did not cover dominant suppliers who may
face limited competition.   While the Annex was wider in scope, there were some doubts over whether theinterconnection guarantees it contained applied to rival telecom suppliers and not just to the users of telecomservices.   Secondly, there was concern that the discip lines contained in Article VIII and the Annex were too
general to guard sufficiently against possible anti-competitive practices.  For example, the Annex contained noclear disciplines, beyond "reasonableness", over the pricing or promptness of access or on bundling practices.
10  For instance, a major supplier, with control over essential facilities, could allow rivals to enter the
local telephone call market but deny them dialling parity.  That is, while its own customers had seven digitS/C/W/68
Page 7
major suppliers of telecoms services were assumed by  the great majority of participants in the basic
telecommunications negotiations.  The regulatory principles embodied in the "Reference Paper"
govern anti-competitive cross-subsidization, the terms of interconnection, the misuse of information,
licensing criteria, transparency and other matters relevant to the prevention of abuse of dominant
market positions.  The Reference Paper, in so far as it fosters competitive conditions in the supply oftelecommunication services, should help in the creation of efficient infrastructure for electronic
commerce.
(d) Business Practices (Article IX)
25. In general, the development of electronic commerce should serve to enhance competition.
First, the fixed costs of entering new markets are likely to be reduced:  for instance, a bank can reach
its clients without needing to create costly branch es. Secondly, search and travel costs are likely to
decrease:  consumers can search more easily for cheaper services and are not obliged to consumethem from proximate sources.  Hence, electronic commerce should reduce the scope for trade-
restrictive business practices by increasing both the contestability of markets and the mobility of
consumers.  However, it is not inconceivable that some suppliers may still acquire a degree of market
power.  If such suppliers resort to anti-competitive practices then Members can take advantage of
Article IX which provides for consultation and information exchange between the concernedMembers.
Protection of privacy and public morals and the prevention of fraud (Article XIV)
26. Article XIV of the GATS contains general exceptions which are obviously relevant to
electronic commerce.  The Article permits Members to take any measure necessary to achieve certainpublic policy objectives, including the protection of public morals and the maintenance of public
order.  Measures to curb obscenity or to prohibit internet gambling might well be justified on these
grounds. Since both forms of electronic commerce – the supply of services online and the electronic
retailing and wholesaling of goods and services – depend to some extent on the security and privacy
of communications, it is worth noting that Article XIV(c) permits Members to take any necessarymeasures to protect the privacy of the personal data of individuals and the confidentiality of individual
records and accounts, and to prevent deceptive and fraudulent practices. Like other such exceptions
provisions, Article XIV is subject to a safeguard against abuse in that measures taken under it may be
challenged by other Members on the ground that they are not necessary, or are more restrictive than
necessary, to achieve the stated objective.  Nor should they be applied in a manner which constitutes
unjustifiable discrimination between Members or a disguised restriction on trade in services.
Article XIV bis provides similar legal cover for actions taken by a Member to protect its essential
security interests, but it does not include the necessity test embodied in Article XIV.
Specific commitments:  market access and national treatment
27. Before we examine the GATS provisions on market access and national treatment, it may be
useful to recall the types of services trade which are relevant to electronic commerce, and on which
specific commitments may be made.  Three types of transaction are involved:
(a) the provision of Internet access services themselves – meaning the provision of
access to the net for businesses and consumers;
                                                                                                                                                                    
telephone numbers, those of the rival could be allotted sixteen digit numbers.  We can imagine the impact a
seemingly innocuous "technical restriction" would have on the relative attractiveness for customers of the two
suppliers.S/C/W/68
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(b) the electronic delivery of services, meaning transactions in which services products11
are delivered to the customer in the form of digitised information flows;
(c) the use of the Internet as a channel for distribution services, by which goods and
services are purchased over the net but delivered to the consumer subsequently in
non-electronic form.
28. Electronic commerce requires access to the Internet network.  The commercial provision of
Internet access must be distinguished from the supply of other services through the medium of the
Internet.  Companies provide access in return for a fee.  For this purpose they need access to
telecommunications networks, usually by way of leased circuits.  The treatment of Internet access
services in GATS Schedules may need to be clar ified.  In many countries where the provision of
telecommunications services is still a public monopoly, the monopoly provider is likely to be the onlysupplier of Internet access. In countries which have liberalised their telecommunications regime,
competing Internet access providers (IAPs) may offer access to the Web, with a different array of
supporting services.  Ten Members have made explicit commitments on the supply of these services
in the negotiations on basic telecommunications.  Such explicit commitments are clearly necessary
where monopoly or other access limitations apply to most telecoms services, but it is desired toliberalize Internet access.  Members which have committed to full liberalization of basic telecoms
have not in general felt it necessary to specify Internet access services.  Members may wish to
consider whether, possibly in the context of the next Round, it would be desirable to make more
explicit commitments on Internet access in liberalized telecom markets, particularly since the
obligations in the Annex on Telecommunications apply only to services on which a specificcommitment is made.  In general, the status of IAPs in relation to GATS rights and obligations would
appear to merit further examination.  As with all services, the absence of commitments does not of
course mean that market access for IAPs is impossible:  it may indeed be the case that provision of the
service is not permitted, but it may equally mean only that there is no guarantee of continued access.
29. The electronic supply of services is understood to mean a transaction in which the service is
supplied to the customer in the form of digitalized  information;  the entire transaction takes place
electronically.
30. It is important to distinguish from the delivery of services in the form of digitalized
information a second form of electronic commerce in which goods, and services which cannot be
delivered electronically, are ordered and paid for on-line but are delivered to the customer in tangible
form.  This is essentially distribution services:  the well known Amazon.com internet bookshop is an
obvious example.  Many businesses also sell their own goods and services directly to the public ratherthan through independent retailers or wholesalers, very often by electronic means:  airline companies
are an example of this.  Commitments on distribution services under the GATS include electronic
distribution, meaning the right to offer and sell goods on the Internet.  In terms of GATS
commitments the purchase of goods in this way is no different from ordering and paying for them by
telephone or mail.  If the goods ordered have to be imported, the importation will be subject towhatever tariff bindings and other GATT obligations are applicable.  Tariffs applied to imported
goods or services in this context are not covered by the standstill on customs duties on electronic
transmissions which was agreed at the second Ministerial Conference in May 1998.  Members may
wish to give thought to the classification of certain marketing activities in the area of services, since
here the existing classification systems are less clear than in the case of goods.
                                                     
11 The word "products" is sometimes mistakenly thought to be a synonym for "goods".  Thro ughout this
paper it is used to denote either a service or a good.  Its usage in this sense in the services context is well
established – as in "new financial services products".S/C/W/68
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31. It should be borne in mind that a commitment on distribution services is not a commitment to
allow the supply of any service or good which may be offered for sale over the Internet.  In the same
way, a fully liberal commitment on basic telecommunications confers rights to supply
telecommunications services;  it is not a commitmen t to allow the supply of any service – banking
services for example – which can be provided by telephone.
Market-access commitments on electronic supply of services (including commitments on basic
and value added telecommunications services and on distribution services) (Article XVI)
32. Article XVI lists 6 types of restrictive measures which are prohibited unless they are
scheduled.  This is not of course an exhaustive list of all the measures governments may take to
restrict or deny market access, but it is an exhaustive list of the types of market access limitations
which can be scheduled and thus maintained.  It does not include restrictions on the technical means
by which a service may be delivered – for example, on supply by electronic means.  This means twothings:  first, that no such restrictions could be scheduled and second, that such a measure, if taken,
would not be in direct violation of specific commitments under Article XVI.  However, it seems clear
that if a Member were to prohibit or restrict the electronic supply of a scheduled service, the measure
would be challenged under Article XXIII:3 as nullifying or impairing the benefits which other
Members could reasonably have expected to accrue from the market access commitment.  In otherwords it would probably become the subject of a "non-violation" complaint.
National treatment (Article XVII)
33. A full national treatment commitment requires a Member to extend to services and service
suppliers of any other Member, in respect of all measures affecting the supply of services, treatmentno less favourable than that it accords to its own like services and service suppliers.  The standard for
judging whether treatment is "no less favourable" for the purposes of Article XVII is whether the
measure affects conditions of competition between foreign and national services and service suppliers
in favour of the latter. Paragraphs 2 and 3 of Article XVII make it clear that the standard of no less
favourable treatment prohibits de facto  as well de jure  discrimination between national and foreign
service providers. It would also be possible to schedule a national treatment limitation discriminating
against electronic supply by foreign service providers, though it may be questioned whether
negotiating partners would find such a restriction acceptable.  There are no such restrictions in
national schedules at present.  As discussed in the context of Article II on MFN, likeness in the
national treatment context also depends in principle on attributes of the product or supplier per se
rather than on the means by which the product is delivered.
Customs duties
34. Customs duties are border measures and would therefore be relevant to cross-border supply,
whether under mode 1 or mode 2.  It is very uncommon for them to be applied to services:  the
Secretariat is aware of only one case – the application of customs duties on ship repair services
purchased abroad by the US.  There may however be other cases and there is no reason in principlewhy customs duties should not be applied to services, whether supplied electronically or in any other
way.  Any duties so imposed would be "measures affecting trade in services" as explained above.
35. In May 1998 Members undertook a temporary commitment, which is not legally binding, not
to impose customs duties on electronic transmissions.  There are already in existence legally binding
commitments on customs duties, as on other discriminatory taxes.   In general it can be said that anytax which would increase the bound level of protection of a committed service would be inconsistent
with a Member's commitments.  In the context of the GATS what really matters is whether or not a
Member has made a national treatment commitment ruli ng out recourse to discriminatory taxes. If a
Member has made such a commitment in a particular sector, then all discriminatory taxes (includingS/C/W/68
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customs duties by definition) are in any case prohibited. The GATS national treatment obligation
applies to all measures affecting the supply of services, unlike the GATT national treatment obligation
which does not apply to border measures like tariffs and quotas.  The commitments on customs duties
does not cover internal taxation.  If a Member has not made a national treatment commitment, then it
remains free to impose discriminatory internal ta xes, so the commitment not to impose customs duties
would not preclude recourse to discriminatory measures with an identical effect.  Hence, in the GATS
context it is the national treatment commitment which is crucial to ensuring equality of competitive
conditions. A national treatment commitment would not of course affect a Member's freedom to
impose taxation on a non-discriminatory basis.
Classification issues
36. All services are covered by the GATS, whether delivered electronically or otherwise, and the
classification of virtually all services products is no t in doubt – even though, as has been made clear in
the exchange of information exercise, the existing classification systems are often imperfect or
incomplete. However questions have arisen relating to the classification of certain products which can
be delivered both in electronic and physical form.  The most clear example is standardized computer
software, which can be supplied electronically over the internet or sold on a physical carrier.  These
different forms are very close substitutes for each other, and from the customer's view point theircontent is the same.  This phenomenon of close substitutability gives rise to the question whether the
trade regime applying  to the electronic and physical forms should also be the same.
37. It is important to maintain the principle that all services delivered electronically are covered
by the GATS:  the question here is whether some products delivered electronically should be defined
and treated as not being services.  It is not a matter which can be decided by simple reference to adefinition, since we have no comprehensive definition either of services or of goods.  The great bulk
of products delivered electronically, like telecommunications and financial services, are clearly
identified in the services classification lists and in GATS Schedules, so their classification is not an
issue.  And the only products delivered electronically  which are subject to internationally recognized
and enforced obligations (through the GATS) are services.   But there is no classification which wouldpermit us to say that all intangible products, or even all electronically delivered products, are services
by definition.  One of the important characteristics conventionally distinguishing services from goodshas been that goods are tangible, and of course it would be impossible to deliver a tangible product
electronically.  But it would be possible for Members, if they saw any practical advantage in doing so,
to agree that some intangible products should be regarded and treated as goods even when
electronically transmitted, in which case the rules of GATT would apply to them.  The most important
consideration, however, would be the criteria on the basis of which such products would bedistinguished from other products delivered electronically and whose status as services is not in
question.  Any suggestion that "electronic transmissions" as such should be regarded as outside the
scope of the GATS would of course fundamentall y damage the entire Agreement and undermine a
wide range of existing commitments, since the vast majority of cross-border trade in many sectors is
done electronically. It should be remembered that the legal regime applying to transactions throughoutthe WTO system – whether they are governed by the GATS, the GATT or a sectoral agreement such
as those on Agriculture or Textiles – is determined by the nature of the products being traded, not by
the means of their delivery.
38. In a related argument it is pointed out that electronically transmitted books and other
digitalized information can be "downloaded" and copied, thus creating a tangible good – and that
digital technology permits large-scale copying of high quality. It should be clear that the issue before
the Services Council is the classification of the electronic transaction – the transmission and receipt of
the text or other digitalized information over the Internet.  What is done with the information after
downloading is another matter.  If hard copies are produced, whether legally or not, this is a
manufacturing process resulting in the production of goods, into which the electronic transmissionS/C/W/68
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could be seen as a services input: as we know, virtually all manufactured goods involve services
inputs of various kinds. If such copying is done without authority, and particularly if it is done on a
commercial scale, there would be a problem of copyright piracy which should be dealt with under the
law of the country concerned.  This is not a new pr oblem – copyright piracy of printed and broadcast
material has been going on for generations – but the high quality of digitalized copying may give it anew dimension.  However, this is a matter for the TRIPS Council.
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