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WTO implications of classification issues L. Lee Tuthill Trade in Services Division World Trade Organization.

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Presentation on theme: "WTO implications of classification issues L. Lee Tuthill Trade in Services Division World Trade Organization."— Presentation transcript:

1 WTO implications of classification issues L. Lee Tuthill Trade in Services Division World Trade Organization

2 Implications? Three different questions... Revenue implications: l of E-commerce l of GATT vs. GATS treatment l of the Moratorium on customs duties è Customs duties, internal taxes, forex earnings è Customs duties, internal taxes (but, level of access & benefits is also a main concern) è Customs duties only

3 Where do we Stand?... GATS l The vast majority of on-line trade clearly involves trade in services l GATS defines services through modes of supply, making no distinctions concerning technologies involved in delivery. This would mean that GATS benefits apply: ÜMFN, transparency, domestic regulation, competition safeguards, etc ÜMarket access & national treatment commitments in GATS Schedules of Members

4 l It is clear that traditional GATT obligations & benefits apply to physically delivered goods that may have been purchased on-line But... How to characterize end-to-end electronic delivery of products now tradable in both physical and electronic form? Where do we Stand?... GATT

5 What is at issue l Covered by GATT or GATS? A narrow range of media products that may be currently imported under HS classifications -- & /or downloaded on- line l Involving approximately 1% of total merchandize trade and 1% of total duties collected world wide l But, no specific problems or disputes have yet arisen in this regard

6 What is not at issue l The vast majority of services l All media/information products that never did cross borders in physical formats, i.e. being clearly in the purview of GATS z For example, most media/entertainment forms - - are and always have been clearly regarded as services, e.g. broadcast TV programming, radio programming l Approximately 99% of trade in merchandise and more than 99% of duties collected world wide

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

8 What are we talking about? On tape, diskette, cassette, CD-ROM, DVD, etc: l Videos l Software l Recorded music l Books, magazines newspapers Without physical carrier medium: è Downloadable films - limited use… permanent use... - Pay per view? Streaming? è Downloadable è Interactive on-line software? è Downloadable cuts..entire albums? è Streaming? è Downloadable books è Read on-line print media

9 GATS W/120 vs. HS Code Examples of classification questions

10 Goods and/or Services What exactly is information? Print media, software, videos, music... GATT covers: l Physical carrier medium yincluding content? yIrrespective of content? New forms of carriage Content, itself GATS covers: l Development & production of l Distribution of l Live performance of l Adaptation of l Radio/TV broadcast transmission of (live or not) New forms of transmission Content, itself

11 Quicken 2002 Deluxe Intuit Our Price: $59.99 Special Offers: $40.00 Price After Special Offers: $19.99 Platform: Windows 95 / 98 / Me / XP / NT 4 / 2000 Media: CD-ROM Other Media: Download Usually ships within 24 hours Intuit Special OffersDownload Market Developments Software

12 Star Wars: The New Jedi Order: Recovery [DOWNLOAD: ADOBE READER] by Troy Denning List Price: $2.99 Our Price: $2.99 Availability: Available for download now. Digital: 108 pages; 1 edition (October 2001) Customers who bought this book also bought:Troy Denning Darth Maul: Saboteur (Star Wars) [DOWNLOAD: MICROSOFT READER] by James Luceno Darth Maul: Saboteur (Star Wars) [DOWNLOAD: MICROSOFT READER] Star Wars: Darth Maul: Saboteur [DOWNLOAD: ADOBE READER] by James Luceno Star Wars: Darth Maul: Saboteur [DOWNLOAD: ADOBE READER] Traitor (Star Wars: The New Jedi Order, Book 13) by Matthew Woodring Stover Traitor (Star Wars: The New Jedi Order, Book 13) Jedi Quest - Path to Truth (Star Wars) by Jude Watson Jedi Quest - Path to Truth (Star Wars) Books

13 Magazines Print, web, e-mail or mobile

14 Music NECHUNG MONKS Recorded Live in Dharamsala The Nechung Monks List Price: $16.99 Our Price: $16.99 Audio CD (January 25, 2002) Original Release Date: January 1, 2001 Number of Discs: 1 The Nechung Monks Genres: International/Far East & Asia,International/India & PakistanInternational/Far East & AsiaInternational/India & Pakistan Free Downloads Download free music from this album: "Prayer to the Three Jewels & Prayer to the 25 Founders of Tibetan Buddhism"Prayer to the Three Jewels & Prayer to the 25 Founders of Tibetan Buddhism "Sacred Instrumental Offering"Sacred Instrumental Offering

15 Videos Rent, purchase, download or view Movies start as often as every 30 minutes and are only $3.99 each when you order with your remote control.

16 In brief… Role of classification It has become a pivotal issue because of structural differences between GATT and GATS... Why? l The essence of GATT is to reduce or eliminate tariffs over time through binding of tariff concessions. National treatment for internal taxes is obligatory l Tariffs were so uncommon in services trade that GATS does not even mention them. National treatment for internal taxes is negotiated l Levels of benefits extended by GATT can differ significantly from those available under GATS in the short term. In the long term? Overall, scope of GATS is far wider

17 Classification: Services, Goods or..?.. + + applies to internal taxes

18 With full commitments..?.. + + applies to internal taxes

19 GATS vs. GATT Difference in scope? GATS Schedule GATT scope limited to what in GATS is mode 1

20 Cross Border Access GATS Commitments... (By number of governments) production & distribution

21 Status quo? z Some of these products can and do enter markets under both GATT & GATS at the same time depending on the carriage or delivery vehicle used. This may continue to be the case for some time to come In some cases the content is similar or even identical but receives different treatment depending on whether GATT or GATS applies. Does this send conflicting signals to markets. Does it distort the commercial decisions of traders? z Yet, the status quo may be a viable option. If so, explicitly confirmation of such an approach would, at least, offer some legal clarity and predictability for trade However, classification work might still be needed. Neither GATT nor GATS classification schemes may fully or unambiguously cover some of the products or content concerned

22 Possible alternatives? Classification of such products as goods? : May clarify situation with respect to tariffs and national treatment, etc. for the products concerned z Could have serious unintended consequences for the scope of the GATS, e.g. for the status of other on-line services beyond those actually at issue Classification of such products as services? : May clarify the status most forms of e-commerce z Leaves open the issue of differing treatment of similar products delivered by physical and electronic means z Could raise questions on the GATT status of the content of digital products that remain traded on physical formats

23 For consideration... 1. Tariff revenue l How significant is the value of GATT tariffs on these products? l What is the status of tariffs under GATS? Are they feasible & at what cost? Might they take the form of discriminatory internal taxes? Either way, is it desirable to start down this path? 2. Tax revenue l Members are entitled to non-discriminatory internal taxes under GATT & GATS. On-line products … feasibility?...desirability? l Discriminatory taxes in GATS? What would be the impact on products now benefiting from GATT in this respect? What would be the impact on other services never before subject to tariffs?

24 For consideration... 3. Levels of benefits l The implications of classification concerns for products traditionally subject to sensitivities and trade restrictions are very different from the implications for products for which freer trade has been the norm l Is it reasonable that a determination on classification, in itself, might result in the removal of barriers on certain products or in the evaporation of benefits, heretofore available for others? l Is there a case for possible consideration of sector-specific solutions for certain products? The work program began as an examination. And it would be ideal if classification issues were resolved on a purely conceptual basis. But, because Members views on many of these questions vary so considerably, it has instead become a negotiation

25 and finally… the broader picture l What are the implications of e-commerce for the promotion of economic development? What are the implications for development of erecting barriers to e-commerce? l What are the implications for expanding trade and economic growth of legal uncertainty about how WTO agreements apply to e-business & e-trade? l Transparency, legal certainty, predictability and spreading the benefits economic growth equitably are what the trading system is all about... l Does WTO risk becoming falling behind as our commercial players continue apace to adopt & employ the new advances in technology in commercial trade?

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