E-Commerce, WTO and Developing CountriesRunning Title: E-Commerce, WTO and Developing Countries1.Introduction2.Which Multilateral Discipline: GATT, GATS or Both?3.Mode 1 or Mode 2?4.Access to E-Commerce4.1Access to Internet Services(i) Availability of Infrastructure, Hardware and Software(ii) Access to Communications Networks4.2Access to Electronically Traded Services5.E-Commerce and Developing Countries5.1The Gains from Internet to Developing Countries5.2Policies for the Expansion of E-commerce6. ConclusionsE-Commerce, WTO and Developing Countries Arvind Panagariya* Running Title: E-Commerce, WTO and Developing Countries Revised: May 3, 1999. *I am deeply indebted to Susan Teltscher for discussions on virtually all aspects of the paper as it progressed. I also benefited greatly from comments by Bijit Bora, Aaditya Mattoo and two referees. Also helpful were discussions with Jolita Butkeviciene. The inspiration to work on e-commerce came from John Cuddy who invited me to spend a month as a Visiting Scholar in the Division on International Trade in Goods and Services, and Commodities, UNCTAD, Geneva during the summer of 1999. The responsibility for the contents of the paper rests solely with me and not UNCTAD.Contents 1. Introduction............................................................................................................1 2. Which Multilateral Discipline: GATT, GATS or Both? .......................................2 3. Mode 1 or Mode 2?................................................................................................8 4. Access to E-Commerce........................................................................................10 4.1 Access to Internet Services ..........................................................................11 (i) Availability of Infrastructure, Hardware and Software...................................11 (ii) Access to Communications Networks ...........................................................11 4.2 Access to Electronically Traded Services....................................................14 5. E-Commerce and Developing Countries .............................................................16 5.1 The Gains from Internet to Developing Countries ......................................16 5.2 Policies for the Expansion of E-commerce..................................................22 6. Conclusions..............................................................................................................28 ii1. Introduction Even though phone, fax and television remain the most widely used electronic mediums to promote or conduct commerce, much of the current excitement, confusion and debate on e-commerce are the result of the rapid ascendancy of Internet. This medium of transmission has made possible international transmission of services on a scale that was not possible via fax, phone and television. Internet is being used today to buy abroad many back-office services such as electronic publishing, website design and management, customer call centers, medical records management, hotel reservations, credit card authorizations, remote secretarial services, mailing list management, technical on-line support, indexing and abstracting services, research and technical writing, and technical transcription. It has also become a medium for electronic transmission of many products, traditionally traded in the form of goods. Thus, books, CDs, movies and computer programs can now be transmitted internationally in digital form. The increasing use of Internet gives rise to important policy issues relating to both multilateral rules of international trade and national economic policy. At the multilateral level, the members of the World Trade Organization (WTO) must decide whether the General Agreement on Tariffs and Trade (GATT) or General Agreement on Trade in Services (GATS) should be applied to international trade on Internet. Or, will the member countries’ interests be best served by an entirely separate discipline in this area? If Internet commerce is treated as a service, should it be considered cross-border trade or consumption abroad? And how can market access for the member countries be improved in this important area? At the national level, countries must decide which policies will best improve the provision of Internet services and facilitate trade through this medium. The developing countries interested in promoting this medium may have to speed up their efforts to build the 1telecommunications industry and to create financial infrastructure necessary for electronic transactions (for example, credit cards). They may also find it necessary to relax the rules governing direct foreign investment. Countries such as India, that have a large potential to export services electronically, may find it beneficial to actively negotiate trade liberalization in services with developed countries. In the present paper, I discuss these multilateral and national aspects of e-commerce. A key distinguishing feature of the paper is its focus on developing countries.1 In Sections 2-4, I offer an analytic discussion of the issues relating to multilateral rules applicable to Internet commerce. In Section 5, I focus on the implications of e-commerce for developing countries and discuss possible policy measures the countries may wish to take to maximize the benefits from it. I conclude the paper in section 6. 2. Which Multilateral Discipline: GATT, GATS or Both?2 The degree to which WTO members can regulate and tax international Internet trade will depend on the WTO discipline they decide to apply to it. The WTO report mentioned in footnote 1, Bacchetta et al. (1998), raises the possibility that, in principle, the “digits” traded 1 The literature on e-commerce is small but rapidly growing. Among the key contributions are Barfield (1999), Bhatnagar (1999), Choi et al. (1997), Vulken (1999) and Ypsilanti (1999). Most relevant to the present paper is the comprehensive study by the World Trade Organization, Bacchetta et al. (19998). For a general discussion of the developments, the reader may also find the surveys in the May 19, 1997 and June 26, 1999 issues of the Economist useful. 2 In writing this section, I have benefited greatly from advance access to the ongoing joint research of Aaditya Mattoo and Ludger Schuknecht. 2on Internet could be viewed as goods, services or even something