Since the adoption of the General Agreement on Trade in Services (GATS), there has been a rapid expansion of the delivery of services electronically ('e-commerce'). This has challenged the adequacy of the GATS rules for classifying e-commerce services and has created ambiguity as to the market assess commitments made by WTO members with respect to e-services. Given that, historically, there was a physical proximity between the service provider and the consumer, the GATS concentrated on obtaining commitments that would facilitate physical access between service providers and consumer (modes 2, 3 and 4). The rise of e-services has diminished, and in some cases eliminated the need for a physical proximity between the service provider and the consumer.
GATS established the WTO rules framework for trade of services, with the aim of expanding 'such trade under the conditions of transparency and progressive liberalisation' (preamble to GATS).
The inclusion of e-services within the framework of GATS raises the issue of which mode covers this form of services trade, in particular whether mode 1 (cross-border transactions) or mode 2 (consumption abroad transactions) is more appropriate. This classification issue has significant policy implications, since current levels of market access commitments indicate that in many service categories, most countries have agreed to place no restrictions on mode 2 (i.e. made a commitment of 'none') and have reserved the right to place restrictions on mode 1 (listed 'unbound' in mode 1).
If e-commerce is classified as mode 2, it would mean that the commitments made as a result of the URA agreement negotiating process and in subsequent accession negotiations, would be significantly extended. If, however, e-services as classified as mode 1, the lack of 'none' commitments means that WTO members would have the ability to apply regulatory measures to e-commerce, which could represent market restraint or safeguard measures on foreign suppliers. This problem may become more acute, as e-commerce increasingly replaces 'establishment of commercial presence in a foreign market' as the preferred mode of delivery. This issue of classification, and its implication for domestic regulation, extends across many services sectors, including business services (especially data processing and database services), construction and related engineering services, and entertainment and sporting services.
The expansion of e-commerce, and its treatment within the WTO rules framework, also raises concerns about the fiscal implications. If e-commerce is duty-free, countries are foregoing a potential source of tax revenue. This is a concern particularly for developing countries, where the reduction in tariffs and related trade measures, has significantly reduced an important source of tax revenue.
The 1998 Geneva Ministerial Meeting adopted a work programme on issues relating to electronic commerce, which has identified a number of issues on which members have expressed divergent views. These include: (1) whether electronic commerce should remain duty free; (2) whether existing WTO rules should be applied to e-commerce, and if so, how e-commerce should be classified as a distinct regulatory domain in international trade; and (3) policy coherence in this area between WTO and other organisations, including WIPO.
The European Union wishes to see the results of the WTO Work programme, and the current practice of not imposing customs duties on electronic transmissions reviewed. The aim is to reach agreement on a list of basic principles to prevent new barriers to e-commerce, covering inter alia, issues such as domestic negotiation, anti-competitive practices and clarification of the application of GATS rules.