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Sharing E-commerce Benefits Beyond U.S. Borders
While reading a magazine article on the U.S. digital divide during a return flight from China, Tim Bennett had an epiphany.
Bennett, senior vice president of international affairs with the American Electronics Association, had been in China for discussions with Wu Jichun, the conservative minister of information industries who, before China and the U.S. signed a trade deal, unsettled U.S. business interests by threatening that China would ban foreign investment in online content providers and Internet service providers.
Much like issues the magazine article raised about the information haves and have-nots in the United States, minister Wu told Bennett that it seemed only one country was benefiting from electronic commerce: the United States.
It occurred to Bennett, a former negotiator with the United States Trade Representative, that the well-publicized digital divide stretched beyond the Unites States' borders.
"Just think of the developing countries that have basic telecommunications deficiencies," Bennett said. "That's where your digital divide is. I see it as an international divide."
This international gap between those who have information and those who are denied it might be key for U.S. negotiators' understanding at the World Trade Organization ministerial meeting in Seattle. For some time, the U.S. government and high-tech businesses have stumped for cyberspace untrammeled by tariffs. Although it looks highly likely that WTO ministers will agree to extend the current moratorium on Net tariffs, business interests and the United States Trade Representative have said repeatedly they covet a permanent and binding ban on tariffs for electronic transactions.
Here's why that's unlikely to happen any time soon. Aside from the fact that the more politically charged trade negotiations won't begin until next spring, the U.S. government and its business interests are well aware that developing countries haven't done back flips for making the moratorium permanent. Their reticence stems from several reasons. But perhaps the main one is that developing countries don't want to be caught without a bargaining chip at WTO.
"Developing countries feel disadvantaged right now," said Carol Ann Charles, assistant director of the Global Information Infrastructure Commission. "They feel they're not able to compete on a level playing field."
A good way to think about the WTO is to imagine a card game. Developing countries aren't willing to easily hand over what could be their best trade card. Charles said these countries could use a hold out on something like e-commerce tariffs in exchange for other trade deals.
Gimme A Little More Time
Part of developing countries' reluctance to sign off on the ever-lasting duty free cyberspace also boils down to time. Namely, they want more of it.
Speaking at the Multimedia Asia '99 conference in September, Malaysia's Prime Minister Mahathir Mohamad said although he welcomed the Internet's "borderless world," he worried about the effects if governments can't collect taxes on e-commerce.
"We are up against the WTO (World Trade Organization) now who want goods to cross borders freely," he said.
Siddik Harith, minister of economics at the Malaysian embassy in Washington, said while Malaysia may agree to extend the standstill on e-commerce tariffs, they don't know enough about how this new way of doing business could affect their economy to sign off on anything permanent.
"We are not prepared, he said. "We need time to study it, to understand it."
Show Us The Money
By studying electronic commerce, countries will be able to determine if any significant revenue is lost from withholding tariffs on e-commerce. And developing countries aren't alone in taking a wait-and-see approach to the issue.
John Richardson, acting chief of the European Union's delegation to the United States, said that it's unlikely the EU would agree to a permanent and binding deal because they fear it cold erode governments' tax base. He worried that countries would bind their hands if they agree to something while electronic commerce is in its relative infancy.
Although a recent WTO working paper did address that issue and found revenue loss from tariffs collected on e-commerce would be minimal, it's unlikely to change any minds in Seattle.
Let's Agree To Disagree
Another game of high-stakes trade for the technology industry is the Information Technology Agreement. Trade officials had hoped to gain early consensus on "ITA 2," which expands the list of information technology products that would be tariff-free. While the original pact included products such as computers and semiconductors, ITA 2 includes items such as radar and navigational products, printed circuit board manufacturing equipment and a few consumer electronics products.
But Malaysia and until recently, India, have been an Achilles' heel for negotiators who had hoped to finalize the agreement before Seattle. Malaysian officials have pushed to include more consumer electronic products on the list, and India had balked at the inclusion of navigational equipment in the agreement. They had worried that it could help India's rivals.
Deputy U.S. Trade Representative Susan Esserman traveled to Deli last month and was able to get India's support on ITA 2. Aji Malhotra, a minister of commerce with India's embassy in Washington, DC, said although India has remaining concerns on the agreement, Esserman's visit showed some progress. "We are closer to each other's position that we thought," he said.
Now all that remains is Malaysia, which has proved a firebrand in the discussions. The United States Trade Representative and industry groups are still attempting to hammer out an agreement.
But it seems doubtful Malaysia, which was hit hard by the economic crisis, will budge.
"Malaysia is saying 'if you guys want more (information technology products), here's what it's going to cost you," Bennett said.
And without Malaysia's support, it's difficult to get an ITA 2 deal, he added.
Indeed, the feisty Southeast Asian nation is willing to play hardball on the issue.
Harith said Malaysia, which is a top electronics exporter, would have to be satisfied with the agreement before signing it.
"We still want to push for the products that will benefit us," he said.
The Culture Of E-Commerce
To bring other countries around to the United States' position on all things e-commerce, several industry groups are planning education initiatives with trade negotiators. Kathryn Hauser, director of international trade for the Information Technology Industry Council, said the group plans to join in that education process, adding that among developing countries there is a "hunger for information" about how electronic commerce should be handled.
But it might take some time before other nations align with U.S. philosophy on the Internet.
"The open freewheeling capitalistic style of the Internet comes into conflict with other cultures," said David McClure, executive director of the Association of Online Professionals.
Sometimes, the differences present themselves in smaller ways. For example, a recent survey of electronic commerce in India by the Global Information Infrastructure Commission found that Indian consumers were largely mistrustful of e-commerce and much preferred to buy things they could physically touch before they purchased them.
But the divisions don't just come down to culture. Economics play a role too.
Roberto Rodriguez, first secretary for the commercial section in Peru's Washington, DC, embassy, said although electronic commerce is important, labor and other trade issues outweigh digital age concerns.
"There are more important issues for the WTO, especially for developing countries," he said.
- by Caroline Broder
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