Potential Battles
     Beyond the tariff-free Internet issue, U.S. high-tech companies want the WTO to take a cautious approach to electronic commerce. They want trade ministers to embrace broad supportive themes including providing the most liberal treatment for electronic commerce as possible, avoiding erecting new trade barriers and applying current trade rules in a neutral manner.
     "Bad regulation slows down e-commerce," said Lauren Hall, chief technology officer for the Software and Information Industry Association. "Everyone is very sensitive to trying to avoid that."
     In particular, industry officials want the WTO to declare that current agreements including the General Agreement on Tariffs and Trade (GATT), Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and General Agreement on Trade in Services (GATS), are technologically neutral and apply to electronic commerce.

E-commerce Classifications Raise Questions
     But there appears to be a growing split between the Europeans and U.S. companies over how electronic commerce should be classified when it comes to applying WTO agreements to online commerce. The EU has proposed that e-commerce be classified as a service. As a result, it would fall under the scope of the GATS, which allows countries to maintain more trade barriers than GATT does.
     GATT, for example, provides market access for all goods. GATS, however, allows countries to choose which services will be subject to market access and limit the amount of access they provide. This potentially could impact the treatment of software, movies or other items sold and delivered over the Internet, industry officials say. For example, software packaged for sale in a store may be considered a good under the current system, but classified as a service if sold over the Internet under the EU plan.
     "Classifying all e-commerce under services is not correct and (does not provide) the most liberalized treatment," said Kathryn Hauser, director of international trade for the Information Technology Industry Council.
     Hauser and other industry officials argue that e-commerce transcends traditional WTO categories and say they are concerned that the WTO not move too hastily to classify electronic commerce under one of the existing areas.
     "We don't want to see the ministerial codify rules where the technology is still evolving, or e-commerce is still evolving," said Robert Holleyman, president of the Business Software Alliance. "So we don't want them to prematurely try to make selections where the marketplace has not yet shown the guidance."

Seeking Clarity
     The EU's proposal does not appear to have much support with the Clinton Administration. A U.S. official familiar with the issue said on condition of anonymity that "we're firmly against making any classification" at this point because it is "not the way to arrive at the most liberal" treatment for e-commerce.
     U.S. Trade Representative Charlene Barshefsky said during a speech in late July that countries "should keep an open mind as to classification of the types of products delivered over the Internet. It may be that our traditional distinction between goods and services…is becoming somewhat outdated."
     The WTO's Council for Trade in Services issued a progress report in July that provided little clarity on the issue. Instead, the council noted that there remains disagreement over the issue and said it needed more discussion.
     Privately, some of those involved in the debate say that the EU's proposal to classify all e-commerce transactions as services is aimed at protecting cultural products such as films. By classifying movies sold over the Internet as a service, for example, European countries may not be forced to provide as much as access to U.S.-made films as they would if it was classified as a good and subject to GATT.
     But EU officials maintain that it is simply an intellectual disagreement. At the same time, they argue that allowing some cyber products to be classified as goods under GATT could force European countries to provide more access to some products than they are currently required to provide.
     Another controversial principle included in the EU proposal calls for classifying Internet access and network services as telecommunications, which was aimed at ensuring that telecommunications companies provide open access to their lines for Internet services. This provision has caused particular heartburn for U.S. companies concerned that it could force them to abide by the same regulations and taxes applied to telephone companies.
     EU officials have signaled they may be willing to compromise on the issue or redraft it in a way that would not open U.S. companies to increased regulation at home.
     "Maybe we can formulate it in a way that does not cause as much anxiety," said Gerard de Graaf, first secretary for trade with the EU's European Commission delegation to Washington. "We are open. The idea is to ensure that the benefits achieved in the Basic Telecommunications Agreement can be preserved and applied to e-commerce."

Tariff-free zone?
     WTO officials are still in the midst of formulating the agenda for the ministerial, a spokeswoman said.
     But the European Union is pressing for a detailed discussion of electronic commerce that goes beyond an extension of the duty-free cyberspace treatment. EU officials have said they would not endorse an extension of the ban on cyberspace tariffs unless it is accompanied by other principles.
     "If this was self standing, we wouldn't throw our weight behind it," de Graaf said.
     U.S. officials, however, have yet to spell out a specific agenda except to support the ban on cyberspace duties and some of the broader themes advocated by industry such as technological neutrality.
     While most observers say it is likely the WTO members will endorse an extension of the duty-free cyberspace principle, it is not a given. Some developing countries have expressed concerns with this because of its potential financial impact. As a result, U.S. officials who had been pushing to make the ban permanent now say an extension is more feasible.
     "Developing countries are not comfortable with that (making the ban permanent) because they are not sure of the impact," said Hauser of the Information Technology Industry Council.

—by Juliana Gruenwald