INTERNATIONAL TRADE: International trade is the exchange of goods and services between countries. This type of trade gives rise to a world economy, in which prices, or supply supply and demand, and demand, affect affect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of labour, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labour, on the other hand, would result in you having to pay less for your new shoes. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewellery, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, an export, and a product that is bought from the global market is an import. an import. Imports
and
exports
are
accounted
for
in
a
country’s. Increased Efficiency of Trading Globally ,Global trade allows
wealthy countries to use their resources - whether labour, technology or capital or capital more efficiently. Because countries are endowed with different assets and natural resources (land, labour, capital and technology), some countries may produce the same good more efficiently and therefore sell it more cheaply than other countries. If a country cannot efficiently produce produce an item, it can obtain the item by trading with another country that can. Let's take a simple example. Country A and Country B both produce cotton sweaters and wine. Country A produces 10 sweaters and six bottles of wine a year while Country B produces six sweaters and 10 bottles of wine a year. Both can produce a total of 16 units. Country A, however, takes three hours to produce the 10 sweaters and two hours to produce the six bottles of wine (total of five hours). Country B, on the
other hand, takes one hour to produce 10 sweaters and three hours to produce six bottles of wine (total of four hours). More than 50% of retirement age individu in dividuals als to not have enough savings But these two countries realize that they could produce more by focusing on those products with which they have a comparative advantage. Country advantage. Country A then begins to produce only wine and Country B produces only cotton sweaters. Each country can now create a specialized output of 20 units per year and trade equal proportions of both products. As such, each country now has access to 20 units of both products. We can see then that for both countries, the opportunity cost of producing both products is greater than the cost of specializing. More specifically, for each country, the opportunity cost of producing 16 units of both sweaters and wine is 20 units of both products (after trading). Specialization reduces their opportunity cost and therefore maximizes their efficiency in acquiring the goods they need. With the greater supply, the price of each product would decrease, thus giving an advantage to the end consumer as well. Note that, in the example example above, Country B could could produce both both wine and cotton more efficiently than Country A (less time). This is called an absolute advantage, and advantage, and Country B may have it because of a higher level of technology. However, according to the international trade theory, even if a country has an absolute advantage over another, it can still benefit from specialization.
Other Possible Benefits of Trading Globally International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity of foreign of foreign direct investment (FDI), which is the amount of money that individuals invest into foreign companies and other assets. In theory, economies can therefore grow more efficiently and can more easily become competitive economic participants. For the receiving government, FDI is a means by which
foreign currency and expertise can enter the country. These raise employment levels, and, theoretically, lead to a growth in the gross domestic product.. Free Trade Vs. Protectionism As with other theories, there are opposing views. International trade has two contrasting views regarding the level of control placed on trade: free trade and protectionism. Free trade is the simpler of the two theories: a laissezfaire approach, with no restrictions on trade. The main idea is that supply and demand factors, operating on a global scale, will ensure that production happens efficiently. Therefore, nothing needs to be done to protect or promote trade and growth, because market forces will do so automatically. In contrast, protectionism holds that regulation of international trade is important to ensure that markets function properly. Advocates of this theory believe that market inefficiencies may hamper the benefits of international trade and they aim to guide the market accordingly. Protectionism exists in many different forms, but the most common are tariffs, subsidies and quotas. These strategies attempt to correct any inefficiency in the international market. THE BOTTOM LINE : As it opens up the opportunity for specialization and therefore more efficient use of resources, international trade has the potential to maximize a country's capacity to produce and acquire goods. Opponents of global free trade have argued, however, that international trade still allows for inefficiencies that leave developing nations compromised. What is certain is that the global economy is in a state of continual change, and, as it develops, so too must all of its participants.
TRADE BARRIERS: Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:
Tariffs Non-tariff barriers to trade
Import licenses Export licenses Import quotas Subsidies Voluntary Export Restraints Local content requirements Embargo Currency devaluation Trade restriction
Trade barriers are generally classified as 1. Import policies reflected in tariffs and other import charges, quotas, import licensing, customs practices, 2. standards, testing, labelling, and various types of certification 3. direct procurement by government, 4. subsidies for local exporters, 5. lack of copyright protection, 6. restrictions on franchising, licensing, technology transfer 7. restrictions on foreign direct investment, etc. Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel. IMPACT OF TRADE BARRIERS ON BUSINESS : Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive
processed
goods.
The Commitment
to
Development
Index measures the effect that rich country trade policies actually have on the developing world. Another negative aspect of trade barriers is that it would cause a limited choice of products and would therefore force customers to pay higher prices and accept inferior quality. Trade barrier obstructs free trade. Before exporting or importing to other countries, firstly, they must be aware of restrictions that the government imposes on the trade. Subsequently they need to make sure that they are not violating the restrictions by checking those related regulation on tax or duty, and finally they probably need a license in order to ensure a smooth export or import business and reduce the risk of penalty of violation. Sometimes the situation becomes even more complicated with the changing of policy and restrictions of a country. In the past, many companies relied on spreadsheets and manual process to keep track of compliance issues related to incoming and outgoing shipments, which takes risks of potential errors. TARIFF AND NON TARIFF BARRIERS : Ta riffs
barrie s represent
taxes on
imports of
commodities
into a
country/region and are among the oldest form of government intervention in the economic activity.Non
tari ff
barriers represent the
great variety of
mechanisms that countries use in order to restrict the imports. For example:
technical barriers to entry; import licensing; domestic content regulations; voluntary export restarins etc.
The non tariff barriers are mentioned in GATT 1947, art.37 (1/b): 1. The developed contracting parties shall to the fullest extent possible _ th at is, exc ept when co mpel li ng re as on s, wh ic h may includ e leg al reasons, make it impossible _ give effect to the following provisions: (b) refrain from introducing, or increasing the incidence of, customs duties or non-tariff import barriers on products currently or potentially of particular export interest to less-developed contracting parties. WORLD TRADE ORGANIZATION: The World Trade Organization (WTO) is an organisation that intends to supervise
and liberalise international
trade. The
organization
officially
commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986 – 1994).The organization is attempting to complete negotiations on the Doha Development Round, which was launched in 2001 with an explicit focus on addressing the needs of developing countries. As of June 2012, the future of the Doha Round remains uncertain: the work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed, and the round is still incomplete. The conflict between free trade on industrial goods and
services
but
domestic agricultural
retention
of
sector (requested
protectionism on farm by developed
subsidies to
countries)
and
the substantiation of the international liberalization of fair trade on agricultural
products (requested by developing countries) remain the major obstacles. These points of contention have hindered any progress to launch new WTO negotiations beyond the Doha Development Round. As a result of this impasse, there has been an increasing number of bilateral free trade agreements signed. As of July 2012, there are various negotiation groups in the WTO system for the current agricultural trade negotiation which is in the condition of stalemate. WTO's current Director-General is Pascal Lamy, who leads a staff of over 600 people in Geneva, Switzerland. HISTORY The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was
established
after World
War
II in
the
wake
of
other
new multilateral institutions dedicated to international economic cooperation — notably
the Bretton
Woods
institutions known
as
the
World and
the International Monetary Fund. A comparable international institution for trade, named the International Trade Organization was successfully negotiated. The ITO was to be a United Nations specialized agency and would address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. But the ITO treaty was not approved by the U.S. and a few other signatories and never went into effect
.
In the absence of an international organization for trade, the GATT would over the years "transform itself" into a de facto international organization. GATT rounds of negotiations The GATT was the only multilateral instrument governing international trade from 1946 until the WTO was established on January 1, 1995.Despite attempts in the mid-1950s and 1960s to create some form of institutional mechanism for
international trade; the GATT continued to operate for almost half a century as a semi-institutionalized multilateral treaty regime on a provisional basis. From Geneva to Tokyo Seven rounds of negotiations occurred under GATT. The first real GATT trade rounds concentrated on further reducing tariffs. Then, the Kennedy in the midsixties brought about a GATT anti-dumping Agreement and a section on development. The Tokyo Round during the seventies was the first major attempt to tackle trade barriers that do not take the form of tariffs, and to improve the system, adopting a series of agreements on non-tariff barriers, which in some cases interpreted existing GATT rules, and in others broke entirely new ground. Because these plurilateral agreements were not accepted by the full GATT membership, they were often informally called "codes". Several of these codes were amended in the Uruguay Round, and turned into multilateral commitments accepted by all WTO members. Only four remained plurilateral (those on government procurement, bovine meat, civil aircraft and dairy products), but in 1997 WTO members agreed to terminate the bovine meat and dairy agreements, leaving only two. Uruguay Round Well before GATT's 40th anniversary, its members concluded that the GATT system was straining to adapt to a new globalizing world economy. In response to the problems identified in the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts of certain countries' policies on world trade GATT could not manage etc.), the eighth GATT round — known as the Uruguay Round — was launched in September 1986, in Punta del Este, Uruguay. It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the trading system into several new areas, notably trade in services and intellectual property, and to reform trade in the sensitive sectors of
agriculture and textiles; all the original GATT articles were up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed April 15, 1994, during the ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh Agreement. The GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations (a distinction is made between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994). GATT 1994 is not however the only legally binding agreement included via the Final Act at Marrakesh; a long list of about 60 agreements, annexes, decisions and understandings was adopted. The agreements fall into a structure with six main parts:
The Agreement Establishing the WTO Goods and investment — the Multilateral Agreements on Trade in Goods including
the
GATT
1994
and
the Trade
Related
Investment
Measures (TRIMS)
Services — the General Agreement on Trade in Services Intellectual property — the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Dispute settlement (DSU) Reviews of governments' trade policies (TPRM).
In terms of the WTO's principle relating to tariff "ceiling-binding" (No. 3), the Uruguay Round has been successful in increasing binding commitments by both developed and developing countries, as may be seen in the percentages of tariffs bound before and after the 1986-1994 talks. Ministerial conferences The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every two years. It brings together all members of the
WTO, all of which are countries or customs unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements. The inaugural
ministerial
conference was
held
in Singapore in
1996.
Disagreements between largely developed and developing economies emerged during this conference over four issues initiated by this conference, which led to them being collectively referred to as the " Singapore issues". The second ministerial
conference was
conference in Seattle,
held
in Geneva in Switzerland.
Washington ended
in
failure,
with
The third massive
demonstrations and police and National Guard crowd control efforts drawing worldwide attention. The fourth ministerial conference was held in Doha in the Persian Gulf nation of Qatar. The Doha Development Round was launched at the conference. The conference also approved the joining of China, which became the 143rd member to join. The fifth ministerial conference was held in Cancun, Mexico, aiming at forging agreement on the Doha round. An alliance of 22 southern states, the G20 developing nations (led by India, China, Brazil, ASEAN led by the Philippines), resisted demands from the North for agreements on the so-called "Singapore issues" and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress. The sixth WTO ministerial conference was held in Hong Kong from 13 – 18 December 2005. It was considered vital if the four-year-old Doha Development Round negotiations were to move forward sufficiently to conclude the round in 2006. In this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006. Further concessions to developing countries included an agreement to introduce duty free, tariff free access for goods from the Least Developed Countries, following the Everything but Arms initiative of the European Union — but with up to 3% of tariff lines exempted. Other major issues were
left for further negotiation to be completed by the end of 2010. The WTO General Council, on 26 May 2009, agreed to hold a seventh WTO ministerial conference session in Geneva from 30 November-3 December 2009. A statement by chairman Amb. Mario Matus acknowledged that the prime purpose was to remedy a breach of protocol requiring two-yearly "regular" meetings, which had lapsed with the Doha Round failure in 2005, and that the "scaled-down" meeting would not be a negotiating session, but "emphasis will be on transparency and open discussion rather than on small group processes and informal negotiating structures". The general theme for discussion was "The WTO, the Multilateral Trading System and the Current Global Economic Environment. Doha Round (The Doha Agenda) The WTO launched the current round of negotiations, the Doha Development Round, at the fourth ministerial conference in Doha, Qatar in November 2001. This was to be an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. The initial agenda comprised both further trade liberalization and new rulemaking, underpinned by commitments to strengthen substantial assistance to developing countries. The negotiations have been highly contentious. Disagreements still continue over several key areas including agriculture subsidies, which emerged as critical in July 2006. According to a European Union statement, "The 2008 Ministerial meeting broke down over a disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports’. The position of the European Commission is that "The successful
conclusion of the Doha negotiations would confirm the central role of multilateral liberalisation and rule-making. It would confirm the WTO as a
powerful shield against protectionist backsliding. An impasse remains and As of June 2012, agreement has not been reached, despite intense negotiations at several ministerial conferences and at other sessions. PRINCIPLE OF TRADING SYSTEM: The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of the trade policy games. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO: 1. Non-discrimination. It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favourable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favour and you have to do the same for all other WTO members."National treatment means that imported goods should be treated no less favourably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods). 2. Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialise.
3. Binding and enforceable commitments. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures. 4. Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM).The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports. 5. Safety valves. In specific circumstances, governments are able to restrict trade. The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health. There are three types of provision in this direction:
Articles allowing for the use of trade measures to attain non-economic objectives;
Articles aimed at ensuring "fair competition"; members must not use environmental protection measures as a means of disguising protectionist policies.
Provisions permitting intervention in trade for economic reasons.
Exceptions to the MFN principle also allow for preferential treatment of developing countries, regional free trade areas and customs unions.
ROLE OF WTO IN INTERNATIONAL TRADE: Globalization causes a significant change across the world economy. This occurs because of an increase in interaction of households and firms all over the world who exchange goods and services between each other. As technology and productivity of many countries develop year by year the world community is less constrained with political borders. Exports and Imports and the measure of economic openness more than doubled over recent decades in countries with advanced economies. In order to sustain a healthy trade among different nations it was sufficient for the world to form one global institute which may control the overall performance and conduct international trade policies. Consequently after many negotiations organizations such as General Agreements on Tariffs and Trade (GATT) and later the World Trade Organization (WTO) were created. General Agreement on Tariffs and Trade (GATT) was established in 1947, it was an agreement between 150 countries which was done with an intention of reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis. It lasted for 46 years and ended with a new agreement among 117 countries with a name World Trade Organization (WTO) which had more comprehensive and enforceable world trade rules. Nowadays WTO is the only global international organization dealing with rules of trade between different countries. It is exist ―to facilitate
the implementation, administration, and operation as well as to further the objectives‖ of the WTO agreements. The main goal of these agreements is to enrich and enlarge free trade which has various advantages for global economy. After the Great Depression of 1930th many countries preferred to apply trade barriers such as tariffs and quotas which could help every single country to
increase its Domestic output and employment by stopping imports. However those restrictions that were implemented made the things even worse, since they prevented nations from maximizing their specialization level and thus using factors of production inefficiently. This politics which goes against free trade is called protectionism. There are few arguments that protectionists use for implementing tariffs and quotas on imported goods. Primarily they state that trade restrictions could protect infant industries to survive, since those wellestablished foreign producers generate smaller costs and are able to sell their products at lower price. In addition to law costs, unfair competition might occur due to subsidies or other benefits that firms receive from government. Even though free trade critics argue that protectionist policies protect domestic jobs the net effect on employment is close to zero. Government may save jobs in one industry where there is a direct foreign competition, but lose jobs in other industries that you may not see.One of the most important functions of WTO is to serve as a forum for trade negotiations since international negotiations are very technical, detailed and politically sensitive. Furthermore their system helps to keep the peace which is achieved by helping trade to flow smoothly plus an international confidence and cooperation are created and reinforced. Moreover trade is a core tool to raise income. At the time of 1994 Uruguay Round trade deal was $109 billion and after $510 billion was added to the world income. Economists estimate that cutting trade barriers in agriculture, manufacturing and services by only one third would expand the world economy by $613 billion. Not only an appropriate and effective usage of resources in production is offered by trading system of WTO, in addition it helps to reduce costs even more because of principles established. Lower costs improve the well- being of society by making the prices for goods and services, such as food, clothes, cars and real-estate, cheaper. Another major benefit world economies could get from joining WTO is Free Trade Agreements (FTAs) which is an example of preferential trade agreements and certainly the most popular. FTAs are
dependable on WTO rules. One of the examples of the benefit a country may get from the agreement is an Australian FTAs with New Zealand, Singapore, US, Thailand and Chile. By facilitating access to these markets, FTAs provide significant commercial profits to Australian exporters and more economic benefit to all Australians. Additionally these agreements may help to improve competitiveness through access to inputs with lower costs and to encourage domestic producers to remain competitive against imports. The idea of WTO appeared slowly from various needs and negotiations. Despite there are still many protectionists who argue the necessity of markets to be protected by various restrictions, the Great Depression of 1930s showed the reverse situation and proved that protected markets are more likely to fail. WTO has a big impact on international trade as it is the only global organization in the world which sets the rules and controls performance among member countries and it is considered as among most powerful international bodies in the world. IMF (INTERNATIONAL MONETARY FUND): The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Conference and formally created in 1945 by 29 member countries. The IMF's stated goal was to assist in the reconstruction of the world's international payment system post – World War II. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. Through this activity and others such as surveillance of its members' economies and the demand for selfcorrecting policies, the IMF works to improve the economies of its member countries. The IMF describes itself as ―an organization of 188 countries,
working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce po verty around the world.‖ The organization's stated
objectives
are
to
promote
international
economic
co-
operation, international trade, employment, and exchange rate stability, including by making financial resources available to member countries to meet balance
of
payments needs. Its
headquarters
are
in Washington,
D.C., United States. WORLD BANK: The World Bank is a United Nations international financial institution that provides loans to developing countries for capital programs. The World Bank is a component of the World Bank Group, and a member of the United Nations Development Group. The World Bank's official goal is the reduction of poverty. According to its Articles of Agreement, all its decisions must be guided by a commitment to the promotion of foreign investment and international trade and to the facilitation of capital investment .The World Bank was created at the end of World War II as a result of many European and Asian countries needing financing to fund reconstruction efforts. Created out of the Bretton Woods agreement of 1944, the Bank was successful in providing financing for these devastated countries. Today, the Bank functions as an international organization that attempts to fight poverty by offering developmental assistance to middle and poor-income countries. By giving loans, and offering advice and training in both the private and public sectors, the World Bank aims to eliminate poverty by helping people help themselves.. The World Bank is composed of two institutions: 1. International Bank for Reconstruction and Development (IBRD) 2. International Development Association (IDA).
World Bank performs the following functions: (i) Granting reconstruction loans to war devastated countries.
(ii) Granting developmental loans to underdeveloped countries. (iii) Providing loans to governments for agriculture, irrigation, power, transport, water supply, educations, health, etc (iv) Providing loans to private concerns for specified projects. (v) Promoting foreign investment by guaranteeing loans provided by other organisations.
(vi)Providing technical, economic and monetary advice to member countries for specific projects
(vii) Encouraging industrial development of underdeveloped countries by promoting economic reforms.
ISSUES This paper covers nine areas where international agreements are needed to preserve the Internet as a non-regulatory medium, one in which competition and consumer choice will shape the marketplace. Although there are significant areas of overlap, these items can be divided into three main subgroups: financial issues, legal issues, and market access issues. Financial Issues
customs and taxation electronic payments
Legal Issues
'Uniform Commercial Code' for electronic commerce intellectual property protection privacy security
Market Access Issues
telecommunications infrastructure and information technology content technical standards
I. Financial Issues 1. CUSTOMS AND TAXATION For over 50 years, nations have negotiated tariff reductions because they have recognized that the economies and citizens of all nations benefit from freer trade. Given this recognition, and because the Internet is truly a global medium, it makes little sense to introduce tariffs on goods and services delivered over the Internet. Further, the Internet lacks the clear and fixed geographic lines of transit that historically have characterized the physical trade of goods. Thus, while it remains possible to administer tariffs for products ordered over the Internet but ultimately delivered via surface or air transport, the structure of the Internet makes it difficult to do so when the product or service is delivered electronically. Nevertheless, many nations are looking for new sources of revenue, and may seek to levy tariffs on global electronic commerce. Therefore, the United States will advocate in the World Trade Organization (WTO) and other appropriate international for a that the Internet be declared a tariff-free environment whenever it is used to deliver products or services. This principle
should be established quickly before nations impose tariffs and before vested interests form to protect those tariffs.In addition, the United States believes that no new taxes should be imposed on Internet commerce. The taxation of commerce conducted over the Internet should be consistent with the established principles of international taxation, should avoid inconsistent national tax jurisdictions and double taxation, and should be simple to administer and easy to understand. Any taxation of Internet sales should follow these principles:
It should neither distort nor hinder commerce. No tax system should discriminate among types of commerce, nor should it create incentives that will change the nature or location of transactions.
The system should be simple and transparent. It should be capable of capturing the overwhelming majority of appropriate revenues, be easy to implement, and minimize burdensome record keeping and costs for all parties.
The system should be able to accommodate tax systems used by the United States and our international partners today.
Wherever feasible, we should look to existing taxation concepts and principles to achieve these goals. Any such taxation system will have to accomplish these goals in the context of the Internet's special characteristics -- the potential anonymity of buyer and seller, the capacity for multiple small transactions, and the difficulty of associating online activities with physically defined locations To achieve global consensus on this approach, the United States, through the Treasury Department, is participating in discussions on the taxation of electronic commerce through the Organization for Economic Cooperation and Development (OECD), the primary forum for cooperation in international taxation.
The Administration is also concerned about possible moves by state and local tax authorities to target electronic commerce and Internet access. The uncertainties associated with such taxes and the inconsistencies among them could stifle the development of Internet commerce. The Administration believes that the same broad principles applicable to international taxation, such as not hindering the growth of electronic commerce and neutrality between conventional and electronic commerce, should be applied to sub federal taxation. No new taxes should be applied to electronic commerce, and states should coordinate their allocation of income derived from electronic commerce. Of course, implementation of these principles may differ at the sub federal level where indirect taxation plays a larger role. Before any further action is taken, states and local governments should cooperate to develop a uniform, simple approach to the taxation of electronic commerce, based on existing principles of taxation where feasible. 2. ELECTRONIC PAYMENT SYSTEMS New technology has made it possible to pay for goods and services over the Internet. Some of the methods would link existing electronic banking and payment systems, including credit and debit card networks, with new retail interfaces via the Internet. "Electronic money," based on stored-value, smart card, or other technologies, is also under development. Substantial private sector investment and competition is spurring an intense period of innovation that should benefit consumers and businesses wishing to engage in global electronic commerce. At this early stage in the development of electronic payment systems, the commercial and technological environment is changing rapidly. It would be hard to develop policy that is both timely and appropriate. For these reasons, inflexible and highly prescriptive regulations and rules are inappropriate and potentially harmful. Rather, in the near term, case-by-case monitoring of electronic payment experiments is preferred.
From a longer term perspective, however, the marketplace and industry selfregulation alone may not fully address all issues. For example, government action may be necessary to ensure the safety and soundness of electronic payment systems, to protect consumers, or to respond to important law enforcement objectives. The United States, through the Department of the Treasury, is working with other governments in international for a to study the global implications of emerging electronic payment systems. A number of organizations are already working on important aspects of electronic banking and payments.6 [See W3C JEPI] Their analyses will contribute to a better understanding of how electronic payment systems will affect global commerce and banking. The Economic Communiqué issued at the Lyon Summit by the G7 Heads of State called for a cooperative study of the implications of new, sophisticated retail electronic payment systems. In response, the G-10 deputies formed a Working Party, with representation from finance ministries and central banks (in consultation with law enforcement authorities). The Working Party is chaired by a representative from the U.S. Treasury Department, and tasked to produce a report that identifies common policy objectives among the G-10 countries and analyzes the national approaches to electronic commerce taken to date. As electronic payment systems develop, governments should work closely with the private sector to inform policy development, and ensure that governmental activities flexibly accommodate the needs of the emerging marketplace. II. Legal Issues 3. 'UNIFORM COMMERCIAL CODE' FOR ELECTRONIC COMMERCE In general, parties should be able to do business with each other on the Internet under whatever terms and conditions they agree upon.
Private enterprise and free markets have typically flourished, however, where there are predictable and widely accepted legal environments supporting commercial transactions. To encourage electronic commerce, the U.S. government should support the development of both a domestic and global uniform commercial legal framework that recognizes, facilitates, and enforces electronic transactions worldwide. Fully informed buyers and sellers could voluntarily agree to form a contract subject to this uniform legal framework, just as parties currently choose the body of law that will be used to interpret their contract. Participants in the marketplace should define and articulate most of the rules that will govern electronic commerce. To enable private entities to perform this task and to fulfill their roles adequately, governments should encourage the development of simple and predictable domestic and international rules and norms that will serve as the legal foundation for commercial activities in cyberspace. In the United States, every state government has adopted the Uniform Commercial Code (UCC), a codification of substantial portions of commercial law. The National Conference of Commissioners of Uniform State Law (NCCUSL) and the American Law Institute, domestic sponsors of the UCC, already are working to adapt the UCC to cyberspace. Private sector organizations, including the American Bar Association (ABA) along with other interest groups, are participants in this process. Work is also ongoing on a proposed electronic contracting and records act for transactions not covered by the UCC. The Administration supports the prompt consideration of these proposals, and the adoption of uniform legislation by all states. Of course, any such legislation will be designed to accommodate ongoing and possible future global initiatives. Internationally, the United Nations Commission on International Trade Law (UNCITRAL) has completed work on a model law that supports the commercial use of international contracts in electronic commerce. This model
law establishes rules and norms that validate and recognize contracts formed through electronic means, sets default rules for contract formation and governance of electronic contract performance, defines the characteristics of a valid electronic writing and an original document, provides for the acceptability of electronic signatures for legal and commercial purposes, and supports the admission of computer evidence in courts and arbitration proceedings.The United States Government supports the adoption of principles along these lines by all nations as a start to defining an international set of uniform commercial principles for electronic commerce. We urge UNCITRAL, other appropriate international bodies, bar associations, and other private sector groups to continue their work in this area. The following principles should, to the extent possible, guide the drafting of rules governing global electronic commerce:
parties should be free to order the contractual relationship between themselves as they see fit;
rules should be technology-neutral (i.e., the rules should neither require nor assume a particular technology) and forward looking (i.e., the rules should not hinder the use or development of technologies in the future);
existing rules should be modified and new rules should be adopted only as necessary or substantially desirable to support the use of electronic technologies; and
the process should involve the high-tech commercial sector as well as businesses that have not yet moved online.
With these principles in mind, UNCITRAL, UNIDROIT, and the International Chamber of Commerce (ICC), and others should develop additional model provisions and uniform fundamental principles designed to eliminate administrative and regulatory barriers and to facilitate electronic commerce by:
encouraging governmental recognition, acceptance and facilitation of electronic communications (i.e., contracts, notarized documents, etc.);
encouraging consistent international rules to support the acceptance of electronic signatures and other authentication procedures; and
promoting the development of adequate, efficient, and effective alternate dispute resolution mechanisms for global commercial transactions.
The expansion of global electronic commerce also depends upon the participants' ability to achieve a reasonable degree of certainty regarding their exposure to liability for any damage or injury that might result from their actions. Inconsistent local tort laws, coupled with uncertainties regarding jurisdiction, could substantially increase litigation and create unnecessary costs that ultimately will be born by consumers. The U.S. should work closely with other nations to clarify applicable jurisdictional rules and to generally favor and enforce contract provisions that allow parties to select substantive rules governing liability. Finally, the development of global electronic commerce provides an opportunity to create legal rules that allow business and consumers to take advantage of new technology to streamline and automate functions now accomplished manually. For example, consideration should be given to establishing electronic registries. The Departments of Commerce and State will continue to organize U.S. participation in these areas with a goal of achieving substantive international agreement on model law within the next two years. NCCUSL and the American Law Institute, working with the American Bar Association and other interested groups, are urged to continue their work to develop complementary domestic and international efforts
