RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/108
18 May 1999
(99-2013)
Council for Trade in Services Original:  English
WORK PROGRAMME ON ELECTRONIC COMMERCE
Communication from Australia
The following communication has been received from the delegation of Australia, with the
request that it be circulated to Members of the Council for Trade in Services.
______________
1. Australia is concerned to ensure that the development of electronic commerce (e-commerce)
is not impeded by national or multilateral regulation, and we want to see positive steps taken to
encourage the momentum of e-commerce.  The rules-based approach of the WTO has made a
substantial contribution to the openness of markets and to the growth of e-commerce.  Australiarecognises the important work of the WTO Secretariat and of other delegations which has contributed
to discussion of e-commerce in the Services Council.  This paper seeks to build on that work and to
further explore issues under discussion, with a view to considering the formulation of
recommendations in accordance with the Ministerial Declaration of May 1998.
Scope:  The GATS covers all services, except those supplied in the exercise of government authority,
and encompasses all measures affecting the supply of services (whether provided within a domestic
jurisdiction or on a transborder basis). The WTO does not provide different rules for differenttechniques of delivery of goods and services. The range of services transactions carried out through e-
commerce - including financial and professional services - is already covered under the GATS.  The
GATS therefore applies to the supply of all services, whether delivered electronically or otherwise.  It
is extremely important to safeguard the technology-neutral approach.
Modes of Supply:  GATS schedules are based on four modes of supply, only two of which are directly
relevant to e-commerce:  cross-border supply (Mode  1) and consumption abroad (Mode 2).  Australia
considers that the key issue in relation to mode of supply is how the service is supplied, rather than
whether a measure impinges on the consumer or supplier.  The Scheduling Guidelines state that
whatever the mode of supply, obligations and commitments under the Agreement relate directly to the
treatment of services and service suppliers.  They onl y relate to service consumers in so far as services
or service suppliers of other Members are affected.
2. The Secretariat paper (S/C/W/68) correctly identifies the real function of the modes as a
means of categorising commitments in national schedules.  Australia, however, considers that the
question most relevant to ascertaining whether Mode 1 or 2 commitments apply is to determine where
the service was delivered; and not on whom the measure impinged (consumer or supplier) assuggested by the Secretariat Paper.  A measure affecting commitments on either cross-border supply
or consumption abroad would be likely to imping e on both suppliers and consumers of the service.S/C/W/108
Page 2
3. For both the cross-border supply and consumption abroad modes, the foreign service supplier
is located outside of the territory of the Member receiving the service.  For consumption abroad,
however, the Scheduling Guidelines note that the service is delivered outside the territory of the
Member.  Australia would recommend starting from the position that delivery takes place where final
consumption occurs.  It would follow that final consumption occurs where the consumer is located.  Ifconsumption occurred inside  the territory of the Member, this would be categorised under Mode 1; if
it occurred outside  the territory of the Member, it would fall under Mode 2.
4. Australia believes that the key problem may be that in some cases it is a question of degree as
to where final consumption occurs.  Where physical movement of the consumer occurs, this clearly
falls under Mode 2.  However, as the movement of the property of a consumer (eg, a ship repaired
overseas) is also covered by Mode 2, this can create difficulties in interpreting schedules.  For
example, architectural advice supplied electronically  by a foreign firm on a pre-existing architectural
design could be considered to fall under Mode 2, whereas a plan entirely created overseas and
supplied electronically would most likely be categorised under Mode 1.
5. The delivery of any service would constitute a separate service analogous to a transport
service.  There may also be significant differences between packet-switched and circuit-switched
delivery systems.  Packet-switched services such as the Internet are in principle more like postalservices or courier delivery services, because they deliver discrete articles through diverse channels.
By contrast, in conventional telephony the service consists of setting up an exclusive channel, usually
two-way between two points, with a certain bandwi dth capacity over a certain period of time.
MFN: Australia would agree with the view of Secretariat paper S/C/W/68 that likeness depends on
the attributes of a product rather than on the means by which the product is delivered.  Treatment on
the basis of means of delivery would be discriminatory and over-elaborate.   We recognise that this
issue does involve some difficult questions: for example, is a telephone chat line a ``like service'' to an
Internet chat room?  Could either of these be regarded as a “like service” to an introduction agency or
dating service?
Transparency: Any current or future regulations affecting electronic commerce would need to be
notified under Article III.
Increasing Participation of Developing Countries:  Small and medium-sized enterprises in developing
countries may have the potential to secure perhaps the greatest improvements in global market access
through the use of e-commerce. We suggest that it would be fruitful to consider the potential of e-
commerce (in the more general context of the application of digital technology) as a trade facilitation
tool by identifying practical means of promoting its the use within developing countries to enhance
their access to international trade.  Developing countries may have a comparative advantage in certainforms of e-commerce because of access to lower- cost labour.
Domestic Regulation, Standards, and Recognition:   We believe that there is a need to clarify how
Article VI relates to e-commerce.  It is important to acknowledge Members' right to regulate service
activities, subject to ensuring that regulatory regimes  do not constitute unnecessary barriers to trade,
and that all measures affecting services should be administered in a reasonable, objective, transparentand impartial manner.  Reaching a common understanding on how Article VI would apply to e-
commerce could help to avoid uncertainty and disputes at a later date.
6. Given the different regulations being developed for e-commerce at the national level on a
range of issues, Article VI disciplines should be applied to ensure that qualification requirements,
technical standards, and licensing procedures are based on objective and transparent criteria; are nomore burdensome than necessary to ensure the quality of the services concerned; and do not constitute
a restriction on supply in themselves.  Those guidel ines should lead to a minimalist, non-restrictiveS/C/W/108
Page 3
regime for e-commerce.  Although it may not always be clear at what point domestic regulations
become a barrier to trade, we would not want to see the emergence of a new generation of trade
barriers which discriminate against foreign firms supplying services electronically.  If Article VI was
clarified to ensure that there were no unnecessary restriction on electronic trade, this could help
protect existing market access commitments.  Another option could be the development of a"Regulatory Principles" document that could be appended to commitments (as with the GATS
Telecommunications Annex).
Standards:  The question of standards is likely to be particularly important.  The need to maintain
interoperability means that technical standards should not constitute unnecessary barriers to trade in
services.  Examples of potential barriers to interoperabililty could include: incompatible data
processing systems; differences in standards for encrypting data; and differences in standards for
authenticating the identity of parties to online transactions using digital signatures.
7. We recognise the possibility that governments may try to develop standards that create
national or regional advantages.  We would not wish to see standards on privacy or encryption form
non-tariff barriers to trade.  Australia supports maximum reliance on the private sector for technical
standards development, but also recognises that governments must be satisfied that market-driven
processes are working effectively.  Australia has encouraged the ITU, for example, to exercise its rolein global harmonisation of telecommunications standards.
Competition :  Australia considers that the GATS provisions  relating to competition should apply to
commitments across all services sectors, and should cover services which are delivered electronically.
Importantly, Article VIII requires that monopolies respect the MFN obligations in GATS Article II.
With respect to sectors covered in a Member's schedule, Article VIII requires the member to ensurethat a monopoly supplier does not "abuse its monopoly position" when it competes in the supply of
services outside its monopoly rights.
8. We consider that the current GATS mechanisms relating to anticompetitive practices may
prove inadequate in the event that a few suppliers acquired a degree of market power.  For example
Article IX only provides for consultation and information exchange between members in suchcircumstances.  We would favour drawing on competi tion principles as a basis for strengthening rules
on competition policy in the GATS.
9. In general, competition policies complement trade liberalisation efforts.  In the services
sector, domestic regulation has the potential to reduce competition in markets (eg, through licensing
requirements limiting the number of foreign supplier s).  Therefore, in addition to articles directly
related to competition, broader market access commitments will encourage competition.
10. We note the potential for some duplication of WTO work on competition aspects.  In addition
to the e-commerce mandate to examine all trade-re lated issues relating to global e-commerce, the
WTO Working Group on Trade and Competition Policy has a mandate to consider the interaction
between trade and competition policy (including anticompetitive practices).  The Working Group has
not discussed e-commerce in detail.  We would welcome Members' views on the most appropriate
approach, bearing in mind the principle that, where possible, work should not be duplicated.
11. E-commerce has provided immense opportunities for enhanced competition in markets
around the globe.  However to ensure that anticompetitive developments do not inhibit the growth of
e-commerce, it will be necessary to consider a number of issues:
(a) the way in which providers of operating systems, applications software, online
systems, network interconnections and telecommunications capacity package anddeliver their products;S/C/W/108
Page 4
(b) the access arrangements between telecommunications providers, online service
networks and end-users;
(c) market conduct issues relating to the deli very of Internet-related services and
products - where market power in one area of information technology development is
used to lessen or control competition in another;
(d) potential competitive blockages (including points where entities are able to charge
monopoly rents), such as concentrations of essential technologies in a few firms, the
general acceptance of one standard in a particular market, the apparent necessity for
centralised functions, historical monopolies, and anticompetitive conduct;
(e) potential monopolies on payment systems.  Payment systems could be as critical to
competition in e-commerce as the delivery of products.
12. These issues are a key concern for those supplying access to internet-related services,
telecommunications capacity and computer hardware/software.  They are also of concern to the bulk
of online users, who will either be consumers or vendors of services and products in this medium in
that they affect the ultimate price that consumers must pay for access.
Protection of Privacy and Public Morals and the Prevention of Fraud:  We would note that Article
XIV.c(2) permits measures to protect the privacy of individuals subject to the requirements of the
chapeau.  Australia is now developing legislation that will support and strengthen self-regulatory
privacy protection in the private sector.  The new "light touch" legislation will be sufficiently flexible
to meet the specific needs of business by recognis ing industry codes.  The legislative framework will
apply only where industry codes, as approved by the Australian Privacy Commissioner, are not in
place.  The new scheme will provide consistent and certain standards of data protection withoutplacing unnecessary burdens on business.  It will be based on the National Principles for the Fair
Handling of Personal Information, which were issued by the Australian Privacy Commissioner in
1998.  The National Principles are based on the OECD's 1980 Guidelines Governing the Protection of
Privacy and Transborder Flows of Personal Data.
13. The WTO work program should also take into account the ongoing work of the OECD
Working Party on Information Security and Privacy.
Online content regulation:  Article XIV.a permits measures necessary to protect public morals or to
maintain public order, also subject to the requirements of the chapeau.  We would be interested in the
views of other Members on this issue, but would emphasise the requirements of the chapeau: that such
measures do not constitute a means of arbitrary or unjustifiable discrimination, or a disguised
restriction on trade in services.
14. Australia is introducing a co-regulatory framework whereby Australian ISPs will be required
to block material on their servers where a specific complaint from a citizen has been assessed by a
public agency as illegal or unsuitable for children against well-known public criteria.  This framework
will extend to overseas-sourced material only to the extent that blocking would be technically and
financially feasible for Australian ISPs.  The framework will be based primarily on self-regulatory
industry codes of practice, supported by default statutory provisions where necessary.  (A pressstatement is available at www.dca.gov.au/ mediarel.html).
15. Recognising the distinct elements of e-commerce transactions will allow members to focus
debate on the facilitation of online transactions, and allow non-transaction issues, such as the
telecommunications and contents aspects of the Internet, to be handled separately.S/C/W/108
Page 5
Market Access Commitments on Electronic Supply of Services:  Secretariat paper S/C/W/68 notes
that there are currently no restrictions listed in schedules which discriminate against electronic supply
by foreign service suppliers.  We would not support a revision to Article XVI to include commitments
on electronic supply.  These commitments should be assumed, if there is nothing to indicate to the
contrary.
16. We agree with the view of the European Communities paper (S/C/W/87) of December 1998
that the GATS principles apply to the order and delivery of services by electronic means.  The market
access and national treatment commitments made by Members within their GATS schedules of
specific commitments on the various services sectors (eg, financial, professional, advertising,
publishing, audiovisual, health or education) guarantee the market access and national treatment
conditions bound by each Member for those services not only when provided in a traditional format
but also via electronic means.
17. The GATS Annex on Telecommunications establishes that each Member shall ensure that
service suppliers of any other member are accorded access to and use of public telecom transport
network and services on reasonable and non-discriminatory terms and conditions for scheduled
services commitments.  Thus, the Telecommunications Annex already guarantees that whenever a
Member has specific market access and national treatment commitments for a particular servicesector/subsector, the commitments apply also to those services sectors/subsectors when delivered in
electronic form.  This is regardless of whether or not the Member in question has bound GATS
commitments on telecommunications services.
18. Difficulties could arise if, in seeking to enforce domestic policies, members adopted measures
which were not consistent with scheduled market access commitments.  For example, this questioncould be raised in relation to: webcasting (broadcasting video or internet television through optic fibre
and satellite systems); and local content rules (eg, local content for programming with material
broadcast over the internet or through internet enabled television, delivered by satellite or cable).
National Treatment:  As is the case with market access, there are no restrictions listed which
discriminate against electronic supply by foreign se rvice suppliers.  As with our position on MFN, we
consider that "likeness" in the national treatment context depends in principle on attributes of the
product or supplier per se rather than on the means by which a product is delivered.
Access to and use of Public Telecommunications  Transport Networks And Services (Annex on
Telecommunications):  The determination of access rights and the terms and conditions of access to
the telecommunications market is an important infrastructure issue for the development of e-
commerce.  Interconnection with a major supplier should be ensured at any technically feasible point
in the network.  This form of interconnectivity is essential to the provision of telephone, Internet, and
other services including e-commerce.  The question of access costs is crucial to the growth of many
dynamic small and medium-sized companies operating on the Internet.  The threshold issue, how to
guarantee access within a reasonable time on reasonable terms, is crucial to consideration of equity
and efficiency in e-commerce.
Improved classification and scheduling of Internet access:  Australia supports application of the
Telecommunications Annex and Reference Paper wherever possible to communication services,
including those used for e-commerce purposes.  The Internet (as a communications service) is covered
by existing agreements, particularly the Annex on Telecommunications.  Australia considers that the
Internet is a packet-switched data service in the context of telecommunications commitments.
19. We would emphasise that content and carriage elements should be considered separately. We
do not see that using communications for e-commerce purposes changes the principles already agreed
or to be further pursued in relation to telecommunications.S/C/W/108
Page 6
Customs Duties:  Australia continues to support the view that goods ordered and delivered
electronically should continue to be traded tariff-free.  We support the indefinite extension of the May
1998 decision not to impose customs duties on electronic transmissions.  A tariff based on the amount
of information transmitted across the Internet would be distortionary and discourage development of
e-commerce.
20. Australia considers that the this approach is justified by the overall trade benefits.  Although
there may be some inconsistency between levying tariffs on conventionally traded items while
exempting those ordered and delivered electronically, the status quo has proved to be highly
beneficial for the promotion of trade.
21. On taxation issues, Australia supports the proposals contained in the OECD report "Electronic
Commerce: Taxation Framework Conditions" welcom ed at the OECD Ministerial Conference in
October 1998.
Classification Issues:  A pragmatic approach should be followed on classification issues, recognising
that, on the whole, the challenges thrown up by e-commerce are simply accentuated forms of existing
trends in international trade in goods and services.  This observation applies to a specific issue that
will arise in this context: whether things ordered and delivered electronically are properly
characterised as "goods" or "services" and the consequent implications for the application of therelevant WTO rules.  It is probably mistaken to seek a definitive determination of this question which
may, in the end, be resolved according to the nature of the specific transaction.  At this stage, we
would not see significant benefit from members seeking to identify particular products that could be
treated as goods, even if electronically transmitted.
22. The classification process should aim for the maximum separation between the nature of
services supplied and the means of supply.  The analogy for classification should be with other classes
of product where the substantial value is distinct, and can be separated from the form and medium in
which the product is finally consumed.  This is more commonly an attribute of services, rather than
goods.
23. It can be argued that the range of goods/services that may be delivered electronically is
limited to relatively few categories:
Transport services:  In our view, electronic transport services fit within the established categories of
telecommunications services.
Transaction services:  Transaction services constitute the enabling core of electronic commerce, and
are the category in which some new classification may be warranted.  Is “funds transfer” simply a
transaction service, or do the funds transferred constitute a good?
Information:  Most products or services delivered electronically consist of information.  They remain
“information” at the point of delivery to the consumer.  Therefore the value of such information in all
cases consists solely of its intellectual property value plus cost of distribution to the consumer.
Scheduling of new service :  Any new services should be identified.  The Council should consider
whether electronically delivered services are indeed new services or whether they are existing services
delivered by a new method.  For example, the ability to operate a bank account in another country bytelephone or by the Internet does not create a new banking service or a new communications service.
On the other hand, electronic authentication of electronic transactions may well be a new service.
_______________