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WTO sparks e-trade fears

WHEN a ministerial meeting of the World Trade Organisation approved a "declaration on global electronic commerce" in Geneva last month, the 132 WTO member countries agreed to continue their current practice of not imposing customs duties on electronic transmissions. The matter will now be subjected to close scrutiny, but the declaration - which was proposed by the United States and had the support of European Union countries - left many developing countries feeling distinctly uneasy.

A zero import tax on electronic commerce has "serious adverse consequences for developing countries", believes Bhagirath Lal Das, a former Indian ambassador to the General Agreement on Tariffs and Trade (Gatt). He fears they will lose out on future revenues, and gain nothing in return.

The electronic commerce covered by the declaration is largely services, as most products that are ordered electronically are physically delivered, and normal customs duties apply. But transactions of designs of machinery and buildings, for example, and of plans, layouts, music and other products, which can be sold electronically, are also covered.

Industrialised countries account for most of the exports of such e-commerce - developing countries are overwhelmingly the importers.

"In such a situation," says Mr Lal Das, "a pragmatic trade policy for a developing country will be more in favour of levying a tax, rather than giving up the option of a tax altogether."

Taxing these e-commerce transactions "can bring considerable resources to governments of developing countries", he believes. "Committing countries to a zero tax will foreclose all future options to raise revenue from this source."

Most developing countries are already short of resources, he points out, and a zero tax on e-commerce will result in a "huge potential loss" of revenue for them. "Practically all the benefits will go to industrialised countries. Developing countries have nothing to gain." The zero tax "negates all principles of reciprocity", says Mr Lal Das, "and is an example of special and differential treatment in reverse".