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WTO NEWS: 1995-99 SPEECHES - RENATO RUGGIERO, FORMER DG

Berlin, 17 September
"Building the Framework for a Global Electronic Marketplace"

Address to the 9th International Information Industry Congress(IIIC) "A Global Framework for Electronic Commerce"

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Let me begin by saying how much I welcome this invitation to discuss what is emerging as one of the most important developments in the world trading system in decades. I think it is also valuable that we are addressing these issues in the context of the present difficulties in the world economy.

For when we talk of the impact of the Internet or electronic commerce we are talking about more than new technologies, new distribution networks, or new services. In a certain sense, we are talking about the rise of a new kind of global economic system – one that is creating the closest thing yet to a single, "borderless" world market.

Two realities define this new global economy. One is the reality of our deepening economic interdependence - where one quarter of world output is now exported. But there is also a new reality - our growing technological interdependence. It is no longer just goods and raw materials that cross borders. We increasingly share in a global market for each other's services, for entertainment, for culture, for media, even for politics. And this trade in ideas, skills and creativity is creating a far more immediate and intimate bond among peoples than trade in goods ever did.

Like all technological change, this new world economy has enormous power and potential. It is already accelerating the way many products move across borders - from financial services, to data processing, medical advice, films, and recordings. But something more fundamental is also going on. The electronic marketplace is changing the way economies function by making technology, information, and know-how more accessible than ever before. It is making itself felt in the way skills or expertise can now be sourced from around the world. In the way production can be integrated, 24-hours-a-day, across many different time zones and borders. In the way information on design, costs, markets and so forth can be shared widely and instantly.

But how to manage the forces unleashed by this new global economy? How to help peoples and societies adjust? How to establish the rules and the frameworks that are so critical to the stability of all markets - including electronic markets? And how to ensure that its benefits are widely shared - so we don't see a widening of the gap between the technological haves and have-nots? To emerge from the present crisis - and more important, to find lasting solutions - we need to answer these questions. We need to find new ways to harness the potential of globalization behind a return to growth - for developing and developed countries alike.

Today I want to talk about the contribution the WTO can make – and is making - to a new framework for the new global electronic marketplace. Specifically, I want to address what I see as the three necessary pillars of this framework: first, creating the necessary environment of international and national law, so that trade in digital products remains free and non-discriminatory; second, building the physical infrastructure for the global electronic marketplace, which means making computer and telecommunications networks available and compatible world wide; and third, strengthening and widening the knowledge base of people, especially in the developing world – so that all of us have the potential to share in the information technology revolution, not just a fortunate few.

II

The question of how far the electronic marketplace - or the entire cyberspace environment - needs to be regulated is of course a matter of intense debate. It is argued that the explosive growth of the Internet, and of commerce conducted over the Internet, has benefitted from the virtual absence of regulation. Clearly in this sphere - as in any other sphere of international trade - governments should intervene as little as possible.

But at the same time, it would be wrong to ignore the necessary role that governments play in helping markets to work and function effectively. And it would be na´ve to assume that there are not many legitimate policy objectives which will always involve regulation at the national and international levels. Consumer protection and the protection of public morals and national security are obvious examples. Intellectual property protection is another. In these areas national societies must have scope to set and pursue their own objectives, and the rights of other Members of the WTO are limited to ensuring that regulation is no more trade-restrictive than is necessary to achieve the objective.

When you come to the international level, where relations between governments and the right to trade internationally are concerned, the need for an agreed framework of rules will hardly be questioned. Indeed, it is vital, because the Internet is an irresistible force for globalization, involving companies in foreign trade from the moment that they open a website. It is said that, from the first day of the existence of its website, a US company can expect 30 per cent of the enquiries and 10 per cent of the orders to come from foreigners. In Europe those proportions are probably higher.

Fortunately, large parts of the necessary framework for international electronic commerce are already in place in WTO Agreements. We must take care, in dealing with the new challenges thrown up by electronic commerce, to remember that it is after all just another means of trading and that the basic rules of the trading system apply to it. International trade in goods has benefitted enormously over the past 50 years from the stability and the liberalising impulse provided by the GATT system. Electronic commerce will benefit in the same way from the existence of rules which provide guaranteed rights of market access and non-discrimination, and which includes a commitment to ongoing liberalisation.

This is because electronic commerce is just another way, but a crucially important one, of buying and selling goods and services. It takes two forms, both of which are covered by the multilateral trade rules, specifically the GATS (General Agreement on Trade in Services). In the first form, the entire transaction is carried out electronically and the end-product is delivered to the customer in the form of digitalized information flows. Trade of this kind is overwhelmingly, if not entirely, trade in services. A vast range of professional, advisory and financial services is already traded internationally in digital form, and it is certain that the revolution in information technology will make many more services tradeable. Under the GATS, governments have made commitments to permit the supply of services by foreigners, and the right to deliver these services electronically, like all other means of delivery, is guaranteed by these commitments. To give one example of the possible benefits, the cost of handling a banking transaction at a traditional branch is estimated to be 100 times higher than on the internet, so Internet banking will soon expand.

In the second form, electronic commerce is a kind of distribution service - wholesaling and retailing - in which goods and services are selected, ordered and paid for electronically, but are subsequently delivered in tangible form. The bulk of this trade at present takes place between companies, which already buy supplies on-line on a huge scale, but Internet retailing to the general public – which is very much like mail-order shopping - is also beginning to take off. Distribution services are of course covered by the GATS, and Internet sales are covered in just the same way as all other forms of distribution. This means that where countries have made commitments to allow foreigners to supply distribution services in their markets, those commitments include the right to offer and sell goods and services over the internet. Commitments are made on the most-favoured-nation basis, so that all WTO Members benefit from them.

The GATS therefore provides a system of rules for international trade in services which is a vital part of the framework for a global electronic marketplace. It is not yet a complete system. Some basic rules, on matters like safeguards, subsidies and government procurement of services, have still to be negotiated, and the coverage of liberalization commitments has to be extended: this is the objective of the next round of market opening negotiations, which will be launched at the end of next year. But the basic framework is there. We must take care not to undermine it by treating the electronic supply of services as if it were outside the normal flow of business: for many services electronic supply is already the normal way of doing business.

Turning now to the physical infrastructure of the global marketplace, important advances were made in two negotiations concluded in the WTO last year. In an agreement on trade in information technology products, 40 governments agreed last March to eliminate customs duties on computer and telecommunications products by the start of the year 2000. These governments account for over 90 per cent of world trade in IT products, which amounts to some $600 billion a year. Their agreement means lower prices for consumers and wider availability of the most modern technology. Further negotiations, to extend the coverage of the agreement to a wider range of products, were suspended last July without agreement, but I hope they will be resumed in the autumn. It is obviously vital, if electronic commerce is to become a dominant factor in world trade, that the ability to participate in it should not be curtailed by unnecessarily high prices for the basic equipment.

To be of use for trading purposes, of course, computers have to be linked through telecommunication networks. It is here that the agreement on basic telecommunications reached in the GATS in February 1997 makes its contribution. In those negotiations, 69 countries made commitments to allow foreign companies to supply telecommunications services in their markets, most of which had until then been state-owned monopolies. This will not merely bring down costs and improve efficiency, as competition always does; it also means that in countries which have liberalized their telecom regimes competing suppliers of Internet access will come in, once more enhancing the efficiency of the physical infrastructure.

These developments may be threatened by concerns about the security of internet transactions, particularly because much of the trade on the net involves selling or licensing of information, or cultural products like films and music, which are protected by intellectual property rights. Copyright owners may be very reluctant to see their works put on the net if that would lead to uncontrolled and unpaid copying. The Agreement on Trade-Related Intellectual Property Rights obliges WTO Members to protect the rights, including copyrights and trademarks, of citizens of all other Members, and this is enforced, like all commitments in the WTO, by a powerful dispute settlement mechanism.

I should not give the impression that so far as the WTO is concerned everything needed is already in place. That is very far from the truth. In all three of the areas I have mentioned – services, information technology and intellectual property – work will be needed to adapt existing agreements to the internet revolution, and WTO Members have already accepted this. At the second Ministerial Conference in May, they adopted a Declaration on Global Electronic Commerce in which they did two things. First, they agreed not to impose customs duties on electronic transmissions: no country does this now, and the effect of the May agreement is to hold that position until Ministers meet again and reconsider the matter at the end of next year.

Secondly, the Declaration set up a programme of work on electronic commerce under which the relevant bodies in the organization will examine and report back on any trade-related issues arising from electronic commerce which Members wish to raise. This work will begin in October. It will cover a very wide range of issues – too many to be listed here – in the areas of services, trade facilitation, intellectual property and government procurement.

III

As I see it, the work programme will have three purposes: to confirm and consolidate the disciplines and rights which already exist, notably in the GATS and the TRIPS Agreement; to identify problems where negotiation is necessary to amplify or clarify existing agreements, as in the case of the Information Technology Agreement; and finally to decide if there are areas, not hitherto covered by WTO agreements, in which it would be desirable to negotiate new disciplines.

The work programme will also cover the development implications of electronic commerce, including ways of enhancing the participation of developing countries. This brings me to the third important role for the international system - because there is a real danger that inequalities will be exacerbated by the fact that some countries will be far quicker to exploit the new technologies than others. The whole world will benefit from the efficiency and freedom of internet trade, but the direct benefits will go to those who participate in it – and effective participation requires access to computers, to an efficient telecoms network and to knowledge. For the most part these things depend on national policies.

But there is much that can and should be done at the international level too, notably in the form of technology transfer and education. The WTO is working to provide least developed countries with better access to the global information infrastructure, providing computers equipment and the know-how needed to access the great volume of trade information which is available on the WTO website. The least developed countries have ten per cent of the world's population but do less than half of one per cent of world trade. This marginalization is dangerous – absolutely unacceptable. Electronic trade, which can abolish distances and frontiers, can also provide an escape route from marginalization. It can help bridge the economic divisions between countries and individuals, by equalizing access to the most important resource of the 21st century - knowledge and ideas. The framework for the global electronic marketplace must accommodate these aspirations as well as these concerns.

Let me conclude with the observation that the challenge of building a framework for the electronic marketplace is really one part of the larger challenge of building a stronger foundation for our ever-more interdependent global economy. The reality of an increasingly borderless global economy means that the economic reach of nations-states is being challenged, and the ground rules of international relations are changing. Almost more than any development, it is pushing governments to work together, plan together, and pool their efforts as never before.

It is very important to underline this reality. At the present moment there are a growing number of voices preaching against globalization. But globalization is not a policy. It is a process, it is a much deeper current of technological and economic change which will inevitably draw every nation and every person into this process. Its impact on the world economy depends on how we manage it - on the qualities of our policy response. With a quarter of global output now exported, no country has an interest in closing off markets or weakening its economic ties with the rest of the world. No country, especially in the developing world, has an interest in cutting itself off from the flows of technology or capital from outside.

The point is that to slow down or stop globalization would be to suffocate this potential and to retard its progress - especially the aspects of this progress, like electronic commerce, which are so important to creating a more equitable world trading system. The advent of a borderless global economy has enormous potential to generate growth, to spread the benefits of modernization, and to weave a more stable and secure planet. But it also challenges the status quo. It demands that we adapt. The real issue before us is not the debate about globalization but to see how technological process can be better channelled to promote more growth, more trade and greater modernization - and so help the world economy to remerge from its present difficulties. This is a complex challenge - a challenge that will require vision and patience. But let us begin to meet this challenge now knowing that with electronic commerce we have another, very powerful tool in our hands.