4 electronic commerce issues for the southctrc.sice.oas.org/geograph/e-comm/singh.pdf ·...

TRADE-RELATED AGENDA,DEVELOPMENT AND EQUITY

(T.R.A.D.E.)

WORKING PAPERS

4

ELECTRONIC COMMERCE:ISSUES FOR THE SOUTH

This working paper was written by A. Didar Singh,a senior civil servant and international trade expert from

India who is a guest consultant at the South Centre.

SOUTH CENTRE

OCTOBER 1999

THE SOUTH CENTRE

In August 1995, the South Centre became a permanent intergovernmentalorganization of developing countries. In pursuing its objectives of promotingSouth solidarity, South-South co-operation, and co-ordinated participation bydeveloping countries in international forums, the South Centre has fullintellectual independence. It prepares, publishes and distributes information,strategic analyses and recommendations on international economic, social andpolitical matters of concern to the South.

The South Centre enjoys support and co-operation from the governments ofthe countries of the South and is in regular working contact with the Non-Aligned Movement and the Group of 77. Its studies and position papers areprepared by drawing on the technical and intellectual capacities existing withinSouth governments and institutions and among individuals of the South.Through working group sessions and wide consultations which involve expertsfrom different parts of the South, and sometimes from the North, commonproblems of the South are studied and experience and knowledge are shared.

CONTENTS

List of AbbreviationsForewordExecutive Summary

I. Introduction .............................................................................................. 1

I.1 ECommerce today and tomorrow ................................................................. 1I.2 A policy perspective for developing countries .............................................. 6I.3 Summary of main points................................................................................... 10

II. ECommerce in the South.......................................................................... 11

II.1 Internet: the infrastructure for eCommerce ................................................ 11II.2 Potential and dangers for business (especially SMEs) in the South ......... 17II.3 The role of government .................................................................................. 19II.4 Summary of main points................................................................................. 21

III. Important Issues of ECommerce for developing countries ..................... 22

III.1 Global framework proposals and their implications................................. 22III.2 Technological developments and standards .............................................. 24III.3 Legal and financial framework...................................................................... 26III.4 Summary of main points ............................................................................... 28

IV. Issues Related to the WTO....................................................................... 30

IV.1 Taxation issues................................................................................................. 30IV.2 Market access issues........................................................................................ 31IV.3 Characterization and classification issues .................................................... 34IV.4 Issues concerning intellectual property rights ............................................ 35IV.5 Summary of main points ............................................................................... 37

V. Towards a Strategy for the South.............................................................. 38

Selected Bibliography ................................................................................... 42

PREFACE

The South Centre, with funding support from UNDP TCDC Unit, hasestablished a pilot project to monitor and analyse the work of WTO from theperspective of developing countries. Recognizing the limited human and financialresources available to the project, it focuses on selected issues in the WTOidentified by a number of developing countries as deserving priority attention. Itis hoped that the project will lead to more systematic and longer term activities bythe South Centre on WTO issues.

An important objective of the project is to respond, to the extent possiblewithin the limited resources, to the needs of developing country negotiators inthe WTO for concise and timely analytical inputs on selected key issues undernegotiation in that organization. The publication of analytical cum policy papersunder the T.R.A.D.E. working paper series is an attempt to achieve this objective.These working papers will comprise brief analyses of chosen topics from theperspective of developing countries rather than exhaustive treatises on each andevery aspect of the issue.

It is hoped that the T.R.A.D.E. working paper series will be found useful bydeveloping country officials involved in WTO discussions and negotiations, inGeneva as well as in the capitals.

The text of these working papers may be reproduced without priorpermission. However, clear indication of the South Centre’s copyright isrequired.

South Centre, October 1999

LIST OF ABBREVIATIONS

B2B Business-to-BusinessB2C Business-to-ConsumerB2G Business-to-GovernmentCPC Central Products ClassificationDCs Developing CountrieseBusiness Electronic BusinesseCommerce Electronic CommerceeTrade Electronic TradeEDI Electronic Data InterchangeGATS General Agreement on Trade in ServicesGATT General Agreement on Tariffs and TradeGII Global Information InfrastructureHRD Human Resource DevelopmentIP Internet ProtocolIPRs Intellectual Property RightsISPs Internet Service ProvidersIT Information TechnologyLDCs Least-developed countriesPC Personal ComputerQRs Quantitative RestrictionsSMEs Small and Medium EnterprisesTCP Transmission Control ProtocolTRIPs Trade-related Intellectual Property RightsVAT Value Added TaxWWW World Wide Web

Organizations

APEC Asia-Pacific Economic Co-operationASM Asian Sources Media GroupEC European CommunitiesEU European UnionFNC Federal Networking CouncilICANN Internet Corporation for Assigned Names and NumbersIFC International Finance CorporationITC International Trade CentreITU International Telecommunications UnionNAM Non-Aligned MovementOECD Organisation for Economic Co-operation and DevelopmentUN United NationsUNCITRAL United Nations Commission on International Trade LawUNCTAD United Nations Conference on Trade and DevelopmentUNDP United Nations Development ProgrammeUNESCAP United Nations Economic & Social Commission for Asia and thePacificWIPO World Intellectual Property OrganizationWTO World Trade Organization

FOREWORD

Electronic commerce, or eCommerce, has become an issue in international trade policydiscussions. Largely on the initiative of the United States, efforts are being made to placethis subject on the multilateral negotiating agenda and accepted as part of the remit of theWorld Trade Organization (WTO). The immediate practical concern of the US is toachieve a permanent global ban on tariffs on products and services which can be deliveredelectronically via the Internet.

As on other issues brought up in the WTO, the countries of the South findthemselves in an uncomfortable, although not altogether unfamiliar, situation. They areconfronted with strong precipitate pressures to engage immediately in a process of rule-making and to assume commitments in an area which is still ill-defined. Moreover, mostdeveloping countries have little or no national experience, expertise, or technical capacityin the field of eCommerce, and they have not fully analysed the many possible, and oftenunpredictable, implications of its development either for their economies or their societies.They are thus being expected to agree to enter into negotiations and, possibly, intobinding commitments without a full grasp of the multi-faceted development implicationsof such action.

Developing countries are being subjected to a combination of pressures and

promises of major qualitative and quantitative development breakthroughs on the wings ofeCommerce. Many in the South, understandably enthusiastic about the potential ofeCommerce, have tended to accept uncritically the claims and prescriptions of those in thedeveloped countries, eager to build up further their own capacities in and througheCommerce.

As in the case of other sectors or activities, the complex and multifaceted issues

associated with eCommerce are being dealt with in a fragmented and dissociated manner.Apart from proposed discussion in the WTO on the economic issues associated witheCommerce, a wide range of multilateral institutions are now engaged in activities whichaffect eCommerce in one manner or another. Owing to their lack of experience andtechnical expertise, developing countries once again find themselves unable to participatein discussions and decision-making in an informed way on highly complex technical andlegal processes and developments. In effect, therefore, a handful of countries and majorcorporations from the North are able to set rules, technical standards and other matters,while ignoring the development implications for countries of the South.

Moreover, these technical and economic negotiations take place in the absence of a

broader more integrated framework which takes account of the needs of and possibilitiesfor developing countries with respect to eCommerce and the information andcommunications technologies which facilitate it. This is highly prejudicial to thedeveloping countries. It is thus not surprising that most of them adopt a defensive stanceand are reluctant to engage in a process which could lead to commitments and foreclosetheir options, when the broader picture is quite unclear, the costs and benefits are difficult

South Centre T.R.A.D.E. Working Papersx

to determine and assess, and there is no clear idea as to how this new capability and modeof interaction can best be oriented to promote development. Without a broaderperspective, and a well informed strategy and coordination between them, developingcountries are at a clear disadvantage vis-à-vis the countries of the North. The advancedcountries are customarily well prepared, having a clear perception of their national andgroup interests, especially when it comes to dealing with the South, and a grasp of thewhole. Their positions are often well coordinated through various institutionalmechanisms, such that they often have an overarching strategy.

Meaningful discussion of eCommerce issues is also hindered by the lack of clarityand precision: the term itself has become a “catch-all” term referring to a number of quitedifferent matters. It has often been used to embrace matters having to do with Internet,with which it is closely intertwined.

In sum, in approaching the discussion of eCommerce developing countries areconfronted by a number of problems, namely:

• a general lack of clarity surrounding most discussions on eCommerce issuesin the multilateral arena;

• major implications for the traditional role of governments, for national

sovereignty and for the societies and economies of developing countries,including not only their balance of payments, but also possibly their financialpolicy, among other things.

• pressures to include eCommerce as a new item on the agenda for

negotiations in the WTO in the post-Seattle period and the US drive to keepeCommerce free from the imposition of taxes and tariffs.

It is therefore of crucial importance that a fuller and comprehensive appreciation of theissues, challenges and potential related to electronic commerce -- and Internet -- informsthe position and approaches of developing countries, as they engage in discussions, studyand negotiations in the UN and the WTO to devise a multilateral framework to channeland regulate eCommerce in its multiple forms. Among other things, there will be a needto address important issues concerning the new technological potential, includingencryption technologies and the monitoring of global information flows, and abuses suchas transnational crime, dubious financial cross-border transactions, and globalized fraud ingeneral, as well as consumer protection.

To leave these matters which are vital for the future of the humankind to the so-called spontaneous forces of market, would be to virtually abandon the development ofthis domain to a handful of powerful interests in the North, thus creating new forms ofdependency and dominion for the 21st century. Carefully handled at a national andinternational level, Internet and electronic commerce could become means to helpovercome global gaps in development, technology and knowledge, rather than deepeningthese and exacerbating existing economic and social inequalities, thereby increasingexploitation, marginalization and tensions within and between countries.

Electronic Commerce: Issues for the South xi

In view of the importance for developing countries of considering eCommerce bothin a broader context as it relates to development and also within the appropriatetechnological framework, the South Centre is providing this background paper written byA. Didar Singh, as an initial cognitive map with a view to helping developing countries intheir efforts to deal with the subject of eCommerce, including in the context of theongoing WTO process.

EXECUTIVE SUMMARY

The double face of Electronic Commerce, one promising and the other threatening, iscertain to become a part of the economic life of all developing countries as humanity findsitself catapulted into the world of global electronic networks. Since the achievement andmaintenance of equitable economic growth is an integral part of the developmentstrategies of these countries, the impact of eCommerce, both positive and negative, is akey policy issue. Developing countries need to understand, assess, assimilate and use thistechnology to their gain, while protecting their basic interests and guarding against thepossible ills.

As eCommerce growth becomes more and more significant, developing countrieswill need not just to understand, but in fact to engage in it. Not only for realizing itspotential of growth for their trade and industry but also as a means of survival in the newworld of eCommerce-based trade and business. Their ability to do so will depend onseveral factors, most important of which will be their infrastructure, both physical (thetelecommunication network), as well as the financial and legal framework, including abusiness and trade environment conducive to eCommerce. It will also depend on theavailability and price of hardware (computers, routers, switches etc.) and software, as wellas the human resource and education standards of the country.

ECommerce is a useful tool for the transfer of information as well as forcommercial transactions. These two main functions raise several different issues of pricing,taxation, quality and standards. This paper seeks to address several of the importantimplications from the perspective of the South.

Developing countries also need to prepare themselves for the future multilateraltrade agenda, in particular the so-called new issues on which the Second MinisterialConference of the World Trade Organisation (WTO) in May 1998 asked the WTOGeneral Council to formulate recommendations. One such issue is eCommerce which ispresently under study. Not only is eCommerce a new technology and a new frontier forglobal business and trade, it is still evolving, and that too at an incredible pace. Developingcountries therefore need to understand, and assess carefully from their perspective, thepros and cons of the different proposals and issues in this connection that could emerge atthe WTO. They need to appreciate the possible impact of this new phenomenon on theireconomies and work out appropriate strategies and responses to it. Therefore, unlike mostother trade-related agenda items before the WTO, this is an area that is not just new butwhere many of the implications are as yet unclear. This paper therefore, while focusing onthe WTO issues and possible negotiating positions, also attempts to address some of thecore questions concerning eCommerce and place them in perspective for developingcountries attempting to develop their strategies.

Section I seeks to set the stage by explaining the main concepts and importance ofthe Internet and eCommerce. It describes eCommerce today and the trends for the future,while advocating a three level policy perspective for developing countries namely, global,national and that for business enterprises. National strategies for eCommerce sometimesmay not be the same as the international negotiation stance, though experience and

South Centre T.R.A.D.E. Working Papersxiv

expertise at home would obviously strengthen positions at the multilateral and bilaterallevel and national agendas be attempted to be aligned with international objectives.

Section II outlines the present status of eCommerce development and usage in theSouth, detailing the large chasm between the developing and the developed world. Thoughinnovative initiatives are being undertaken in the South, particularly in Asia, the gap willonly widen if governments and international agencies do not address and redress some ofthe problems. Small and Medium Enterprises (SMEs) in the developing world have beenidentified as one of the main possible beneficiaries of the new opportunities emerging witheCommerce. A matrix indicating the potential and the challenges is attempted here tosummarise the main issues and questions. Building up capacities will be the need of thefuture for the South, and governments must play an active role in these and relatedinitiatives. While describing the growth of the Internet infrastructure, it is pointed out thatit is neither truly global nor participative. Developing countries lag far behind and will needto adopt proactive policies to generate investments into the communications backbone onthe one hand while examining intermediate solutions and models to facilitate access tostrategic areas and sectors to accelerate immediate opportunities for business on the other.

The questions of technology transfer and standards are raised in Section III, withthe recommendation that developing countries be provided representation and assisted incapacity and expertise building and be involved in the answers and solutions that are beingworked out at the global level. As the Internet and eCommerce become more and moreimportant for the world, all countries, including those of the South, will need to align theirdomestic and international legal and financial framework and procedures to the emergingrealities of digital transactions. UNCITRAL1 Model Law (1996) on eCommerce is astandard framework that needs to be considered for implementation, as also the adaptingof existing legal and financial systems to the eCommerce environment.

The issues before the WTO are dealt with in Section IV. These mainly relate totariffs, market access, characterization and intellectual property rights (IPRs). These areviewed from the perspective of developing countries and it is suggested that many of theproposals and options need more detailed examination by developing countries beforethey are in a position to finalize their stance. Simultaneously the developed world mustaddress the limitations and problems that the developing countries face in matters ofinfrastructure, investment, IT development and training and education. Only withassistance in these areas can the South have a chance to realize the potential ofeCommerce and thus use it to achieve the appropriate integration with the world tradingsystem and as a tool for development.

In conclusion it is emphasized that a joint/common strategy for the South perforcemust be developed not just to share experiences and models but because a common standbefore the WTO will reap much higher dividends for the South as a whole, and for theindividual countries. Bilateral agenda to match the stand would be easier to set andnational policies, special for each country, more focused in content and objective. Todaylearning, assessing and assimilating is the need. As experience grows and expertise

1 United Nations Commission on International Trade Law, which is the core legal body of the UnitedNations system in the field of international trade law.

Electronic Commerce: Issues for the South xv

develops, developing countries need to utilize this new eCommerce or eTrade paradigm toadvantage for which national and global strategies must be planned and pursued.

I. INTRODUCTION

I.1 ECommerce today and tomorrow

Throughout history, international trade has been facilitated by all manner of technicaladvances -- from the discovery of paper and the minting of coins, to the development ofthe shipping industry and the invention of powered flight. In this century, perhaps themost significant of these influences has been the telecommunications revolution, fromtelephone and fax to now the Internet (see Box 1) and its offshoot -- electronic commerce, or asit is referred to, ‘eCommerce’(see Box 2), which is expected to have a major impact on tradein the coming years. The emergence of these new and powerful communicationtechnologies has been of major significance for humankind -- for society, the economyand the state. Considered to be as, if not more, important than the industrial revolutionfor the world, they herald what is commonly referred to as the ‘Information Age’. Theseare the technologies of computers, hardware and software, and the new and powerfulmodes of communication that are being linked up world-wide in ever faster and easierways.

The Internet

The Internet has transformed the computer, communications, and the informationtechnology world like nothing before and brought about a remarkable integration of thecapabilities of each of these technologies. The Internet is at once a world-widebroadcasting capability, a mechanism for information dissemination, and a medium forcollaboration and interaction between individuals with and via their computers withoutregard for geographic location. Its history is complex and its influence extends not only tothe technical fields of computer communications but throughout society with theincreasing use of online2 tools to accomplish electronic commerce, the acquisition ofinformation, and community operations (both social and public).3

On a global scale, Internet growth has been remarkable. While it took the telephoneclose to 75 years to reach 50 million users, it has taken the World Wide Web4 (WWW) onlyfour years to reach the same number. The Internet network has increased from 213computers and a few thousand users in August 1981 to more than 43 million Internetlinked computers by January 1999 supporting an estimated 150 million Internet users.5

Early next century it is estimated that the number of persons connecting to the Internetcould well surpass 300 million, closing the gap with the 700 million or so connected todayto the telephone.6 From just over 20 countries connected to the global network in 1990,there were more than 200 nations connected by July 1998.

2 Available on the network or World Wide Web/ Internet.3 Leiner, 1997.4 The most prominent and popular of the networks on the Internet.5 ITU, 1999.6 Cairncross, 1997.

South Centre T.R.A.D.E. Working Papers2

Despite these seemingly impressive figures of growth, major portions of the globeand millions of people remain ignorant of and untouched by this phenomenon. As is usualwith virtually all new technological advances, the majority of these ‘have-nots’ are in thedeveloping and low income countries, essentially those regions of the world that havetraditionally had only limited access to information and communication technologies.

Box 1 : Definition of the Internet

There are several definitions used for the Internet, that of the US Federal NetworkingCouncil (FNC) in 1995, was as follows:

" ‘Internet’ refers to the global information system that -- (i) is logically linked together by aglobally unique address space based on the Internet Protocol (IP) or its subsequentextensions/follow-ons; (ii) is able to support communications using the Transmission ControlProtocol/Internet Protocol (TCP/IP) suite or its subsequent extensions/follow-ons, and/orother IP-compatible protocols; and (iii) provides, uses or makes accessible, either publicly orprivately, high level services layered on the communications and related infrastructuredescribed herein.”

Basically the Internet is a vast and ever increasing network of computers across theglobe that are interconnected over existing telecommunication networks. Simplydescribed, it is a, or the, network of networks.7

The Internet per se can be considered a major breakthrough in human civilization for thefollowing reasons:

• It has the potential to link the whole of humankind in an interactivenetwork, that provides instantaneous communication and is cost-effectiveand low-cost to the user;

• It is based on neural communication, rather than point-to-pointcommunication on which telecommunications were based so far, whichmakes potentially possible the simultaneous involvement of millions indiffusion or exchange of messages and information;

• It supersedes the passive role of a recipient of communication, or the activerole of a sender of communication, by making possible the active andinteractive search for information and data bases world wide;

• It provides a new way of accessing information with its ability to draw oncomplex data bases and information, and to process these and adapt them tothe user’s specific needs;

7 WIPO Report, 1999.

Electronic Commerce: Issues for the South 3

• It facilitates interactive voice and video-communication, on the same basisthat written information is transmitted today, which will provide a furtherquantitative and qualitative leap forward, with the potential of democratizinginternational relations and bringing people closer together in what amountsto direct visual and verbal contact and communication.

The Internet thus has multiple functions, being essentially a means for improvedcommunication and for accessing and exchanging information world-wide. One of thesefunctions has to do with economic and financial transactions and trade, grouped under thegeneric name of “electronic commerce” or eCommerce. ECommerce

Electronic commerce has been perceived both as a dream and as a nightmare. The pastfew years, however, have shown that it is neither. From the world of hype and fantasy ithas moved to that of reality8. Electronic commerce looms large on the horizons oftomorrow, and it promises to transform trade and industry in ways not yet imagined orcomprehended. Its impact of course is expected to go far beyond commerce to affect thelives of millions of Internet users and purveyors. In some manner it is similar to theimpact of printing on the then trade and commerce9, transforming it from the simplisticmode of mostly barter through direct exchange and verbal promises into formalized,organized and contracted, trade and commerce. Subsequently to involve the use of printedcurrency, it changed the very basis of finance and banking services that emerged as aresult. ECommerce (and digital cash10 that today stands in the sidelights) may also prove tohave a similar impact.

Basically electronic commerce

• speeds up and simplifies communications and transactions, between partiesinvolved, in goods, services and financial/monetary dealings;

• makes information accessible world-wide, including on the variety and pricingof goods and services, thus making possible “shopping” world-wide, withlittle effort and in a time/cost effective manner;

• makes it possible to diffuse and make accessible one’s own information tothose potentially interested, including advertising;

• makes possible direct despatch and delivery of certain services and productswhich can be transmitted in digitized form via the Internet.

8 Gurunlian, 1999.9 A comparison borrowed from B. L. Das, South Centre, Geneva, discussions March 1999.10 This refers to electronic value units that could be used to pay for services and goods ordered over theInternet. Several (mostly US based) companies started operations in this area but have been largelyunsuccessful as payments continue to be made mostly through existing instruments including credit cards.This idea could become important in developing countries where credit cards are not common.


The telecommunications revolution and its convergence with the other leadingedge technologies (such as Electronic Data Interchange (EDI), ‘smart’ phones11, digitalvideo and audio, on-line chat, Internet telephony, interactive TV etc.) is leading to afundamental transformation of international trade. The ability of the Internet to bringtogether distant parts of the world in a global electronic market place and informationexchange can have a far-reaching and potentially beneficial impact on both the developingand industrialized economies alike. It can also raise fears and apprehensions that stem asmuch from the uncertainties of its future development as well as from the complextechnological, economic and financial issues that it raises.

Box 2: Definition of Electronic Commerce

In the World Trade Organization Work Programme on Electronic Commerce, it isunderstood to mean the production, distribution, marketing, sale or delivery of goods and services byelectronic means. A commercial transaction can be divided into three main stages: the advertising andsearching stage, the ordering and payment stage and the delivery stage. Any or all of these may becarried out electronically and may therefore be covered by the concept of ‘electronic commerce’. Broadlydefined, electronic commerce encompasses all kinds of commercial transactions thatare concluded over an electronic medium or network, mostly the Internet. E-commerce covers both business-to-consumer (B2C) and business-to-business (B2B)transactions, and is not limited to the purchase of a product. It includes allinformation or services that a company may offer to its customers over the Net, frompre-purchase information to after-sale service and support.12

APEC13 adopts a relatively wide definition of eCommerce, that includes all businessactivity conducted by using a combination of electronic communications andinformation processing technology. UNESCAP14 also has defined it as ‘the process ofusing electronic methods and procedures to conduct all forms of business activity.’ It encompassesthe production, advertising, sale and distribution of products via telecommunicationnetworks. From a business perspective, the objectives of electronic commerce andInternet commerce (sometimes referred to as eBusiness15) are the same: to improveeffectiveness, efficiency, timeliness, quality, and accuracy of interactions betweenbusinesses and their trading partners or customers.16

11 ‘Intelligent’ phones -- usually cellular -- that would accept Internet based communication and be able togive set responses when programmed.12 Dufour, A, Que Sais-je, quoted in International Trade Forum, 1/99, ITC, Geneva.13 Asia Pacific Economic Cooperation.14 United Nations Economic and Social Commission for Asia and the Pacific.15 The concept of eBusiness goes beyond that of eCommerce in that it implies introducing IT and electronicmodes of communication into business not just for convenience and corporate speed but for atransformation in the way business should be conceived and done in this new information age. This couldinvolve several new management techniques such as Enterprise Resource Planning (ERP), Model StockReplacement (MSR), Material Resource Planning (MRP), Just-in-time (JIT) etc. and calls for a fullyintegrated process of business and management that requires process re-engineering to adopt best practicesfor the industry and its eCommerce business.16 www.unescap.org


Though eCommerce provides a new mode of conducting commercial transactionsin a much more efficient mode it is by no means a magic wand that can create unlimitedgrowth and progress. From a business point of view, there are essentially two major usesof eCommerce. The first (and easier and more common application) is to use it to reducetransaction costs by increasing efficiency in the use of time and lowering costs17. Theother is to use it both as a marketing tool to increase sales (and customer services) as wellas to create new business through it -- for example, IT enabled business18, call-centres19,software and maintenance services etc. as well as ‘digital commerce’20. It is thus a tool forboth existing businesses as well as an opportunity for new business, both for existingcompanies as well as for new entrants. Though the future of eCommerce is stillunpredictable, it is important to note that, in possibly a short span of time, all businesseswill need to know how to make use of it -- much as most businesses had to learn to adaptto the phone and fax, only more so if trade transaction and supply chains become digitaland on-line21. Developing countries, their governments and business must thereforeaddress these developments and prepare for them.

Statistics show that the number of websites22 developed by commercial enterpriseshas grown from just 30 at the end of 1993, to 325,000 at the end of 1996 and to 12 milliontoday23. The overall level of electronic commerce, or business transactions conducted viathe Internet and private commercial networks, was estimated at US$ 8 to 9 billion in 1997.Researchers have forecast that this figure could rise to as much as US$ 400 billion by 2002,as businesses and consumers throughout the world expand their online commercialactivities24. Growth is not expected to be confined to the developed world alone and ispredicted to be particularly high for developing countries in Asia where the projections for2001 are: for China - $850m; for India - $160m; for Malaysia - $1000m; for Singapore -$800m; for Philippines - $200m and for Indonesia - $200m. Whether these figures are justhype or based on real data, and whether they consist of existing business and trade or areadditional to it are key issues. Unfortunately, it is not possible to predict accurately thefuture growth and percent of world trade that will be conducted through eCommerce. Itis, however, possible to say that it will be an important and growing component of tradeand figures and estimates cited above, though speculative, illustrate the trend towards thegrowing importance and potential of eCommerce.

In the next few years the main sectors to gain from eCommerce are expected to becomputer hardware and software, advertising and marketing, media, publishing andinformation services, finance, banking, insurance, brokerage and Internet services, travel

17 This ranges from the use of email and instant chat on the net to EDI (Electronic Data Interchange)andautomated supply chains. EDI has a role here both at the level of business to business as well as bygovernments in providing quicker and smoother trade transaction efficiencies for business by using EDI forcustoms clearance, trade procedures, etc..18 Business that is based on information technology and linked through a network for digital transmissionand exchange.19 Network linked service centres that customers can access through the Internet for information, guidance,maintenance and services such as bookings, reservations, software support etc.20 Digital commerce is the term used to describe goods, services and digitised transactions that arecompleted and supplied on-line.21 Term referring to transactions and communication on a network and in real-time (i.e. connected togetherwith little or no loss of transaction time).22 Information pages or sites/addresses on the Internet.23 ITC, 1999.24 UNCTAD, 1998.


and tourism, and entertainment services. All these sectors are today dominated bymultinationals and other enterprises from the North, as is international trade. However,there are several emerging opportunities that businesses in the South can look at and evencreate. As it is estimated that 80 per cent of the growth in eCommerce will come fromBusiness-to-Business (B2B)25 transactions, opportunities are emerging in global supplychains, which enterprises of the South can attempt to become part of. In being able toachieve greater growth and trade, the South could use eCommerce as a tool fordevelopment.

I.2 A policy perspective for developing countries

Due to the existing development gap and differences between the North and South,developing countries face a distinct challenge in order to realize the promises inherent inthis new technological development. Here two basic tasks loom, namely how to equip thedeveloping countries to benefit from and use the Internet as a tool for development, andsecondly, how to ensure and manage the growth and development of the Internet as apublic good and utility that would also promote development. The former is adevelopmental challenge and requires investments in the infrastructure oftelecommunications, in Information Technology (IT) industry to ensure the easy andaffordable availability of computers and software, and in training and Internet literacy. Thelatter is more of a global regime challenge which involves the growth and regulation of theInternet and its facilities on a universal scale. This is a serious issue, in view of the potentialimportance of the Internet for all spheres of life, everywhere, and because of the trend forthe facility to be increasingly dominated by a few countries and private companies26.

As eCommerce will be a hard fact of economic life in future, the World TradeOrganization (WTO), like several other international organisations, is addressing the issue,in the context of international trade and the agreements that exist and which may need tobe further negotiated. Developing countries therefore need to prioritize their policies andresponses both from a domestic and external point of view. For developing countries it isimportant to distinguish between the general issues of telecommunication, the Internetand eCommerce and those specific aspects that directly affect them and their developmentand are therefore of particular concern. It is also important to differentiate between thespecific issues related to the Internet and eCommerce, even though they are highlyinterrelated.

This paper focuses on the implications of eCommerce for developing countries andtheir trade and business, for both producers and consumers, in order to place the majorissues in a perspective that could be used for both national strategic planning, as well asmultilateral negotiations. The paper outlines issues concerning infrastructure and

25 The other being B2C (Business to Consumer) and B2G (Business to Government). B2C or retaileCommerce is the one where all the hype has come from as it is novel and touched people directly. Itssuccess however has been rather marginal and even big and popular sites like amazon.com (books)andCDNOW.com (CD sales) are actually losing money. B2G is being considered a major possibility in the futureonce government procurement turns digital.26 With Internet traffic having overtaken world telephone traffic, the world’s 13 biggest Internet accessproviders are all American, with British Telecom, Europe’s biggest, bringing up the rear in 14th place.(DataCommunications, Paris, No. 1., October 1998, quoted in Riches on the Information Highway, Le MondeDiplomatique, May, 1999).


technology, legal and financial frameworks, duties and taxes and the WTO trade issues ofintellectual property rights, market access and classification which will be discussed in latersections of this paper.

A strategy and policy perspective for developing countries is recommended to beaddressed at three levels.

• International;• National;• Business community level.

International issues

Although the vision of an emerging global electronic market-place (for goods, services andmoney) has several appealing and potential features, there are other aspects that are clearlyproblematic. Apart from network and data security, the new global electronic commercenetworks raise many fundamental concerns about the regulation of internationalcommerce, whether it involves trade in goods, services, currencies, information or ideas,and the impact of these developments on national sovereignty, political institutions,administration, financial and trade policy and the way of life.

While these matters are of relevance to both developed and developing countries,some are of particular concern to developing countries. Interestingly this is one technologyand step in human development especially regarding communication and trade withneighbours, that is common in time and content for both the North and the South. Todaytechnological advances in communication can make available the same Internet access(and therefore raise the similar issues, of course with different implications) for Internetand eCommerce, whether it be New York or New Delhi - or practically any major cityacross the globe. Whether, it can be utilized and benefited from at the same level is ofcourse a different issue. Countries of the South must therefore take this factor intoaccount, in developing both their national strategies as well as the strategies to be adoptedin international debates and negotiations.

The most important international issues for eCommerce and trade in relation todeveloping countries concern two areas:

a) standards and technology issues;b) trade policy issues and responses at the WTO -- mainly those of market

access, trade logistics and tariffs.

Today the South is virtually excluded from standard setting and technological developmentby virtue of not being in the business of high-tech information and communicationtechnology, and lacking expertise because of that. Standards and technology are bothgrowing and changing so rapidly that keeping pace with them is an issue in itself. Onepossibility is that developing countries, being late in the race, may benefit from accessingmore advanced and developed technologies after they have been tried and tested in theNorth. The other is that they may therefore have to pay a high price or be saddled with


out-moded (cheaper) versions. Developing countries may benefit by the market andInternational bodies/associations (The Internet Corporation for Assigned Names andNumbers (ICCAN), for example) setting and formulating standards. But the obviousdanger is that if they have no say on these matters, they will be unable to try to avert thepossible adverse implications of the resulting standards for their economies27. These issueswill be addressed in more detail in Section III.

Formulating negotiating positions at the WTO is becoming increasingly urgent andimportant in view of the May 1998 WTO Ministerial declaration on global electroniccommerce and the on-going WTO work programme on eCommerce.28 Section IVelaborates on these matters.

National issues

These are perceived as three:

a) ECommerce policy and strategy for each country: This would include both legal andtaxation issues that all governments need to address as well as theimplications of eCommerce for economic and financial policy, and vice versa.Such policy setting is important as each country must address this importantissue at the highest level of government in order to be sure that it is accordedthe necessary importance that it deserves. It is also important here todistinguish between national strategies and priorities and internationalstrategies and negotiating positions. A strong national experience andinfrastructure provides the strength (and expertise) to perform at theinternational level.

b) Infrastructure and technology issues for the country, as well as the administrative

framework for its application: Again, this is largely a matter of historicalbackground and the road ahead as chosen by each country, especially in thearea of telecommunications. Bringing in competition and attractinginvestment (often foreign) into this crucial capital and technology-intensivearea has contributed significantly to improved services and lowering of costs.

c) Responses and initiatives of governments to promote eCommerce, both in government as

well as with the private sector: This would range from a hands-off attitude, withbasic fiscal and legal framework provided, to actual promotion throughseveral initiatives ranging from EDI for improving trade logistics, toeducation and training, setting up Websites, Internet Cafés/Centres,Electronic public procurement etc., for both trade and industry, as well asthe citizenry. Promoting use of IT and “electronic governance”, i.e. the useof IT in government to bring in efficiencies and transparency and use it for

27 Issues such as domain names, address management and certification authorities would affect trade andcommerce.28 The Ministerial declaration of 20 May 1999 directed the General Council to establish a comprehensivework programme to examine all trade-related issues relating to global electronic commerce and report to thethird session of the Ministerial Meeting. It also asked all members to continue their current practice of notimposing customs duties on electronic transmissions at least until the next Ministerial meeting.


its citizens to access information and services is another important initiativethat should develop alongside eCommerce in developing countries. Thiswould not only promote its use (and therefore efficiencies and transparency)within government, but help to popularize it and make it useful for all ofsociety.

Business community issues

These issues relate to the various trade and commerce issues faced by business enterprisesin developing countries. as for example those concerning access, trust, security, fraud,digital contracts and guarantees. There are options of advertising and setting up of databases, virtual shopping-malls29, common platforms30 and supply chains. Should these beaddressed as individual companies or as associations? What if any should be the role ofgovernment and what types of partnerships should emerge?

All these are issues that not only governments in the South but internationalagencies with the mandate to promote SMEs31 and international trade and commerce needto address. Several countries and agencies are in fact already doing this, not only because itis a necessity but also because of the emerging view that SMEs are one of the targetgroups that could benefit most from the opportunities emerging32. Since it is predictedthat 80 per cent of the growth in eCommerce will come from business to businesstransactions33 (as opposed to business to consumer or business to government), it is herethat SMEs and businesses in the South must find their opportunity and future. Thoughthere cannot be ‘one-stop’ solutions or even standardized models, there are severalinitiatives that can be undertaken. These could include:

• creating eWareness34 and publicizing the benefits and challenges ofeCommerce;

• training and capacity building in IT and eCommerce;• promoting the sharing of experiences between SMEs of the South regarding

eCommerce;• helping SMEs access supply chains and public procurement supply

possibilities;• promoting business and government co-operation;• creating directories and data banks etc.

29 Sites on the Internet set up to buy and sell goods and services usually of several enterprises, as in a realshopping complex.30 Linked computers in a common network based on common standards or compatible software.31 Small and medium enterprises. Their size and type of course would vary, between the North and South aswell as between regions.32 Time alone will prove whether this is in fact the case. Later part of this paper will seek to list the pros andcons of this view.33 A view generally held by most researchers and speakers on the subject.34 ‘eWareness’ as a concept is used here to mean both eLiteracy (i.e. the ability to use electronic media) aswell as the awareness of the potential of eCommerce for business.


1.3 Summary of main points

• The Internet is a major breakthrough in technology and has tremendouspotential for all humankind.

• The recent growth of the Internet has been quite phenomenal in terms ofthe persons and countries now connected. However, large parts of the globe,particularly in developing countries, currently lack access to this potentialtool for development.

• ECommerce is the economic or commercial part of the Internet and is beingprojected to register growth at the level of several billions of dollars in thenear future. However, the major beneficiaries will be in the North.

• Developing countries face two major challenges:a) to ensure that developing countries benefit from this new technology;

andb) to use eCommerce in a way that promotes development.

• Developing countries therefore need to understand the importance andimplications of eCommerce and work out national and internationalstrategies.


II. ECOMMERCE IN THE SOUTH

The reality of eCommerce for developing countries is both fact and vision: fact in thatinternational trade and business are moving in this direction, and vision becausedeveloping country strategies in this new area should match their aspirations fordevelopment. Most developing countries are unfortunately far behind and unsure of thepath forward. To appreciate the issues involved, this section will highlight the presentsituation regarding the development of eCommerce in the South and some of the prosand cons in setting national policy in this area. II.1 Internet: the infrastructure for eCommerce The global reach of the Internet The Internet is a social and economic fabric, ostensibly meant for human communicationand interaction. It is supposed to allow for more interactive and innovative ways forpeople to do what they do in ‘real life’. Thus the Internet is seen as, “the most precisemirror of people as a whole that we’ve yet had” (Lanier, 1998). However, while theperception of the Internet as a mirror may be accurate, it is still not a mirror of the world’spopulation as a whole. The fact that only an estimated 5-10 per cent of the content on theInternet is of non-western origin while the developing world population represents closeto 80 per cent of the world’s population indicates how far the Internet is from trueparticipation and global diversity. Even amongst those countries and regions connected,both in the developed and developing countries, its usage remains largely with the “haves”,that is, those who can afford the hardware, software and the cost of connecting toInternet.

Though meant to be a medium of global reach, the Internet’s U.S. origin is evident

in the dominant language of the Net as well as in the genesis of most existing sites.Approximately 80 per cent of on-line content is currently in English35. Similarly,eCommerce today remains mostly a US36 and Western based activity, though connectivityhas significantly improved in many parts of the developing world -- for example, nearlyevery capital city in Africa enjoys some level of Internet access today. However, there arestill significant disparities in the level of Internet penetration across regions, which canhave profound implications for an individual country’s ability to participate in the globalelectronic market place.

35 Internet Society, http://www.isoc.org 36 US domination of the world economy and its new technological revolution - that of communications, isnow a predictable scenario. Several factors explain this advantage. They range from its long history of multi-channel television, low phone line costs, strong intellectual-property industry (movies, music, software),English language and the experience with long-distance mail-order business (Cairncross, 1997).


Growth of the Internet infrastructure

The number of computers in the world directly connected to the Internet has grown fromless than a million in 1992 to over 45 million by July 1999, with the number of users of theInternet estimated to be about 180 million.37. This growth, however, is geographicallyunevenly distributed. North America has by far the largest number of Internet users,estimated at 102 million or 56 per cent, Europe at 43 million or 24 pre cent and only 20pre cent in the rest of the world. Today about 70 per cent of the Internet websites arelocated in the United States.38 The geographical concentration is even more pronounced interms of the business transactions as more than 85 per cent of Internet commerce revenuein 1996/97 was generated in the United States.

This disparity between low and high income regions is evident from the chartbelow39.

Figure I

*Latin America and Caribbean

Internet and eCommerce in developing countries The success of this eCommerce revolution from the point of view of the developingcountries is dependent on several key preconditions. The first (though obvious) is thewidespread availability of the Internet. For developing countries, access to moderntelecommunication systems is therefore perhaps the defining element of electroniccommerce. A well functioning, modern telecommunication infrastructure and asatisfactory distribution of electricity, along with access to computer hardware, software

37 ITC, 1999. 38 ITU, 1998, and WTO, Special Studies. 39 ITU, 1999.


and servers are the three basic requirements for electronic transactions and thereforeeCommerce.

Developing countries (and their SMEs) lag far behind developed country markets inthe availability of the technical pre-requisites for conducting electronic commerce. Thegaps in the two main requirements for Internet i.e. telephone and computer availabilityhighlight the difference. For example, 65 per cent of households in the world have notelephone, whereas 90 per cent of households in high income countries have a telephone.40

The personal computer ratio per 100 inhabitants is 18 for high-income countries, 2.3 formedium-income and just 0.1 for low-income41. Developed countries today have 312 ISPs(Internet Service Providers) per 10,000 people compared to just six ISPs per 10,000 peoplein developing countries.42 In the United States, roughly one in three persons uses theInternet, compared to only one in every 10,000 in South Asia. Teledensity (main lines per100 inhabitants) is 48 for developed countries, 10 for middle income and 1.5 for leastdeveloped (LDCs). Furthernore, in developing countries telecommunications services areoften unreliable, high cost or both. There are also enormous differences in access totelecommunications both between and within developing countries. For instance, while indeveloping countries a considerable proportion and sometimes the majority of thepopulation lives in rural areas, over 80 per cent of the main telephone lines are located inurban areas. Relative cost of connecting The cost of using the Internet depends on several factors, including the price of routersand other computing facilities and to a lesser degree on the wages of operators. Suchcharges may be significantly higher in developing than in developed countries, reflectingthe high cost of capital as well as possible inefficiency and monopoly profits43 oftelecommunications. Thus, the average cost of a subscription to a dial-up Internetconnection in Africa is quoted by ITU as US$ 75 per month compared to US$ 10 in theUnited States and US$ 15 in the United Kingdom. In real terms this is significantly higheronce the much lower incomes are taken into account (Figure II below)44. Further, the costof local or long-distance telephone calls giving access to the Internet are significantlyhigher in developing countries, while, for example, in the United States local calls aregenerally free.45 The hardware required by individuals (PC and modem) to set up aconnection requires a minimum investment of between US$1,000 to 2,500 (depending onthe tax structure in different countries) hence it is likely to be a long time before theInternet can become as accessible as say the radio or even television in poor countries.

40 Access to telecommunication is often measured by "teledensity" which gives the number of maintelephone lines per 100 inhabitants. About a quarter of the world's countries have a teledensity of less thanone and another 47 countries only have between 1.4 to 8.6 main telephone lines per 100 inhabitants. Thisshould be compared with a teledensity of between 27.8 and 68.3 for a group of 46 countries with thehighest number of main telephone lines per 100 inhabitants (Source, www.itu.org). 41 Source: WTO, Geneva. 42 Source: ITU, Geneva. 43 Many state monopolies tend to charge high rentals/prices for telecom services. 44 ITU, 1999. 45 NUA Internet Surveys, 1998.


Figure II

Monthly Internet access prices for the OECD, August 1996 and Africa July 1998, US$

OECD, Internetmonthly access

charge, US$

As % of GDPper capita

Africa, Internetmonthly access

charge, US$

As % of GDPper capita

Mexico 94 14.8 Uganda 92 107Turkey 65 12.8 Guinea 65 45.3Japan 50 2.6 Sierra Leone 50 118Finland 33 2.2 Ethiopia 32 76.8USA 29 1.2 Mozambique 29 69.6Australia 24 1.5 Senegal 24 17.6

Source: ITU, 1999.

ECommerce usage A recent study by the International Finance Corporation (IFC) on the use of Internet forbusiness by corporations in developing countries shows that, within developing countrycompanies using the Internet, fewer people in each company have access to the Internetthan in developed country companies.46 The primary benefit of the Internet mentioned bydeveloping country companies is the use of E-mail, used for communications both withinthe company and externally. Other uses such as financial and credit transactions arerelatively less frequent, thereby reflecting the state of the commercial infrastructure, itsfinancial regulation, company law and other general business legislation or practices in thecountries concerned. Investments in telecommunications infrastructure In view of the large gaps in infrastructure and access between the North and the South,development of communications (and energy) infrastructure internally will remainparticularly important and a major issue for the developing countries, especially the leastdeveloped.47 Since the key to this is a wide-spread and reliable telecommunication networkof the countries concerned, proactive and supportive policies are essential to reap thebenefits of this emerging opportunity. Despite the attraction of low production costs,communications and distance can discourage foreign companies from establishing indeveloping countries. ECommerce may lessen these physical constraints. Activepromotion of electronic commerce might make the private sector more interested ininvesting in a

46 Daly, 1998. 47 As an example, according to the World Bank US$ 50 billion would be required to bring the average levelof African teledensity (main lines per 100 inhabitants) to that of Southern Europe. Such levels of fundingare just not available.(Egypt Working Paper, 1998).


variety of areas, including telecommunications, IT industry, Internet service provision, andprofessional services. Intermediate strategies for development Many developing countries may not be able to generate or attract the large investmentsneeded for the telecom infrastructure in their entire country. Perhaps, therefore, a morestrategic option would be to formulate and implement appropriate policies byconcentrating on the areas in which electronic commerce is most likely to bring thehighest benefits to their respective national economies; business-to-business, business-to-consumer and business-to-government transactions. This can be both geographic as wellas sectoral. If developing countries wait to take initiatives in the area of eCommerce until acomplete country-wide modern communications infrastructure for electronic commerce isin place, the gap with the developed world may grow even wider. What is important tobear in mind is that massive investments and flawless technological solutions are notalways necessary or possible. Even existing networks can be reengineered and globalservices for the Internet and eCommerce sites can be utilized, especially in urbanconcentrations, where the maximum potential for trade and commerce presently exists.Several developing countries have followed this strategy of providing Internet accessinitially to only important commercial centres, especially where there is a concentration ofexport-intensive industry48. Others have set up Business centres in far flung places, linkedto a common network and service that assists not only in access but also businesspromotion49. Such models provide an immediate and workable solution that can beemulated by other developing countries. Present initiatives in the South In America, the first groups to adopt the Internet were universities and consumer-servicescompanies and, in Europe, it was students and a few enterprising publishers. Incommercial Asia, especially East-Asia, it is the small enterprises, the key-chain and plastic-toy makers that have led the way. Too small to have better ways of reaching the outsideworld, they were able to adopt a new communications technology without the bureaucraticdelays of larger firms. Today obscure and often to be missed sites from these countriesare constantly appearing on the Internet. Small companies in Asia are demonstrating thatthe advantages of the Internet as a cheap communications tool are even more compellingthan in the more wired West50. Such entrepreneurship is finding itself replicated in severaldeveloping countries across the globe.

48 India is one example where satellite earth stations were set up for providing 24 hour guaranteed access tosoftware companies for export activities, much before Internet was available on the existing telecomchannels. 49 Experiments in this regard have been quite successful from Sri Lanka to Brazil and even in Africa. 50 One example of this is the Asian Sources Media Group ( ASM ), a publishing company based in HongKong. The firm’s Web site serves as a shopfront for more than 7,000 Asian suppliers, mostly small-to-medium-sized factories in Hong Kong, China, Taiwan and Korea, selling everything from cheap plastic toysto multimedia electronics. Before their inclusion in the ASM website many of these factories did not evenhave a personal computer, let alone an Internet connection. ASM provided what they needed, trained themin how to use it, and included them in its on-line catalogue of nearly 200,000 products. Within a year, theASM site was generating more than 50,000 inquires a quarter, and is now running at a pace nearly double


‘Chinaonline.com’, is a site run by six people in Hong Kong and another six in Chicagowhich now has some 150,000 subscribers at $120 a month for the news and access theyprovide with China. There are similar examples of success today in India51, Bangladesh,Brazil and also Africa, where Africaonline.com52 has emerged as a very popular site.53

Unfortunately however though there are success stories in several regions of the

South, these are few and far between. Attempts in the South to develop eCommerce areunderway in nearly every country, but eCommerce is still not considered a significantmarket driving force. Those currently involved are either entrepreneurial risk-takers orlarger corporate entities able to perceive it as a long-term investment. ECommerce is stillat the periphery of business and governmental initiatives. The general population remainsby and large unaware and unaffected by it. The general situation is one of limited andunreliable connectivity and one in which the whole business and financial environment isnot yet geared for this new technology, seriously hampering growth of eCommerce. Tomainstream it both for business and social development is a significant task that standsbefore the South.

ECommerce and its impact on all business For developing country governments to address this issue, it is important to distinguishbetween IT policy and promotion, and eCommerce strategies. Many state initiatives seemto blur and confuse this issue. Whereas promotion of the Information Technologyindustry fundamentally entails developing the hardware and software IT industry, it isimportant to note that eCommerce is by no means limited to only that industry.ECommerce, besides IT and digital commerce, in fact can (and may over time)encompasses all trade and commerce and therefore it has an impact on the entireeconomy. This is important to bear in mind when formulating plans for eCommerce indeveloping countries. Of course the externally focused businesses will be first affected andsmall local enterprises may not have the desire or need to get connected. However, aseCommerce extends across the global economy, it will become more and more necessaryfor existing industry and trade to switch to and use the potential of this medium not onlyto grow but even to survive. Today this may not seem to be the case as total eCommercetransactions still account for only a small percentage of worldwide trade and commerce,but the message for the future is clear.

that. Since the inquiries go straight to the suppliers, and subsequent negotiations take place directly betweenbuyer and supplier, it is difficult to calculate the volume of business generated, but customers have suddenlyemerged in South America or Eastern Europe for Asian firms that previously had little or no means ofselling to those markets. (Asian electronic commerce, July 1997, Economist, London). 51 India is one of the biggest software success stories of the developing world. In 1997-1998, 158 of Fortune500 top companies out-sourced their software needs to India. 52 Africa Online started in 1994 in Boston, USA and Nairobi, Kenya to provide expatriate Africans withnews of home. It currently employs some 250 people and has spread to several African countries. It receives10 million hits per month, and has approximately 150,000 subscribers, comprised mostly of businesses. 53 Source, ECommerce presentation at ITC, Geneva, March 1999 and WTO Seminar on eCommerce andDevelopment, February 1999.


II. 2 Potential and dangers for business (especially SMEs) in the South Along with the potential or possible benefits of eCommerce lurk several dangers that mustbe taken into account as challenges to be addressed in the policy and strategies that eachcountry must design for itself. These particularly apply to SMEs in developing countries asthey have been identified by several economists as well as international developmentagencies54 as ones that could benefit most from this new technology and opportunity.Figure III lists some of the positive and negative implications that developing countriesneed to be aware of if appropriate strategies are to be put in place.

Figure III ECommerce: Benefits and Challenges for Developing Countries(DCs)

(and their SMEs)

Potential/Benefits Challenges/Dangers Exponential growth in eCommerce trade leadingto overall increases in world trade.

The developed and presently wired world willbenefit mostly but DCs could use theopportunity to leap-frog industrialization/development.

80 percent of eCommerce growth will bebusiness to business. Therefore potentialopportunity for businesses, especially SMEs inDCs to link to supply chains.

Existing supply chains could be destroyed anddependence on large trans-nationals may grow.

Could lead to faster transfer of technology andgrowth of IT industry in developing countries.

IT multinationals may alone benefit if localindustry is weak.

Giant corporations will emerge but so will smallenterprises, able to offer similar services at lowercost.

For developing countries this will mean greatopportunities but also greater threats frommultinationals.

Access to more information regarding markets,opportunities and supply chains.

Would preclude those without access frombenefiting.

Can assist in overcoming the drawback ofdistance from developed markets.

Same technology will be used by multinationalsfor accessing local markets in developingcountries.

Exporting SMEs can set up ‘virtual shops’ atmuch cheaper cost than actual stores abroad.

Maintenance, upgrading and marketing costsare high. Also issues of security, payments andassured supply need to be addressed.

Could reduce the role of middlemen,intermediaries, agents etc.

Infomediaries55 may emerge as the new power-brokers.

Can generate new business by expanding into‘digital commerce’.

Many SMEs/developing countries may nothave expertise in doing this.

54 UNCTAD, ITC, WTO, ITU etc. are all working on programmes to use the Internet and eCommerce fordevelopment and to assist especially SMEs. 55 Lanvin,1999. The concept entails a power shift from the intermediaries of today to the new powerbrokers on the Internet tomorrow, where the Internet Service Providers (ISPs) or Portals (search enginesand major sites for information that serve as a gateway for users) providing information and links will beginto provide other services too. Users will be compelled to use such services to sift and find the ‘rightinformation’ which such ‘infomediaries’ would provide at a cost and a possible bias for their own preferredsites/services.


Companies will locate their digital serviceswherever they have access to competitive skills.

Cheaper skilled labour force in some DCs couldbenefit but many DCs where this is not the casewould stand to lose.

Comparative advantage for DCs in providingeServices (back-office, call centres, dataprocessing etc.) as labour costs are lower.

Need English and computing skills, as well asstrategy to move up the value chain in thesoftware industry.

ECommerce enables new suppliers to entermarkets abroad and integrate with global supplychains.

Danger of cutting out existing suppliers indeveloping country markets.

Consumers in developing countries may be ableto get lower priced items.

Local producers in developing countries maylose existing local customers.

Producers in developing countries could accesscheaper imports

May further marginalize local suppliers.

Reduced delivery costs would benefit developingcountries more as such costs are a greater shareof total cost of product than in developedcountries

Existing multinational delivery companies couldmonopolize delivery services, especially courierservices supplying small items.

Would lead to growth and modernization offinancial structures and processes such aselectronic fund transfers etc.

Foreign banks and multinational credit cardcompanies may be the major beneficiaries.

Would help reduce some of the constraints toexport such as maintaining expensive officesabroad

May make companies more vulnerable in notbeing able to follow up with export suppliesand possible disputes abroad.

Provides increased publicity and advertisingpossibilities

Cost of effective advertising on the Internetmay be out of reach for SMEs in DCs.

Increased efficiencies and transparencies inpublic procurement could bring competition andimprovements in public sector.

Inefficient and corrupt politic systems andexisting bureaucratic procedures may beobstacles to such opportunities in somecountries.

Potential possibilities for availing publicprocurement opportunities in developing anddeveloped countries

Compulsory eCommerce-based supplyrequirements may preclude existing supplierswithout such access.

Movement of natural persons (skilled ITprofessionals seeking better employmentopportunities) would also decline as access tonetwork becomes locally available, thus reducing‘brain-drain’56 from DCs.

Additional opportunities to move up the valuechain in the digital commerce chain may suffer.

Could provide scope for local cultures (and theirIntellectual Property) to flourish

Western cultural predominance could swamplocal cultures.

Potential growth areas As the traditional models of industrialization become less relevant, eCommerce canprovide opportunities for new models of growth. In the area of trade in goods, basically theexisting manufacturing industry will benefit and SMEs in developing countries stand to

56 Term used to define the immigration and loss of talented persons from poor countries to developedworld, seeking better job opportunities.


gain by becoming part of global supply chains in business to business (B2B) transactions.Customs and duty structures are not a major issue here as existing provisions would apply.The danger for SMEs is that the multinationals would predominate. They therefore needto organize themselves and possibly set up their own supply networks.

The area of trade in services is expected to be the dynamic area of growth in trade inthe future and it presents an area of great potential for developing countries. Alreadyseveral services can be promoted and undertaken via the Internet and others are likely todevelop in this way. As this area expands, enterprises in developing countries need to seizethe opportunity to develop expertise and offer competitive prices. Moreover this sector isenvironment-friendly and does not usually require massive (comparatively) initialinvestments. The third area is the undefined area of digital commerce (i.e. where all or mostparts of the transaction are digital and the final product is also delivered digitally). Thistype of transaction is not entirely covered by the existing definitions and rules ofinternational trade, governing the earlier two. This is a newly emerging area and it istherefore difficult to make projections or predictions. Presently most digital commerceinvolves information, music, video and films, where the North has the advantage of anearly start. It also includes software, back-end services and IT-enabled services that thedeveloping countries could take part in developing and offering. India, Singapore andMalaysia among others are already doing excellent business in these fields.

II.3 The role of government Whether as a tool for development and governance domestically, or to promote andincrease export growth and international trade, the governments of developing countriesneed to adopt a proactive role. They need to ensure that the benefits of eCommerceaccrue to those trying to overcome economic marginalization due to geographic, financial,technological or educational handicaps. Indeed, the need to close the gap between thosewith abundant information at hand and the "information poor" provides a strong rationalefor the development of eCommerce. Development objectives Developing countries face a special challenge and responsibility to create a conducivepolicy environment that on the one hand allows for the development of eCommerce andon the other ensures the social objective of providing access and benefits for those thatcannot afford it. Electronic governance, public Internet terminals, rural access atsubsidized cost, eWareness etc. are some of the initiatives that must be considered andpromoted. Some of the steps that governments should consider in this regard are:

• the creation of a legal and financial environment conducive to eCommercetransactions;

• introducing open and competitive telecommunications policies, as these bestserve the eCommerce goals of developing economies;


• regulatory approaches should be transparent, harmonized and independentof specific technologies as these are necessary in order to attract theinvestment needed for telecom and eCommerce promotion;

• allowing communications options for consumers that offer innovative waysof doing business;

• promoting increased scope, options and reach of communication and henceservice delivery;57

• using the Internet as a tool for ‘electronic governance’, namely, the use ofIT in government to increase efficiency and transparency in the provision ofpublic information and services. By doing so, the environment foreCommerce would be furthered and strengthened.

The premise here is that in promoting business on-line, governments will facilitate thedelivery of information, goods and services. This will then deliver more traffic across datanetworks which, in turn, will serve to provide the revenues and investment rationaleneeded to encourage further infrastructure development. Capacity building issues If developing countries are to benefit from this new technological and economic boomthat the growth of eCommerce represents, they would need to have in place the singlemost important ingredient in the whole stratagem, namely, the human resources. The ITRevolution depends vitally on intellectual capital, which some developing countries have inabundance. On the other hand there are many countries that are far behind in this areaand therefore need very proactive policies and investments in this field to realize thepotential. Required skills As eCommerce develops and the more advanced stages of commercial exchange arecarried out electronically, more specific skills are going to be required. Even for surfing theInternet for a product, basic computer knowledge and familiarity with the Internet isneeded. Moreover, extensive language knowledge (especially English) may be an additionalrequirement if foreign Internet sites are to be browsed. From Website designing, toelectronic credit management and software and hardware maintenance -- all require skillsthat may not be so easily available in several developing countries. Capacity-building in thefield of information technology, in the knowledge of the existence of a global market forsuch skills, is therefore crucial. The development of electronic commerce therefore puts apremium on the development of education and training policies, to ensure that traininginstitutions' curricula meet with the needs of industry. In turn, the Internet and electroniccommerce itself can contribute to the educational process, through distance learning andeducational links between universities, specialized services offering HRD training andbetween developing countries themselves.

57 Both these points will have a bearing on the telecommunication policy and the continued existence ofpublic/state monopolies in this sector.


Human resource development is, however, far more than just training. It is a

continuous learning process. For developing countries it would begin with sensitizing andgoing through to actual web designing and commercial applications. Since governmentshave to take the initial initiatives but must pass it on to its citizens and especially theprivate sector to benefit from the opportunities, this is one area where the state couldpursue its efforts in building partnerships with community organizations, associations etc.,to offer proper training tools in the area of electronic commerce. Similarly theinternational organizations such as UNCTAD, ITC, UNDP, WTO etc. also have aresponsibility to assist the developing countries in this crucial area of advocacy and humanresource development for this new technology. Several of these organizations are in factworking towards this and therefore collaboration and common programmes with theSouth would be beneficial not only for developing countries but for the world economy asa whole. II.4 Summary of main points

• Vast stretches of the world, mostly in the South, continue to be woefullyunder-served by the growing Internet and eCommerce networks.

• Several innovative and successful initiatives in the area of eCommerce aretaking place in the South, especially in Asia, but overall eCommerce remainson the periphery of business and governmental activity.

• This is both a result of poor infrastructure and the relatively high cost ofconnectivity in the South.

• A number of developing countries may not be able to afford or attract therequired investment in the telecom infrastructure therefore they shouldconsider intermediate strategies for development by concentrating onstrategic sectors and areas.

• ECommerce is not just about IT and software and eventually may involveand affect all business and all sectors.

• For developing countries the greatest potential in the field of eCommercemay lie in the area of trade in services, especially those that can be exporteddigitally.

• Governments in the South need to adopt a proactive role in promotingeCommerce as well as in capacity building, training etc.


III. IMPORTANT ISSUES OF ECOMMERCE FOR DEVELOPING

COUNTRIES

III. 1 Global framework proposals and their implications

Global information infrastructure For eCommerce to be a truly global tool for trade and development, a ‘global informationinfrastructure’ (GII) which makes possible the electronic exchange of information aboutproducts and services, buy and sell orders and financial transactions is a necessary pre-requisite. Besides others, the International Telecommunications Union (ITU), in Geneva isworking towards developing standards for such a Global Information Infrastructure (GII).

GII access is a necessary but not sufficient condition for the development ofelectronic commerce. For it to be operational world-wide, it is essential to create a policyand regulatory environment that favours the development of eCommerce and harmonizesnational approaches in diverse areas including telecommunications, trade procedures,intellectual property, privacy and security. There is therefore a need to promote thedevelopment, expansion and operation of telecommunication networks and services indeveloping countries, as they lack such an infrastructure. The ITU is undertaking someinitiatives on these matters such as bringing various partners together to undertake pilotprojects in developing countries to demonstrate the benefits of electronic commerce tothe user communities of these nations. Such initiatives need to be replicated by severalother international bodies that deal with trade, industry and development. Involvement ofthe developing countries and assistance to them for improving their expertise andinfrastructure are some of the key requirements of the future.

Global framework: proposals from the North A number of individual Governments and intergovernmental organizations have takensteps to address the policy issues relating to the establishment of a global framework forelectronic commerce. The United States, the European Union, Japan and the OECD (allfrom the North) have made the main four proposals. Though these four proposals werenot developed under common terms of reference, in general a strong consensus emergesthat the private sector should take the lead role in the development of the Internet andelectronic commerce - both standards and framework. The first three have put forwardpolicy proposals concerning electronic commerce in areas such as customs and taxation,development of the legal framework, and market access issues. The OECD is conductingextensive research into a number of policy issues relating to electronic commerce and haspublished a number of policy guidelines. It is argued that there is need for a simple,transparent and predictable legal environment for electronic commerce on a national andinternational level and that governments should avoid placing ‘undue restrictions’ onelectronic commerce in order to avoid competitive distortions. According to theseproposals, co-operation among governments, using established venues for negotiation


such as WTO, WIPO and UNCITRAL, should be actively pursued in order to ensureparticipation by governments in establishing the necessary agreements and modellegislation to buttress the overall framework. The proposals include a recommendationthat the private sector should have a say in how the present legal environment should beadapted to meet the new imperatives posed by electronic commerce. Changes to the legaland institutional framework relating to electronic commerce should be technology-neutralto avoid discrimination and encourage inter-operability. The various policy paperspublished by the four actors mentioned above set out a number of financial proposals (e.g.on customs, taxation, electronic payments), legal proposals (e.g. on a commercial code,intellectual property, copyright and trademark, privacy and security) and market accessproposals (e.g. on telecommunications infrastructure, information technology, content andtechnical standards). They also address issues related to human resources and small andmedium-sized enterprises (SMEs). These proposals contain little on the role of developingcountries in designing, establishing and implementing such a framework58. This is contraryto the very concept of democratic global governance of a global network and lack ofdeveloping country involvement would represent a collective loss to the objective of aglobal economy.

Implications Important from the developing countries point of view is the stance of all these proposalswith respect to trade and tariffs. Across the four proposals, there is agreement that thepresent tariff-free environment for goods and services delivered by the Internet and otherelectronic channels should be made permanent, but this does not extend to physical goodspurchased through the Internet and delivered by traditional methods, where it is suggestedthat existing tariff rules should continue to apply. The taxation of electronic commerce, in“virtual goods”, such as information and services, and physical goods is a complex issue.The position of the United States is that no new taxes should be imposed on electroniccommerce, and that taxing jurisdictions should co-ordinate their activities to ensure thattaxation systems are simple to administer and do not hinder or distort commerce. TheEuropean Union has traditionally levied VAT on virtual as well as physical goods but isevaluating the definition of the current tax systems (both direct and indirect) withinmember States on issues of definition, control and enforceability. All four actors share theposition that fairness in the taxation of electronic goods as compared with that of physicalgoods (i.e. “tax neutrality”) is essential, and that the OECD (and the European Union forEuropean countries) should be a key forum for the discussion of policy issues relating tointernational taxation. The OECD has already begun a programme of policy research ontaxation issues in electronic commerce. The developing countries also need to start aprocess of discussions and negotiations between themselves to come up with theirconsidered stand on this issue, as well as on the related issues of standards andinfrastructure development

58 Egypt Working Paper, 1998.


III.2 Technological developments and standards New technologies many times faster than existing communication technology, such ascablemodems, digital subscriber lines, and satellite broadcast are available in limitedlocations now, and will become widely available in the next few years. These technologiespresent problems, not just in the user's connection, but in maintaining high speed dataflow reliably from source to the user. During this period of enormous growth, businessesentering the Internet arena are scrambling to find economic models that work so thateCommerce can become more popular with consumers. Free services supported byadvertising have shifted some of the direct costs away from the consumer. In somecountries the trend is even to offer free unlimited access to the Internet. Online sales aregrowing rapidly for such products as books and music CDs, airline tickets, software andcomputers, but the profit margins are slim when price comparisons are so easy, and publictrust in online security is still shaky59. It is services and business to business transactionstherefore that continue to record high growth rates.

Recent advances in encryption techniques have made it possible to ensure the safetransmission of credit card numbers and other sensitive information needed to facilitatepayment electronically. This needs to be backed by Trust and Authentication Services thatwould help provide some sort of guarantee to the faceless communication ofeCommerce.60 For developing countries this may require governmental interventions andinitiatives, as traditionally this has been the practice with all quality control and guaranteeregimes. It could also mean further dependence on proprietary technology as well asproblems for state controlled valuation requirements as for customs duty levy. Transfer of technology Access to technology may be a key issue for the growth of eCommerce in developingcountries. It cannot be presumed that development of electronic commerce, by itself,would necessarily lead to transfer of technology from developed to developing countries.This is likely to be a complex process, involving questions of investment, expertise,government policies, market access etc. As electronic commerce develops in a country, itwill for example, have spin-off effects on the development of the information technologysector in that country. A developing country which encourages electronic commerce andwith a climate conducive to investment is likely to attract foreign investment in sectorsrelated to information technology. In addition, it is possible that developed countrycompanies that see market opportunities in developing countries will transfer sometechnology in order to be able to explore those market opportunities.

So far as the fast emerging technologies and standards for the Internet andeCommerce are concerned, however, developing countries have no say whatsoever today.All of the developments are taking place primarily in the private sector laboratories of the

59 Howe, 1998. Surprisingly, even leading and very popular sites like amazom.com (major supplier of booksand now CDs etc.) and cdnow.com (CD supplies) are in fact losing money on the Internet.60 The ITU has recently signed a Trust Fund partnership agreement with the World Trade Center, Genevaand the World Internet Secure Key (WISeKey SA) to promote the use of digital certificates for bothauthentication and authorization through more than 300 centres in over 100 countries. (SUNS, #4516, 27th

Sep 1999).


North. Even the ITU (International Telecommunications Union) plays only a marginalrole.

Box 3: Control of the Internet

The question of who controls the Internet is relevant for the world as a whole anddeveloping countries in particular. From its very beginning the Internet has exhibitedsome particularly unique features. It is a product of the (US) public sector (academiaand defence); it was built on a single standard (Internet protocol); it ostensibly has nocentral command and is predominantly American61 - not only in the number of sites,servers and eCommerce business transacted on it, but also in content, culture andlanguage. Therefore though formally there is no ownership (or responsibility) for thetraffic that runs on mainly leased telecommunication lines, there are of course US-based and US scientist-manned bodies, the Internet Society and the InternetAssignment Numbers Authority (IANA), that take the few central decisionsconcerning protocol or for allocating Internet addresses or “domain names”62. Theseare important issues with the latter having very strong commercial implications for theTrademarks issue. Due to international pressure, however, such powers are nowsought to be shared at an international level by the setting up of the ICANN processsince October 98. The Internet Corporation for Assigned Names and Numbers(ICANN) is the new non-profit corporation that was formed to take overresponsibility for the IP address space allocation, protocol parameter assignment,domain name system management, and root server system management functionsnow performed under U.S. Government contract by IANA and other entities. It hasinternational membership. Unfortunately there is no developing countryrepresentation in ICANN and the matter demands redressal.

The Internet today operates on a telecommunications ramp which has been built on

technologies mostly developed in the West. Not only is this structure extremely capitalintensive, it is on the technological edge of emerging possibilities that require high-costresearch and a strong financial base for long-term and sometimes risky initiatives that maywell become redundant and obsolete overnight. Most developing countries have neitherthe financial nor the human resources to match these requirements. Can they thereforeexpect or even judge whether the standards and the set-up will be fair and equitable? Willthey at least be transparent, and non-trade restrictive? The issues of domain nameallocation and address management have a commercial implication that is only now beingfully appreciated. Certification authorities and authentication protocols are some of thetechnologies and standard-setting activities that will emerge. Who is to establish andmonitor these are issues that need to be addressed by the international community, and

61 Cairncross, 1997. 62 Domain names are the people-friendly form of Internet addresses (which are actually numbers) designedfor computers to recognize the address of a particular site on the network.


the developing countries fears on such matters allayed. Setting up bodies like the ICANNare steps in this direction and developing countries must demand to be represented onthem.

III.3 Legal and financial framework Legal issues Today the Internet weaves its way into society wherever it goes, crossing borders, culturesand legal jurisdictions. Many governments worry about a medium that can bring theircitizens effortlessly or even accidentally face to face with pornography, fraud, libel,gambling, racism and sedition. Quite probably, if something is illegal under national law, itis almost certainly available on the Internet.

In fact, there are many things that countries might reasonably want to regulate onthe Internet. These include not just serious affronts to human values such as childpornography and incitement to racial hatred, but also consumer protection, the defence ofintellectual-property rights and taxation. These are all issues on which countries legislatealready. The existing rules and laws would and should apply to the Internet andeCommerce. The problem is not whether the Internet should be regulated, but how. Thisentirely new sort of communication poses several entirely new sorts of problem forregulators.

Intrinsic to the Internet is its ability to leap borders at the click of the computer-

mouse, roaming websites from one country to another where different laws and standardsmay apply. Second, regulation has traditionally distinguished between public and privatecommunication. But the Internet is both a private conduit for messages betweenindividuals, and a public one. To regulate it, countries could use existing laws whereverpossible; and, adapt some of the solutions emerging on the Internet itself. One suchexample is to get over the brand name and Internet address problem63 by assigningnumbers much like those of the telephone and using global directories. Similarly, althoughthe Internet may worry governments and copyright holders by making it easier to copycopyrighted material, it compensates by letting copyright holders find and police instancesof abuse better than they could before.

A comprehensive discussion of the legal and regulatory obstacles to the promotion

and expansion of eCommerce is beyond the scope of this paper. However, some of theissues that need to be addressed are listed below:

• Bringing about changes in existing laws which are rooted in the paper world,

requiring writing, signatures, creation and retention of original documents,documentary evidence in legal proceedings and use of prescribed paperforms.

63 This is turning into a major issue of registered trademarks or brand names vs. Internet site addresses usingthe same or similar names and therefore leading to trademark infringement disputes.


• Modification of export and import regulations and formalities to address theregulatory impediments to physical delivery of goods ordered online.

• Development of digital signature and encryption technology and removingsome of the restrictions on its import, export and use (because of nationalsecurity and law enforcement concerns).

• Removal of uncertainty as to which national (and state) laws apply in cross-border transactions (issues of jurisdiction).

• Lack of consumer confidence because of uncertainty as to the effectivenessof consumer protection laws.

• Addressing the whole issue of exchange controls, both as financial policy aswell as the restrictions and problems of international electronic paymentmechanisms (e.g. use of credit cards online, or by phone, fax, or e-mail).

• Development of and regulations governing the issue of stored value cardsand other electronic cash devices by financial institutions.

• Liability of service providers, e-mall operators64 and other intermediaries forthe content and conduct of eCommerce sites.

• Protection for intellectual property, which is particularly relevant tocopyright-based businesses that supply software, music, film, video andliterary works.

National legal framework

The main issue that developing countries need to address is to make their legal frameworkconducive to eCommerce transactions, after of course considering its implications andtaking the policy decision to do so, in whatever degree. The UNCITRAL Model Law onelectronic commerce is one such standard framework for resolving the contractual issuesand obstacles related to eCommerce. Several developing countries are consideringadopting it or legislating directly themselves (several already have). The basic principlebeing followed is that of “equivalence of treatment” between paper and electroniccommunication. This is easiest and quickest done by adapting the existing legal system toan eCommerce environment.

National financial framework

Along with changes in contract and company law, eCommerce also requires a financial andbanking framework that allows for electronic payments and transfers. This would includerequirements for certification of documents, electronic signatures, confidentiality andprivacy. Several developing countries will need to put in place both the electronic network(between financial institutions) as well as the legal framework to allow for suchtransactions. Banking laws and regulations thus need to be adjusted to the new formatsand requirements. Already there has been progress in this area in several countries,especially where EDI for trade facilitation is already being introduced.

64 Those that set up and maintain ‘virtual’ electronic shopping-malls/complexes on the Internet.


Countries will also need to examine their policies vis-à-vis financial services,especially those that would be involved in eCommerce transactions. Besides banking andinvestment services, this would also involve insurance, brokerage, credit worthiness andguaranteeing services, underwriting and a host of other financial services. This of courseraises the question of reform and liberalization of the financial sector. Policies not just atthe domestic level but also international level would need to be examined. Currencyconvertibilty (both on the capital and current account) would be an important issue for themany developing countries where convertibility is presently restricted for macroeconomicreasons and therefore on-line digital eCommerce payments are not possible.

Another essential requirement for the ‘Internet boom’ (as seen in the North) indeveloping countries is the establishment and high growth (both real and in share values)of good Internet companies that not only deal in software and Internet services but wouldserve as the backbone on which other industry would base its entry into the world ofeCommerce. For such start-up companies, easy availability of venture capital is a must.Traditionally in developing countries, financing has come from either banks or stockmarket listings, neither of which are suitable for young, high-risk Internet companies thathave yet to launch commercial operations. To address this requirement, some developingcountries are setting up venture capital funds, dedicated to the IT industry, through publicfinancial institutions.

These credit and financial policy issues are ones that each country must approachfor itself. The emerging requirements of eCommerce are not necessarily the only reasonfor them to be examined or changed. Moreover, local solutions to manage within existinglaws and procedures are being worked out constantly in several countries and by severalenterprising companies. Where currency convertibility is not automatic, transactionsnegotiated on-line are then completed by routine bank transfers. Where the credit cardculture does not exist, terminals operated by cashiers are being tried out. Where digitalsignatures are not acceptable, back-up copies of contracts are sent simultaneously. Whereventure capital funds are not the norm, existing banks are working out ways to lendwithout insisting on personal guarantees and collateral. As economies grow and there isgreater experience available in this whole area, the national policy makers will need to takedecisions on several financial matters - in some cases even introducing further restrictionsor security mechanisms where necessary (for example to raise customs tariff for specificitems to prevent excess capital flows externally).

III.4 Summary of main points

• An equitable global information infrastructure is necessary in order to realisethe potential of eCommerce. This requires a full world-wide andparticipatory coverage of telecommunications and Internet networks as wellas the standards and legal frameworks necessary to run it.

• Developing countries will need assistance to establish reliable domesticnetworks, and also to acquire the expertise necessary for them to play a fullpart in it.

• A legal framework conducive to the requirements of eCommercetransactions is a necessity not just to prevent misuse but also to promote its


growth. The UNCITRAL Model Law on electronic commerce is one suchstandard framework available.

• Financial policies and banking regulations may need to be adjusted to therequirements of digital transfer of payments and decisions taken regardingthe question of allowing and/or regulating the Internet based financialservices that are emerging.

• Developing countries will need to address these basic financial andinvestment policy issues within their overall response to liberalization andglobalization. However, where domestic compulsions prevent changes,innovative solutions for eCommerce growth within existing frameworks arealso emerging in several developing countries.


IV. ISSUES RELATED TO THE WTO

Trade related issues are of the utmost importance for developing countries, not only inview of the impending trade negotiations but also because it is in the area of trade andcommerce that some of the main potential and risks for eCommerce lie. The main issuethat has been raised at the WTO is that concerning tariffs on digital transactions. Howeverin addressing this, several related issues have come up and are being examined. Thissection will deal with the issues of taxation and tariffs, the technological constraints forimposing and monitoring it, characterization and classification issues and those ofintellectual property rights, particularly in the context of the concerns of developingcountries.

IV.1 Taxation Issues

Though domestic taxation and customs tariffs are separate issues, the fact and possibilityof levying a charge on a digital eCommerce transaction needs to be looked at first, as thetechnology as it exists today raises certain problems. Several options are being consideredby governments (especially in the North) on how to react to the pressure that electroniccommerce puts on tax regimes. Essentially this is a problem when commerce has takenplace purely in a digitized format i.e., where all parts of the transaction have beencompleted ‘on-line’ in digital or computerized format and no goods have directly passedthrough a recognized customs or domestic tax point. Where eCommerce has been usedonly to communicate and set up a transaction and the actual delivery is by regular means,the existing tax and duty regulations and procedures continue to apply and can bemonitored. For digital supplies the problem for the authorities is to monitor or even beaware that a transaction has taken place. One possible response would be to adjust the taxbase to reflect changes in the economy at large -- something that governments have donethroughout history. In this case, the adjustment might mean taxing all electronic flows ofinformation. That is the proposal of an independent committee appointed by theEuropean Commission. In April 1998 the committee submitted a report recommending aso-called “bit tax” (i.e., a tax on the “bits” of information zooming around computernetworks)65. Many European politicians support such a tax, partly because Europe (withhigh rates of VAT) stands to lose the most from untaxed electronic sales. In the UnitedStates, which does not have a federal sales tax, the idea has not found much favour andthe present US administration rejects the idea of any new taxes on the Net. The USTreasury opposed any new taxes on Internet transactions but said existing tax rules shouldbe applied to Internet business exactly like other forms of commerce. This position of theUS is however presently restricted to custom tariffs for digital commerce internationallyand options for domestic taxation within the US itself are still under study.

The basic problem even with a ‘bit tax’ is that it is indiscriminate: it taxes not juston-line transactions but all digital communications. Also the question of valuation would

65 There are many possibilities with this type of situation that governments and international organizationscould consider. A possible utilisation of the ‘bit tax’ concept could even be to levy a charge on all digitaltransactions for creating a global development fund.


be difficult to determine. More important, it is argued that taxation will crush thedevelopment of eCommerce and stunt its growth. If implemented in some countries, itwould simply drive business off-shore and on-line transactions would take place in a stateor country where there is no such tax66. So what other option is there for governments?The unpleasant alternative maybe that, in coming years, governments will probably beforced to shift further their existing tax base or find ways to monitor and tax eCommercetransactions.

Besides the issue of possibilities and means of taxation, eCommerce also raises issuesof domestic vis-à-vis foreign trade-related taxation provisions. Certain goods and servicesmay not be taxed internally but if traded across frontiers the position could be at variancewith the receiving countries’ tax and customs requirements. A country may therefore notbe much concerned, if say, it does not tax services internally, but would be very worried ifthey were being offered from abroad at cheaper rates when similar local-based serviceswere being domestically taxed.

Taxation issues have a bearing on the very foundations and growth potential of anyeconomic idea. In the case of eCommerce, the ramifications are global and affect the veryconcept and development of eCommerce, as well as the policy that each developingcountry would need to adopt regarding its foreign trade and internal taxation. For mostdeveloping countries, domestic taxes and import and export duties continue to be aprimary source of revenue.

IV.2 Market access issues

Despite the many plus points, electronic commerce raises two basic difficulties forinternational trade. First, in eCommerce transactions the distinction between a good and aservice can get blurred. This matters because WTO rules treat goods and servicesdifferently. Goods tend to be subject to tariffs; services are not, but trade in services islimited by restrictions on “national treatment”67 or quantitative controls on access toforeign markets. So the rules that will be devised for electronic commerce may affect thechoice between physical and digital methods of trade.68

A recent WTO study (Bachetta et al, 1998) suggested that Electronic commerce canbe divided into three broad categories for the purpose of policy discussion: i) the searchingstage where producers and consumers, or buyers and sellers, first interact over theInternet; ii) the ordering and payment stage once a transaction has been agreed upon; andiii) the delivery stage. The new problem or issue relates to products that can be deliveredelectronically through the Internet (stage iii) transactions), as this is where the mostsignificant policy questions arise.

66 On-line transactions could of course be between different sites located in different countries, but since itwould probably be the suppliers that would be targeted for taxation, they could locate their site in a tax-haven.67 “National treatment” in this context means the giving of equal treatment to international based serviceproviders compared to domestic.68 World Trade Survey, 1998.


A compact disc (CD) sent from one country to another is clearly a good, and mayincur a tariff as it crosses the border. But if the contents of the disc are sent electronically,say as an attachment even to an email message, from a computer in one country to acomputer in another, is it still a good, even though it is no longer in ‘plastic wrap’ or atangible package?

Second, electronic commerce poses a problem for national regulators, especiallywith regard to service industries such as financial consultancies and medical services wherethe customers are nowhere near as well informed as the suppliers. It would be nearimpossible to keep a watch over quacks and fraud financial advisors. Countries couldimpose trade restrictions, insisting, for example, that financial firms selling on the Internetto residents of their country must also have an office there; or they could work moreclosely together with officials in the seller’s country monitoring cross-border sales onbehalf of regulators in the buyer’s country. But such procedures are not only difficult toput in place and follow through with, but would also take away the fast-growing contactsthat the Internet is setting up. All these are issues that need to be addressed.

It has been argued by Bacchetta et al (1998) that open international market access isessential to the realization of benefits from electronic commerce, a view shared by manyeconomists and writers in the western media. It is argued that the the WTO already hasmarket access regimes69 in place -- the GATT (the General Agreement on Tariffs andTrade which deals with trade in goods) and the GATS (the General Agreement on Tradein Services). The obvious question that arises is whether either (or both) of these regimesprovide an adequate framework for dealing with market access vis à vis electroniccommerce. Discussion and study on this issue is necessary and has in fact started.

Customs tariffs

In the WTO the United States presented to the General Council in February 1998 amarket access proposal in regard to electronic commerce calling for agreement amongWTO Members “to maintain ... current practices not to impose duties on electronictransmissions.” In May 1998 the WTO Ministerial declaration accepted this ‘stand-still’position till the next ministerial meting by when a more detailed study on the subject wasto be made available and discussed70. The US brought the proposal before the WTO tohave a zero duty regime for all electronic transactions - basically being digital commercewhere all (or most) stages of the transaction are completed on-line and most important,the final ‘product’ is delivered digitally. The argument is that today technology does notexist to distinguish between simple digital transmissions such as e-mail or, say, software.The U.S. stand is rooted in the perception that no government presently treats electronictransmissions as importation for customs duty purposes, and the idea is to consolidate thisduty-free status quo. Another initiative that goes in the same direction is an agreementreached in December 1997 between the EU and the United States by which both partiesundertake “... to work towards a global understanding, as soon as possible, that:

69 The international agreements on trade that were negotiated and established ostensibly with a view topromote greater (and fair) international trade.70 At its meeting on 25 September 1998, the General Council of WTO agreed on a work Programme onElectronic Commerce where the study on the subject is being carried out in the Councils for Trade inServices, Trade in Goods, TRIPs and the Committee on Trade and Development.


(i) when goods are ordered electronically and delivered physically, there will beno additional import duties in relation to the use of electronic means; and

(ii) in all other cases relating to electronic commerce, the absence of duties onimports should remain.”

The basic problem or issue (as earlier mentioned regarding taxation issues) is that it willnot always be easy to identify the content of electronic transmission in situations wheregovernments have a fiscal, protection-related or regulatory motivation for doing so.Finding workable solutions will involve international co-operation in addition todeveloping technical solutions. For developing countries this will also raise questionsregarding the best instrument to employ to promote and protect local industry. Forexample, the objective of finding a margin of commercial advantage for a domesticsupplier over a foreign supplier would not be simple.71 The issue of course is bothcomplex and varies for different settings and products, and countries will need toapproach them individually.

As mentioned earlier, the question as to how to monitor and how to tax areproblematical. For developing countries such as India, Singapore, Malaysia, where most ofthe flows of digital services and software (developed domestically) are outwards to othercountries, export duty is not an issue because export flows are not taxed. On the importside, software and information inflows for processing in back-end offices72 and callcentres73 are mostly not subject to duties either - a measure to encourage the IT industryand exports. However, this situation may not hold good for financial and other servicestransactions. Hence the question as to whether or not tariffs should be levied needs to bevery carefully considered. Customs duties, as mentioned above, are a very importantsource of revenue for cash needy governments in poor countries. It is therefore importantthat the full implications of levying duties or otherwise are studied carefully and time given(for better technologies to emerge that would make duty calculations possible (andenforceable) for digital commerce also) before any final decisions are taken on this matter.Developing countries must be extremely wary of entering into a commitment to accept azero duty regime before they have considered the full implications of the various options.

Quantitative restrictions

There is an associated argument that has been raised in some quarters, namely that sincedigital transactions cannot be monitored, duties cannot and should not be levied. Applyingthe same argument, it could also be asserted that the quantity and content of a digitaltransaction also can not be monitored, therefore, in this case too, no quantitativerestrictions (QRs) should be applied. In other words, the ‘stand-still’ on tariffs beingpropounded by some developed countries should also include a ‘stand-still’ on the issue ofQRs. No formal view on this perspective has emerged in WTO, but, from the developingcountry angle, signing an agreement which precludes the option of introducing regulationin the future may not be a very prudent step.

71 Bacchetta, 1998.72 Service, maintenance and development centres set up in a different location and linked through anIntranet.73 Centres where customers call or connect via the Internet for services from reservations to queries.


IV.3 Characterization and classification issues

Another issue that needs to be addressed is that of characterization. Electronic commercecould be characterized as trade in goods, trade in services, or as something different fromeither of these. In addressing this issue some key differences between the GATT andGATS must be borne in mind as they would affect the policy and distinction betweengoods and services. The GATT contains a general obligation in respect of nationaltreatment, as opposed to one that depends on what specific commitments have beenmade at the sectoral level, as in the GATS. Moreover, the GATT embodies a generalprohibition on quantitative restrictions (with delineated exceptions), whereas the GATSpermits the use of quantitative restrictions in cases where governments wish to maintainlimitations on market access. The GATT envisages the use of customs duties on importswhere Members have not bound their tariffs at zero, whereas the GATS has little to sayabout customs duties, or taxes in general, except that any tax regime must be consistentwith a Member’s national treatment commitments in its schedule of specificcommitments74.

Trade in goods

The case for treating eCommerce transactions as goods might apply in the case of some ofthe more popular items presently being traded i.e. books and music. It could be arguedthat the digital transmission of either is then converted to a physical good – a book or acompact disk (CD) bearing music. However there are cases when this may not happen andthe end use may continue to be in digital format. Other examples where the final productmay or may not be converted into physical form are pictures, graphics, videos and film.Even if they are, there would be a problem of valuation. Also in the case of customizedwritings and music, say for a theatre production, they could very well be treated as trade inservices. In other words it would be a non-standardized usage or service.75

Trade in services

It has been asserted in Bacchetta et al (1998) that a whole range of transactions carried outover the Internet are already covered under the structure and trade liberalizationcommitments of GATS. These include the provision of Internet services and several otherproducts that can be delivered as digitized information flows. Internet services and otherservices already traded electronically are cited. It is being argued by some countries that allservices are covered by the GATS and it does not matter whether these are deliveredelectronically or otherwise. Today the great bulk of products delivered electronically, liketelecommunications and financial services, are covered in the services classification lists.However would this cover all existing services and all digital transactions? Even for existingservices there is no compulsory or universally agreed classification system. In many

74 Ibid.75 A book or music or software on a CD for mass consumption would be treated as standardised products,whereas customised writings, music, software etc. would be non-standardised products and classified asservices.


instances the nomenclature used is that based on the provisional Central ProductsClassification (CPC) of the United Nations. However this classification is not used in anumber of sectors, including financial services, telecommunications, air transport andmaritime transport. Moreover it must be noted that this classification was last issued in1989 and therefore today’s technological developments and delivery options could nothave been foreseen. Some experts contend that the principle of ‘technological neutrality’76

applies and the mode of delivery does not matter. However even in cases of CentralProducts Classification (CPC) the description may not be technologically neutral in that itmay describe means of delivery without accounting for electronic means. Since thisclassification does not apply across the board (especially to new services that have, andmay emerge) in several cases the practice is often to resort to the description as “otherservices”77. Such classification is both arbitrary and questionable.

Existing agreements

Provisions in the existing agreements do not embrace all digitized information flows. Thebasic limitation of having to be classified and listed precludes so many of the present (andfuture) innovations of eCommerce, that it would be neither prudent nor practical toconsider all eCommerce transactions covered by the existing agreements. Electroniccommerce is not something that can be classified and limited by the definition of either agood or service. It may be either or both and yet something more or different. Even todaythe world is just beginning to glimpse at its potential and usage. It would therefore beinappropriate to define it as trade in either goods or services and limit it by the existingagreements. Its implications are not only international or regional in nature and its impactextends far beyond trade and commerce. The international community must address theseissues in a fair and transparent manner and the developing countries must be givenadequate opportunity to first understand and then decide on the policy stance that theywish to adopt.

IV.4 Issues concerning intellectual property rights

Much of the trade today on the Internet and other electronic communications networksinvolves the selling or licensing of information, cultural products and technology protectedby intellectual property rights. The importance of setting up an eCommerce regime thatprotects and promotes IPRs is crucial to many interests in the North as enormousworldwide ‘rents’ can and will flow to companies and individuals in developed countrieswho today own over 90 per cent of patents and copyrights in the world. For this reason,there are acute disputes about trademarks and ‘domain names’. For consumers who buyproducts and services at a distance, it may be increasingly necessary to rely on thereputation attached to trademarks and other distinctive signs. Not only is the question oftheir protection an issue, but conflicts arise between them and Internet ‘domain names’,which, though designed to serve as addresses, have acquired a further significance asbusiness identifiers.78 Several addresses containing the trademark names of established 76 Concept that in the negotiations concerning the GATS agreement, the services or transactionsenvisaged were not meant to be dependant on the type of technology used nor the mode of delivery.77 Bacchetta, 1998.78 WIPO Report, 1999.


companies have been registered as domain names thus leading to disputes over their usage,as well as to allegations of what is referred to as ‘cyber-squatting’79. The World IntellectualProperty Organization (WIPO) has therefore issued a report on the issue, recommendingpractices and guidelines intended to prevent disputes in this area. Its recommendations arebeing looked at by ICANN, which though recently established is still not fully functionaland which, as mentioned earlier, has no representation from the South. Developingcountries therefore need to raise this issue at WIPO, WTO etc.

While examining some of the new challenges posed by global communicationsnetworks to the protection and enforcement of intellectual property rights, one shouldalso bear in mind the new opportunities such networks provide to facilitate internationaltrade in subject-matter protected by intellectual property rights. For example, the Internetmay give consumers, irrespective of their place of residence, a wider choice of informationand cultural products protected by copyright and related rights. For authors, publishersand producers, the Internet may lower the costs of and barriers to entering the globalmarket. Transaction costs and transaction times are likely to fall rapidly. However, thispositive scenario requires that governments and the private sector develop and implementan appropriate mix of regulatory, contractual and technological measures, and ensureadequate public awareness of the role of copyright and related rights in the informationsociety.

WIPO is preparing to establish a worldwide network infrastructure that makesavailable to the public, through public networks, intellectual property information, and alsoprovides sufficient telecommunication capacities and security mechanisms to allowintellectual property offices to access information that is useful for grant and registrationactivities. In this context, WIPO intends to support the deployment of informationtechnology infrastructure in intellectual property offices, with special support to offices indeveloping countries, assisting the latter in developing the necessary infrastructure and intraining for use of the IPR system.

It is argued that intellectual property also plays an important role in promoting thedevelopment of the infrastructure required for communications networks, that is,software, hardware and other technology that make up information highways. It providesprotection for the results of investment in the development of new information andcommunications technology; thus giving the incentive and the means to finance researchand development aimed at improving such technology. It is also argued that a functioningintellectual property regime is meant to facilitate the transfer of information, in this casecommunications technology, by means of foreign direct investment, joint ventures andlicensing. Thus, IPRs are meant to contribute positively to technology transfer and thedevelopment of the communications infrastructure in developing countries. As yet,however, there is little empirical evidence of such a transfer and development of thecommunications infrastructure in developing countries. Moreover the protection of IPRsis only one of the factors which may encourage or hinder the transfer of technology.

Given the global nature of the Internet and other digital networks, a related questionthat arises is whether differences in the way in which new forms of misuse of protectedsubject-matter in the digital network environment are addressed in national legislation and

79 Practice of obtaining well-known or common terms, brand names and trademark names as Internetaddresses with the hope of later selling them at a profit.


case law result in increased impediments to international trade. In other words, they maybe used as non-tariff barriers to limit and restrict market access. For example, laws orregulations may emerge, providing for standards or certification for transactions that mayhamper development of services over the Internet. Such standard setting or certificationauthorities may be private or developed country oriented. Developing countries need to bewary of such possibilities.

IV.5 Summary of main points

• One of the main issues concerning eCommerce is whether/or how taxes orduties should be levied on ‘digital transactions’, i.e. where most or all stagesof a commercial transaction have been done on-line and the final good orservice has been delivered digitally. For governments it is very difficult tovalue or even be aware of such transactions.

• One alternative under consideration is that of a ‘bit-tax’, where the volumeor total ‘bits’ transmitted could be taxed. This however would not distinguishbetween types or values of transmission.

• This issue of tariff on electronic transmissions has been raised in the WTOby the United States who desires that a permanent stand-still on the non-levying of any tariff on digital commerce be agreed to by all members.

• Developing countries need to be wary of agreeing to a permanent zero-dutyregime without first understanding all the implications of this on theireconomies.

• Another issue under consideration before the WTO is that of classificationof eCommerce transactions under the two existing agreements of GATT(for goods) and GATS (for services). However the nature of eCommerce issuch that it cannot all be covered under either of these existing agreements.

• ECommerce also raises questions concerning IPRs. Disputes betweentrademarks and ‘domain names’ (addresses on the Internet) have alreadybroken out. WIPO along with ICANN (the Internet Corporation forAssigned Names and Numbers), is working on this issue. Developingcountries need to be represented in ICANN.

• IPR infringements could increase with eCommerce and the spread of theInternet, however the Internet will also give IPR owners greater and easieraccess to the market as well as making it easier to monitor suchinfringements.

• Fear of such infringements could also lead to unnecessary barriers andregulations being introduced, with the effect of these becoming non-tariffbarriers to trade. These may be monopolized by a few North basedcertification or standard-setting private agencies. This may be detrimental tothe interests of developing countries


V. TOWARDS A STRATEGY FOR THE SOUTH

The Internet per se does not recognize the ‘North’ or the ‘South’. It has no setgeographical barriers or boundaries: these are defined by the location of the participants,namely, those who are connected. But, in this sense, the world continues to be dividedbetween the “haves” and the “have-nots”, that is, between those who are connected andthose who are not. As with every other technological advance, in the absence of specialefforts, the benefits tend to be derived mostly by the affluent, whether countries orindividuals. It is therefore crucial that developing country governments address thedevelopment of Internet and eCommerce in the context of their development plans andprogrammes, with a view to increasing access to telecommunications, Internet etc. and toproviding an appropriate legal and financial framework.

Global eCommerce

Global commerce is increasingly being dictated by those who:

• have access to a range of financial, technical and human resources with aspeed and depth that only electronic information and trading networks canmake possible; and

• meet customer demand and engage in business negotiations with theflexibility, cost-efficiency, timeliness, reliability and innovation that only theelectronic forms of trading allow.

Thus, in order to ensure that all members of the community of nations enjoy acompetitive standing in the global marketplace, efforts should be made to promote accessto Internet and utilization of eCommerce on a local, national, and regional basis. SeveralUN organizations and many national governments are today addressing these issues.Governments, businesses and individuals have to assess their specific needs and thenmove forward in a well-informed manner to make use of eCommerce applications.Businesses will gradually increase their use of electronic communications by takingincremental steps within a familiar regulatory environment rather than attempt toautomate their entire business communications model in one step. Recognizing this, eachdeveloping country economy should evaluate the benefits and applications most relevantto its short-term and long-term needs.

A strategy for the South

In the foregoing discussion, a distinction has been made between national andinternational strategies. Some of the issues and actions relevant to domestic policydecisions by developing countries have been outlined in the preceding section. So far asinternational issues are concerned, the most important are those related to trade andspecifically to the WTO negotiations, and developing countries will need to developpolicies and actions at the multilateral and bilateral levels and within the South as whole.


WTO negotiations

So far as multilateral action is concerned, the most important and urgent task fordeveloping countries is to determine the stance to be adopted at the WTO. Section IV hasoutlined the major issues. Though there is little doubt that eCommerce is an importantand major issue for world trade, there are several aspects of it that need to be furtherstudied especially from the point of view of their implications for the developing world.There are also several impediments to the availability of and access of this medium indeveloping countries and unless these are addressed simultaneously, the gap between theNorth and South and that between the poor and rich will only widen. Therefore, whileconsidering the promotion of eCommerce as part of the world trade agenda, the issues ofinfrastructure, investment, availability and marginal cost of hardware and software,awareness, education and training need to be also addressed and redressed. Developingcountries therefore need to raise and (where necessary) negotiate on these issues, beforeentering into any agreement. Different options, including that of being accorded ‘specialand differential treatment’ with reference to their infrastructural development in this area,need to be considered. Developing countries need to be given adequate time to studythoroughly the implications and the optimal ways of placing the Internet and eCommercefully in the service of development. This will require analysis and discussion nationally andregionally and also at the level of the global South.

Other multilateral actions

Several UN and inter-governmental bodies are presently addressing the issues andresponses to eCommerce according to their remit and the particular focus of each agency,broadly as follows:

UNCTAD Trade facilitation and development perspective;ITC SMEs and private sector focus;WIPO Domain name and IPR issues;ITU Infrastructure and telecommunication issues;WTO Rules and trade agenda;UN/ECE Trade facilitation;UNCITRAL Legal framework;World Bank Financial aspects and data bases;UNDP Development issues.

Since many of these agencies will exert an influence on the future of eCommerce, andseveral are considering undertaking studies and projects to help developing countries andtheir SMEs benefit from the opportunities emerging in this area, it is important that theinitiatives taken in the framework of the United Nations system be co-ordinated andintegrated so as to avoid duplication and contradictions.

ECommerce is far too important a matter to be left in the hands of a fewgovernments and the private sector. It is in the interest of the whole internationalcommunity and especially the developing countries that the rules and standards aredebated and decided collectively in the organizations based in the United Nations system.An inter-agency working group located in Geneva, where most of the concerned


organizations are based, would be a first step. It is essential that expert representativesfrom developing country bodies such as the G–77, NAM and other such groupings andinstitutions participate fully in such a working group.

Bilateral agenda

In addition to pursuing an joint agenda and platform at the multilateral level, developingcountries will also need to establish policies and positions for their bilateral relations,especially with the US, EC as a body and individual European countries, as well as withJapan. Not only is it necessary to explain the developing country perspective and problemsto these partners, but also to seek appropriated development assistance and investments toimprove access and expertise in this area. Such initiatives could serve to help develop theuse of Internet for social development purposes such as telemedicine, distance learningand agricultural extension among other things.

South-South co-operation

ECommerce is a new area and there are no textbook answers to several policy, businessand technology matters. New and innovative initiatives in eCommerce are being taken byseveral governments in the South. Developing countries therefore stand to learn a lotfrom sharing their experience and exchanging data and information. Moreover, co-operation and a common stand on issues before the WTO as well as ITU, WIPO, ICANNetc. will not only help individual governments in their consideration of the relevance andimplications of each aspect under consideration, but would also lend strength to theirposition.

Agencies and organizations of the South, such as the Group of 77, the SouthCentre, and regional groupings could contribute to the analysis and discussion of the coreissues and options before the developing countries. They could help assess informationregarding the extent of the obstacles to eCommerce and how these are being overcomewithin each developing economy. Such information will be a powerful stimulant for actionby and among the member economies, as it will highlight the comparative disadvantagessuffered by economies that lag behind with respect to the new technology and its uses,while suggesting solutions for those wishing to catch up.

This body of effort could include initiatives to:

• examine the various issues before the WTO and suggest options forconsideration and negotiation;

• outline the constraints with regard to infrastructure and technology that needto be addressed;

• provide a regular forum for discussion and debate on common issues andproblems;

• organize workshops and interactive sessions on eWareness for developingcountry representatives in Geneva, where several key organizations arelocated, as well as in the various regions;


• survey comparative costs of network access and use among the Southeconomies. The survey would monitor progress and issue annual updates;

• establish an on-line database of South government eCommerce bestpractices, with live site links and explanatory comment;

• maintain an eCommerce Legal Guide on the Internet as a means ofproviding developing countries with a first level of understanding of the legalissues they may encounter in other economies;

• encourage developing countries to review the legal issues addressed in theUNCITRAL Model Law on eCommerce and to make appropriate changesto their national laws;

• establish a regional review of fraud and efforts being made to ensure thesecurity and privacy of eCommerce transactions (potentially to include amodel law on fraud that could be reviewed by all member economies);

• demonstrate through government and industry application of eCommercesystems the benefits to be had from the evolving digital forms of commerce.

In conclusion ECommerce provides a major opportunity for developing countries in their quest fordevelopment for it provides the seeds of opportunity and change. The most developedand expensive technology is not the key; business acumen and entrepreneurship is moreimportant. Weak or inadequate infrastructure is not necessarily an impediment, just asdeveloped infrastructure is not necessarily a sufficient condition for success. The key tosuccess in this area is to act locally and exert influence globally. A strategy for the Southmust encompass both national and international concerns. It must first concentrate onunderstanding the various issues and their implications for development and trade andthen seek to formulate a co-ordinated approach at the international level and help setguidelines for domestic policies and plans. The crucial initiatives mentioned above can betaken by individual developing countries, by groups of developing countries or by theSouth as a whole. A central objective is to develop an international regime which issupportive of the development of eCommerce in developing countries while beingconducive to their social and economic development and respecting their cultural andpolitical integrity. The international community, but particularly the developing countriesthemselves, must ensure that the appropriate enabling political and economic environmentis established.


SELECTED BIBLIOGRAPHY

& Bacchetta, M., Low, P., Mattoo, A., Schuknecht, L., Wager, H. and Wehrens,

M.,1998, Electronic Commerce and the Role of the WTO, Special Studies, WTO, Geneva.

& Butterly, Tom, NUA Internet Surveys, Weekly Editorial, 15.05.98, Constraints to theDevelopment of the "Wired" Economy in Africa, http://www.nua.ie

& Cairncross, F., 1997, The Death of Distance, Orion Business Books, London.

& Daly, John A., and Miller, Robert R., 1998, Corporations' Use of the Internet in DevelopingCountries, International Finance Corporation, Discussion Paper Number 35, TheWorld Bank, Washington, D.C.

& Egypt Working Paper on Electronic Commerce in Goods and Services, 1998, Committee onTrade and Development, WTO, Geneva.

& Gurunlian, J., UNCTAD Workshop on Exchange of Experiences amongEnterprises in the Area of Electronic Commerce, June 1999, Geneva.

& Howe, Walt, 1998, A Brief History of the Internet, at www.delphi.com

& Internet Society, http://www.isoc.org

& International Trade Centre, various documents.

& ITU, 1999, Challenges to the Network, Internet for Development, Executive Summary, atwww.itu.int

& ITU, 1999, Internet for Development, www.itu.org

& ITU, World Telecommunication Development Report 1998, Geneva.

& Lanvin, B. , UNCTAD Workshop, June 99, Geneva.

& Leiner, B. M., 1997, A Brief History of the Internet, at http://www.isoc.org

& UNCTAD, extensive documentation.

& UNCTAD, Policy Issues relating to access to participation in Electronic Commerce, Nov. 1998,www.unctad.org

& WIPO Report, 1999, The Management of Internet Names and Addresses: Intellectual PropertyIssues, Geneva.

& World Trade Survey, Oct 98, Economist, London.

& World Trade Organization, extensive documentation.

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