GATS established the WTO rules framework for trade of services, with the aim of expanding 'such trade under the conditions of transparency and progressive liberalisation' (preamble to GATS).
The inclusion of e-services within the framework of GATS raises the issue of which mode covers this form of services trade, in particular whether mode 1 (cross-border transactions) or mode 2 (consumption abroad transactions) is more appropriate. This classification issue has significant policy implications, since current levels of market access commitments indicate that in many service categories, most countries have agreed to place no restrictions on mode 2 (i.e. made a commitment of 'none') and have reserved the right to place restrictions on mode 1 (listed Â£unbound' in mode 1).
If e-commerce is classified as mode 2, it would mean that the commitments made as a result of the URA agreement negotiating process and in subsequent accession negotiations, would be significantly extended. If, however, e-services as classified as mode 1, the lack of Â£none' commitments means that WTO members would have the ability to apply regulatory measures to e-commerce, which could represent market restraint or safeguard measures on foreign suppliers. This problem may become more acute, as e-commerce increasingly replaces 'establishment of commercial presence in a foreign market' as the preferred mode of delivery. This issue of classification, and its implication for domestic regulation, extends across many services sectors, including business services (especially data processing and database services), construction and related engineering services, and entertainment and sporting services.
The expansion of e-commerce, and its treatment within the WTO rules framework, also raises concerns about the fiscal implications. If e-commerce is duty-free, countries are foregoing a potential source of tax revenue. This is a concern particularly for developing countries, where the reduction in tariffs and related trade measures, has significantly reduced an important source of tax revenue.
The European Union wishes to see the results of the WTO Work programme, and the current practice of not imposing customs duties on electronic transmissions reviewed. The aim is to reach agreement on a list of basic principles to prevent new barriers to e-commerce, covering inter alia, issues such as domestic negotiation, anti-competitive practices and clarification of the application of GATS rules.