E-commerce tariffs key issue at WTO

The World Trade Organisation (WTO), which met in Seattle last week, was expected to extend the moratorium on tariffs for cross-border electronic transmissions, keeping e-commerce free of a regulatory burden that could stunt its growth.

While tariffs are paid on products physically shipped to foreign countries, the WTO moratorium - established last year - prevents countries from applying tariffs to goods that arrive electronically, such as software, music and videos.

The tariff moratorium is an important issue with major US software makers, which on average receive more than 50 per cent of their revenue from sales in foreign countries, according to the Business Software Alliance in Washington.

If duties were applied to electronically transmitted software and other digital products and services, it "would effectively be a disincentive to [buying] products from outside their markets," said Robert Holleyman, president and CEO of the software trade group.

Collecting tariffs on digitally transmitted goods from vendors located outside national borders also poses technical challenges - a point US commerce secretary William M Daley made in Seattle in arguing against lifting the moratorium.

"If you impose them, they would be very difficult to collect. If you tried policing the collection of them, it would just slow the growth of e-commerce. And to be frank with you, we'd see a bunch of technologies developed to circumvent the law," Daley said.

The WTO action on custom duties, however, has no effect on the collection of sales taxes or the value-added tax in Europe and other countries, which are eyeing ways to collect those taxes on digital goods.

The US Advisory Commission on Electronic Commerce, which will meet December 14 and 15 in San Francisco, is also considering several taxing schemes.

The commission's recommendation on tax policies may affect e-commerce worldwide, said Kent Johnson, a partner at KPMG Peat Marwick LLP, who covers e-commerce taxation. US firms "believe whatever happens there is going to lead the way for the rest of the world," he said.

Although e-commerce proponents appeared pleased with the anticipated WTO outcome, the extensive protests against the WTO slowed the negotiations and had an impact on some.

"It's had a pretty negative effect, I think, on most of the people in Seattle," said Jim Diemer, a senior information systems manager at the Port of Seattle, where President Clinton spoke last week. "We don't like this kind of negative image that everybody is seeing."

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