Calls continue for tax-free Internet despite WTO ban

In spite of widespread applause for this week's decision by the World Trade Organization (WTO) to put a yearlong prohibition on tariffs on items sold over the Internet, some whose livelihoods depend on e-commerce want a stronger effort to keep cyberspace free of regulations. While duties might be forbidden, some countries have regulations that hold items at customs offices and then tax the recipient.

In spite of widespread applause for this week's decision by the World Trade Organization (WTO) to put a yearlong prohibition on tariffs on items sold over the Internet, some whose livelihoods depend on e-commerce want a stronger effort to keep cyberspace free of regulations.

"We would like (the) WTO to come out with a regulation that makes us exempt from all taxes," says Rick Latham, managing director of the Internet Book Shop, an online book store in Cambridge, England. "This is one of our advantages (over regular book stores)."

While duties might be forbidden, some countries have regulations that hold items at customs offices and then tax the recipient. The low value of most purchases made by Latham's customers means the taxes usually are waived, but larger shipments have a greater chance of being taxed, he said, and that diminishes the advantages of buying online.

Those differing regulations were part of the WTO discussion during the meeting of its 132 ministers. The ministerial declaration regarding Internet tariffs does not include products ordered from an Internet site but delivered by usual means over physical country borders.

The US has pushed to enact a blanket set of rules for the Internet and electronic commerce. Last year, US$8 billion in commerce was transacted on the Internet in the US, according to US Trade Representative Charlene Barshefsky, who has sprinkled that number into recent speeches and used it during the WTO meeting in Geneva. U.S. Internet transactions are expected to hit $300 billion by 2000, she said.

Given the US stake in e-commerce, the administration of US President Bill Clinton has lobbied for an entirely tax-free Internet. But U.S. domination of Internet regulatory issues is proving irksome to some.

"We don't understand why the US is saying yes to the WTO tax-free zone and not to international top-level domain name registration," says Candace Johnson, president of Europe Online, an Internet access service.

All countries ought to benefit from e-commerce, says Johnson, underscoring the viewpoint espoused by Clinton and US trade officials. Doing so, in Johnson's view, means that domain-name registration, now handled in the US, should be open to registrars in other nations.

"You cannot have your cake and eat it, too," she says, regarding the US wanting to forbid taxation of online goods, but at the same time blocking countries from full participation in Internet development.

Those who sell goods through traditional retail outlets might argue that they are at an unfair disadvantage if their customers must pay taxes while the Internet remains free of tariffs, but Johnson notes that those shopkeepers also can sell on the Internet.

In her opinion, the WTO decision could open e-commerce to more widespread use, given the tax advantage.

The advent of the euro, the common currency that will be introduced in various European countries starting in 1999, also could spur e-commerce, says Harold Summa, managing director of Germany's Electronic Commerce Forum and an executive director with Electronic Commerce Europe, an organisation working to promote e-commerce.

Although he hails the WTO declaration as a step in the right direction, he says continuing efforts are needed to ensure the Internet remains tax free. As the Euro is introduced, Europe must preserve the advantages of using a single currency to conduct trade. Those advantages would be diminished by Internet tariffs.

"It would be crazy to then impose taxes over Internet transactions," Summa says.

In the US, the declaration has also been praised by trade groups and the administration.

"The world of electronic transmissions is, in trade terms, pristine," Barshefsky said in a statement, echoing comments she has made in recent speeches. "The GATT (General Agreements on Tariffs and Trade) system, to oversimplify only slightly, represents 50 years of undoing the tariff and non-tariff barriers governments created after 1914. The right vision today will spare the next generation that work in electronic commerce."

The custom of allowing duty-free cross-border telephone calls, faxes and computer data links must continue, she said.

As part of the ministerial declaration, the WTO agreed to initiate a work program on e-commerce trade issues. The Information Technology Industry Council, a US trade organisation, pledged to work with the U.S. government on the program.

In a statement , Rhett Dawson, president of the council, said that the WTO's agreement "will set us on a course for open markets and free competition in the frontier regions of business and technology."

Additional information about the WTO, based in Geneva, and about trade issues can be obtained at http://www.wto.org/.

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