E-commerce, the changing face of trade

Briefly, E-Commerce can refer to any of three things, depending on how it is defined, with the use of a phone, fax, TV, electronic payment and money transfer, Electronic Data Interchange and, above all, the Internet. This is a broad way of defining E-Commerce. Several descriptions limit themselves to transactions made through the Internet or other network-based systems.

E-Commerce can cover pre-purchase, purchase and deliverytransactions. The pre-purchase stage can cover online advertising, requests for information and so on. The second stage involves purchase and payment. The third is a more limited category, whereby a good or service can actually be delivered online in digitised form. Media attention, as a study on E-Commerce in India by P.D. Kaushik of the Rajiv Gandhi Institute for Contemporary Studies points out, has mostly focused on online sales of books, wine and so on.

The 29-member rich-country grouping, the Organisation for Economic Cooperation and Development (OECD), predicts that global electronic commerce will grow from $500 million now to $5 billion by 2001. The most exponential growth in this area in the next ten years will be in Asia.

Now for the World Trade Organisation context. On February 19 last year the US proposed in the WTO that the current zero-tariff practice on electronic transactions be codified.

Egypt countered that current E-Commerce practice was limited to telecom, electronic money, etc. Therewas little delivery of goods and services. But now that networks were technologically capable, customs duties would definitely play a part in such commerce.

India and some others said that E-Commerce should be defined. If it did not qualify as goods or services, there was no point in discussing it in the WTO. In May, at the WTO ministerial in Geneva, E-Commerce became a part of the WTO work programme. It will be reported on at the next ministerial in Seattle in November. Until then, the status quo in terms of not levying duties on electronic business transactions has been retained. While we are still in the process of considering what constitutes GEC, Kaushik says, the US has already negotiated bilateral E-Commerce agreements with the EU, Australia, Japan, Canada and Singapore. These countries say an international consensus is emerging on minimum government restrictions on E-Commerce, which should be private sector-driven.

Already WTO agreements exist in two areas which impinge strongly on GEC: the basictelecom services agreement and the information technology agreement.Kaushik says that these moves effectively either isolate some countries or demand that anyone networked globally should be subject to these regimes. Nevertheless, he and WTO sources say that E-Commerce is an area where India can with advantage club its resources with developed countries. They say India is technologically almost at par with international standards on E-Commerce, in terms of the availability of the technology. In terms of potential, India is in a win-win situation if it can overcome debilitating infrastructure problems.

Trade in this area is bound to see “dramatic changes” according to Kaushik’s study. Singapore has introduced a Bill on electronic transactions. Australia and New Zealand are finalising details of a framework. If it fails to keep up, India faces further marginalisation in world trade when in fact it can exploit GEC to overcome its weaknesses and shore up its inherent strengths of human resources and lowprices.

Most importantly, perhaps, by a drastic reduction in transaction costs, the development of E-Commerce is a great opportunity for Indian small and medium enterprises (SMEs) which otherwise might never have the resources to enter the international market. This could mean an explosion in the sheer numbers of Indian firms that can take part in global commerce.

Some of India’s largest companies themselves are really only SMEs in international terms. The elimination of huge costs such as transportation and delays through electronic transactions can make them competitive by bringing their real comparative advantages to the fore. Economists point to how Mexico and other Latin American countries are developing their cottage industries through their web-sites and the only thing that stands in the way of India doing so is its poor telecom infrastructure.

Not that the inclusion of GEC in the WTO would be a simple affair, and a comprehensive framework is probably some years away. Within the WTO, ifE-Commerce were to be characterised as trade in goods, then it would be governed by a different set of trade rules than if it were characterised as services. GEC also touches on various existing WTO accords such as TRIPS and GATS and GATT, apart from the information technology and telecom accords. Untangling all this will not be easy, but it is also true that once the rich countries put their minds to something, it can become part of world rules in a surprisingly quick time.

Some countries are worried about loss of revenue in a zero-tariff GEC regime, especially as more and more business transactions move online. But the news on this front is reassuring. WTO studies estimate that India, for example, would lose just 0.4 per cent of its customs revenue and 0.1 per cent of total revenue by giving up duties on digitisable products. India needs to be concerned about different things. GEC opens up a whole new world of opportunity in terms of revolutionising retail and direct marketing and reducing distancebetween producers and consumers, eliminating traditional retailers, wholesalers and, in some cases, distributors. E-Commerce can give a fillip to business and technical consulting, accounting, architectural design, legal advice and travel services. E-Commerce’s potential benefits are even greater because of its disproportionate impact on services where India has great strengths, such as in computer software, entertainment products (motion pictures, video), information services (databases, online newspapers), financial and professional services (business and technical consulting, accounting, legal and medical advice). At the moment, India’s share in global service exports is minuscule at 0.5 per cent, mostly accounted for by software exports. The potential is limitless.

The outstanding obstacle lies in weak infrastructure. An Internet connection demands a phone connection and a modem system. There are large rural-urban disparities in the telecom distribution, and 70 per cent Indians still live in ruralareas. The Rakesh Mohan Committee on Infrastructure noted that with the 14th largest telecom network, India has a penetration rate of just 1.3 per 100 people against a world average of over 10. India also needs liberal import of information technologies. But the alternative is for Indian exporters using traditional methods to lose global business if GEC remains zero-duty, and for domestic business to forgo a revolution that is changing the way the world does business.