Mar 23, 1998

ELECTRONIC COMMERCE WILL EQUALIZE RICH AND POOR!

Geneva, 23 Mar (Chakravarthi Raghavan) -- Electronic trade could explode and soar to a $200-300 billion figure by the turn of the century, but to achieve its potential international rules need to be framed to protect IPRs and provide users with reassurances on security and privacy of transactions, the WTO secretariat has said in a special study released Friday. 

In releasing the study, the WTO head, Mr. Renato Ruggiero said that governments need to ensure benefits from electronic commerce is widely spread among developing and industrialized countries.  

The new information technologies also could act as an "equalizer" between rich and poor nations by providing access to global markets, but this depends on putting in place the necessary infrastructures, Ruggiero said. And as a "trade-liberalising" organization, he added, the WTO favoured a minimal role for government.  

But an ITU report published Monday about the infrastructures, and universal access needed for a "level playing field", spoke of the vast pockets of humankind without access to basic telecommunication services.  

"It is difficult to believe," the ITU report says, "that this is due to a shortage of funds: the telecommunications industry had its most profitable year ever in 1996". A chart in the report shows that the top 50 PTOs (public telecom operators) took in a revenue of nearly $400 billion and raked in a profit of nearly $60 billion.  

"A shortage of supply," the ITU report adds, "is also increasingly less of a reason for lack of access. A growing number of countries have restructured their telecom sector, through measures such as privatization and competition in order to enhance supply."  

An accompanying chart shows this too has been "explosive" over the span of this decade.  

"Perhaps the greatest danger to improving access," the ITU says, is complacency. There is a tendency to believe that a profitable industry with expanding sources of supply will solve the access problem by itself."  

So much for the market-based solutions advocated for much of this decade by the ITU (and other international organizations). Or is it the new wind of development economics - with neo-liberalism and the retreat of the state giving way to state-intervention to buttress the market and make it safe for the market-operators? 

Over the last few decades, everytime some new technology or scientific advance has been claimed, talked about or seen to be in the horizon, it has always been presented as one that the developing world should adopt and embrace since it would enable them to catch up or equalize their opportunities with the rich.  

These have ranged from the early claims for nuclear science and energy (at the first UN Conference on Science and Technology of the 50s), through new materials, bio-technology (old and new) and genetics and gene-manipulation for commodity sector in the last decade of this century and the decades after the millennium.  

All of them have turned to be somewhat exaggerated. Despite its dominance in robotics, Japan has not become the wave of the future, and its economy is in serious trouble. And the tigers of East Asia appear, atleast for the moment, to have lost their spring and claws.  

For all the hype about genes and the human genetic mapping, it is now seen to be much more complex: only a very small part of the total number of genes in humans have been identified, but not much is known about their sequencing and the inter-relationships, and how it affects human health and behaviour.  

And while giving the developing countries the illusion that each new advance in S & T is some kind of magic wand to enable them to catch up and leap-frog, it has only increased their dependence, widened the rich-poor gap and the marginalisation of the majority within countries -- in the North and the South.  

And when, in the 60s and 70s, state activism and public sector was the 'development theology', the international organizations pushed for an active state role in the promotion of the new technologies. Since the late 1980s, the new claims and ideas are promoted as best advanced through the market and liberalization.  

Would things be different with Information Technology, internet and electronic commerce? For example, would it "level the playing field" as between the world's TNCs (overwhelmingly having a home-base in 4 or 5 rich countries of the North), and the small and medium enterprises of the North and the South? 

Despite the caveated promises of this in the study, there is no certainty that the past would not repeat itself in respect of these new developments in science and technology either.  

Though the very large developing country membership is often cited for the argument that the WTO is not a "rich man's club", and thus its agenda is not driven by the rich, the internet commerce agenda is at the moment driven by those with advantage. The data cited in the report (table 2) about the access to the infrastructures needed for internet commerce (access to telephones, computers, modems etc) show the vast gap between the industrialized world and the 14 developing and transition economies cited.  

Putting the WTO information and database, along with that of the World Bank on the worldwide web, accessible by internet, to every member-government (Mr. Ruggiero cited this as an example of what the WTO was doing to help the LDCs and other poor countries to overcome arginalisation) thus does not "level" the playing field for the traders of the South and the North. At best it may help some trade official in a capital, but may or may not help the traders, or the producers who are one step remoter in the chain.  

The WTO study underlines the need for infrastructures and the regulatory policies and policy options - insisting that it is making no preferred recommendation given the sensitivities of governments.  

Given the gap in internet access, use, internet hosts (domain names and allocations now done through a public sector process through one private enterprise in the US, but which President Clinton wants shifted to private groups in the US), and the data available, much of the use and prospects are based on US data.  

The 72-page WTO study does raise some sobering questions about the hype on electronic commerce and free trade (the US and now EC idea of 'freezing' countries and their customs or other levies). But the caveats are buried deep into the text. 

The study starts with a primary of sorts on electronic commerce, much of it drawn from the ITU and other reports and studies. It defines electronic commerce as production, advertising, sale and distribution of products via telecommunication networks.  

It speaks of the various 'electronic' communications - telex, fax, computers, modems and electronic communication through dedicated channels and email and internet and satellite communications.  

Using data about growth of trade via internet in the US, the study attempts to envisage what could happen in international trade. Internet commerce could boost international trade, the WTO says, citing a range of products that can be transmitted electronically -- such as software, digitalized music, financial services etc.  

It could also boost international trade indirectly through trade and customs administration.  

The study notes that while no figures for electronic cross-border trade is available, above 85% of internet revenue is generated in the US, while 62% of the users are located there.  

"This suggests that the US is probably a net exporter of products through the internet," the WTO says.

Putting future importance of electronic commerce into perspective through 'simple extrapolations', says the study, the ratio of exports and imports over GDP for the US is about 20% and that much of the expected worldwide internet transactions of may $300 billion by 2001 will fall on the US.  

"If we assume that the same ratio of international trade applies to the internet as to overall economic activity in the US, international trade via the internet may reach $60 billion by 2001."  

Perhaps when one gets into econometrics, assumptions and extrapolations, caveats of arithmetic about averaging taught in elementary classes at school -- such as not judging depth of a water-way for crossing by foot through depth sounding at various points and averaging them -- don't apply.  

The internet may facilitate market entry, and thus benefit small and medium-sized enterprises, the study says, referring to arguments of some economists that capital costs of entry and 'setting up shop' on internet is low, and cost of establishing a reputation on the internet market is lower still.  

The study however cautions that the cost may actually be higher, and that the example of each success story is accompanied by many more failures. In the music industry, the study points out, citing a report in the Economist weekly, control of the market by just a few companies has limited price cuts on the internet and has thus far limited the growth of on-line compact disc stores.  

Internet commerce though would not 'level the playing field' between TNCs and the small and medium enterprises, when the commerce involves shipment of goods in small packages. The study estimates that a $100 shirt shipped from the US to Paris would cost additionally, $77.5 by way of shipping and insurance, and some $50.08 more by way of customs, vat etc.  

And US clothing products shipped to Paris, used as an example in the study, don't have to run through the gamut of MFA quotas, rules of origin etc that developing country exporters would face -- a point not made clear at all in the subtle plea for simplification of customs and other formalities.  

Just before the Singapore WTO ministerial, IT product liberalisation was an issue talked about within the Quad (EC, Japan, Canada and the US), with a few others on the sidelines. But at the Singapore, it suddenly came to the centre-stage, with many developing countries scrambling aboard in a hurry - while all the developing problems were relegated to speeches at the plenary, with no action. While trade diplomats are now talking informally at the General Council, and arguing with the WTO head about the priorities for implementation and any future work programme, internet commerce and free trade on it, raised by the US (and now by the EC), may suddenly hit them in the late spring of Geneva in May. 

Few of the Third World trade diplomat, and fewer still in their capitals, would probably have the time to go through the nuances and caveats in the WTO study and formulate their positions or even to judge the benefits to them overall, rather than merely a particular sub-sector of their economic activities or exports.