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Trading Digital Goods and Trading Digital Goods and ServicesServices
Distribution Services
Services Sectoral Classification List Services Sectoral Classification List Definition
• Commission agents or intermediaries can be distinguished as a category by the fact that they carry out commercial activities on behalf of others. In other words, they sell products supplied and, as a rule, owned by others to retailers, wholesalers or other persons.
• Wholesale trade services consist of the sale of goods to retailers, to industrial, commercial, institutional or professional consumers or to other wholesalers.
• Retailers sell products for personal or household consumption.
• Providers of franchising services sell specific rights and privileges, for example the right to use a given design in retail sales or a trade mark.
Electronic commerce may be simply defined as the production, advertising, sale and distributiondistribution of products via telecommunication networks.
Internet create borderless environment for communications. Companies and increasingly find the online purchase
Distribution Services and E-Commerce
online sale of software and music rank first among other product retailed on the internet and some product such as news paper , Magazine and Film increasingly distribute on the Internet.
Distribution Services and E-Commerce
Advantage of Finding Online Purchase
1. Lower Storage and Transaction Cost
2. Wide selection of products
3. More Rapid turnover
4. Cheaper suppliers
5. Better market Information
Central Product Classification (CPC)
Many services production and distribution are not separable, and the supplier of the service necessarily supply both
In confining its attention to the distribution of merchandise and related service, the CPC choose to ignore the distribution of service per se.
(CPC) Central Product Classification is defined to include four major services: Commission agents' services, Wholesale trade services, retailing services and franchising.
FORMS OF INDIRECT DISCRIMINATION FORMS OF INDIRECT DISCRIMINATION AGAINST THE SERVICES OF FOREIGN AGAINST THE SERVICES OF FOREIGN
DISTRIBUTORSDISTRIBUTORS
Explicit Barriers to Trade in ServicesExplicit Barriers to Trade in Services Limitations on foreign investment:
The extent of foreign ownership (limiting foreign equity ownership to specific levels)
On the type of legal entity required (requirement to incorporate locally)
On the ownership of specific assets (land) On the scope of operations (restrictions on number and
location of outlets)Trade unions and cooperative stores do not allow foreign
investment for certain productsNo more than 25 per cent of the shares of a franchisee can be
held by the mother company.
Limitations on foreign investment:
The requirement to have a local attorney for service in legal documents for franchisingThe requirement to be a citizen to carry out franchise operations at a retail level also for franchising
Explicit Barriers to Trade in ServicesExplicit Barriers to Trade in Services
ExampleIn Indonesia the law on foreign investment barred entry of foreign firms in the distribution sector also until 1996.
The requirement to form a joint venture with local suppliers curtails the freedom of foreign suppliers to decide on the optimal business arrangement.
Limitations on the movement of natural persons
Nationality requirements for staff prevent firms from minimizing labour costs through international recruitment. Residency requirements for managers and directors de facto disadvantage foreign suppliers even when the requirements are imposed on all distributors. Immigration policy, visa restrictions, and levies and charges for social security.
Explicit Barriers to Trade in ServicesExplicit Barriers to Trade in Services
Members' commitments on the presence of natural persons are mostly limited to business visitors, and certain categories of intra-corporate transferees, such as managers, executives and specialists, sometimes accompanied by quotas and invariably by limitations on the length of stay of foreign nationals.
Explicit Barriers to Trade in Services
Discrimination through taxation or subsidizationPerformance and local content requirements Discrimination against foreign workers
Taxation or subsidizationDenial of access to benefits and amenities Restrictions on the rights of dependents Unfair treatment in the workplace
Limitations on cross-border trade of distribution services
Discriminatory taxation of goods delivered by mail. Consumption abroad constrained by limitations on foreign currency and spending abroad imposed on travellers, and sometimes by travel restrictions.ExampleKorea had a permit system which restricted floor space and the number of stores for foreign investment until 1996.
Relevant domestic legislation concerns restrictions Relevant domestic legislation concerns restrictions on pricing and promotion, andon pricing and promotion, and labour labour market market
legislation.legislation. Government regulations include:Health and safetyUrban planning and environmental protectionEconomic motives
Licensing requirements
Legislation on Large-Scale Outlets
For specialized wholesale trade and retailing
For the establishment of companies for trade in imported goods
Relevant domestic legislation concerns restrictions on Relevant domestic legislation concerns restrictions on pricing and promotion, andpricing and promotion, and labour labour market legislation. market legislation.
Specific national legislation concerning the establishment of large-scale retail stores
Incumbent retailers are involved in the implementation of such legislation and can impede the establishment of large stores. In many other countries, the establishment of large stores is controlled in the context of regional or local planning.
Restrictions on large stores are sometimes explicitly designed to protect small shops from competition, to pursue an employment objective and to ensure proximity of outlets to individual consumers.
• Competition Policy
Relevant domestic legislation concerns restrictions on Relevant domestic legislation concerns restrictions on pricing and promotion, andpricing and promotion, and labour labour market legislation. market legislation.
Possible anti-competitive consequences of vertical relations between manufacturers and distributors
• Vertical relations (ranging from full integration to certain vertical controls) serve primarily to improve internal efficiency of the vertical structure
• Possible anti-competitive effects from vertical foreclosure
Spillovers from Barriers to Trade in Spillovers from Barriers to Trade in GoodsGoods
Non-tariff barriers which adversely affect the distribution trade:
Restrictions in the form of complex customs clearance proceduresDifferences in product standards Burdensome practices for certification Testing of products Intellectual property rights allow a segmentation of markets through the prevention of parallel imports, trade in goods and hence distribution services may be affected
COMPETITION POLICY-RELATED CONCERNS IN MEMBERS’ DOMESTIC REGULATIONS FOR
ELECTRONIC DISTRIBUTORS
Horizontal boycotts
Control of Internet access
Internet mergers
ExampleIn the merger of Internet backbone providers MCI and WorldCom, the Department of Justice, FCC, and European Union alleged harm to competition and the consent decree settling the case required divestiture of
MCI's backbone infrastructure
Potential Competitive Concerns in Electronic Commerce:
COMPETITION POLICY-RELATED CONCERNS IN MEMBERS’ DOMESTIC REGULATIONS FOR
ELECTRONIC DISTRIBUTORS
Competitor collaborationsExclusive dealing on the InternetManufacturer price restrictions on Internet distributionManufacturer nonprice restrictions on Internet distribution
ExampleTupperware is reported to have prohibited all Internet sales by its distributors because it believes personal demonstrations are necessary for proper sales of its products.
ECONOMIC NEEDS TESTSECONOMIC NEEDS TESTS
Article XVI of the GATS. Neither the definition of economic needs test, nor rules, criteria or procedures of its application have been elaborated in the GATS. Consequently:
economic needs test may have more or less distortive impact on trade depending on the manner in which it is implemented.
limited comparison of the scope of the needs test among countries.
major trade barrier to the movement of natural persons as service suppliers
ECONOMIC NEEDS TESTSECONOMIC NEEDS TESTS
Economics needs tests as part of the market entry process give administrative authorities a large measure of discretion.
The following elements were referred to in individual services sectors:
Number of service suppliers in the local geographic area.The number and the impact on existing storesType of neighbourhoodExisting public transport on the route concerned.Impact on traffic conditions
ECONOMIC NEEDS TESTSECONOMIC NEEDS TESTS
Population density
In considering managerial needs, the following facts are taken into consideration by the relevant authority: Size of fully paid-up capital Employment creation Extent of foreign investment Export promotion Transfer of technology Special needs of the management.
ECONOMIC NEEDS TESTSECONOMIC NEEDS TESTS
Touristical interests
Market needs
Particular products (pharmacies, motor fuel, used cars, clothing, shoes and foodstuffs)
Examples
In wholesale services: In the ECs schedule, wholesale pharmacies are authorized in France according to the needs of the population.
In retailing: Canada, a public convenience and necessity test for retail sales of motor fuel;
ECONOMICS NEEDS TEST APPLIED TO ECONOMICS NEEDS TEST APPLIED TO E-PRODUCTSE-PRODUCTS
• E-products:– Information online: E-books, e-zines, e-
newspapers, etc– Entertainment online: music, films, images– Software: professional, educational, leisure
etc
Electronic Software DistributionElectronic Software Distribution
• Retail shopping sites based on usage, February 1997
Shopping site Product
1 software.com Software
2 download.com Software
3 columbiahouse.com music/video
4 amazon.com Books
Example
Potential Economic Needs Tests Potential Economic Needs Tests for e-productsfor e-products
Concerns about piracy could lead to modification on copyright laws to reflect electronic transmission and storage of digital work such as software Bandwidth, network facilities may be underdeveloped and unable to cope with certain foreign services (weakness of security of network, need for protection against hacking)Blocking certain websites if they don’t comply with domestic regulation (political, social, cultural concerns), ie Yahoo! France case
Potential Economic Needs Tests Potential Economic Needs Tests for e-productsfor e-products
E-commerce presents various problems for the taxation, which need to be addressed, including the difficulty of determining where an
electronic transaction had taken place the value of the transaction, should tax be on
actual value or value paid (eBay)tax evasiondouble taxation
Potential Economic Needs TestsPotential Economic Needs Tests for for e-e-productsproducts
VAT regimes applied to products in the 85.24 tariff line of the Harmonised System Classification.
Country Tariff on software media
Withholding taxes
Other taxes
Canada 0-1.3% exempt 7% goods and services tax + a provincial sales tax, if applicable
Belgium 0 exempt 21% VAT
Czeck Republic 1.4-2.3% 0.1 22% VAT: 20% import deposit required on HS 8524
France 0 0.05 20.6% VAT
