Since 2003, the United States started to provide a separate chapter regarding electronic commerce in most FTAs to which it is party, including the US-Singapore FTA,12) US - Australia FTA,13) US CAFTA
11) So far, there have been five discussions dedicated to cross-cutting issues on electronic commerce, held under General Council's auspices. The issues discussed included: classification of the content of certain electronic transmissions; development- related issues; fiscal implications of e-commerce; relationship (and possible substitution effects) between e-commerce and traditional forms of commerce; imposition of customs duties on electronic transmissions; competition; jurisdiction and applicable law/other legal issues.
12) Signed on May 6, 2003.
13) Signed on May 18, 2004.
FTA,14) and Korea-US FTA.15) The electronic commerce chapter in these agreements begins with the recognition of the economic growth and opportunity that electronic commerce provides, the importance of avoiding barriers to its use and development, and the applicability of the WTO Agreement to measures affecting electronic commerce.16) Then the agreements establish substantive obligations regarding trade in goods and services in the context of electronic commerce.
First, with regard to electronic supply of services, these agreements confirm that measures affecting the supply of a service delivered or performed electronically are subject to the obligations relating to cross-border trade in services, investment, and financial services. Such obligations are subject to any exceptions or non-conforming measures.17) Hence, parties of such FTAs must treat electronic service just as they deal with normal trade in service.
Secondly, with regard to electronic trade of digital products, the US Singapore FTA and the US CAFTA FTA provide that No Party may impose customs duties, fees, or other charges on or in connection with the importation or exportation of digital products by electronic transmission.18) This means that the United States succeeded in reaching agreement with Singapore and CAFTA countries on duty-free entry of digital products transmitted electronically. This result is a remarkable achievement for US digital industries because the duty-free status, which had been agreed
14) Signed on May 28, 2004. The parties are the USA, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.
15) Signed on June 30, 2007.
16) Article 16.1 of US-Australia FTA; Article 14.1 of US-CAFTA FTA; Article 14.1 of US-Singapore FTA; Article 15.1 of Korea-US FTA.
17) Article 6.2 of US-Australia FTA; Article 14.2 of US-CAFTA FTA; Article 14.2 of US-Singapore FTA; Article 15.2 of Korea-US FTA.
18) Article 14.3.1 of US-Singapore FTA; Article 14.3.1 of US-CAFTA FTA.
among WTO Members on a moratorium basis, became a permanent rule of trade among parties to such FTAs. More remarkable is the fact that these two agreements oblige their parties to apply no duties to electronic transmission of digital products imported from, or exported to, any non- party countries. Given the term digital products (not digital products of each party), this interpretation cannot be wrong. In other words, they set an example of non-reciprocal liberalization for the benefit of any third countries, which may be called an open regionalism approach in e-commerce. It seems that what is really intended by these efforts is to eventually form a world-wide practice of permanent duty exemption on digital transmission: if such clause is similarly adopted by FTAs made between the US and its major trading partners, numerous third countries will benefit from it, which will induce those beneficiary states not to apply duties to digital products transmitted from the US and its trading partners based on the principle of reciprocity.
The US Australia FTA has a similar provision but with a slightly different language that:
Neither Party may impose customs duties, fees, or other charges on or in connection with the importation or exportation of digital products, regardless of whether they are fixed on a carrier medium or transmitted electronically.19)
It is interesting to see that under this FTA the duty-free status not only becomes permanent, but also is accorded even to any digital products fixed on a carrier medium which are not transmitted electronically.
This means that electronic transmission is no more a condition for digital products to entertain a benefit of duty exemption. Now, the moratorium
19) Article 16.3 (CUSTOMS DUTIES) of US-Australia FTA.
has changed into a permanent rule and its scope has expanded to cover a broad range of means of e-commerce transactions between the US and Australia. Given the 'open regionalism' character of the provision, many countries engaging in e-commerce transaction with the US and Australia will benefit from the expended scope. This will, in return, induce such countries to follow the same policy.
Korea follows this policy in reaching a FTA with the US, but with a caution. Under the Korea-US FTA, customs duties and other charges are exempted from imposition on "a digital product transmitted electronically"
and on "a digital product fixed on a carrier medium if it is an originating good."20) This means that the open regionalism approach does not apply to the trade of a digital product fixed on a carrier medium.
"Any difference that may arise between the Parties on classification matters" related to the application of the above provision will be subject to consultation by the Committee on Trade in Goods.21) Therefore, the question of whether or not a digital product fixed on a carrier medium is an original good is likely to be answered through this consultation process, although it is no easy task.
Thirdly, concerning the issue of customs valuation, the US-Singapore FTA and US-CAFTA FTA state that the customs value of an imported carrier medium bearing a digital product must be determined based on the cost or value of the carrier medium alone, without regard to the cost or value of the digital product stored on the carrier medium.22) Because these agreements require their parties to give duty free treatment only to
20) Article 15.3.1 of Korea-US FTA.
21) Footnote 2 of Chapter 15, Korea-US FTA.
22) Article 14.3.2 of US-CAFTA FTA; Article 14.3.2 of US-Singapore FTA.
digital products transmitted electronically, digital products fixed in carrier medium may be subject to duties. Therefore, the customs valuation issue becomes relevant when such carrier medium passes through the territory of a party to such FTAs. In this event, the agreements require the party to charge as minimum duty as it applies to the medium itself. That is, any value of the digital content may not count in calculating customs value of the product at issue. Interestingly, as the US-Australia FTA exempted any digital products, transmitted or fixed, from any customs duties, there is no need to provide an equivalent customs valuation provision under the FTA. The absence of such provisions in the Korea US FTA is also due to the fact that any digital products transmitted and any originating digital products fixed in carrier medium will enter the Korean and US market on a duty-free basis. As there is no clause in Korea-US FTA stating that customs value of a carrier medium bearing a digital product must be determined based on the cost or value of the carrier medium alone, Korea and the US may charge a duty based on the valuation of the full price of an imported non-originating digital product fixed in carrier medium.
Fourth, in addition to the tariff issue, the four FTAs prescribe non-discriminatory treatment obligation of digital products applicable to non-tariff barriers. This obligation applies to the relationship between one party and other countries (the other party plus any non-party) as well as between the other party and any non-party.23) On the former relationship,
23) The non-discrimination treatment obligation does not apply to: (1) non-conforming measures (US-CAFTA 14.3.5; US-Singapore 14.3.5; US-Australia 16.4.3; Korea-US 15.3.4), (2) certain subsidies (US-Australia 16.4.3), (3) services supplied in the exercise of governmental authority (US-Australia 16.4.3), or (4) audio-visual and broadcasting sectors (US-Singapore 14.3.6; US-Australia 16.4.4).
the US-CAFTA, US-Singapore and US-Australia FTAs prescribe that:
Neither Party may accord less favourable treatment to some digital products (transmitted electronically24)) than it accords to other like digital products (transmitted electronically25)): (a) on the basis that the digital products receiving less favourable treatment are created, produced, published, stored, transmitted, contracted for, commissioned, or first made available on commercial terms outside its territory; (b) on the basis that the author, performer, producer, developer, or distributor of such digital products is a person of the other Party or a non-Party; or (c) so as to otherwise afford protection to other like digital products that are created, produced, published, stored, transmitted, contracted for, commissioned, or first made available on commercial terms in its territory.26)
From this provision, one can note that the non-discrimination obligation is based on the following three criteria: (1) the place of creation, production, publication, storage, transmission, contract, commissioning or first commercial availability, (2) the person (author, performer, producer, developer, or distributor), and (3) the aim and effect of protection. In other words, it will be inconsistent with the FTAs if a Party discriminate against a digital product (transmitted electronically27)) because it was produced outside its territory ('place'), or because it was not developed by its nationals ('person'), or so as to afford protection to digital products produced in its territory ('aim and effect'). One must note that this is based on a sort of open regionalism approach in according national
24) US-CAFTA FTA 25) US-CAFTA FTA
26) US-Australia FTA Article 16.4.1; US-CAFTA FTA Article 14.3.3; US-CAFTA FTA Article 14.3.3.
27) In case of US-CAFTA FTA.
treatment given that not only digital products produced in the other Party but also such product produced in any non-Parties will enjoy the national treatment in the territory of the Parties. The US-CAFTA FTA applies such non-discrimination obligation as to digital products transmitted electronically, while the US-Singapore and US-Australia FTA impose the obligation in regard to trade in any digital products.
In comparison, the Korea-US FTA does not follow such approach of open regionalism. Un the treaty, only those digital products created, produced, published, contracted for, or commissioned in the territory of the other Party, or digital products of which the author, performer, producer, developer, or owner is a person of the other Party will be accorded with less favourable treatment.28)
Then, these four FTAs extend the non-discrimination obligation to the relationship between another party and any non-party, using the two criteria of 'place' and 'person' as follows:
Neither Party may accord less favourable treatment to digital products (transmitted electronically29)): (a) created, produced, published, [stored, transmitted], contracted for, commissioned, or first made available on commercial terms in the territory of the other Party than it accords to like digital products (transmitted electronically30)) created, produced,
28) Footnote 3 of Chapter 15, Korea-US FTA. According to the announcement of the Korean Government, digital products that were merely stored or transmitted in the other Party's territory may not enjoy this treatment. However, the text of Article 15.3.2(a)(i) of Korea-US FTA does not seem to fully support this explanation. (Neither Party may accord less favorable treatment to some digital products[FN3] than it accords to other like digital products on the basis that the digital products receiving less favorable treatment are created, produced, published, stored, transmitted, contracted for, commissioned, or first made available on commercial terms in the territory of the other Party ).
29) In case of US-CAFTA FTA.
published, [stored, transmitted]31), contracted for, commissioned, or first made available on commercial terms in the territory of a non-Party, or (b) whose author, performer, producer, developer, or distributor [or owner]32) is a person of the other Party than it accords to like digital products (transmitted electronically33)) whose author, performer, producer, developer, or distributor [or owner]34) is a person of a non-Party.35)
<Non-discrimination Principle Clauses in US-led FTAs>
Me v. Others (or You)
<National Treatment>
You v. 3rd Party
<MFN Treatment>
Place
Produced in My Country v.
Produced in Other Country (or Your Country)
Produced in Your Country v.
Produced in 3rd Country
Person
Produced by My People v.
Produced by Other People (or Your People)
Produced by Your People v.
Produced by 3rd Country People
Aim &
Effect
So as to afford protection for Digital Products produced in My Country
Therefore, it will be inconsistent under the FTAs if a Party discriminates between a digital product produced in another Party and a
30) In case of US-CAFTA FTA.
31) Article 15.3.3(a) of Korea-US FTA.
32) The term owner is added in Korea-US FTA. Article 15.3.3(b) of Korea-US FTA.
33) In case of US-CAFTA FTA.
34) The term owner is added in Korea-US FTA. Article 15.3.3(b) of Korea-US FTA.
35) US-Australia FTA Article 16.4.2; US-CAFTA FTA Article 14.3.4; US-Singapore FTA Article 14.3.4.
like digital product produced in a non-Party. Also inconsistent is the discrimination between a digital product produced by a person of another party and a like digital product produced by a person of a non-Party.
Again, the US-CAFTA FTA applies such obligation only between digital products transmitted electronically, while the US-Singapore and US-Australia FTA apply it as to any digital products. In Korea-US FTA, digital products that have been merely stored or transmitted in the territory of the other Party may not enjoy this MFN-type protection. In addition, the agreement clarifies that the electronic transmission of audio-video broadcastings for which the content consumer has no choice over their scheduling is excluded from the benefit of duty exemption and non-discriminatory treatment.36)
Fifth, the US-Australia FTA and Korea-US FTA go further to regulate on such issues as authentication and digital certificates, and online consumer protection. With regard to the authentication matter, the agreements prohibit parties from adopting or maintaining legislation for electronic authentication that would (1) prohibit parties to an electronic transaction from mutually determining the appropriate authentication methods for that transaction; or (2) prevent parties from having the opportunity to prove in court [or administrative authorities37)] that their electronic transaction complies with any legal requirements with respect to authentication.38) Furthermore, neither Party may deny a signature legal validity solely on the basis that the signature is in electronic form.39)
36) Article 15.3.6 of Korea-US FTA. It further clarifies that the supply of service delivered electronically is subject to the obligations under the service/investment chapters. Article 15.2 of Korea-US FTA.
37) Article 15.4.1 of Korea-US FTA.
38) Article 16.5.1(a) of US-Australia FTA; Article 15.4.1 of Korea-US FTA.
39) Article 15.4.1(c) of Korea-US FTA.
Therefore, under these treaties, private parties engaging in e-commerce transactions may freely choose any authentication method including one based on legitimate electronic signature, as they deem appropriate, and such parties should be allowed to prove in judicial and quasi-judicial proceedings that their electronic transaction complies with any legal requirements with respect to authentication.40)
The US-Australia FTA admits the necessity of mutual recognition for digital certificates issued by each government, and requires both parties to work together towards the recognition.41) On the other hand, the Korea-US FTA reserves Parties' right to require that, for a particular category of transactions, the method of authentication meet certain performance standards or be certified by an authority accredited in accordance with the Party's law, provided the requirement serves a legitimate governmental objective, and is substantially related to achieving that objective.42) Therefore, Korea and the US may maintain a certified digital signature system, for example, for the use of electronic financial transactions or prescriptions of medicine in order to safeguard public safety or credibility.
As regards online consumer protection, the two agreements recognize the importance of maintaining and adopting transparent and effective measures to protect consumers from fraudulent and deceptive commercial practices when they engage in electronic commerce.43) In this light, cooperation between Parties' national consumer protection enforcement agencies is vital.44)
40) Article 16.5.1(b) of US-Australia FTA; Article 15.4.1 of Korea-US FTA.
41) Article 16.5.2 of US-Australia FTA.
42) Article 15.4.2 of Korea-US FTA.
43) Article 16.6 of US-Australia FTA; Article 15.5.1 of Korea-US FTA.
44) Article 15.5.2/3 of Korea-US FTA.
The Korea-US FTA states further that each Party shall endeavor to accept trade administration documents submitted electronically as the legal equivalent of the paper version of those documents and prescribes certain principles regarding free access to and use of the Internet for electronic commerce and maintaining free cross-border information flows.45) According to these principles, consumers should be able to access and use services and digital products of their choice, run applications and services of their choice, connect their choice of devices to the Internet, and have the benefit of competition among network providers, and the Parties must endeavor to refrain from imposing or maintain unnecessary barriers to electronic information flows across borders.46)