Electronic commerce issues for south

TRADE-RELATED AGENDA,
DEVELOPMENT AND EQUITY
(T.R.A.D.E.)
WORKING PAPERS
4
ELECTRONIC COMMERCE:
ISSUES FOR THE SOUTH
This working paper was written by A. Didar Singh,
a senior civil servant and international trade expert from
India who is a guest consultant at the South Centre.
SOUTH CENTRE
OCTOBER 1999

THE SOUTH CENTRE
In August 1995, the South Centre became a permanent intergovernmental
organization of developing countries. In pursuing its objectives of promoting
South solidarity, South-South co-operation, and co-ordinated participation by
developing countries in international forums, the South Centre has full
intellectual independence. It prepares, publishes and distributes information,
strategic analyses and recommendations on international economic, social and
political matters of concern to the South.
The South Centre enjoys support and co-operation from the governments of
the countries of the South and is in regular working contact with the Non-
Aligned Movement and the Group of 77. Its studies and position papers are
prepared by drawing on the technical and intellectual capacities existing within
South governments and institutions and among individuals of the South.
Through working group sessions and wide consultations which involve experts
from different parts of the South, and sometimes from the North, common
problems of the South are studied and experience and knowledge are shared.

CONTENTS
List of Abbreviations
Foreword
Executive Summary
I. Introduction .............................................................................................. 1
I.1 ECommerce today and tomorrow ................................................................. 1
I.2 A policy perspective for developing countries.............................................. 6
I.3 Summary of main points................................................................................... 10
II. ECommerce in the South.......................................................................... 11
II.1 Internet: the infrastructure for eCommerce ................................................ 11
II.2 Potential and dangers for business (especially SMEs) in the South......... 17
II.3 The role of government.................................................................................. 19
II.4 Summary of main points................................................................................. 21
III. Important Issues of ECommerce for developing countries..................... 22
III.1 Global framework proposals and their implications................................. 22
III.2 Technological developments and standards .............................................. 24
III.3 Legal and financial framework...................................................................... 26
III.4 Summary of main points ............................................................................... 28
IV. Issues Related to the WTO....................................................................... 30
IV.1 Taxation issues................................................................................................. 30
IV.2 Market access issues........................................................................................ 31
IV.3 Characterization and classification issues.................................................... 34
IV.4 Issues concerning intellectual property rights............................................ 35
IV.5 Summary of main points ............................................................................... 37
V. Towards a Strategy for the South.............................................................. 38
Selected Bibliography ................................................................................... 42

PREFACE
The South Centre, with funding support from UNDP TCDC Unit, has
established a pilot project to monitor and analyse the work of WTO from the
perspective of developing countries. Recognizing the limited human and financial
resources available to the project, it focuses on selected issues in the WTO
identified by a number of developing countries as deserving priority attention. It
is hoped that the project will lead to more systematic and longer term activities by
the South Centre on WTO issues.
An important objective of the project is to respond, to the extent possible
within the limited resources, to the needs of developing country negotiators in
the WTO for concise and timely analytical inputs on selected key issues under
negotiation in that organization. The publication of analytical cum policy papers
under the T.R.A.D.E. working paper series is an attempt to achieve this objective.
These working papers will comprise brief analyses of chosen topics from the
perspective of developing countries rather than exhaustive treatises on each and
every aspect of the issue.
It is hoped that the T.R.A.D.E. working paper series will be found useful by
developing country officials involved in WTO discussions and negotiations, in
Geneva as well as in the capitals.
The text of these working papers may be reproduced without prior
permission. However, clear indication of the South Centre’s copyright is
required.
South Centre, October 1999

LIST OF ABBREVIATIONS
B2B Business-to-Business
B2C Business-to-Consumer
B2G Business-to-Government
CPC Central Products Classification
DCs Developing Countries
eBusiness Electronic Business
eCommerce Electronic Commerce
eTrade Electronic Trade
EDI Electronic Data Interchange
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
GII Global Information Infrastructure
HRD Human Resource Development
IP Internet Protocol
IPRs Intellectual Property Rights
ISPs Internet Service Providers
IT Information Technology
LDCs Least-developed countries
PC Personal Computer
QRs Quantitative Restrictions
SMEs Small and Medium Enterprises
TCP Transmission Control Protocol
TRIPs Trade-related Intellectual Property Rights
VAT Value Added Tax
WWW World Wide Web
Organizations
APEC Asia-Pacific Economic Co-operation
ASM Asian Sources Media Group
EC European Communities
EU European Union
FNC Federal Networking Council
ICANN Internet Corporation for Assigned Names and Numbers
IFC International Finance Corporation
ITC International Trade Centre
ITU International Telecommunications Union
NAM Non-Aligned Movement
OECD Organisation for Economic Co-operation and Development
UN United Nations
UNCITRAL United Nations Commission on International Trade Law
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
UNESCAP United Nations Economic & Social Commission for Asia and the
Pacific
WIPO World Intellectual Property Organization
WTO World Trade Organization

FOREWORD
Electronic commerce, or eCommerce, has become an issue in international trade policy
discussions. Largely on the initiative of the United States, efforts are being made to place
this subject on the multilateral negotiating agenda and accepted as part of the remit of the
World Trade Organization (WTO). The immediate practical concern of the US is to
achieve a permanent global ban on tariffs on products and services which can be delivered
electronically via the Internet.
As on other issues brought up in the WTO, the countries of the South find
themselves in an uncomfortable, although not altogether unfamiliar, situation. They are
confronted with strong precipitate pressures to engage immediately in a process of rule-
making and to assume commitments in an area which is still ill-defined. Moreover, most
developing countries have little or no national experience, expertise, or technical capacity
in the field of eCommerce, and they have not fully analysed the many possible, and often
unpredictable, implications of its development either for their economies or their societies.
They are thus being expected to agree to enter into negotiations and, possibly, into
binding commitments without a full grasp of the multi-faceted development implications
of such action.
Developing countries are being subjected to a combination of pressures and
promises of major qualitative and quantitative development breakthroughs on the wings of
eCommerce. Many in the South, understandably enthusiastic about the potential of
eCommerce, have tended to accept uncritically the claims and prescriptions of those in the
developed countries, eager to build up further their own capacities in and through
eCommerce.
As in the case of other sectors or activities, the complex and multifaceted issues
associated with eCommerce are being dealt with in a fragmented and dissociated manner.
Apart from proposed discussion in the WTO on the economic issues associated with
eCommerce, a wide range of multilateral institutions are now engaged in activities which
affect eCommerce in one manner or another. Owing to their lack of experience and
technical expertise, developing countries once again find themselves unable to participate
in discussions and decision-making in an informed way on highly complex technical and
legal processes and developments. In effect, therefore, a handful of countries and major
corporations from the North are able to set rules, technical standards and other matters,
while ignoring the development implications for countries of the South.
Moreover, these technical and economic negotiations take place in the absence of a
broader more integrated framework which takes account of the needs of and possibilities
for developing countries with respect to eCommerce and the information and
communications technologies which facilitate it. This is highly prejudicial to the
developing countries. It is thus not surprising that most of them adopt a defensive stance
and are reluctant to engage in a process which could lead to commitments and foreclose
their options, when the broader picture is quite unclear, the costs and benefits are difficult

South Centre T.R.A.D.E. Working Papersx
to determine and assess, and there is no clear idea as to how this new capability and mode
of interaction can best be oriented to promote development. Without a broader
perspective, and a well informed strategy and coordination between them, developing
countries are at a clear disadvantage vis-à-vis the countries of the North. The advanced
countries are customarily well prepared, having a clear perception of their national and
group interests, especially when it comes to dealing with the South, and a grasp of the
whole. Their positions are often well coordinated through various institutional
mechanisms, such that they often have an overarching strategy.
Meaningful discussion of eCommerce issues is also hindered by the lack of clarity
and precision: the term itself has become a “catch-all” term referring to a number of quite
different matters. It has often been used to embrace matters having to do with Internet,
with which it is closely intertwined.
In sum, in approaching the discussion of eCommerce developing countries are
confronted by a number of problems, namely:
• a general lack of clarity surrounding most discussions on eCommerce issues
in the multilateral arena;
• major implications for the traditional role of governments, for national
sovereignty and for the societies and economies of developing countries,
including not only their balance of payments, but also possibly their financial
policy, among other things.
• pressures to include eCommerce as a new item on the agenda for
negotiations in the WTO in the post-Seattle period and the US drive to keep
eCommerce free from the imposition of taxes and tariffs.
It is therefore of crucial importance that a fuller and comprehensive appreciation of the
issues, challenges and potential related to electronic commerce -- and Internet -- informs
the position and approaches of developing countries, as they engage in discussions, study
and negotiations in the UN and the WTO to devise a multilateral framework to channel
and regulate eCommerce in its multiple forms. Among other things, there will be a need
to address important issues concerning the new technological potential, including
encryption technologies and the monitoring of global information flows, and abuses such
as transnational crime, dubious financial cross-border transactions, and globalized fraud in
general, as well as consumer protection.
To leave these matters which are vital for the future of the humankind to the so-
called spontaneous forces of market, would be to virtually abandon the development of
this domain to a handful of powerful interests in the North, thus creating new forms of
dependency and dominion for the 21st
century. Carefully handled at a national and
international level, Internet and electronic commerce could become means to help
overcome global gaps in development, technology and knowledge, rather than deepening
these and exacerbating existing economic and social inequalities, thereby increasing
exploitation, marginalization and tensions within and between countries.

Electronic Commerce: Issues for the South xi
In view of the importance for developing countries of considering eCommerce both
in a broader context as it relates to development and also within the appropriate
technological framework, the South Centre is providing this background paper written by
A. Didar Singh, as an initial cognitive map with a view to helping developing countries in
their efforts to deal with the subject of eCommerce, including in the context of the
ongoing WTO process.

EXECUTIVE SUMMARY
The double face of Electronic Commerce, one promising and the other threatening, is
certain to become a part of the economic life of all developing countries as humanity finds
itself catapulted into the world of global electronic networks. Since the achievement and
maintenance of equitable economic growth is an integral part of the development
strategies of these countries, the impact of eCommerce, both positive and negative, is a
key policy issue. Developing countries need to understand, assess, assimilate and use this
technology to their gain, while protecting their basic interests and guarding against the
possible ills.
As eCommerce growth becomes more and more significant, developing countries
will need not just to understand, but in fact to engage in it. Not only for realizing its
potential of growth for their trade and industry but also as a means of survival in the new
world of eCommerce-based trade and business. Their ability to do so will depend on
several factors, most important of which will be their infrastructure, both physical (the
telecommunication network), as well as the financial and legal framework, including a
business and trade environment conducive to eCommerce. It will also depend on the
availability and price of hardware (computers, routers, switches etc.) and software, as well
as the human resource and education standards of the country.
ECommerce is a useful tool for the transfer of information as well as for
commercial transactions. These two main functions raise several different issues of pricing,
taxation, quality and standards. This paper seeks to address several of the important
implications from the perspective of the South.
Developing countries also need to prepare themselves for the future multilateral
trade agenda, in particular the so-called new issues on which the Second Ministerial
Conference of the World Trade Organisation (WTO) in May 1998 asked the WTO
General Council to formulate recommendations. One such issue is eCommerce which is
presently under study. Not only is eCommerce a new technology and a new frontier for
global business and trade, it is still evolving, and that too at an incredible pace. Developing
countries therefore need to understand, and assess carefully from their perspective, the
pros and cons of the different proposals and issues in this connection that could emerge at
the WTO. They need to appreciate the possible impact of this new phenomenon on their
economies and work out appropriate strategies and responses to it. Therefore, unlike most
other trade-related agenda items before the WTO, this is an area that is not just new but
where many of the implications are as yet unclear. This paper therefore, while focusing on
the WTO issues and possible negotiating positions, also attempts to address some of the
core questions concerning eCommerce and place them in perspective for developing
countries attempting to develop their strategies.
Section I seeks to set the stage by explaining the main concepts and importance of
the Internet and eCommerce. It describes eCommerce today and the trends for the future,
while advocating a three level policy perspective for developing countries namely, global,
national and that for business enterprises. National strategies for eCommerce sometimes
may not be the same as the international negotiation stance, though experience and

South Centre T.R.A.D.E. Working Papersxiv
expertise at home would obviously strengthen positions at the multilateral and bilateral
level and national agendas be attempted to be aligned with international objectives.
Section II outlines the present status of eCommerce development and usage in the
South, detailing the large chasm between the developing and the developed world. Though
innovative initiatives are being undertaken in the South, particularly in Asia, the gap will
only widen if governments and international agencies do not address and redress some of
the problems. Small and Medium Enterprises (SMEs) in the developing world have been
identified as one of the main possible beneficiaries of the new opportunities emerging with
eCommerce. A matrix indicating the potential and the challenges is attempted here to
summarise the main issues and questions. Building up capacities will be the need of the
future for the South, and governments must play an active role in these and related
initiatives. While describing the growth of the Internet infrastructure, it is pointed out that
it is neither truly global nor participative. Developing countries lag far behind and will need
to adopt proactive policies to generate investments into the communications backbone on
the one hand while examining intermediate solutions and models to facilitate access to
strategic areas and sectors to accelerate immediate opportunities for business on the other.
The questions of technology transfer and standards are raised in Section III, with
the recommendation that developing countries be provided representation and assisted in
capacity and expertise building and be involved in the answers and solutions that are being
worked out at the global level. As the Internet and eCommerce become more and more
important for the world, all countries, including those of the South, will need to align their
domestic and international legal and financial framework and procedures to the emerging
realities of digital transactions. UNCITRAL1
Model Law (1996) on eCommerce is a
standard framework that needs to be considered for implementation, as also the adapting
of existing legal and financial systems to the eCommerce environment.
The issues before the WTO are dealt with in Section IV. These mainly relate to
tariffs, market access, characterization and intellectual property rights (IPRs). These are
viewed from the perspective of developing countries and it is suggested that many of the
proposals and options need more detailed examination by developing countries before
they are in a position to finalize their stance. Simultaneously the developed world must
address the limitations and problems that the developing countries face in matters of
infrastructure, investment, IT development and training and education. Only with
assistance in these areas can the South have a chance to realize the potential of
eCommerce and thus use it to achieve the appropriate integration with the world trading
system and as a tool for development.
In conclusion it is emphasized that a joint/common strategy for the South perforce
must be developed not just to share experiences and models but because a common stand
before the WTO will reap much higher dividends for the South as a whole, and for the
individual countries. Bilateral agenda to match the stand would be easier to set and
national policies, special for each country, more focused in content and objective. Today
learning, assessing and assimilating is the need. As experience grows and expertise
1 United Nations Commission on International Trade Law, which is the core legal body of the United
Nations system in the field of international trade law.

Electronic Commerce: Issues for the South xv
develops, developing countries need to utilize this new eCommerce or eTrade paradigm to
advantage for which national and global strategies must be planned and pursued.

I. INTRODUCTION
I.1 ECommerce today and tomorrow
Throughout history, international trade has been facilitated by all manner of technical
advances -- from the discovery of paper and the minting of coins, to the development of
the shipping industry and the invention of powered flight. In this century, perhaps the
most significant of these influences has been the telecommunications revolution, from
telephone and fax to now the Internet (see Box 1) and its offshoot -- electronic commerce, or as
it is referred to, ‘eCommerce’(see Box 2), which is expected to have a major impact on trade
in the coming years. The emergence of these new and powerful communication
technologies has been of major significance for humankind -- for society, the economy
and the state. Considered to be as, if not more, important than the industrial revolution
for the world, they herald what is commonly referred to as the ‘Information Age’. These
are the technologies of computers, hardware and software, and the new and powerful
modes of communication that are being linked up world-wide in ever faster and easier
ways.
The Internet
The Internet has transformed the computer, communications, and the information
technology world like nothing before and brought about a remarkable integration of the
capabilities of each of these technologies. The Internet is at once a world-wide
broadcasting capability, a mechanism for information dissemination, and a medium for
collaboration and interaction between individuals with and via their computers without
regard for geographic location. Its history is complex and its influence extends not only to
the technical fields of computer communications but throughout society with the
increasing use of online2
tools to accomplish electronic commerce, the acquisition of
information, and community operations (both social and public).3
On a global scale, Internet growth has been remarkable. While it took the telephone
close to 75 years to reach 50 million users, it has taken the World Wide Web4
(WWW) only
four years to reach the same number. The Internet network has increased from 213
computers and a few thousand users in August 1981 to more than 43 million Internet
linked computers by January 1999 supporting an estimated 150 million Internet users.5
Early next century it is estimated that the number of persons connecting to the Internet
could well surpass 300 million, closing the gap with the 700 million or so connected today
to the telephone.6
From just over 20 countries connected to the global network in 1990,
there were more than 200 nations connected by July 1998.
2 Available on the network or World Wide Web/ Internet.
3 Leiner, 1997.
4 The most prominent and popular of the networks on the Internet.
5 ITU, 1999.
6 Cairncross, 1997.

South Centre T.R.A.D.E. Working Papers2
Despite these seemingly impressive figures of growth, major portions of the globe
and millions of people remain ignorant of and untouched by this phenomenon. As is usual
with virtually all new technological advances, the majority of these ‘have-nots’ are in the
developing and low income countries, essentially those regions of the world that have
traditionally had only limited access to information and communication technologies.
Box 1 : Definition of the Internet
There are several definitions used for the Internet, that of the US Federal Networking
Council (FNC) in 1995, was as follows:
" ‘Internet’ refers to the global information system that -- (i) is logically linked together by a
globally unique address space based on the Internet Protocol (IP) or its subsequent
extensions/follow-ons; (ii) is able to support communications using the Transmission Control
Protocol/Internet Protocol (TCP/IP) suite or its subsequent extensions/follow-ons, and/or
other IP-compatible protocols; and (iii) provides, uses or makes accessible, either publicly or
privately, high level services layered on the communications and related infrastructure
described herein.”
Basically the Internet is a vast and ever increasing network of computers across the
globe that are interconnected over existing telecommunication networks. Simply
described, it is a, or the, network of networks.7
The Internet per se can be considered a major breakthrough in human civilization for the
following reasons:
• It has the potential to link the whole of humankind in an interactive
network, that provides instantaneous communication and is cost-effective
and low-cost to the user;
• It is based on neural communication, rather than point-to-point
communication on which telecommunications were based so far, which
makes potentially possible the simultaneous involvement of millions in
diffusion or exchange of messages and information;
• It supersedes the passive role of a recipient of communication, or the active
role of a sender of communication, by making possible the active and
interactive search for information and data bases world wide;
• It provides a new way of accessing information with its ability to draw on
complex data bases and information, and to process these and adapt them to
the user’s specific needs;
7 WIPO Report, 1999.

Electronic Commerce: Issues for the South 3
• It facilitates interactive voice and video-communication, on the same basis
that written information is transmitted today, which will provide a further
quantitative and qualitative leap forward, with the potential of democratizing
international relations and bringing people closer together in what amounts
to direct visual and verbal contact and communication.
The Internet thus has multiple functions, being essentially a means for improved
communication and for accessing and exchanging information world-wide. One of these
functions has to do with economic and financial transactions and trade, grouped under the
generic name of “electronic commerce” or eCommerce.
ECommerce
Electronic commerce has been perceived both as a dream and as a nightmare. The past
few years, however, have shown that it is neither. From the world of hype and fantasy it
has moved to that of reality8
. Electronic commerce looms large on the horizons of
tomorrow, and it promises to transform trade and industry in ways not yet imagined or
comprehended. Its impact of course is expected to go far beyond commerce to affect the
lives of millions of Internet users and purveyors. In some manner it is similar to the
impact of printing on the then trade and commerce9
, transforming it from the simplistic
mode of mostly barter through direct exchange and verbal promises into formalized,
organized and contracted, trade and commerce. Subsequently to involve the use of printed
currency, it changed the very basis of finance and banking services that emerged as a
result. ECommerce (and digital cash10
that today stands in the sidelights) may also prove to
have a similar impact.
Basically electronic commerce
• speeds up and simplifies communications and transactions, between parties
involved, in goods, services and financial/monetary dealings;
• makes information accessible world-wide, including on the variety and pricing
of goods and services, thus making possible “shopping” world-wide, with
little effort and in a time/cost effective manner;
• makes it possible to diffuse and make accessible one’s own information to
those potentially interested, including advertising;
• makes possible direct despatch and delivery of certain services and products
which can be transmitted in digitized form via the Internet.
8 Gurunlian, 1999.
9 A comparison borrowed from B. L. Das, South Centre, Geneva, discussions March 1999.
10 This refers to electronic value units that could be used to pay for services and goods ordered over the
Internet. Several (mostly US based) companies started operations in this area but have been largely
unsuccessful as payments continue to be made mostly through existing instruments including credit cards.
This idea could become important in developing countries where credit cards are not common.

The telecommunications revolution and its convergence with the other leading
edge technologies (such as Electronic Data Interchange (EDI), ‘smart’ phones11
, digital
video and audio, on-line chat, Internet telephony, interactive TV etc.) is leading to a
fundamental transformation of international trade. The ability of the Internet to bring
together distant parts of the world in a global electronic market place and information
exchange can have a far-reaching and potentially beneficial impact on both the developing
and industrialized economies alike. It can also raise fears and apprehensions that stem as
much from the uncertainties of its future development as well as from the complex
technological, economic and financial issues that it raises.
Box 2: Definition of Electronic Commerce
In the World Trade Organization Work Programme on Electronic Commerce, it is
understood to mean the production, distribution, marketing, sale or delivery of goods and services by
electronic means. A commercial transaction can be divided into three main stages: the advertising and
searching stage, the ordering and payment stage and the delivery stage. Any or all of these may be
carried out electronically and may therefore be covered by the concept of ‘electronic commerce’. Broadly
defined, electronic commerce encompasses all kinds of commercial transactions that
are concluded over an electronic medium or network, mostly the Internet. E-
commerce covers both business-to-consumer (B2C) and business-to-business (B2B)
transactions, and is not limited to the purchase of a product. It includes all
information or services that a company may offer to its customers over the Net, from
pre-purchase information to after-sale service and support.12
APEC13 adopts a relatively wide definition of eCommerce, that includes all business
activity conducted by using a combination of electronic communications and
information processing technology. UNESCAP14 also has defined it as ‘the process of
using electronic methods and procedures to conduct all forms of business activity.’ It encompasses
the production, advertising, sale and distribution of products via telecommunication
networks. From a business perspective, the objectives of electronic commerce and
Internet commerce (sometimes referred to as eBusiness15) are the same: to improve
effectiveness, efficiency, timeliness, quality, and accuracy of interactions between
businesses and their trading partners or customers.16
11 ‘Intelligent’ phones -- usually cellular -- that would accept Internet based communication and be able to
give set responses when programmed.
12 Dufour, A, Que Sais-je, quoted in International Trade Forum, 1/99, ITC, Geneva.
13 Asia Pacific Economic Cooperation.
14 United Nations Economic and Social Commission for Asia and the Pacific.
15 The concept of eBusiness goes beyond that of eCommerce in that it implies introducing IT and electronic
modes of communication into business not just for convenience and corporate speed but for a
transformation in the way business should be conceived and done in this new information age. This could
involve several new management techniques such as Enterprise Resource Planning (ERP), Model Stock
Replacement (MSR), Material Resource Planning (MRP), Just-in-time (JIT) etc. and calls for a fully
integrated process of business and management that requires process re-engineering to adopt best practices
for the industry and its eCommerce business.
16 www.unescap.org

Though eCommerce provides a new mode of conducting commercial transactions
in a much more efficient mode it is by no means a magic wand that can create unlimited
growth and progress. From a business point of view, there are essentially two major uses
of eCommerce. The first (and easier and more common application) is to use it to reduce
transaction costs by increasing efficiency in the use of time and lowering costs17
. The
other is to use it both as a marketing tool to increase sales (and customer services) as well
as to create new business through it -- for example, IT enabled business18
, call-centres19
,
software and maintenance services etc. as well as ‘digital commerce’20
. It is thus a tool for
both existing businesses as well as an opportunity for new business, both for existing
companies as well as for new entrants. Though the future of eCommerce is still
unpredictable, it is important to note that, in possibly a short span of time, all businesses
will need to know how to make use of it -- much as most businesses had to learn to adapt
to the phone and fax, only more so if trade transaction and supply chains become digital
and on-line21
. Developing countries, their governments and business must therefore
address these developments and prepare for them.
Statistics show that the number of websites22
developed by commercial enterprises
has grown from just 30 at the end of 1993, to 325,000 at the end of 1996 and to 12 million
today23
. The overall level of electronic commerce, or business transactions conducted via
the Internet and private commercial networks, was estimated at US$ 8 to 9 billion in 1997.
Researchers have forecast that this figure could rise to as much as US$ 400 billion by 2002,
as businesses and consumers throughout the world expand their online commercial
activities24
. Growth is not expected to be confined to the developed world alone and is
predicted to be particularly high for developing countries in Asia where the projections for
2001 are: for China - $850m; for India - $160m; for Malaysia - $1000m; for Singapore -
$800m; for Philippines - $200m and for Indonesia - $200m. Whether these figures are just
hype or based on real data, and whether they consist of existing business and trade or are
additional to it are key issues. Unfortunately, it is not possible to predict accurately the
future growth and percent of world trade that will be conducted through eCommerce. It
is, however, possible to say that it will be an important and growing component of trade
and figures and estimates cited above, though speculative, illustrate the trend towards the
growing importance and potential of eCommerce.
In the next few years the main sectors to gain from eCommerce are expected to be
computer hardware and software, advertising and marketing, media, publishing and
information services, finance, banking, insurance, brokerage and Internet services, travel
17 This ranges from the use of email and instant chat on the net to EDI (Electronic Data Interchange)and
automated supply chains. EDI has a role here both at the level of business to business as well as by
governments in providing quicker and smoother trade transaction efficiencies for business by using EDI for
customs clearance, trade procedures, etc..
18 Business that is based on information technology and linked through a network for digital transmission
and exchange.
19 Network linked service centres that customers can access through the Internet for information, guidance,
maintenance and services such as bookings, reservations, software support etc.
20 Digital commerce is the term used to describe goods, services and digitised transactions that are
completed and supplied on-line.
21 Term referring to transactions and communication on a network and in real-time (i.e. connected together
with little or no loss of transaction time).
22 Information pages or sites/addresses on the Internet.
23 ITC, 1999.
24 UNCTAD, 1998.

and tourism, and entertainment services. All these sectors are today dominated by
multinationals and other enterprises from the North, as is international trade. However,
there are several emerging opportunities that businesses in the South can look at and even
create. As it is estimated that 80 per cent of the growth in eCommerce will come from
Business-to-Business (B2B)25
transactions, opportunities are emerging in global supply
chains, which enterprises of the South can attempt to become part of. In being able to
achieve greater growth and trade, the South could use eCommerce as a tool for
development.
I.2 A policy perspective for developing countries
Due to the existing development gap and differences between the North and South,
developing countries face a distinct challenge in order to realize the promises inherent in
this new technological development. Here two basic tasks loom, namely how to equip the
developing countries to benefit from and use the Internet as a tool for development, and
secondly, how to ensure and manage the growth and development of the Internet as a
public good and utility that would also promote development. The former is a
developmental challenge and requires investments in the infrastructure of
telecommunications, in Information Technology (IT) industry to ensure the easy and
affordable availability of computers and software, and in training and Internet literacy. The
latter is more of a global regime challenge which involves the growth and regulation of the
Internet and its facilities on a universal scale. This is a serious issue, in view of the potential
importance of the Internet for all spheres of life, everywhere, and because of the trend for
the facility to be increasingly dominated by a few countries and private companies26
.
As eCommerce will be a hard fact of economic life in future, the World Trade
Organization (WTO), like several other international organisations, is addressing the issue,
in the context of international trade and the agreements that exist and which may need to
be further negotiated. Developing countries therefore need to prioritize their policies and
responses both from a domestic and external point of view. For developing countries it is
important to distinguish between the general issues of telecommunication, the Internet
and eCommerce and those specific aspects that directly affect them and their development
and are therefore of particular concern. It is also important to differentiate between the
specific issues related to the Internet and eCommerce, even though they are highly
interrelated.
This paper focuses on the implications of eCommerce for developing countries and
their trade and business, for both producers and consumers, in order to place the major
issues in a perspective that could be used for both national strategic planning, as well as
multilateral negotiations. The paper outlines issues concerning infrastructure and
25 The other being B2C (Business to Consumer) and B2G (Business to Government). B2C or retail
eCommerce is the one where all the hype has come from as it is novel and touched people directly. Its
success however has been rather marginal and even big and popular sites like amazon.com (books)and
CDNOW.com (CD sales) are actually losing money. B2G is being considered a major possibility in the future
once government procurement turns digital.
26 With Internet traffic having overtaken world telephone traffic, the world’s 13 biggest Internet access
providers are all American, with British Telecom, Europe’s biggest, bringing up the rear in 14th place.(Data
Communications, Paris, No. 1., October 1998, quoted in Riches on the Information Highway, Le Monde
Diplomatique, May, 1999).

technology, legal and financial frameworks, duties and taxes and the WTO trade issues of
intellectual property rights, market access and classification which will be discussed in later
sections of this paper.
A strategy and policy perspective for developing countries is recommended to be
addressed at three levels.
• International;
• National;
• Business community level.
International issues
Although the vision of an emerging global electronic market-place (for goods, services and
money) has several appealing and potential features, there are other aspects that are clearly
problematic. Apart from network and data security, the new global electronic commerce
networks raise many fundamental concerns about the regulation of international
commerce, whether it involves trade in goods, services, currencies, information or ideas,
and the impact of these developments on national sovereignty, political institutions,
administration, financial and trade policy and the way of life.
While these matters are of relevance to both developed and developing countries,
some are of particular concern to developing countries. Interestingly this is one technology
and step in human development especially regarding communication and trade with
neighbours, that is common in time and content for both the North and the South. Today
technological advances in communication can make available the same Internet access
(and therefore raise the similar issues, of course with different implications) for Internet
and eCommerce, whether it be New York or New Delhi - or practically any major city
across the globe. Whether, it can be utilized and benefited from at the same level is of
course a different issue. Countries of the South must therefore take this factor into
account, in developing both their national strategies as well as the strategies to be adopted
in international debates and negotiations.
The most important international issues for eCommerce and trade in relation to
developing countries concern two areas:
a) standards and technology issues;
b) trade policy issues and responses at the WTO -- mainly those of market
access, trade logistics and tariffs.
Today the South is virtually excluded from standard setting and technological development
by virtue of not being in the business of high-tech information and communication
technology, and lacking expertise because of that. Standards and technology are both
growing and changing so rapidly that keeping pace with them is an issue in itself. One
possibility is that developing countries, being late in the race, may benefit from accessing
more advanced and developed technologies after they have been tried and tested in the
North. The other is that they may therefore have to pay a high price or be saddled with

out-moded (cheaper) versions. Developing countries may benefit by the market and
International bodies/associations (The Internet Corporation for Assigned Names and
Numbers (ICCAN), for example) setting and formulating standards. But the obvious
danger is that if they have no say on these matters, they will be unable to try to avert the
possible adverse implications of the resulting standards for their economies27
. These issues
will be addressed in more detail in Section III.
Formulating negotiating positions at the WTO is becoming increasingly urgent and
important in view of the May 1998 WTO Ministerial declaration on global electronic
commerce and the on-going WTO work programme on eCommerce.28
Section IV
elaborates on these matters.
National issues
These are perceived as three:
a) ECommerce policy and strategy for each country: This would include both legal and
taxation issues that all governments need to address as well as the
implications of eCommerce for economic and financial policy, and vice versa.
Such policy setting is important as each country must address this important
issue at the highest level of government in order to be sure that it is accorded
the necessary importance that it deserves. It is also important here to
distinguish between national strategies and priorities and international
strategies and negotiating positions. A strong national experience and
infrastructure provides the strength (and expertise) to perform at the
international level.
b) Infrastructure and technology issues for the country, as well as the administrative
framework for its application: Again, this is largely a matter of historical
background and the road ahead as chosen by each country, especially in the
area of telecommunications. Bringing in competition and attracting
investment (often foreign) into this crucial capital and technology-intensive
area has contributed significantly to improved services and lowering of costs.
c) Responses and initiatives of governments to promote eCommerce, both in government as
well as with the private sector: This would range from a hands-off attitude, with
basic fiscal and legal framework provided, to actual promotion through
several initiatives ranging from EDI for improving trade logistics, to
education and training, setting up Websites, Internet Cafés/Centres,
Electronic public procurement etc., for both trade and industry, as well as
the citizenry. Promoting use of IT and “electronic governance”, i.e. the use
of IT in government to bring in efficiencies and transparency and use it for
27 Issues such as domain names, address management and certification authorities would affect trade and
commerce.
28 The Ministerial declaration of 20 May 1999 directed the General Council to establish a comprehensive
work programme to examine all trade-related issues relating to global electronic commerce and report to the
third session of the Ministerial Meeting. It also asked all members to continue their current practice of not
imposing customs duties on electronic transmissions at least until the next Ministerial meeting.

its citizens to access information and services is another important initiative
that should develop alongside eCommerce in developing countries. This
would not only promote its use (and therefore efficiencies and transparency)
within government, but help to popularize it and make it useful for all of
society.
Business community issues
These issues relate to the various trade and commerce issues faced by business enterprises
in developing countries. as for example those concerning access, trust, security, fraud,
digital contracts and guarantees. There are options of advertising and setting up of data
bases, virtual shopping-malls29
, common platforms30
and supply chains. Should these be
addressed as individual companies or as associations? What if any should be the role of
government and what types of partnerships should emerge?
All these are issues that not only governments in the South but international
agencies with the mandate to promote SMEs31
and international trade and commerce need
to address. Several countries and agencies are in fact already doing this, not only because it
is a necessity but also because of the emerging view that SMEs are one of the target
groups that could benefit most from the opportunities emerging32
. Since it is predicted
that 80 per cent of the growth in eCommerce will come from business to business
transactions33
(as opposed to business to consumer or business to government), it is here
that SMEs and businesses in the South must find their opportunity and future. Though
there cannot be ‘one-stop’ solutions or even standardized models, there are several
initiatives that can be undertaken. These could include:
• creating eWareness34
and publicizing the benefits and challenges of
eCommerce;
• training and capacity building in IT and eCommerce;
• promoting the sharing of experiences between SMEs of the South regarding
eCommerce;
• helping SMEs access supply chains and public procurement supply
possibilities;
• promoting business and government co-operation;
• creating directories and data banks etc.
29 Sites on the Internet set up to buy and sell goods and services usually of several enterprises, as in a real
shopping complex.
30 Linked computers in a common network based on common standards or compatible software.
31 Small and medium enterprises. Their size and type of course would vary, between the North and South as
well as between regions.
32 Time alone will prove whether this is in fact the case. Later part of this paper will seek to list the pros and
cons of this view.
33 A view generally held by most researchers and speakers on the subject.
34 ‘eWareness’ as a concept is used here to mean both eLiteracy (i.e. the ability to use electronic media) as
well as the awareness of the potential of eCommerce for business.

1.3 Summary of main points
• The Internet is a major breakthrough in technology and has tremendous
potential for all humankind.
• The recent growth of the Internet has been quite phenomenal in terms of
the persons and countries now connected. However, large parts of the globe,
particularly in developing countries, currently lack access to this potential
tool for development.
• ECommerce is the economic or commercial part of the Internet and is being
projected to register growth at the level of several billions of dollars in the
near future. However, the major beneficiaries will be in the North.
• Developing countries face two major challenges:
a) to ensure that developing countries benefit from this new technology;
and
b) to use eCommerce in a way that promotes development.
• Developing countries therefore need to understand the importance and
implications of eCommerce and work out national and international
strategies.

II. ECOMMERCE IN THE SOUTH
The reality of eCommerce for developing countries is both fact and vision: fact in that
international trade and business are moving in this direction, and vision because
developing country strategies in this new area should match their aspirations for
development. Most developing countries are unfortunately far behind and unsure of the
path forward. To appreciate the issues involved, this section will highlight the present
situation regarding the development of eCommerce in the South and some of the pros
and cons in setting national policy in this area.
II.1 Internet: the infrastructure for eCommerce
The global reach of the Internet
The Internet is a social and economic fabric, ostensibly meant for human communication
and interaction. It is supposed to allow for more interactive and innovative ways for
people to do what they do in ‘real life’. Thus the Internet is seen as, “the most precise
mirror of people as a whole that we’ve yet had” (Lanier, 1998). However, while the
perception of the Internet as a mirror may be accurate, it is still not a mirror of the world’s
population as a whole. The fact that only an estimated 5-10 per cent of the content on the
Internet is of non-western origin while the developing world population represents close
to 80 per cent of the world’s population indicates how far the Internet is from true
participation and global diversity. Even amongst those countries and regions connected,
both in the developed and developing countries, its usage remains largely with the “haves”,
that is, those who can afford the hardware, software and the cost of connecting to
Internet.
Though meant to be a medium of global reach, the Internet’s U.S. origin is evident
in the dominant language of the Net as well as in the genesis of most existing sites.
Approximately 80 per cent of on-line content is currently in English35
. Similarly,
eCommerce today remains mostly a US36
and Western based activity, though connectivity
has significantly improved in many parts of the developing world -- for example, nearly
every capital city in Africa enjoys some level of Internet access today. However, there are
still significant disparities in the level of Internet penetration across regions, which can
have profound implications for an individual country’s ability to participate in the global
electronic market place.
35 Internet Society, http://www.isoc.org
36 US domination of the world economy and its new technological revolution - that of communications, is
now a predictable scenario. Several factors explain this advantage. They range from its long history of multi-
channel television, low phone line costs, strong intellectual-property industry (movies, music, software),
English language and the experience with long-distance mail-order business (Cairncross, 1997).

Growth of the Internet infrastructure
The number of computers in the world directly connected to the Internet has grown from
less than a million in 1992 to over 45 million by July 1999, with the number of users of the
Internet estimated to be about 180 million.37
. This growth, however, is geographically
unevenly distributed. North America has by far the largest number of Internet users,
estimated at 102 million or 56 per cent, Europe at 43 million or 24 pre cent and only 20
pre cent in the rest of the world. Today about 70 per cent of the Internet websites are
located in the United States.38
The geographical concentration is even more pronounced in
terms of the business transactions as more than 85 per cent of Internet commerce revenue
in 1996/97 was generated in the United States.
This disparity between low and high income regions is evident from the chart
below39
.
Figure I
*Latin America and Caribbean
Internet and eCommerce in developing countries
The success of this eCommerce revolution from the point of view of the developing
countries is dependent on several key preconditions. The first (though obvious) is the
widespread availability of the Internet. For developing countries, access to modern
telecommunication systems is therefore perhaps the defining element of electronic
commerce. A well functioning, modern telecommunication infrastructure and a
satisfactory distribution of electricity, along with access to computer hardware, software
37 ITC, 1999.
38 ITU, 1998, and WTO, Special Studies.
39 ITU, 1999.

and servers are the three basic requirements for electronic transactions and therefore
eCommerce.
Developing countries (and their SMEs) lag far behind developed country markets in
the availability of the technical pre-requisites for conducting electronic commerce. The
gaps in the two main requirements for Internet i.e. telephone and computer availability
highlight the difference. For example, 65 per cent of households in the world have no
telephone, whereas 90 per cent of households in high income countries have a telephone.40
The personal computer ratio per 100 inhabitants is 18 for high-income countries, 2.3 for
medium-income and just 0.1 for low-income41
. Developed countries today have 312 ISPs
(Internet Service Providers) per 10,000 people compared to just six ISPs per 10,000 people
in developing countries.42
In the United States, roughly one in three persons uses the
Internet, compared to only one in every 10,000 in South Asia. Teledensity (main lines per
100 inhabitants) is 48 for developed countries, 10 for middle income and 1.5 for least
developed (LDCs). Furthernore, in developing countries telecommunications services are
often unreliable, high cost or both. There are also enormous differences in access to
telecommunications both between and within developing countries. For instance, while in
developing countries a considerable proportion and sometimes the majority of the
population lives in rural areas, over 80 per cent of the main telephone lines are located in
urban areas.
Relative cost of connecting
The cost of using the Internet depends on several factors, including the price of routers
and other computing facilities and to a lesser degree on the wages of operators. Such
charges may be significantly higher in developing than in developed countries, reflecting
the high cost of capital as well as possible inefficiency and monopoly profits43
of
telecommunications. Thus, the average cost of a subscription to a dial-up Internet
connection in Africa is quoted by ITU as US$ 75 per month compared to US$ 10 in the
United States and US$ 15 in the United Kingdom. In real terms this is significantly higher
once the much lower incomes are taken into account (Figure II below)44
. Further, the cost
of local or long-distance telephone calls giving access to the Internet are significantly
higher in developing countries, while, for example, in the United States local calls are
generally free.45
The hardware required by individuals (PC and modem) to set up a
connection requires a minimum investment of between US$1,000 to 2,500 (depending on
the tax structure in different countries) hence it is likely to be a long time before the
Internet can become as accessible as say the radio or even television in poor countries.
40 Access to telecommunication is often measured by "teledensity" which gives the number of main
telephone lines per 100 inhabitants. About a quarter of the world's countries have a teledensity of less than
one and another 47 countries only have between 1.4 to 8.6 main telephone lines per 100 inhabitants. This
should be compared with a teledensity of between 27.8 and 68.3 for a group of 46 countries with the
highest number of main telephone lines per 100 inhabitants (Source, www.itu.org).
41 Source: WTO, Geneva.
42 Source: ITU, Geneva.
43 Many state monopolies tend to charge high rentals/prices for telecom services.
44 ITU, 1999.
45 NUA Internet Surveys, 1998.

Figure II
Monthly Internet access prices for the OECD, August 1996 and Africa July 1998, US$
OECD, Internet
monthly access
charge, US$
As % of GDP
per capita
Africa, Internet
monthly access
charge, US$
As % of GDP
per capita
Mexico 94 14.8 Uganda 92 107
Turkey 65 12.8 Guinea 65 45.3
Japan 50 2.6 Sierra Leone 50 118
Finland 33 2.2 Ethiopia 32 76.8
USA 29 1.2 Mozambique 29 69.6
Australia 24 1.5 Senegal 24 17.6
Source: ITU, 1999.
ECommerce usage
A recent study by the International Finance Corporation (IFC) on the use of Internet for
business by corporations in developing countries shows that, within developing country
companies using the Internet, fewer people in each company have access to the Internet
than in developed country companies.46
The primary benefit of the Internet mentioned by
developing country companies is the use of E-mail, used for communications both within
the company and externally. Other uses such as financial and credit transactions are
relatively less frequent, thereby reflecting the state of the commercial infrastructure, its
financial regulation, company law and other general business legislation or practices in the
countries concerned.
Investments in telecommunications infrastructure
In view of the large gaps in infrastructure and access between the North and the South,
development of communications (and energy) infrastructure internally will remain
particularly important and a major issue for the developing countries, especially the least
developed.47
Since the key to this is a wide-spread and reliable telecommunication network
of the countries concerned, proactive and supportive policies are essential to reap the
benefits of this emerging opportunity. Despite the attraction of low production costs,
communications and distance can discourage foreign companies from establishing in
developing countries. ECommerce may lessen these physical constraints. Active
promotion of electronic commerce might make the private sector more interested in
investing in a
46 Daly, 1998.
47 As an example, according to the World Bank US$ 50 billion would be required to bring the average level
of African teledensity (main lines per 100 inhabitants) to that of Southern Europe. Such levels of funding
are just not available.(Egypt Working Paper, 1998).

variety of areas, including telecommunications, IT industry, Internet service provision, and
professional services.
Intermediate strategies for development
Many developing countries may not be able to generate or attract the large investments
needed for the telecom infrastructure in their entire country. Perhaps, therefore, a more
strategic option would be to formulate and implement appropriate policies by
concentrating on the areas in which electronic commerce is most likely to bring the
highest benefits to their respective national economies; business-to-business, business-to-
consumer and business-to-government transactions. This can be both geographic as well
as sectoral. If developing countries wait to take initiatives in the area of eCommerce until a
complete country-wide modern communications infrastructure for electronic commerce is
in place, the gap with the developed world may grow even wider. What is important to
bear in mind is that massive investments and flawless technological solutions are not
always necessary or possible. Even existing networks can be reengineered and global
services for the Internet and eCommerce sites can be utilized, especially in urban
concentrations, where the maximum potential for trade and commerce presently exists.
Several developing countries have followed this strategy of providing Internet access
initially to only important commercial centres, especially where there is a concentration of
export-intensive industry48
. Others have set up Business centres in far flung places, linked
to a common network and service that assists not only in access but also business
promotion49
. Such models provide an immediate and workable solution that can be
emulated by other developing countries.
Present initiatives in the South
In America, the first groups to adopt the Internet were universities and consumer-services
companies and, in Europe, it was students and a few enterprising publishers. In
commercial Asia, especially East-Asia, it is the small enterprises, the key-chain and plastic-
toy makers that have led the way. Too small to have better ways of reaching the outside
world, they were able to adopt a new communications technology without the bureaucratic
delays of larger firms. Today obscure and often to be missed sites from these countries
are constantly appearing on the Internet. Small companies in Asia are demonstrating that
the advantages of the Internet as a cheap communications tool are even more compelling
than in the more wired West50
. Such entrepreneurship is finding itself replicated in several
developing countries across the globe.
48 India is one example where satellite earth stations were set up for providing 24 hour guaranteed access to
software companies for export activities, much before Internet was available on the existing telecom
channels.
49 Experiments in this regard have been quite successful from Sri Lanka to Brazil and even in Africa.
50 One example of this is the Asian Sources Media Group ( ASM ), a publishing company based in Hong
Kong. The firm’s Web site serves as a shopfront for more than 7,000 Asian suppliers, mostly small-to-
medium-sized factories in Hong Kong, China, Taiwan and Korea, selling everything from cheap plastic toys
to multimedia electronics. Before their inclusion in the ASM website many of these factories did not even
have a personal computer, let alone an Internet connection. ASM provided what they needed, trained them
in how to use it, and included them in its on-line catalogue of nearly 200,000 products. Within a year, the
ASM site was generating more than 50,000 inquires a quarter, and is now running at a pace nearly double

‘Chinaonline.com’, is a site run by six people in Hong Kong and another six in Chicago
which now has some 150,000 subscribers at $120 a month for the news and access they
provide with China. There are similar examples of success today in India51
, Bangladesh,
Brazil and also Africa, where Africaonline.com52
has emerged as a very popular site.53
Unfortunately however though there are success stories in several regions of the
South, these are few and far between. Attempts in the South to develop eCommerce are
underway in nearly every country, but eCommerce is still not considered a significant
market driving force. Those currently involved are either entrepreneurial risk-takers or
larger corporate entities able to perceive it as a long-term investment. ECommerce is still
at the periphery of business and governmental initiatives. The general population remains
by and large unaware and unaffected by it. The general situation is one of limited and
unreliable connectivity and one in which the whole business and financial environment is
not yet geared for this new technology, seriously hampering growth of eCommerce. To
mainstream it both for business and social development is a significant task that stands
before the South.
ECommerce and its impact on all business
For developing country governments to address this issue, it is important to distinguish
between IT policy and promotion, and eCommerce strategies. Many state initiatives seem
to blur and confuse this issue. Whereas promotion of the Information Technology
industry fundamentally entails developing the hardware and software IT industry, it is
important to note that eCommerce is by no means limited to only that industry.
ECommerce, besides IT and digital commerce, in fact can (and may over time)
encompasses all trade and commerce and therefore it has an impact on the entire
economy. This is important to bear in mind when formulating plans for eCommerce in
developing countries. Of course the externally focused businesses will be first affected and
small local enterprises may not have the desire or need to get connected. However, as
eCommerce extends across the global economy, it will become more and more necessary
for existing industry and trade to switch to and use the potential of this medium not only
to grow but even to survive. Today this may not seem to be the case as total eCommerce
transactions still account for only a small percentage of worldwide trade and commerce,
but the message for the future is clear.
that. Since the inquiries go straight to the suppliers, and subsequent negotiations take place directly between
buyer and supplier, it is difficult to calculate the volume of business generated, but customers have suddenly
emerged in South America or Eastern Europe for Asian firms that previously had little or no means of
selling to those markets. (Asian electronic commerce, July 1997, Economist, London).
51 India is one of the biggest software success stories of the developing world. In 1997-1998, 158 of Fortune
500 top companies out-sourced their software needs to India.
52 Africa Online started in 1994 in Boston, USA and Nairobi, Kenya to provide expatriate Africans with
news of home. It currently employs some 250 people and has spread to several African countries. It receives
10 million hits per month, and has approximately 150,000 subscribers, comprised mostly of businesses.
53 Source, ECommerce presentation at ITC, Geneva, March 1999 and WTO Seminar on eCommerce and
Development, February 1999.

II. 2 Potential and dangers for business (especially SMEs) in the South
Along with the potential or possible benefits of eCommerce lurk several dangers that must
be taken into account as challenges to be addressed in the policy and strategies that each
country must design for itself. These particularly apply to SMEs in developing countries as
they have been identified by several economists as well as international development
agencies54
as ones that could benefit most from this new technology and opportunity.
Figure III lists some of the positive and negative implications that developing countries
need to be aware of if appropriate strategies are to be put in place.
Figure III
ECommerce: Benefits and Challenges for Developing Countries(DCs)
(and their SMEs)
Potential/Benefits Challenges/Dangers
Exponential growth in eCommerce trade leading
to overall increases in world trade.
The developed and presently wired world will
benefit mostly but DCs could use the
opportunity to leap-frog industrialization/
development.
80 percent of eCommerce growth will be
business to business. Therefore potential
opportunity for businesses, especially SMEs in
DCs to link to supply chains.
Existing supply chains could be destroyed and
dependence on large trans-nationals may grow.
Could lead to faster transfer of technology and
growth of IT industry in developing countries.
IT multinationals may alone benefit if local
industry is weak.
Giant corporations will emerge but so will small
enterprises, able to offer similar services at lower
cost.
For developing countries this will mean great
opportunities but also greater threats from
multinationals.
Access to more information regarding markets,
opportunities and supply chains.
Would preclude those without access from
benefiting.
Can assist in overcoming the drawback of
distance from developed markets.
Same technology will be used by multinationals
for accessing local markets in developing
countries.
Exporting SMEs can set up ‘virtual shops’ at
much cheaper cost than actual stores abroad.
Maintenance, upgrading and marketing costs
are high. Also issues of security, payments and
assured supply need to be addressed.
Could reduce the role of middlemen,
intermediaries, agents etc.
Infomediaries55 may emerge as the new power-
brokers.
Can generate new business by expanding into
‘digital commerce’.
Many SMEs/developing countries may not
have expertise in doing this.
54 UNCTAD, ITC, WTO, ITU etc. are all working on programmes to use the Internet and eCommerce for
development and to assist especially SMEs.
55 Lanvin,1999. The concept entails a power shift from the intermediaries of today to the new power
brokers on the Internet tomorrow, where the Internet Service Providers (ISPs) or Portals (search engines
and major sites for information that serve as a gateway for users) providing information and links will begin
to provide other services too. Users will be compelled to use such services to sift and find the ‘right
information’ which such ‘infomediaries’ would provide at a cost and a possible bias for their own preferred
sites/services.

Companies will locate their digital services
wherever they have access to competitive skills.
Cheaper skilled labour force in some DCs could
benefit but many DCs where this is not the case
would stand to lose.
Comparative advantage for DCs in providing
eServices (back-office, call centres, data
processing etc.) as labour costs are lower.
Need English and computing skills, as well as
strategy to move up the value chain in the
software industry.
ECommerce enables new suppliers to enter
markets abroad and integrate with global supply
chains.
Danger of cutting out existing suppliers in
developing country markets.
Consumers in developing countries may be able
to get lower priced items.
Local producers in developing countries may
lose existing local customers.
Producers in developing countries could access
cheaper imports
May further marginalize local suppliers.
Reduced delivery costs would benefit developing
countries more as such costs are a greater share
of total cost of product than in developed
countries
Existing multinational delivery companies could
monopolize delivery services, especially courier
services supplying small items.
Would lead to growth and modernization of
financial structures and processes such as
electronic fund transfers etc.
Foreign banks and multinational credit card
companies may be the major beneficiaries.
Would help reduce some of the constraints to
export such as maintaining expensive offices
abroad
May make companies more vulnerable in not
being able to follow up with export supplies
and possible disputes abroad.
Provides increased publicity and advertising
possibilities
Cost of effective advertising on the Internet
may be out of reach for SMEs in DCs.
Increased efficiencies and transparencies in
public procurement could bring competition and
improvements in public sector.
Inefficient and corrupt politic systems and
existing bureaucratic procedures may be
obstacles to such opportunities in some
countries.
Potential possibilities for availing public
procurement opportunities in developing and
developed countries
Compulsory eCommerce-based supply
requirements may preclude existing suppliers
without such access.
Movement of natural persons (skilled IT
professionals seeking better employment
opportunities) would also decline as access to
network becomes locally available, thus reducing
‘brain-drain’56 from DCs.
Additional opportunities to move up the value
chain in the digital commerce chain may suffer.
Could provide scope for local cultures (and their
Intellectual Property) to flourish
Western cultural predominance could swamp
local cultures.
Potential growth areas
As the traditional models of industrialization become less relevant, eCommerce can
provide opportunities for new models of growth. In the area of trade in goods, basically the
existing manufacturing industry will benefit and SMEs in developing countries stand to
56 Term used to define the immigration and loss of talented persons from poor countries to developed
world, seeking better job opportunities.

gain by becoming part of global supply chains in business to business (B2B) transactions.
Customs and duty structures are not a major issue here as existing provisions would apply.
The danger for SMEs is that the multinationals would predominate. They therefore need
to organize themselves and possibly set up their own supply networks.
The area of trade in services is expected to be the dynamic area of growth in trade in
the future and it presents an area of great potential for developing countries. Already
several services can be promoted and undertaken via the Internet and others are likely to
develop in this way. As this area expands, enterprises in developing countries need to seize
the opportunity to develop expertise and offer competitive prices. Moreover this sector is
environment-friendly and does not usually require massive (comparatively) initial
investments. The third area is the undefined area of digital commerce (i.e. where all or most
parts of the transaction are digital and the final product is also delivered digitally). This
type of transaction is not entirely covered by the existing definitions and rules of
international trade, governing the earlier two. This is a newly emerging area and it is
therefore difficult to make projections or predictions. Presently most digital commerce
involves information, music, video and films, where the North has the advantage of an
early start. It also includes software, back-end services and IT-enabled services that the
developing countries could take part in developing and offering. India, Singapore and
Malaysia among others are already doing excellent business in these fields.
II.3 The role of government
Whether as a tool for development and governance domestically, or to promote and
increase export growth and international trade, the governments of developing countries
need to adopt a proactive role. They need to ensure that the benefits of eCommerce
accrue to those trying to overcome economic marginalization due to geographic, financial,
technological or educational handicaps. Indeed, the need to close the gap between those
with abundant information at hand and the "information poor" provides a strong rationale
for the development of eCommerce.
Development objectives
Developing countries face a special challenge and responsibility to create a conducive
policy environment that on the one hand allows for the development of eCommerce and
on the other ensures the social objective of providing access and benefits for those that
cannot afford it. Electronic governance, public Internet terminals, rural access at
subsidized cost, eWareness etc. are some of the initiatives that must be considered and
promoted.
Some of the steps that governments should consider in this regard are:
• the creation of a legal and financial environment conducive to eCommerce
transactions;
• introducing open and competitive telecommunications policies, as these best
serve the eCommerce goals of developing economies;

• regulatory approaches should be transparent, harmonized and independent
of specific technologies as these are necessary in order to attract the
investment needed for telecom and eCommerce promotion;
• allowing communications options for consumers that offer innovative ways
of doing business;
• promoting increased scope, options and reach of communication and hence
service delivery;57
• using the Internet as a tool for ‘electronic governance’, namely, the use of
IT in government to increase efficiency and transparency in the provision of
public information and services. By doing so, the environment for
eCommerce would be furthered and strengthened.
The premise here is that in promoting business on-line, governments will facilitate the
delivery of information, goods and services. This will then deliver more traffic across data
networks which, in turn, will serve to provide the revenues and investment rationale
needed to encourage further infrastructure development.
Capacity building issues
If developing countries are to benefit from this new technological and economic boom
that the growth of eCommerce represents, they would need to have in place the single
most important ingredient in the whole stratagem, namely, the human resources. The IT
Revolution depends vitally on intellectual capital, which some developing countries have in
abundance. On the other hand there are many countries that are far behind in this area
and therefore need very proactive policies and investments in this field to realize the
potential.
Required skills
As eCommerce develops and the more advanced stages of commercial exchange are
carried out electronically, more specific skills are going to be required. Even for surfing the
Internet for a product, basic computer knowledge and familiarity with the Internet is
needed. Moreover, extensive language knowledge (especially English) may be an additional
requirement if foreign Internet sites are to be browsed. From Website designing, to
electronic credit management and software and hardware maintenance -- all require skills
that may not be so easily available in several developing countries. Capacity-building in the
field of information technology, in the knowledge of the existence of a global market for
such skills, is therefore crucial. The development of electronic commerce therefore puts a
premium on the development of education and training policies, to ensure that training
institutions' curricula meet with the needs of industry. In turn, the Internet and electronic
commerce itself can contribute to the educational process, through distance learning and
educational links between universities, specialized services offering HRD training and
between developing countries themselves.
57 Both these points will have a bearing on the telecommunication policy and the continued existence of
public/state monopolies in this sector.

Human resource development is, however, far more than just training. It is a
continuous learning process. For developing countries it would begin with sensitizing and
going through to actual web designing and commercial applications. Since governments
have to take the initial initiatives but must pass it on to its citizens and especially the
private sector to benefit from the opportunities, this is one area where the state could
pursue its efforts in building partnerships with community organizations, associations etc.,
to offer proper training tools in the area of electronic commerce. Similarly the
international organizations such as UNCTAD, ITC, UNDP, WTO etc. also have a
responsibility to assist the developing countries in this crucial area of advocacy and human
resource development for this new technology. Several of these organizations are in fact
working towards this and therefore collaboration and common programmes with the
South would be beneficial not only for developing countries but for the world economy as
a whole.
II.4 Summary of main points
• Vast stretches of the world, mostly in the South, continue to be woefully
under-served by the growing Internet and eCommerce networks.
• Several innovative and successful initiatives in the area of eCommerce are
taking place in the South, especially in Asia, but overall eCommerce remains
on the periphery of business and governmental activity.
• This is both a result of poor infrastructure and the relatively high cost of
connectivity in the South.
• A number of developing countries may not be able to afford or attract the
required investment in the telecom infrastructure therefore they should
consider intermediate strategies for development by concentrating on
strategic sectors and areas.
• ECommerce is not just about IT and software and eventually may involve
and affect all business and all sectors.
• For developing countries the greatest potential in the field of eCommerce
may lie in the area of trade in services, especially those that can be exported
digitally.
• Governments in the South need to adopt a proactive role in promoting
eCommerce as well as in capacity building, training etc.

III. IMPORTANT ISSUES OF ECOMMERCE FOR DEVELOPING
COUNTRIES
III. 1 Global framework proposals and their implications
Global information infrastructure
For eCommerce to be a truly global tool for trade and development, a ‘global information
infrastructure’ (GII) which makes possible the electronic exchange of information about
products and services, buy and sell orders and financial transactions is a necessary pre-
requisite. Besides others, the International Telecommunications Union (ITU), in Geneva is
working towards developing standards for such a Global Information Infrastructure (GII).
GII access is a necessary but not sufficient condition for the development of
electronic commerce. For it to be operational world-wide, it is essential to create a policy
and regulatory environment that favours the development of eCommerce and harmonizes
national approaches in diverse areas including telecommunications, trade procedures,
intellectual property, privacy and security. There is therefore a need to promote the
development, expansion and operation of telecommunication networks and services in
developing countries, as they lack such an infrastructure. The ITU is undertaking some
initiatives on these matters such as bringing various partners together to undertake pilot
projects in developing countries to demonstrate the benefits of electronic commerce to
the user communities of these nations. Such initiatives need to be replicated by several
other international bodies that deal with trade, industry and development. Involvement of
the developing countries and assistance to them for improving their expertise and
infrastructure are some of the key requirements of the future.
Global framework: proposals from the North
A number of individual Governments and intergovernmental organizations have taken
steps to address the policy issues relating to the establishment of a global framework for
electronic commerce. The United States, the European Union, Japan and the OECD (all
from the North) have made the main four proposals. Though these four proposals were
not developed under common terms of reference, in general a strong consensus emerges
that the private sector should take the lead role in the development of the Internet and
electronic commerce - both standards and framework. The first three have put forward
policy proposals concerning electronic commerce in areas such as customs and taxation,
development of the legal framework, and market access issues. The OECD is conducting
extensive research into a number of policy issues relating to electronic commerce and has
published a number of policy guidelines. It is argued that there is need for a simple,
transparent and predictable legal environment for electronic commerce on a national and
international level and that governments should avoid placing ‘undue restrictions’ on
electronic commerce in order to avoid competitive distortions. According to these
proposals, co-operation among governments, using established venues for negotiation

such as WTO, WIPO and UNCITRAL, should be actively pursued in order to ensure
participation by governments in establishing the necessary agreements and model
legislation to buttress the overall framework. The proposals include a recommendation
that the private sector should have a say in how the present legal environment should be
adapted to meet the new imperatives posed by electronic commerce. Changes to the legal
and institutional framework relating to electronic commerce should be technology-neutral
to avoid discrimination and encourage inter-operability. The various policy papers
published by the four actors mentioned above set out a number of financial proposals (e.g.
on customs, taxation, electronic payments), legal proposals (e.g. on a commercial code,
intellectual property, copyright and trademark, privacy and security) and market access
proposals (e.g. on telecommunications infrastructure, information technology, content and
technical standards). They also address issues related to human resources and small and
medium-sized enterprises (SMEs). These proposals contain little on the role of developing
countries in designing, establishing and implementing such a framework58
. This is contrary
to the very concept of democratic global governance of a global network and lack of
developing country involvement would represent a collective loss to the objective of a
global economy.
Implications
Important from the developing countries point of view is the stance of all these proposals
with respect to trade and tariffs. Across the four proposals, there is agreement that the
present tariff-free environment for goods and services delivered by the Internet and other
electronic channels should be made permanent, but this does not extend to physical goods
purchased through the Internet and delivered by traditional methods, where it is suggested
that existing tariff rules should continue to apply. The taxation of electronic commerce, in
“virtual goods”, such as information and services, and physical goods is a complex issue.
The position of the United States is that no new taxes should be imposed on electronic
commerce, and that taxing jurisdictions should co-ordinate their activities to ensure that
taxation systems are simple to administer and do not hinder or distort commerce. The
European Union has traditionally levied VAT on virtual as well as physical goods but is
evaluating the definition of the current tax systems (both direct and indirect) within
member States on issues of definition, control and enforceability. All four actors share the
position that fairness in the taxation of electronic goods as compared with that of physical
goods (i.e. “tax neutrality”) is essential, and that the OECD (and the European Union for
European countries) should be a key forum for the discussion of policy issues relating to
international taxation. The OECD has already begun a programme of policy research on
taxation issues in electronic commerce. The developing countries also need to start a
process of discussions and negotiations between themselves to come up with their
considered stand on this issue, as well as on the related issues of standards and
infrastructure development
58 Egypt Working Paper, 1998.

III.2 Technological developments and standards
New technologies many times faster than existing communication technology, such as
cablemodems, digital subscriber lines, and satellite broadcast are available in limited
locations now, and will become widely available in the next few years. These technologies
present problems, not just in the user's connection, but in maintaining high speed data
flow reliably from source to the user. During this period of enormous growth, businesses
entering the Internet arena are scrambling to find economic models that work so that
eCommerce can become more popular with consumers. Free services supported by
advertising have shifted some of the direct costs away from the consumer. In some
countries the trend is even to offer free unlimited access to the Internet. Online sales are
growing rapidly for such products as books and music CDs, airline tickets, software and
computers, but the profit margins are slim when price comparisons are so easy, and public
trust in online security is still shaky59
. It is services and business to business transactions
therefore that continue to record high growth rates.
Recent advances in encryption techniques have made it possible to ensure the safe
transmission of credit card numbers and other sensitive information needed to facilitate
payment electronically. This needs to be backed by Trust and Authentication Services that
would help provide some sort of guarantee to the faceless communication of
eCommerce.60
For developing countries this may require governmental interventions and
initiatives, as traditionally this has been the practice with all quality control and guarantee
regimes. It could also mean further dependence on proprietary technology as well as
problems for state controlled valuation requirements as for customs duty levy.
Transfer of technology
Access to technology may be a key issue for the growth of eCommerce in developing
countries. It cannot be presumed that development of electronic commerce, by itself,
would necessarily lead to transfer of technology from developed to developing countries.
This is likely to be a complex process, involving questions of investment, expertise,
government policies, market access etc. As electronic commerce develops in a country, it
will for example, have spin-off effects on the development of the information technology
sector in that country. A developing country which encourages electronic commerce and
with a climate conducive to investment is likely to attract foreign investment in sectors
related to information technology. In addition, it is possible that developed country
companies that see market opportunities in developing countries will transfer some
technology in order to be able to explore those market opportunities.
So far as the fast emerging technologies and standards for the Internet and
eCommerce are concerned, however, developing countries have no say whatsoever today.
All of the developments are taking place primarily in the private sector laboratories of the
59 Howe, 1998. Surprisingly, even leading and very popular sites like amazom.com (major supplier of books
and now CDs etc.) and cdnow.com (CD supplies) are in fact losing money on the Internet.
60 The ITU has recently signed a Trust Fund partnership agreement with the World Trade Center, Geneva
and the World Internet Secure Key (WISeKey SA) to promote the use of digital certificates for both
authentication and authorization through more than 300 centres in over 100 countries. (SUNS, #4516, 27th
Sep 1999).

North. Even the ITU (International Telecommunications Union) plays only a marginal
role.
Box 3: Control of the Internet
The question of who controls the Internet is relevant for the world as a whole and
developing countries in particular. From its very beginning the Internet has exhibited
some particularly unique features. It is a product of the (US) public sector (academia
and defence); it was built on a single standard (Internet protocol); it ostensibly has no
central command and is predominantly American61 - not only in the number of sites,
servers and eCommerce business transacted on it, but also in content, culture and
language. Therefore though formally there is no ownership (or responsibility) for the
traffic that runs on mainly leased telecommunication lines, there are of course US-
based and US scientist-manned bodies, the Internet Society and the Internet
Assignment Numbers Authority (IANA), that take the few central decisions
concerning protocol or for allocating Internet addresses or “domain names”62. These
are important issues with the latter having very strong commercial implications for the
Trademarks issue. Due to international pressure, however, such powers are now
sought to be shared at an international level by the setting up of the ICANN process
since October 98. The Internet Corporation for Assigned Names and Numbers
(ICANN) is the new non-profit corporation that was formed to take over
responsibility for the IP address space allocation, protocol parameter assignment,
domain name system management, and root server system management functions
now performed under U.S. Government contract by IANA and other entities. It has
international membership. Unfortunately there is no developing country
representation in ICANN and the matter demands redressal.
The Internet today operates on a telecommunications ramp which has been built on
technologies mostly developed in the West. Not only is this structure extremely capital
intensive, it is on the technological edge of emerging possibilities that require high-cost
research and a strong financial base for long-term and sometimes risky initiatives that may
well become redundant and obsolete overnight. Most developing countries have neither
the financial nor the human resources to match these requirements. Can they therefore
expect or even judge whether the standards and the set-up will be fair and equitable? Will
they at least be transparent, and non-trade restrictive? The issues of domain name
allocation and address management have a commercial implication that is only now being
fully appreciated. Certification authorities and authentication protocols are some of the
technologies and standard-setting activities that will emerge. Who is to establish and
monitor these are issues that need to be addressed by the international community, and
61 Cairncross, 1997.
62 Domain names are the people-friendly form of Internet addresses (which are actually numbers) designed
for computers to recognize the address of a particular site on the network.

the developing countries fears on such matters allayed. Setting up bodies like the ICANN
are steps in this direction and developing countries must demand to be represented on
them.
III.3 Legal and financial framework
Legal issues
Today the Internet weaves its way into society wherever it goes, crossing borders, cultures
and legal jurisdictions. Many governments worry about a medium that can bring their
citizens effortlessly or even accidentally face to face with pornography, fraud, libel,
gambling, racism and sedition. Quite probably, if something is illegal under national law, it
is almost certainly available on the Internet.
In fact, there are many things that countries might reasonably want to regulate on
the Internet. These include not just serious affronts to human values such as child
pornography and incitement to racial hatred, but also consumer protection, the defence of
intellectual-property rights and taxation. These are all issues on which countries legislate
already. The existing rules and laws would and should apply to the Internet and
eCommerce. The problem is not whether the Internet should be regulated, but how. This
entirely new sort of communication poses several entirely new sorts of problem for
regulators.
Intrinsic to the Internet is its ability to leap borders at the click of the computer-
mouse, roaming websites from one country to another where different laws and standards
may apply. Second, regulation has traditionally distinguished between public and private
communication. But the Internet is both a private conduit for messages between
individuals, and a public one. To regulate it, countries could use existing laws wherever
possible; and, adapt some of the solutions emerging on the Internet itself. One such
example is to get over the brand name and Internet address problem63
by assigning
numbers much like those of the telephone and using global directories. Similarly, although
the Internet may worry governments and copyright holders by making it easier to copy
copyrighted material, it compensates by letting copyright holders find and police instances
of abuse better than they could before.
A comprehensive discussion of the legal and regulatory obstacles to the promotion
and expansion of eCommerce is beyond the scope of this paper. However, some of the
issues that need to be addressed are listed below:
• Bringing about changes in existing laws which are rooted in the paper world,
requiring writing, signatures, creation and retention of original documents,
documentary evidence in legal proceedings and use of prescribed paper
forms.
63 This is turning into a major issue of registered trademarks or brand names vs. Internet site addresses using
the same or similar names and therefore leading to trademark infringement disputes.

• Modification of export and import regulations and formalities to address the
regulatory impediments to physical delivery of goods ordered online.
• Development of digital signature and encryption technology and removing
some of the restrictions on its import, export and use (because of national
security and law enforcement concerns).
• Removal of uncertainty as to which national (and state) laws apply in cross-
border transactions (issues of jurisdiction).
• Lack of consumer confidence because of uncertainty as to the effectiveness
of consumer protection laws.
• Addressing the whole issue of exchange controls, both as financial policy as
well as the restrictions and problems of international electronic payment
mechanisms (e.g. use of credit cards online, or by phone, fax, or e-mail).
• Development of and regulations governing the issue of stored value cards
and other electronic cash devices by financial institutions.
• Liability of service providers, e-mall operators64
and other intermediaries for
the content and conduct of eCommerce sites.
• Protection for intellectual property, which is particularly relevant to
copyright-based businesses that supply software, music, film, video and
literary works.
National legal framework
The main issue that developing countries need to address is to make their legal framework
conducive to eCommerce transactions, after of course considering its implications and
taking the policy decision to do so, in whatever degree. The UNCITRAL Model Law on
electronic commerce is one such standard framework for resolving the contractual issues
and obstacles related to eCommerce. Several developing countries are considering
adopting it or legislating directly themselves (several already have). The basic principle
being followed is that of “equivalence of treatment” between paper and electronic
communication. This is easiest and quickest done by adapting the existing legal system to
an eCommerce environment.
National financial framework
Along with changes in contract and company law, eCommerce also requires a financial and
banking framework that allows for electronic payments and transfers. This would include
requirements for certification of documents, electronic signatures, confidentiality and
privacy. Several developing countries will need to put in place both the electronic network
(between financial institutions) as well as the legal framework to allow for such
transactions. Banking laws and regulations thus need to be adjusted to the new formats
and requirements. Already there has been progress in this area in several countries,
especially where EDI for trade facilitation is already being introduced.
64 Those that set up and maintain ‘virtual’ electronic shopping-malls/complexes on the Internet.

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