WTO: Everything you need to know about the Battle in Seattle

All the deals the software companies didn't clinch after all...

Special report The Battle of Seattle last week, swiftly followed by the complete collapse of the World Trade Organisation summit itself, left a stack of IT-related issues up in the air, and co-hosts Microsoft and Boeing are no doubt now ruefully looking at the bills and wondering - alongside President Clinton, who instead of a nice photo op got tear gas and robocops - why it had seemed such a good idea in the first place. The Third Ministerial Conference of the World Trade Organisation was an organisational disaster, with the cancellation of many key meetings for logistical reasons. Normally even a bad WTO meeting ends up with the warring parties papering over their differences in a final communiqué, but not this time, and the key IT concerns, tariffs and TRIPS are currently up in the air. On tariffs, the US had been expecting to extend the moratorium on tariffs on electronic commerce, keeping e-commerce tax free, while it also wanted agreement on trade-related intellectual property rights (TRIPS). US trade rep Charlene Barshefsky had earlier said she was "completely confident that the US would get an extension of the moratorium on e-commerce tariffs, whereas in reality by Saturday EU trade commissioner Pascal Lamy was happily telling reporters "it was not agreed here and it will have to be agreed elsewhere." This display of independence may not however be enough to save Lamy, whose earlier concession on GM foods provoked the near-unanimous view in Europe that the lad should be genetically re-engineered himself on his return to Brussels. This is serious from the US point of view, because although US reps are now saying the tariff ban will stay in place until the WTO reconvenes, EU negotiators had earlier threatened to require it to be linked to the "classification" issue that concerns how Internet-delivered software is to be regarded for tariff purposes. A pound of flesh may therefore be exacted, if the US wants to retrieve its chestnuts. The US is also looking exposed on TRIPS. Barshefsky had said that there would be no blanket extension of the 1 January deadline for the next group of countries to implement TRIPS agreements about anti-piracy enforcement, but some countries were known to be seeking an extension, and could view the collapse of the talks as letting them off. Another group - the least developed countries - has until 2006 to implement anti-piracy measures, while the developed countries have been bound by TRIPS since 1996. The US software industry won't be happy about Barshefsky's discomfiture, because TRIPS is a key plank in the enforcement of anti-piracy measures. Background Delegates who brought a raincoat instead of a gas mask and riot gear to Seattle for the WTO meeting made a mistake, since this made it difficult for them to get to the meetings because of protestors, tear gas, pepper spray and rubber bullets. The police were caught when the wind direction changed, blowing the gas back to their lines, and although they confiscated gas masks from protestors, they were unable to prevent the cancellation of the opening ceremony. Subsequently, most working groups were also cancelled. To clear the streets around the conference area, there were curfew zones, last used in Seattle when the US army ordered Japanese nationals to keep off the streets after Pearl Harbor. Protestors set up spoof WTO websites, and the WTO wisely decided to respond to criticisms. The Tear Gas Round, as it is now being called, wasn't able to make the key decisions that were expected, although night sessions were organised, but it will be back. The Round will go on for some years, but this week was supposed to launch the round and set the political priorities. In reality the collapse of the talks was caused by the vast gulfs separating the WTO member nations, rather than by the Battle of Seattle, but both of these will have an effect on the complexion of the future of the round - a kindler, gentler and more careful WTO, one suspects. The WTO was established in 1995, although the idea of an international trade body had evolved from a discussion at the Bretton Woods conference in 1944. This however foundered until 1947 when the General Agreement on Trade and Tariffs (GATT) took on the role. There were eight GATT negotiating rounds, ending with the Uruguay round from 1986 to 1994, where dumping, non-tariff barriers and intellectual property issues began to be discussed. The US and several developed countries had held out against the establishment of the WTO until it had been agreed that intellectual property protection would be included in what became known as TRIPS. The understanding was that the developing countries would agree to TRIPS in return for their getting access to markets in developed countries for their labour-intensive products. This didn't exactly happen, so there is considerable resentment as a result. Either the globalisation of trade could be left to the law of the jungle, where the biggest and richest would win, or it could be regulated. The US IT industry has found that jungle law is difficult to enforce outside the US, so wants a system that supports the approach globally. The developing countries remain deeply suspicious and are more concerned with fundamental things like food, water and the repayment of debts. The lobbyists and special interest groups want a say in the regulation, but they are no match for the corporate lawyers and bureaucrats who now negotiate these things. The Seattle backlash by protestors against the new global economy is a mixture of protectionism and isolationism, with free trade being viewed as responsible for most of the ills of the world. The counter argument being used by the WTO is that GATT did cause tariffs to fall and world trade to increase as a result, so yielding the money for aid programmes. The argument is ultimately circular of course. US arguments this time around tended to lack diplomatic sophistication; saying that the US gained 20 million new jobs in IT in the past six years does not cheer up those in the developing world who see the new technology as an expense that they cannot afford but can hardly ignore. The result is clear: the rich get richer and the poor get poorer. For its part, the US responds that it can only find jobs for the unemployed, help the homeless, and contribute to feeding the world if it is economically successful. Mike Moore, the WTO director general, says he favours the removal of all barriers to imports from the least developed countries. If agreed, at the same time as allowing the developing countries to establish tariffs against imports, this could make real growth possible, always providing of course that the level of corruption and armament purchases did not bankrupt the country along the way. E-commerce WTO director general Mike Moore said that a "continuation of the moratorium on duties applied to electronic commerce transactions is... a possibility". The EU's negotiating position over e-commerce classification (which amounts to how it is taxed) was that it wanted electronically delivered content to be treated as a service, but the US - and Microsoft in particular - wanted software classified as a good. The reason is that different rules apply, and each side favours whichever suits it best. Microsoft could well find that the only way to get the moratorium extended is to compromise with the European desire, and link tariffs and classification issues. The WTO has identified three kinds of Internet transactions: those where selection, purchase and delivery take place entirely on the Internet; those involving distribution services, where the product selected and purchased online is delivered physically; and transactions such as the provision of Internet services. It is not clear yet whether these categories will be treated differently, and if so what the treatment differences would be. WTO member governments mostly consider Internet transactions to be covered by the General Agreement on Trade in Services (GATS), and that GATS does not distinguish between the delivery method. The disagreement is over how to categorise software and books. Books delivered physically are goods, but some governments wish to regard electronic books as services. Microsoft and others advocate the recognition of a third category: virtual goods. TRIPS TRIPS is a comprehensive agreement on IP rights. It covers copyright, trademarks, geographical labelling of products; industrial designs; patents; integrated circuit design; and undisclosed trade secrets and test data. The TRIPS agreement sets out minimum requirements for protection that must be observed by WTO members, as well as enforcement procedures and a dispute settlement process. It is of particular interest that it does not include any copyright protection for "ideas, procedures, methods of operation, or mathematical concepts" which rules out business processes you might think, until you discover that the US patent office thinks it is acceptable to award patents for business processes. Computer programs are protected under the Berne Convention, whether the program is in source or object form. There is also protection for databases and compilations of data, but not necessarily for the data. Getting TRIPS extended is of great importance to Microsoft and the rest of the US software industry, since if it lapses, piracy is likely to increase. Many developing countries would do little or nothing to control it. Indeed, some of them believe that piracy is a business like any other, and that anything that contributes to the economy - and especially technology - is a good thing. TRIPS is seen by many as a form of late 20th century colonialism that will set the scene for how business is carried out in the next century. It is believed that the US has been readying a raft of litigation to pursue through the WTO procedures against businesses in developing countries that have copied patented drugs or have pirated software. However, the amount of litigation may well prove to be too great for the TRIPS council to handle. Information Technology Agreement In January, most IT products, including office and telecom equipment, will be free of tariffs under the Information Technology Agreement, which has been reducing customs duties since 1997. There are now 51 participants in the agreement. The discussions in Seattle were intended to centre on a so-called ITA-II broad list, but agreement was not reached over some electronic consumer goods. The present ITA only deals with tariff elimination, and not with trade barriers, such as differing safety standards, import licensing requirements that increase costs. The leading exporters of equipment covered by the ITA are the US ($114 billion); Japan (86 billion); Singapore ($58 billion); and the UK ($43 billion). With importers, it is US ($156 billion); UK ($47 billion); Germany ($46 billion); and Hong Kong ($43 billion). Microsoft Microsoft's efforts at the Seattle Round have been rather low key. Like all private companies, it can only play at fringe meetings, which don't attract delegates. Microsoft COO Bob Herbold chaired a meeting of the Seattle Host Organisation on trade and commerce. The first speaker was from Deloitte and Touche, who just happen to be Microsoft's auditors. The meeting was rather thin on IT luminaries, but outgoing HP chairman Lew Platt and Teledesic CEO Bill Owens were there. Brad Smith, Microsoft general counsel for international affairs, is handling Microsoft's involvement with the Seattle Round. It seems that he has realised that delegates were in Seattle to talk to each other, and that Microsoft had only had "some communication" with delegations. He had found it "challenging for anybody to follow what it happening" but reiterated Microsoft's desire to achieve an extension to the existing moratorium on e-commerce tariffs, and to oblige developing countries to seek out and punish software pirates. The US Trade Representative is fully behind (or perhaps pushed in front) of these goals. Smith likes to refer to his success in Sweden when in an expansive mood, since a TRIPS case there has had the effect of reducing piracy from 54 per cent to 38 per cent, he says. But while this 30 per cent reduction, even if true (and measuring such things accurately is all but impossible), the amount of money does not add up to much. Smith ran the BSA's European piracy efforts from London before accepting a position with Microsoft. Gates has been keeping a low profile during the WTO meetings. Wearing his Gates Foundation hat, he met UN secretary-general Kofi Annan to discuss how the private sector could help to stimulate development in poor countries. Annan himself was physically prevented from addressing the WTO because demonstrators blocked access. ® Related Stories: World trade body declares MS profits illegal US software exports illegally subsidised, rules WTO MS lobbies senate to lean on Europe, WTO Trade: MS and Boeing get ready to rock with Rocky MS WTO tax push skips IP, values software at zero MS pushes 'no net taxes' for Seattle WTO

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