Intellectual Property Law

Free Trade Agreements and their Relevance for E-commerce

By IBLS Editor

E-commerce transactions involve both the domestic and international trade of goods and services. At the international level, e-commerce has definitely expanded trade for recognized businesses and those who otherwise could have never reached international markets like artisans and small family-owned businesses. Yet, global e-commerce transactions on goods entail the international move of those goods which in turn trigger customs duties and, in some cases, imposition of tariffs.  Customs duties and tariffs, when required for certain products, are imposed by the government of the importing country.  E.g. a European buyer of online products bought from an American manufacturer may be required to pay customs duties when those American products reach his home country.  But, what happen if the exporting and importing countries have signed free trade agreements?  This article explains why free trade agreements are relevant for e-commerce transactions and provide a list of some free trade agreements signed by the United States, one of the main e-commerce players.

International trade involves dealing in goods and services.  The International trade of services does not trigger customs duties and their international regulation is governed by specific Word Trade Organization (?WTO?) agreements.  However, the international trade of goods is subject to both international rules set by WTO agreements and domestic rules for the import of goods.  Some of these domestic rules refer to the prohibition of importing certain commodities, like firearms, plants, etc., and the imposition of customs duties.   Customs duties are paid by the buyer and/or importer of goods.  Thus, the European online buyer mentioned above would be the one responsible for the customs duties of that product he bought online from the American supplier. E-commerce buyers must be aware of these customs fees to avoid uncomfortable surprises.  Sure, uncomfortable because sometimes customs fees may be higher than the price paid for the product.   

Hence, educated online buyers should not only be aware of the specific customs duties they are required to pay for the goods bought, but also know whether their country have free trade agreements with the country where the goods are manufactured.  If the exporting and importing country have signed free trade agreements between them, those products bought online may be exempted from customs duties or the customs duties may be substantially less.

Free Trade Agreements are international agreements between two or more countries or a country and economic blocs that provide a trade market for goods and services free of trade barriers.  Those trade barriers may include tariffs for certain class of products, quotas, taxes, subsidies, and high custom duties.  Thus, e-commerce transactions among countries with free trade agreements offer importing incentives for online buyers who may not be required to pay high customs fee for products bought online.    

United States (?US?) is one of the main global e-commerce players.  Indeed, the Census Bureau of the United States Department of Commerce in its latest e-commerce report showed that the U.S. e-commerce retail sales for the fourth quarter of 2007 were US$36.2 billion, an increase of 4.6% from the third quarter of 2007 and 18% from the same fourth quarter of 2006.  The total US e-commerce sales for the year 2007 were estimated at US$136.4 billion.  

US has signed bilateral free trade agreements with the following countries:

 Australia
 Bahrain
 Chile
 Colombia
 Israel
 Jordan
 KORUS
 Malaysia
 Morocco
 Oman
 Panama
 Peru
 Malaysia
 Singapore
 SACU

The United States has also signed trade agreements with regional groups.  This means, even if a specific country has not signed a free trade agreement with the US, a regional economic group to which that country belongs may have signed a free trade agreement with the US.  Some of those regional groups are as follows,

FTAA
ASEAN Initiative
NAFTA
MEFTA
APEC
CAFTA-DR
Andean Group

Full post as published by IBLS Internet Law Blog on February 26, 2008 (boomark / email).