Software must be treated as a good, not service, in free trade talks, says CATA

The Canadian Advanced Technology Alliance sent a letter last month to Foreign Trade minister Pierre Pettigrew explaining why, for trade purposes, software should be considered a good and covered by free trade treaties. Calling it a service could cost this country billions in lost exports, the lobby group claims. Its letter, edited for length, is reproduced here.The Canadian Advanced Technology Alliance would like to congratulate you on Canada’s initial negotiating position for the new round of GATS negotiations. We are particularly pleased that telecommunications services and computer and related services have been included among the sectoral negotiating proposals. CATAAlliance is concerned about one aspect of the computer and related services negotiations. We fear that one of the proposals which has been put forward will inflict serious damage on the Canadian software industry. On January 21 we received from DFAIT a "Computer and Related Services Questionnaire". It contained the following question: Canada is currently examining whether electronic deliverables that have a physical equivalent such as software, books or music, should be considered as a good, service, or Intellectual Property right under WTO rules. This question is of interest because the trade rules applicable to these different categories vary. Software must continue to be classified as a good. To classify it as a service could have a devastating effect on the software industry. As a good, software is subject to the GATT, and essentially free trade prevails on a global basis. The software industry has grown enormously as a result. A newly published report in the National Post shows that last year the top 100 Canadian software companies had revenues of $4.5 billion. No less than $4 billion, almost 90 percent of revenues, was exports. Without foreign sales, the industry would almost vanish. Electronic distribution of software has become commonplace. If this causes software to be reclassified as a service, subject to GATS rules, it will be subject to all the protective practices which continue to prevail in the world of services. On February 21 The Globe & Mail published an article by Mr. Moore (Director General of the WTO) entitled "Liberate trade, not paranoia". Intended to sooth the fears of those who oppose freer trade, it argues that under GATS governments will be free to maintain all sorts of protective barriers around their service industries. It offers the following example: "Governments can also limit their commitments to one or more of the four "modes of supply" through which services are traded. For instance, they might allow cross-border software trade, but prevent a foreign software company from setting up shop in their domestic market." A balder statement of the sort of threat which our industry will face if it falls under GATS would be hard to find. It is common practice in the software industry, once export sales to a country have reached a suitable level, to establish a sales office there. Cognos has two dozen foreign offices, for example. If companies are prevented from opening foreign branches in the future, it will strangle their growth. It must be remembered that almost all Canadian software companies are SMEs. The e-commerce proposal links software to books and music, which are cultural products. Software clearly is not. Almost all the software developed in Canada is sold to businesses. On March 14, one of your officers called to ask whether it would be possible to distinguish between personal and business software. It would not be practical, even for such apparently obvious cases as computer games. Role playing games and simulations are increasingly important in business training. CATAAlliance urges Canada to adopt the position that software is a good, subject to the GATT, no matter how it is delivered to the customer. To do otherwise risks damaging an industry which is the leader in Canada’s new economy. We would be happy to discuss this matter with you at any time.

Software must be treated as a good, not service, in free trade talks, says CATA

Broadcast | April 19, 2001

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