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Hello! I am teaching law at St. Petersburg State University. Major part of my research is connected to virtual worlds and massive multiplayer online games (a broad field which includes Internet law, video game law, virtual law and game studies). This interest derives from my passion for computer games which I consider as one of the most important cultural artifacts ever created. 

Friday, August 10, 2012

Cross-Border E-Commerce Duty Free

Working on a customs law project, I have thought for a moment how customs law and virtual worlds may be connected.

By the way, this way of thinking seems to be what Robert Anton Wilson, among others, recommended to use in order to improve creativity - to think about two or more things which are not, at the first glance, connected. 

Returning to the topic. A prima facie suggestion is - through e-commerce issues.

The main relevant problem, which appears to be quite topical in view of World Trade Organization (WTO) development is whether products downloaded online (or, which is more interesting, purchased online for the online use only) from abroad should be subject to customs duties



This problem, of course, is not limited to virtual worlds - it is much more of business nature, and the hottest issues, I guess, arise in connection to (a) business software, (b) international financial services.

However, let me fantasize again for a moment. What happens when you purchase an item, for example, on Diablo 3 Real-Money Auction House? Formally, you purchase a limited "license to use Loot" (official wording implemented in Diablo III Auction House Terms Of Use). For non-U.S. or non-E.U. (continue this "non-" with other jurisdictions where the relevant Blizzard operating companies are registered) resident, this can look as a cross-border transaction which may or may not require complying with customs regulations, depending on the amount of money spent, at least if you are a proponent of a "virtual property" concept.

Or not?   

Effective Law

A short research of publicly available sources shows that the general approach to this issue in various jurisdictions comprises of the following points:
  • "Goods" do not "cross customs border" when they are downloaded online or purchased online, irrespective of the facts whether they "remain online" or are recorded to a media located in other jurisdiction;
Most definitions of "crossing customs border" I have met by now imply what may be called a "physical criterion" - you do not cross customs border if you do not, well, cross customs border on any means of transportation in real world.
  • As a consequence, customs duties may be imposed only to the physical media where the digital information is recorded on. 
This effectively makes any form of online trading with digital goods duty free.

Perspective

The considerations given above are not fixed in stone.

I do not know yet any other documents which would speak explicitly of the problem discussed, expect for the United States - Singapore Free Trade Agreement (USSFTA, March 3, 2003) which provides for duty-free electronic trade in digital products.

I suspect that there are more, and I would be grateful for any input into this.

In most cases, however, the digital products transmitted online or even not transmitted but just when the right to access them online is purchased, is duty-free by "qualified omission of legislative authority". 

Hopefully, the situation would not change to the opposite, because, as the researches show, this market is still relatively unimportant. 

Should it remain duty-free or not - this is an open question.

A link to a relevant article by Sidorenko and Findley available online.