The Canadian Advanced Technology Alliance is concerned that Canada this month will sign a framework for a trade and investment agreement with the European Union that might put the country on the road to reclassifying software as a service

instead of a good.

The move calls for the electronic delivery of software, books and music to be considered services. The European Union proposed the policy, which has a “”relatively low”” chance of being passed by the World Trade Organization, admitted David Paterson, Ottawa-based national director of public affairs of the Canadian Advanced Technology Alliance (CATA).

“”There are some very strong opponents to this whole idea, led by the United States,”” as well as equally forceful advocates in the cultural industries that want to make money through online sales, Paterson said. “”We don’t want a decision in which the cultural nationalists can say, ‘Oh, the only people who are concerned about this are the Americans.'””

This is why CATA is keeping the issue top-of-mind among members of the Department of Foreign Affairs and International Trade. Moreover, there’s a new minister of international trade, Jim Peterson, who needs to be apprised of all the issues.

The Department of Foreign Affairs and International Trade has not ruled on the issue because the WTO hasn’t achieved an international consensus, said Pierre Béchard, a government spokesperson. He was unsure about the specific reasons for the delay or the deadline for a decision to be made by the WTO, which has been aware of the issue for a few years.

A move to make software a service may do “”significant damage to a very important Canadian industry,”” explained Paterson. As it stands, the sector essentially enjoys free trade and is subject to the General Agreement on Tariffs and Trade, allowing companies to sell their product anywhere in the world and encounter fewer problems in giving temporary entry of sales people into other countries and establishing offices abroad, he said.

This is because software firms are covered under other countries’ general investment rules, which usually don’t include substantial obstacles to money flowing in, he said.

If software were to become a service under the General Agreement on Trade in Services, however, “”Godawful entanglements are easy to create,”” Paterson said. Under the GATS, “”countries are free to establish whatever rules they like for services companies.””

This means it would be harder for Canadian companies to expand in the way they normally do, which is first to build a market in the U.S., find a distributor or agent overseas and expand into other regions, then buy the distributor or set up their own office in those countries as sales grow, he said.

“”It’s not going to have some instant, overnight impact on the software industry that’s going to shrink it by half or something like that, but what it will do is reduce the opportunity for growth and it may ultimately bring about some decline in the revenues of the industry.””

Paterson said Europe, in contrast, has a small software industry consisting of 200 players underscored by a few large, successful firms, which explains the weak opposition to changes in software classifications. Add to this the European Union’s strong protectionist traditions particularly in areas of culture, he said. Canada, meanwhile, has at least 2,000 companies in the software business that are at least selling product.

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