Global E-Commerce Regulation

views updated

GLOBAL E-COMMERCE REGULATION

In the early days, when the Internet was mainly a tool for government, military, and academic personnel, regulation was barely an issue, outside of the basic requirements for and restrictions on access. Once the World Wide Web came along and the Internet was opened to commercial activity, however, cyberspace became tied to the conflict-ridden world of national and international economic policies and regulations, to the chagrin of many interested parties, among them businesses, industry groups, legislators, governments, and issue advocates.

Regulating the Internet was a contentious issue, coming at a time when the trend throughout much of the world was toward deregulating markets. While many civil libertarians viewed the Internet as a distinctly new medium that should remain free of the hands of government, the reality, according to The Economist, was that "the Internet is neither as different nor as 'naturally' free as wired utopians claim." Along with the Internet's possibilities for democratization and the unleashing of creative and empowering forces came new opportunities for mischief, such as the invasion of privacy and theft, not to mention legal concerns relating to contracts, transactions, and trade. In these areas there were increasing calls for regulation to sort out the various considerations and, in a sense, free the Internet from ambiguity.

JURISDICTION

Many Internet pioneers hoped to keep the medium more or less free from government controls. Tim Berners-Lee, inventor of the World Wide Web, and the World Wide Web Consortium (W3C) that he heads, were committed to keeping the Web as open as possible, allowing for the widest range of input and choices. The standards and protocols they sponsored had a tremendous impact toward this end, but the group was a private nonprofit organization, not a government regulatory body. The W3C worked with business leaders, citizen groups, and others to reach a wide consensus, and drew praise for this laid-back and cooperative approach.

As the Internet proliferated further around the globe, many saw a need for a single body that could act as a global regulator of one sort or another. The nature of such a regulatory body, however, was much disputed. Questions abounded over how much power it should or could have, how it should enforce regulations, and how it would be structured. Some proposed that either the W3C or the Internet Corporation for Assigned Names and Numbers (ICANN) take on a broader regulatory function, but as of the early 2000s it seemed unlikely that either organization could or would assume such a role. Other likely prospects included more established government forums such as the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO), but critics warned that these bodies lacked the kind of openness, accountability, and consensus-based decision-making that would be required to negotiate competing global interests.

SELF-REGULATION

At the same time, calls were growing for the creation of an international e-commerce regulating body, not to impose new regulations from above, but to see to it that the increasing number of national regulations didn't wind up impeding global e-commerce. These sentiments were shared by industry groups and others who felt that the best way to foster e-commerce was to impose as little regulation from above as possible, and to allow industries to meet their own specific challenges and coordinate with other industries to achieve a common end.

The Software and Information Industry Association (SIIA) was one industry group to strongly promote and implement self-regulatory measures rather than rely on governmental bodies to impose regulations from the outside. The group created comprehensive membership guidelines requiring member companies to abide by clear standards of behavior to protect consumer privacy, and conducted industry-wide educational and policy forums to address issues important to members.

The Clinton administration, the U.S. presidency that oversaw the opening of the Internet to e-commerce, was fairly hands-off, particularly compared with its European counterparts, tending to favor self-regulation rather than promote and enforce laws that might have hampered its development. While business leaders applauded this approach, it left many problems unresolved, which regulators in the 2000s were expected to deal with.

REGULATING A CYBERSPACE WITHOUT BORDERS

A regulatory problem of mounting concern was how to implement national regulations in a borderless Internet world. Most regulations of the Internet largely applied existing, physical-world rules to cyberspace, and didn't address the possibility that essential parts of an electronic transaction might lie outside national borders. The Internet increasingly made borders superfluous, and the full potential of the Internet, particularly for commerce, was based on this characteristic. This fueled the growing calls for international regulatory bodies to oversee developments in cyberspace.

For instance, according to the U.S. Federal Trade Commission's e-commerce regulation report Consumer Protection in the Global Electronic Marketplace: Looking Ahead, released in September 2000, online shoppers may be vulnerable to compromised security of their financial information when shopping at foreign Web sites due to the uneven nature of international privacy and security measures. The FTC encouraged the U.S. government to be proactive in working with other countries toward harmonization and stronger enforcement of international consumer-protection laws.

While the FTC report advocated a degree of uniformity in global e-commerce rules, it stopped short of advocating any particular organization to set or enforce such regulations. Rather, it envisioned a future Internet world in which private industry groups and governments established an alternative dispute resolution procedure and came to internationally accepted standards of fair marketing practices. It also saw a prominent role for self-regulation born of "private sector initiatives," in which industry groups agreed to standard business practices that would address the industry's specific needs.

Countries with more closed economic systems, such as China, were mixed in their reactions to and regulation of e-commerce. While the Chinese government encouraged e-commerce and was investing in the infrastructure to make China competitive in the online marketplace, it continued to maintain tight controls on the development of Chinese e-commerce, strictly implementing a legal framework for e-commerce to reflect the nation's interest. After linking to the Internet in 1994, China gradually implemented new laws regulating Internet access and the registration of domain names. By the late 1990s and early 2000s, however, new legislation was abundant. China was unusual, for instance, in maintaining strict controls over domestic encryption technology via state-controlled encryption authorization. Most countries, concerned with the security of their domestic networks, protected their encryption systems via export controls, but allowed encryption to circulate more or less freely domestically.

In December 1999, the Chinese Ministry of Information Industry (MII) unveiled its guidelines for the development of Chinese e-commerce, which broadly sought to sketch out a legal framework in which China could become competitive in international e-commerce, but also which "fits the global scheme of things," according to MII Deputy Minister Lu Xinkuei. This caveat was read by many analysts as a signal that China intended to continue its tight grip on the reins of e-commerce and Internet use in China. The guidelines themselves seemed to bear this out, as they stipulated that the Chinese government would manage e-commerce development and implement laws and launch businesses with an eye toward maintaining Chinese national security.

In some cases, the regulation of global e-commerce gets caught up in broader international trade politics. As America's Network reported, the Association of Petroleum Exporting Countries (APEC) was leading a charge to create equitable cost systems for connecting to international Internet circuits. Telecommunications operators and Internet service providers (ISPs) from the countries of the Pacific Rim, in particular, had long argued that, even though U.S. ISPs use them, they must bear the entire cost of connecting to international circuits in the region. The U.S. generally favored leaving these issues for the market to decide. While it was unclear just who should regulate such fees, the United States and Canada, according to America's Network, were increasingly isolated in their calls to keep governmental regulation out of such decisions. APEC proposed placing authority with the World Trade Organization or even the International Telecommunication Union to settle disputes over the matter.

International dispute resolution, whether between different companies or between companies and consumers, drew greater attention from regulators in the early 2000s, particularly in Europe, where the Brussels Convention and Rome Convention began carving out the space for dispute resolution and enforcement of fair international e-commerce practices. The Brussels Convention allowed consumers involved in a disputed transaction to sue in either their own country or the country in which the business resides as long as there was a specific advertisement or invitation to the consumer that prompted the purchase. The Rome Convention, meanwhile, aimed to coordinate the laws of different countries so those who sue couldn't choose the courts in one country over another for any particular advantage.

The European Union, particularly its governing body the European Commission, has been more aggressive than the United States in playing an active role in e-commerce regulation. In large part, this proactive approach came about because the European Union was already in the midst of a much wider economic integration, for which precise rules, structures, and commercial complications still needed to be ironed out. In this case, leaving the e-commerce framework more open to self-regulation, according to EU administrators and analysts, would only create more confusion and possibly impede the development of e-commerce in Europe. This in turn could diminish the EU's global competitiveness just at the moment it was getting on its feet. In 2000, the European Council and the European Commission devised the eEurope Action Plan, which, as part of its broader goals to stimulate wider use of the Internet and e-commerce, called for a creating a comprehensive legal environment to legislate and enforce guidelines for European e-commerce.

TAXATION

Taxation is a crucial issue for e-commerce regulators both within the United States and across the globe. In particular, customers and companies engaging in international e-commerce transactions have to negotiate a web of tax laws in countries where they do business—including national tax laws with special provisions for foreign transactions or for ecommerce—as well as their domestic tax regulations. Beyond that, most countries have been sorting out specific tax measures for Internet purchases, creating separate categories of regulations. These issues highlight again the tension between nation-based legal structures and the borderless Internet.

The countries of the European Union, for instance, taxed Internet transactions via value-added taxes, which act as consumption taxes and can reach as high as 20 percent, while the United States maintained a moratorium on e-commerce taxes through the Internet Tax Freedom Act. In 2000, this disparity sparked fierce debate between the two regions after the European Commission proposed requiring companies that sell certain electronic services, including software, in the European Union to collect value-added taxes from those EU customers. U.S. companies balked at the notion of collecting taxes for European governments, according to Upside, and various EU leaders came up with alternative proposals, each of which ruffled some feathers on both sides of the Atlantic.

The European members of the G7 group of advanced industrial nations, furthermore, were far more enthusiastic than the United States to establish a system requiring e-businesses to register with national tax authorities in the countries where they wish to sell digital products for downloading, such as music files and software. Aside from the greater aversion among U.S. policy makers to establishing regulatory schemes for the Internet, U.S. resistance to such proposals had a practical element as well, since it was U.S. merchants that clearly dominated the market for digital transactions, and thus would be most affected by such regulations. For its part, in the late 1990s, the World Trade Organization placed its own moratorium on e-commerce taxation.

PRIVACY

Elsewhere, the United States and the European Union clashed over the EU Commission's stringent Data Privacy Directive, which the EU initially wanted to impose on U.S. businesses as well. In the end, however, a compromise was reached when U.S. businesses agreed to regulate themselves and stand accountable to the U.S. Federal Trade Commission (FTC), which pledged to punish any lapses in protecting and securing the personal and financial information of EU consumers.

This form of regulation was still voluntary, though businesses that failed to sign on could suffer consequences in the market. Consumers might lack confidence in those companies' ability or willingness to safeguard their private information, and such lack of confidence was, in turn, one of the largest impediments to consumer e-commerce. Participating companies agreed to abide by the U.S. Department of Commerce's Safe Harbor Privacy Framework, which called for firms to notify customers of the reasons they are collecting consumer data; allow customers the option of withdrawing their information should it be disclosed to a third party; allow customers to access their own data stored in companies' records; and make serious efforts to protect that information from unauthorized access and use.

COMPETITION

National or regional governments have also played a strong role in antitrust enforcement concerning Internet-related markets, as the U.S. case against Microsoft and the European Union's ruling against the proposed merger between Sprint and WorldCom demonstrated. The FTC also closely eyed the development of Web-based business-to-business trade exchanges, in which companies came to a central electronic market to trade supplies and finished goods. The FTC was concerned that such exchanges harbored the potential for the establishment of price-fixing schemes and illegal market barriers to outside competitors. The FTC supported the concept behind the exchanges, acknowledging their potential for lowering the costs of transactions, but worried that the potential for antitrust violations would impede fair competition.

CONTENT CONTROL

Content was another area in which the regulation debate was exceptionally heated. While most of the world's major players extolled the Internet as a great leveler and democratizing force and a tool for the free exchange of information, there were numerous efforts by regulators all over the world to restrict certain kinds of access, and sometimes these efforts spiraled into international controversies. Regulators in the United States and elsewhere have been vigilant in trying to stamp out, or at least restrict access to, generally offensive materials such as child pornography on the Web, but sometimes these actions veered too close to the abridgement of free speech and free flow of information for civil libertarians to stomach. One highly publicized case occurred in the early 2000s when the French government worked to restrict French Web surfers' access to sites containing Nazi content and paraphernalia, a move that many international observers decried as excessively restrictive and a dangerous precedent. Critics pointed out that not only should anyone have the right to express beliefs, particularly political beliefs, on the Internet, but Web surfers should have the right to visit such sites, and that their visits, moreover, couldn't be construed automatically as endorsement of the views expressed.

In other parts of the world, such as China, government suspicions of potentially subversive foreign materials led them to restrict access to Web content stemming from outside the government's own network. Such cases highlighted the tensions born of the Internet's dissolving borders, which some viewed as the dissolution of national sovereignty.

Other content that continually wrought tension between and among regulators, consumers, and businesses included sites depicting violence or providing information about weaponry, online gambling sites, and various shades of online pornography. In all these cases, approaches differed as to the degree and nature of regulatory involvement.

In general, the European Union opted for the self-regulation of online content. The EU's plan to combat illegal and harmful content encouraged companies, industries, and Internet users to devise and enforce their own safety provisions, implement content filtering systems, generate awareness about responsible Web surfing and online content, and facilitate harmony in international standards. In that spirit, a coalition of European companies launched the Internet Content Rating for Europe (INCORE) initiative.

AN EMERGING CONSENSUS?

Business leaders were by no means universally opposed to regulations. In fact, regulation in some areas was often strongly encouraged by businesses and industry groups as a way of clarifying rules and processes and removing ambivalence about the path of e-commerce. One of the overriding concerns driving regulatory efforts was the need to level all playing fields in order to allow for the greatest and fairest proliferation of e-commerce. The players driving e-commerce also took into consideration that a completely unregulated commercial cyberspace environment would erode consumer confidence and damage the development of e-commerce. By the early 2000s, most business leaders, governments, and other policy makers recognized the economic importance and opportunities of e-commerce, and were not willing to risk damaging its prospects, thus opting for a pragmatic regulatory environment. Nonetheless, the tension was far from resolved.