EXECUTIVE SUMMARY OF E-COMMERCE REPORT

The Internet has the potential to become the United States' most active trade vehicle within a decade, creating millions of high paying jobs. In addition, Internet shopping may revolutionize retailing by allowing consumers to sit in their homes and buy a wide variety of products and services from all over the world.

Many businesses and consumers are wary of conducting extensive business electronically, however, because the Internet lacks a predictable legal environment governing transactions and because they are concerned that governments will impose regulations and taxes that will stifle Internet commerce.

A Framework for Global Electronic Commerce outlines the administration's strategy for fostering increased business and consumer confidence in the use of electronic networks for commerce. The paper reflects widespread consultation with industry, consumers groups, and the Internet community.

The paper presents five principles to guide government support for the evolution of electronic commerce and makes recommendations about nine key areas where international efforts are needed to preserve the Internet as a non-regulatory medium, one in which competition and consumer choice will shape the marketplace. With respect to these areas, the paper designates lead U.S. government agencies and recommends international fora for consideration of each issue.

PRINCIPLES

1. The private sector should lead. The Internet should develop as a market-driven arena not a regulated industry. Even where collective action is necessary, governments should encourage industry self-regulation and private sector leadership where possible.

2. Governments should avoid undue restrictions on electronic commerce. In general, parties should be able to enter into legitimate agreements to buy and sell products and services across the Internet with minimal government involvement or intervention. Governments should refrain from imposing new and unnecessary regulations, bureaucratic procedures, or new taxes and tariffs on commercial activities that take place via the Internet.

3. Where governmental involvement is needed, its aim should be to support and enforce a predictable minimalist, consistent, and simple legal environment for commerce; where government intervention is necessary, its role should be to ensure competition, protect intellectual property and privacy, prevent fraud, foster transparency, and facilitate dispute resolution, not to regulate.

4. Governments should recognize the unique qualities of the Internet. The genius and explosive success of the Internet can be attributed in part to its decentralized nature and to its tradition of bottom-up governance. Accordingly, the regulatory frameworks established over the past 60 years for telecommunication, radio, and television may not fit the Internet. Existing laws and regulations that may hinder electronic commerce should be reviewed and revised or eliminated to reflect the needs of the new electronic age.

5. Electronic commerce on the Internet should be facilitated on a global basis. The Internet is a global marketplace. The legal framework supporting commercial transactions should be consistent and predictable regardless of the jurisdiction in which a particular buyer and seller reside.

RECOMMENDATIONS

The principles described above guide the following recommendations:

1. Tariffs and Taxation. The Internet should be declared a tariff-free environment whenever it is used to deliver products and services. The Internet is a truly global medium, and all nations will benefit from barrier-free trade across it.

No new taxes should be imposed on Internet commerce. Existing taxes that are applied to electronic commerce should be consistent across national and sub-national jurisdictions and should be simple to understand and administer. State and local governments should cooperate to develop a uniform, simple approach to the taxation of electronic commerce, based on existing principles of taxation.

2. Electronic Payment Systems. The commercial and technological environment for electronic payments is changing rapidly, making it difficult to develop policy that is both timely and appropriate. For these reasons, inflexible and highly prescriptive regulations and rules are inappropriate and potentially harmful. In the near-term, case-by-case monitoring of electronic payment experiments is preferable to regulation.

3. Uniform Commercial Code for Electronic Commerce. In general, parties should be able to do business with each other on the Internet under the terms and conditions they agree upon. Private enterprise and free markets have typically flourished, however, where there are predictable and widely accepted legal principles supporting commercial transactions.

The United States supports the development of an international uniform commercial code to facilitate electronic commerce. Such a code should encourage governmental recognition of electronic contracts; encourage consistent international rules for acceptance of electronic signatures and other authentication procedures; promote the development of alternative dispute resolution mechanisms for international commercial transactions; set predictable ground rules for exposure to liability; and streamline the use of electronic registries.

4. Intellectual Property Protection. Commerce on the Internet will often involve the sale and licensing of intellectual property. To promote electronic commerce, sellers must know that their intellectual property will not be stolen and buyers must know that they are obtaining authentic products. Clear and effective copyright, patent, and trademark protection is therefore necessary to protect against piracy and fraud.

The recently negotiated World Intellectual Property Organization (WIPO) treaties for copyright protection should be ratified. Issues of liability for infringement, application of the fair use doctrine, and limitation of devices to defeat copyright protection mechanisms should be resolved in a balanced way, consistent with international obligations.

The government will study and seek public comment on the need to protect database elements that do not qualify for copyright protection and, if such protection is needed, how to construct it.

The administration will promote global efforts to provide adequate and effective protection for patentable subject matter important to the development of the Global Information Infrastructure (GII), and establish standards for determining the validity of patent claims.

The administration also will work globally to resolve conflicts that arise from different national treatments of trademarks as they relate to the Internet. It may be possible to create a contractually based self-regulatory regime that deals with potential conflicts between domain name usage and trademark laws on a global basis.

The administration will review the system of allocating domain names in order to create a more competitive, market-based system and will seek to foster bottom-up governance of the Internet in the process.

5. Privacy. It is essential to assure personal privacy in the networked environment if people are to feel comfortable doing business across this new medium.

Data gatherers should tell consumers what information they are collecting and how they intend to use it. Consumers should have meaningful choice with respect to the use and re-use of their personal information. Parents should be able to choose whether or not personal information is collected from their children. In addition, redress should be available to consumers who are harmed by improper use or disclosure of personal information or if decisions are based on inaccurate, outdated, incomplete, or irrelevant personal information.

The administration supports private sector efforts now underway to implement meaningful, user friendly, self-regulatory privacy regimes. These include mechanisms for facilitating awareness and the exercise of choice online, private sector adoption of and adherence to fair information practices, and dispute resolution. The government will work with industry and privacy advocates to develop appropriate solutions to privacy concerns that may not be fully addressed by industry through self-regulation and technology.

6. Security. The GIl must be secure and reliable. If Internet users do not believe that their communications and data are safe from interception and modification, they are unlikely to use the Internet on a routine basis for commerce. The administration, in partnership with industry, is taking steps to promote the development of a market-driven public key infrastructure that will enable trust in encryption and provide the safeguards that users and society will need.

7. Telecommunications Infrastructure and Information Technology. Global electronic commerce depends upon a modern, seamless, global telecommunications network and upon the "information appliances" that connect to it. In too many countries, telecommunications policies are hindering the development of advanced digital networks. The United States will work internationally to remove barriers to competition, customer choice, lower prices, and improved services.

8. Content. The administration encourages industry self-regulation, the adoption of competitive content rating systems, and the development of effective, user-friendly technology tools (e.g., filtering and blocking technologies) to empower parents, teachers, and others to block content that is inappropriate for children.

The government will seek agreements with our trading partners to eliminate overly burdensome content regulations that create non-tariff trade barriers.

9. Technical Standards. The marketplace, not governments, should determine technical standards and other mechanisms for inter-operability on the Internet. Technology is moving rapidly and governments' attempts to establish technical standards to govern the Internet would only risk inhibiting technological innovation.

COORDINATION

The administration will continue to coordinate its approach to electronic commerce. The interagency team that developed this framework and strategy will continue to meet to update the strategy and facilitate its implementation as events unfold.

Background on President's Memorandum for Department and Agency Heads

The president today issued a memorandum for the heads of all executive branch departments and agencies directing them to implement the strategy outlined in A Framework for Global Electronic Commerce.

The memorandum first instructs executive branch officials to apply the framework's five basic principles to any actions they take with respect to electronic commerce. These principles call for the Internet to function as a market-driven environment with minimal government regulation, and for the Internet to be governed by a consistent set of rules across state, national, and international borders.

The memorandum then lists 13 specific objectives and designates appropriate executive branch officers to head government efforts to achieve these objectives. In several cases, the memorandum directs executive branch officers to achieve specific objectives within the next 12 months.

1. The memorandum directs the U.S. Trade Representative to secure international agreement within the next 12 months to reduce tariffs on Internet-related equipment to zero and to ensure that products and services delivered across the Internet are not subject to tariff.

2. The memorandum directs the secretary of commerce to seek domestic and international agreement within the next 12 months on common approaches for the authentication of electronic transactions through technologies such as digital signatures.

3. The memorandum directs the secretary of commerce and the director of the Office of Management and Budget to encourage private sector development and deployment within the next 12 months, of effective, industry-developed codes of conduct and technology tools to protect privacy online, especially with respect to children.

4. The memorandum directs the secretary of commerce to encourage the development of user-friendly filtering technologies and private rating systems within the next 12 months that empower parents, teachers, and other Internet users to block content that they deem inappropriate for their children.

5. The memorandum directs the secretary of the treasury to work with domestic and foreign government officials to assure that no new taxes are imposed on Internet commerce and that existing taxes are applied in ways which do not hinder nor distort commerce.

6. The memorandum directs the administrator of the General Services Administration to bring federal government purchasing into the electronic age by arranging for federal purchasing of four million items online within the next 12 months.

7. The memorandum directs the secretary of commerce to support efforts to establish a private, competitive system for allocating domain names and to create a contractually based, self-regulatory regime to resolve conflicts between domain name usage and trademark laws globally.

8. The memorandum directs the secretary of treasury to work domestically and internationally to ensure that no new taxes are imposed on Internet commerce, that existing taxes are technology neutral and avoid inconsistent tax jurisdiction and double taxation problems.

9. The memorandum directs the secretary of commerce to work globally to support development of a "Uniform Commercial Code" for cyberspace that recognizes, facilitates, and enforces electronic agreements worldwide.

10. The memorandum directs the secretary of commerce to support private sector development of technical standards for the Internet and direct the U.S. Trade Representative to oppose governmental efforts to mandate standards or use standards as non-tariff trade barriers.

11. The memorandum directs the secretary of treasury to monitor emerging electronic payment technology, to oppose government efforts to regulate electronic payment at this time, and to work with the private sector to ensure that any necessary government activity in this area can flexibly accommodate the needs of the emerging marketplace.

12. The memorandum directs all agencies to work domestically and internationally to make the Internet a secure environment for commerce, supported by a robust infrastructure, and well-trained Internet users who understand how to protect their systems and their data.

13. The memorandum directs the secretary of commerce to enhance the ability of our patent system to protect patentable innovations in the electronic age, and to work to ensure that patentable subject matter important to global commerce is protected globally.

The memorandum establishes an interagency group under the leadership of the vice president to coordinate implementation of the government's strategy for electronic commerce and directs agency heads to report to him through the interagency group every six months on progress towards meeting all of the specific objectives outlined in the memorandum.

Global Issues
USIA Electronic Journal, Vol. 2, No. 4, October 1997