Theme Paper

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6.1. Setting the scene for business and consumers

6.1.1. Identified Issues

Electronic commerce encompasses a wide spectrum of activities ( including electronic trading of goods and services, on-line delivery of digital content, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, on-line sourcing, public procurement, and direct consumer marketing and after sales service. It involves both products (e.g. consumer goods, specialised medical equipment) and services (e.g. information services, financial and legal services), traditional activities (e.g. healthcare, education) and new activities (e.g. virtual malls).

Electronic commerce is not new: for decades companies have exchanged business data over a variety of networks. However, driven by the Internet revolution, electronic commerce is dramatically expanding and undergoing radical changes. From a strictly business to business activity on closed proprietary networks, electronic commerce is now rapidly expanding into a complex web of commercial activities transacted on a global scale between an ever increasing number of participants, corporate and individual, known and unknown, on global open networks. From a mere conduit for the transmission of data, the network is becoming the market.

Electronic commerce includes both "indirect" electronic commerce the electronic ordering of tangible goods, which must be physically delivered through traditional channels, and "direct" electronic commerce the on-line ordering, payment and delivery of intangible goods and services such as computer software, entertainment content, or information services on a global scale. Direct electronic commerce fully exploits the potential of global electronic markets while raising novel challenges.

A fast moving, environment, electronic commerce is fostering a wide array of innovative irtual businesses, markets and trading communities. Companies are now routinely outsourcing over the Internet functions such as order fulfilment and shipping to distributors which specialise in such services. Distributors themselves are "going virtual", outsourcing the physical warehousing and movement of goods to logistics specialists such as commercial courier companies. Buyers, sellers and intermediaries are forming industry-specific Internet markets in such diverse fields as real estate, automobile parts and construction equipment. Similarly, global manufacturing industries, such as automobile, computers and aerospace, are actively integrating their supply chains through the Internet.

New processes, new functions and new revenue streams are appearing. Virtual middlemen are providing value-added services such as brokering, search and referral to businesses and consumers.

Electronic commerce is truly "born global". For all trading partners, improved access to global markets will be accompanied by competitive challenges from other parts of the world. Similarly, global solutions will be needed.

Electronic commerce is directly benefiting from telecommunication liberalisation in Europe, which is already leading to lower prices. As a direct result, Internet use and the take up of electronic commerce are significantly higher in the most competitive markets.

The private sector has played a pioneering role in the process leading to these landmark agreements. Multilateral dialogue, involving governments and industry, and will need to be pursued to ensure that electronic commerce develops its full potential. Europe will therefore work from common European positions towards achieving global consensus.

It is estimated that electronic commerce revenues on the Internet may increase to 200 billion ECU world-wide by the year 2000. Electronic commerce offers therefore considerable opportunities for Europe and its trading partners. It enhances business efficiency, bringing increased responsiveness and accountability, as well as cost reductions. It lowers barriers to entry, particularly for new players and SMEs, enlarges existing markets and creates whole new business areas. Consumers can benefit from increased choice by being able to compare and choose instantly from a wide range of offers, increased availability of specialised products, lower prices and more responsive service.

These new opportunities also bring new challenges. The perception is that electronic commerce may present new risks for businesses and customers. There are concerns about the identity and solvency of suppliers, their physical location; the integrity of information, the protection of personal data; the enforcement of contracts; the reliability of payments; etc. Such concerns are increased when trading across borders, given the lack of a predictable legal and regulatory environment. The overriding priority for industry and government alike is therefore to build global trust and confidence in the instruments, processes and networks of electronic commerce.

Building trust and confidence implies issues of "hard trust" (such as the deployment of secure technologies, infrastructures and legal and regulatory frameworks). It also implies issues of "psychological trust" (such as the backing by public authorities, or the endorsement by trusted commercial brands).

Secure technologies ( such as digital signatures, digital certificates and secure electronic payment mechanisms ( are, for the most part, fully available and commercially deployed. However, the necessary regulatory and institutional framework supporting such technologies is often not yet complete, particularly in areas such as interoperability and mutual recognition across borders.

A predictable and coherent regulatory framework is needed in order to allow electronic commerce to flourish in Europe and in the wider international environment. At the moment, faced with the new challenges of electronic commerce, governments are responding in a variety of ways. This poses two main risks. However, isolated responses at national level will be ineffective as electronic commerce does not recognise frontiers. The development of electronic commerce services could be held back if the European market is fragmented because of regulatory divergence. In order to allow for electronic commerce to fully develop in Europe, it is essential to avoid regulatory inconsistencies and to ensure a coherent regulatory framework at European level.

This regulatory framework needs to be transparent and efficient. Regulation for regulation's sake should be avoided. In most cases, mutual recognition (of national rules and of self-regulatory codes) will be the most appropriate. However, where mutual recognition cannot be achieved, there will be a need for legislative initiatives to remove obstacles that impede progress in the market or to boost user confidence. The goal must be to adopt rules that protect general interest objectives in an efficient manner whilst imposing the fewest possible burdens on the market and must keep pace with market developments.

A global market for electronic commerce will not develop without the effective protection of public interest objectives such as privacy, intellectual property rights or consumer protection. Without such protection there is a real risk that national regulatory borders will remain as individual countries seek to safeguard the legitimate concerns of their citizens.

Different legal issues need to be addressed at every step of the business activity, form the establishment of the business, to the promotion and provision of electronic commerce activities, through conclusion of contracts to the making of electronic payments.

A wide range of regulations at national level could inhibit the establishment of service providers across frontiers. For instance differing professional requirements, differing prudential and supervisory systems, and notification or licensing requirements (for example for regulated professions or financial services). Also, the new virtual environment makes it more difficult to determine who are the contracting parties, where an electronic commerce operator is established and whether that operator is complying with all relevant legal conditions. This can create legal uncertainty about which State will be competent and about the applicable law in disputed cases.

The promotion of the business can be jeopardised by divergent national regulations on commercial communications (covering advertising, direct marketing, self-promotions, sponsorship and public relations). This will hamper the use of efficient and creative cross border commercial communications strategies and create legal uncertainty. Similarly, restrictions to the marketing of particular financial services will have to be assessed whilst safeguarding consumer protection.

The conclusion of contracts may also pose problems. A number of national rules governing the formation and the performance of contracts are not appropriate for an electronic commerce environment and are generating uncertainties relating to the validity and enforceability of electronic contracts (for example the requirements for written documents, for hand written signatures, or the rules of evidence that do not take into account electronic documents). Similarly, national bookkeeping, accounting and audit rules will have to be adapted to electronic commerce.

Finally, the buying and selling of goods and services over electronic communication networks will not develop without secure, reliable and widely accepted electronic payment systems. In the area of technology and infrastructures, efforts are underway at industry level to secure de facto interoperability between various payment systems. In the field of regulation, the focus should be on encouraging the development of electronic payments in a competitive environment while achieving an adequate level of consumers confidence

In parallel to the examination of these specific issues, a number of key "horizontal" questions affecting the entire electronic commerce activity will have to be addressed. Other than data security and privacy, the appropriate protection for copyright and neighbouring rights and for industrial property (in particular trademarks) will have to be ensured. The legal protection of Conditional Access Services (also referred to as "encrypted services") will also need to be addressed.

6.1.2. Questions

6.1.3. Possible Solutions

6.2. Consumer protection

6.2.1. Identified Issues

The need for practical solutions in electronic commerce set out in the preceding section applies equally and with greater force where one of the parties is a consumer who does not have the same knowledge and resources as a business. Increased use of electronic commerce will inevitably mean an increase in the number of disputes. Where a consumer is in dispute with a supplier from another country, having recourse to the traditional court system may be cumbersome and entail expense beyond the consumer's means. There is scope for increased use of alternative dispute resolution procedures provided that the rights of all parties are duly respected (such as on-line arbitration).

National bodies active in the field of consumer protection should provide advice on the specific issues of electronic commerce of concern to consumers and seek to ensure that industry self-regulation offers consumers adequate protection. They should also co-operate internationally in line with the increase in cross-border commerce.

Disputes may also arise as to the quality of service provided by access providers, and as to the quality of information available from content providers, and trade bodies should set up codes of conduct and to allow such dispute to be resolved informally wherever possible.

Some users find it irritating to receive advertising sent by electronic mass mailing, although others may not object. Users should be able to indicate that they do not wish to receive unsolicited mail of this type, and a system should be put in place so that these addresses are removed from any mass-mailing list.

6.2.2. Questions

6.2.3. Possible Solutions

6.3. Taxation

6.3.1. Identified Issues

To allow electronic commerce to develop, it is vital for tax systems to provide legal certainty (so that tax obligations are clear, transparent and predictable), and tax neutrality (so there is no extra burden on these new activities as compared to more traditional commerce). Existing indirect taxes, and particularly VAT, clearly apply to electronic trade in goods and services, in the same way as they do to more traditional forms of trade. There is therefore no need to introduce new taxes, such as a bit tax.

However, the potential speed, untraceability and anonymity of electronic transactions may also create new possibilities for tax avoidance and evasion. These need to be addressed in order to safeguard the revenue interests of governments and to prevent market distortions. Thorough analysis is therefore needed to evaluate the possible impact of electronic commerce on legislation (on issues such as definition, control and enforceability) and to judge if, and to what extent, present legislation needs to be adapted

The territorial concepts which underlie direct taxation systems ("residence" and the "source" of income) also need to be examined in the light of commercial and technological developments. As with indirect taxation, the goal is threefold: to provide legal certainty, to avoid undue revenue losses, and to ensure neutrality.

These issues are being examined at international level in the OECD Committee on Fiscal Affairs' work, both on consumption taxes and direct taxes.

6.3.2. Questions

6.3.3. Possible Solutions

6.4. Infrastructure Considerations

6.4.1. Identified Issues

As a result of the increase in use of electronic commerce, many more companies will require Internet addresses, so that they can be identified and accessed by their customers and suppliers. To date these addresses have been based on the one hand on an ad hoc designation of companies and organisations within so called Generic Top Level Domains, allocated by an organisation in the United States, and on the other hand by national Registrars managing the two letter national identification codes. This system is known as the Domain Name System (DNS). In the future it will be increasingly important that such Internet addresses need to be easy to acquire, reliable and unambiguous, and easy to find.

More specifically, the DNS will need to benefit from inexpensive and harmonised allocation of new addresses, a quick and efficient dispute resolution procedure and adequate scaleability to accommodate foreseeable growth. This may require either a larger number of second and third level domains within the existing top level domains, or a greater number of generic top level domains addressing particular needs including specific sectoral or other economic classifications such as consumers, or suppliers of particular services.

There has been considerable discussion in recent months as to how the DNS should evolve to accommodate the rapid growth in the use of the Internet and how to resolve certain outstanding problems notably in the area of intellectual property.

A related question is how to provide adequate user-friendly directories for the Internet in the future. In the past, the DNS provided a sort of intuitive guide to the names and addresses of Internet users, but this is increasingly no longer the case because of the expansion, globalisation - and resulting duplication of names and addresses within the Internet Name Space. Consequently the question has arisen as to which organisations should have the task of developing Internet directories and on the basis of what technical protocols (they would be on-line directories) and whether this would be a commercial service or a part of the basic Internet infrastructure.

6.4.2. Questions

6.4.3. Possible Solutions

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