Electronic Commerce
Definition of Electronic Commerce
In this paper, electronic commerce refers to all commercial transactions based on the electronic processing and transmission of data, including text sound and image. It includes traditional forms of electronic commerce such as EDI, EFTPOS and other forms of electronic banking, Internet commerce - consumer to business, business to business and intra-business, digital cash and other electronic payment systems, 0800 mail order, and smart or stored value cards.
Background
Electronic commerce mirrors all existing commercial issues that arise from business transactions. However, it brings with it new issues: speed, in terms of time to market, cross border jurisdiction issues, security issues (cryptography) and global markets.
There are potentially some significant benefits arising from the spread of electronic commerce. It enables producers greater access to distant markets and reduces the time taken to supply those markets. It literally shrinks the distance between producers and consumers by allowing them to communicate directly, without the intervention of the traditional intermediaries such as importers, exporters, wholesalers and retailers. In doing so, electronic commerce reduces some of the frictions of the marketplace and moves economic activity closer to some of the ideals of perfect competition: low transaction costs, low barriers to entry and improved access to information for the consumer.
This is of particular importance to New Zealand which is distant from many of its major markets. Electronic commerce could be considered the freezer ship of the future for New Zealand trade in that it breaks down the barriers of distance and time to our markets. Additionally, New Zealand producers are increasingly moving towards the sorts of goods that sell well electronically, such as software, niche technology goods, travel and entertainment.
The development of electronic commerce will depend on the pace of technological change, acceptance by consumers and businesses, and the response of governments. Poorly designed regulatory regimes could unnecessarily impede the growth of electronic commerce, resulting in the loss of economic activity and transfer of tax revenues to other countries with more suitable regulatory environments. At the summit of the Group of Eight in June 1997, the leaders of the major industrial countries underlined the importance of a predictable and stable regulatory environment for the growth of electronic commerce1.
The speed of technological change driven by the development of the Internet means that it is now technically straightforward to conduct electronic commerce on a local or international basis. Increasingly companies and individuals are buying and selling across borders electronically. The new information and communications technologies and the cross border nature of this trade are fundamental forces supporting the trends of globalisation.
The change that is occurring raises a number of issues:
- will trade over the Internet or whatever it evolves into, be as reliable as commerce in real world markets? (for example fair trading, passing off, consumer protection, competition).
- will nation states and supranational bodies be able to regulate electronic commerce?
- can consumer privacy be protected?
- will telecommunications infrastructures be able to adapt and grow with sufficient speed?
- how can governments maintain tax revenues if electronic commerce moves a proportion of economic activity beyond their surveillance?
The likely impacts of electronic commerce are extremely difficult to measure partly as a result of the phenomenal growth of the Internet itself. For a few thousand dollars at most anyone can become a merchant on the Internet. Moreover for not much more than the cost of a personal computer, anyone can become a consumer on the Internet and most personal computer packages now include a free Internet connection. Since the entry of Telecom and Clear Communications into the New Zealand Internet market, the cost of access has fallen to an average hourly charge of $2.50 for urban access, or $43 per month. This effect in New Zealand and elsewhere has led to increasing numbers of potential Internet consumers, attracting more merchants, which in turn will attract more consumers to commercial activity on the Internet.
In the latest available survey in July 1997, New Zealand ranked fifth in the world in the number of Internet host computers for every 1,000 people. The survey, conducted by Network Wizards2, indicates globally there were a total of 19,540,000 Internet host computers, up from 16,146,360 in January 1997. In New Zealand, there were 155,678 hosts, up from 84,532 in January 1997 and 1,193 in July 1991. Host computers are those that are permanently and directly connected to the Internet and have their own Internet address.
The number of commercial domain names registered for use on the Internet is also growing quickly (domain names are the unique identifiers allocated to organisations on the Internet). By October 1997, 13,911 New Zealand organisations had been allocated a domain name and of these 12,198 (88%) were commercial organisations. Over the year to October registrations of commercial organisations increased by 105% from 5,798 to 12,198. Actual on-line sales figures tend to be at best estimates of the true amount being bought and sold. The big sellers on-line are intangibles such as travel and ticketing services, software, entertainment (gambling, games, film and music) and financial services.
Facilitation of Electronic Commerce
The growth of the Internet within a country depends on three key factors.
The first is the state of development and spread of the telecommunications infrastructures over which the Internet operates. Generally in countries with well developed telecommunications infrastructures, the Internet tends to be growing quickly. Investment in the provision of infrastructure and new services has been facilitated by New Zealand's regulatory environment. There has been substantial upgrading of telecommunications facilities, as a result of which the communications infrastructure is one of the most modern in the world.
The second factor is the skill level of the population, including English language skills.
Thirdly, but perhaps most importantly, is the demand for the applications such as electronic commerce, that run over the Internet. Such demand can only be met if there is a legal and commercial environment facilitating the development of those applications.
In doing business electronically, businesses and consumers demand the same level of confidence they enjoy when doing business in the real world. It is apparent that currently electronic commerce does not yet enjoy the same conditions in terms of consumer protection, privacy and security.
Indications are that the bulk of Internet commerce is business to business transactions rather than direct customer to business transactions. Why? Because they are inevitably a continuation of existing business relationships, supported by established contracts, that that have already developed a degree of trust. It is also in business to business transactions that the greatest efficiency gains can be made through reduced transaction costs, or large transaction volumes.
Consumer Protection
The key threat to consumer confidence in electronic commerce is the enforceability of a contract made over the Internet. Consumers are likely to be wary of entering into these contracts until reliable mechanisms of redress in the event of defective goods or services are established, which in turn will depend on establishing what the relevant jurisdiction is. Open networks like the Internet pose added threats including exposure to unfair marketing practices, fraud, privacy infringement and unauthorised use of data.
Fair and efficient redress mechanisms will have to transcend national borders. However, the Internet is an international network which makes it difficult to determine which court would have jurisdiction over a given transaction in the event of a dispute, or if an authority can be established, how it would hold a transgressor to account. Even more confusion may arise if three or more countries are involved in the transaction. Further, there may be difficulty in actually establishing the country in which a vendor resides and possible regulatory havens will exacerbate these doubts.
It is likely that current legislation in New Zealand will cover contracts between domestic vendors, where they can be identified as such, and New Zealand consumers, however, it is unlikely to apply to the increasing numbers of cross border transactions. As a result of an international conference on electronic commerce convened by the Ministry of Consumer Affairs in Wellington in March 1997, the Ministry produced a Discussion Paper outlining its priorities for action3. These include:
- educating and informing consumers;
- networking internationally;
- facilitating business self-regulation; and
- monitoring national and international markets.
Over the past few months the Ministry has worked closely with its Australian counterparts to initiate action on a range of projects aimed at improving general understanding of consumer problems associated with electronic commerce. Activities include an international Internet Sweep Day and a national awareness project on electronic shopping. Meanwhile, other co-operative work is continuing with the OECD Consumer Policy Committee on a range of electronic commerce issues.
While international co-operation at government levels to solve these issues is a necessity, ensuring legal consistency across all countries will involve complex, time consuming negotiations. The international negotiation of intellectual property right treaties and conventions may give some measure of the degree of difficulty in establishing internationally agreed legislation. The alternative of self regulation by electronic businesses may therefore be more attractive as they will have a self interest in doing so. In particular, buyers separated from sellers by distance are likely to require the reassurance of well known brands. Intermediaries such as banks and credit card companies may also act to build consumer trust in electronic commerce and may in the future be the main arbitrators in cross border disputes between buyers and sellers. Good self regulation could become a competitive asset as reputation on the Internet is everything.
Privacy
Personal privacy is a concern for all users of the Internet. However, for Internet consumers there are additional dangers. The technology will allow others to intercept, collate and use the data for direct marketing, for instance in relation to people's Internet browsing patterns. Moreover when a purchase decision is made on-line the consumer is obliged to provide sensitive information, such as an address for delivery and details of payment, which sellers will find valuable. This is similar to mail order transactions, the difference being that on the Internet it can be done automatically and potentially by somebody other than the retailer. One solution is for consumers to take steps to ensure that only the intended party has access to the information by using encryption techniques to secure their electronic transmissions but this too is problematic as described later.
In addition to the threat of personal data disclosure, Internet users can also be the victims of spamming, the equivalent of junk mail. Because the cost of sending an e-mail is virtually nil, whether it is sent to one or a million people, spamming is common. Internet marketers or others can gain access to, or create their own, databases of Internet e-mail addresses and then use these to e-mail special offers or messages designed to attract the user to their Internet site. It is difficult to avoid this even with secure transmissions. This type of abuse of the communal network could potentially pose a threat to its continued usefulness and even Internet zealots who champion the network's freedom from Governmental control have mooted possible international legal action to discourage this sort of activity.
Consumer and privacy issues are being addressed in a number of international organisations including APEC, the UN and the OECD. The United Nations Commission on International Trade Law has developed a Model Law for consumer protection in an electronic environment. The OECD is working on guidelines addressing fraud, misleading commercial conduct, dispute resolution and redress mechanisms and on-line consumer privacy.
Content
The content of broadcast material in New Zealand is regulated by the Broadcasting Act 1989 and the Films, Videos and Publications Classification Act 1993. However, the legislation only applies to content that originates or is stored within New Zealand. It is recognised that much of the content on the Internet is of international origin and is not stored in New Zealand. Content that is considered illegal on the Internet cannot be controlled from within the country without restricting access to the diverse information and applications available on the Internet including electronic commerce. For this reason and because the Government does have a role in articulating community expectations on content standards and ensuring that information and education is available to the public, the Government has encouraged industry self regulation through the establishment of codes of practice addressing content and privacy issues. The response of the New Zealand Internet industry has been to develop a code of practice covering these. New Zealand is also encouraging other countries to find pragmatic solutions to these issues based on industry self regulation through its involvement in international organisations such as APEC and the OECD.
Policy Implications
The challenges for Government arise from the speed with which the technology of the electronic market place is evolving. Governments and international organisations such as the OECD have already recognised that that development will be driven by markets. The OECD has identified three features of electronic commerce that are likely to modify traditional market behaviour and have an impact on the effectiveness of regulatory frameworks:4
- the growth of electronic commerce is being supported by the Internet, which could eventually allow the entire spectrum of commercial activities to be conducted electronically
- electronic commerce promotes the globalisation of commercial activities by giving firms direct access to distant markets and information; and
- the distinctions between domestic and foreign firms will be increasingly blurred making it difficult to determine where and when a transaction has actually been carried out and so the jurisdiction under which it falls.
A fourth point must be added as each government must examine the extent to which current legislation supports electronic commerce. Business to business electronic transactions are increasing as described above, but this does not mean governments can avoid the need to review current legislation to see if it is impeding the growth of electronic commerce.
Doing business electronically raises a range of specific issues for Governments which are considered below. The questions for the New Zealand Government are whether electronic commerce is beneficial for New Zealand and if so whether it is possible through regulation or other means to make the business environment more attractive for electronic commerce.
Taxation Policy Issues
Commercial transactions are taxed in a number of ways: consumption taxes (e.g. GST), excise duties, or income taxes. In order to collect these taxes, government first needs to know that a transaction is taking place e.g. it monitors goods crossing our borders, and directs banks and employers to collect income taxes at source. Secondly, the cost of collecting the tax needs to be significantly less than the tax revenue collected.
Electronic commerce, by changing how and where transactions are conducted and recorded, has the potential to affect taxation. On the Internet there is no central control, registration requirements are minimal and there is very weak traceability. Consequently, transactions can take place anonymously using strong encryption and in any international jurisdiction. Additionally, it is relatively easy on the Internet to use a false identity and as it is currently almost impossible to verify another party's identity, significant fraud is possible. Even if tax authorities know a transaction is taking place they will have difficulty knowing what type of transaction it is, so will be unable to assess its value for taxation, or be sure who is undertaking the transaction.
Further, the cost of people holding even limited financial resources off shore and accessing them electronically to undertake transactions and earn interest on deposits without incurring tax will become a real possibility. The concept of digital cash, also known as electronic money (see appendix 1) could well extend this to the stage where a person could undertake all their financial transactions in the equivalent of a monetary system which may not be tied to any real world currency.
Finally, the traditional paper based audit trails of transactions may disappear with electronic records taking their place.
Consumption Taxes
Electronic commerce also raises a number of problems for the collection of consumption taxes. The concept of place of supply, crucial to the collection of consumption taxes, becomes difficult to define. The location of the enterprise and the place where the good or service is consumed can all be different jurisdictions and will not be readily identifiable. Currently these problems are managed by controls as goods cross the border.
The bulk of tax collected at the border is through GST and excise levied on goods imported in bulk. The potential for customers to buy individual goods, for example a book or a tennis racquet, from an overseas manufacturer over the Internet not only reduces the cost of the goods to below the tax collection threshold, but also eliminates the need for intermediaries (importers, exporters, wholesalers, retailers), all of whom pay tax and all of whom maintain transaction records. The savings far exceed the additional costs of post or courier from overseas.
Furthermore, some goods such as software, travel bookings, and intellectual property generally do not even have to cross a geographical border, the whole transaction including delivery of the goods can be done electronically. The bringing together of producers and consumers in this way will undoubtedly encourage commerce, but additionally a more frictionless marketplace is likely to reduce the tax take for the Government. In the US, over 60% of toll calls to 0800 telephone numbers are to mail order companies across state lines to avoid local sales taxes.
The challenge for tax administrations is to maximise the potential efficiency gains of the Internet and at the same time protect their revenue base without hindering the development of the new technologies. To be effective this will require international co-ordination.
Initially Governments have taken a cautious approach. Some broad statements of principle have emerged from the EU in July, while the US Administration is arguing for the Internet to be declared as a tariff free zone5, where a tariff is a distinct levy imposed on an import that would not be levied on domestic goods and services. A tariff free Internet would see no tariffs levied on goods imported electronically such as software, books, or music. The US Administration is also proposing that any tax system for Internet sales be neutral i.e. one that neither discriminates against nor favours virtual commerce from physical commerce. Both proposals are to be put to the APEC Leaders meeting in Vancouver in November 1997. However, no national government has yet issued new laws or regulations relating to Internet taxation.
The OECD argues that the cautious approach is the right one at present, given the global nature of the Internet and the speed of current changes, particularly in technology6. Further, it will require globally accepted principles on how to tax activities carried out on the Internet. The OCED suggest seven criteria to judge proposals to tax the Internet by: the system should be equitable; simple; certain, effective; economic distortions should be avoided; flexible and dynamic to keep pace with new developments; and equitable in distribution of revenues between countries. Along with these, the US proposes the principle that the system should be able to accommodate current US tax systems and those of their international partners. The criteria will clearly conflict. When they do, governments and businesses are likely to take different views of what the trade offs will be.
Why Buy on the Internet?
| Hardback Books |
USD Price - Amazon.com |
NZD Price - Whitcoulls |
| Desperation by Stephen King |
$6.39 |
$19.95 |
| The Partner by John Grisham |
$18.87 |
$29.95 |
| Lord of the Rings |
$7.49 |
$34.95 |
| Adobe Seminar: Web Page Design |
$32.95 |
$94.45 |
Intellectual Property Issues
The purchase of goods over the Internet also illustrates how the Internet can help avoid the intellectual property rights protected by the Copyright Act. The Internet allows anything e.g. photos films, books, video, music etc to be copied and distributed to all Internet users very easily, without the author of receiving royalties for each time it is copied and distributed as would normally be required for a copyrighted work. An individual purchasing intellectual property based goods for their own use such as books and software over the Internet, can engage in the practice of parallel importing, thereby circumventing the intellectual property rights and any additional costs imposed by the New Zealand agents licensed by the owners of the property rights.
A significant recent development is the development of cryptolope technology, which enables the publisher of an electronic work to digitally watermark it so that breaches of copyright can be detected. The recognition of this type of technology in law has yet to occur anywhere. However, amendments to Copyright legislation and to international agreements on copyright are increasingly reflecting the changes brought about by information technology and particularly the Internet.
Encryption
In response to growing demands for electronic transactions to be made secure both from a privacy/confidentiality perspective and a financial security perspective, encryption techniques, using computing methods, have been developed which allow not only for an electronic message to be transmitted in unbreakable code, but also for it to be non-repudiated i.e. the sender cannot later deny having sent the message.
As well as providing for the security of electronic messages, the ready availability of powerful cryptography also cause some problems, most notably for national security agencies who fear that cryptography will be used by terrorists and drug dealers to avoid messages being intercepted or investigated by security and law enforcement agencies. For similar reasons a number of countries which are signatories to the Wassenaar arrangement, including New Zealand, have control over the export of encryption technology. There is some disagreement internationally over how effective such controls can be given that not all countries are signatories and those that are have varying interpretations of the controls.
Security
As it is relatively easy to create a false identity on the Internet, it is difficult to be certain another entity is who and where they say they are i.e. it is not yet possible to independently verify the other party's identity. This is clearly important if people engaging in electronic commerce want to pay for things over the Internet. Verification is also important for taxation purposes - if tax returns and other documents are to be electronically filed, an acceptable form of authentication will be required. Consumers also want to be assured that the parties they do business with are who they claim to be.
Digital IDs or certificates are being developed to do just this - verify identity on the Internet. It is expected that these digital certificates will be issued by a trusted intermediary or third party which will verify the identity and perform appropriate background checks, depending on the level of assurance required. Once the identity is verified, the party will be issued a digital certificate which can be transmitted to any other user of the Internet for the purpose of doing business, prior to or as part of the transaction.
The technology to create a digital certificate commonly used is public key encryption. Using public key encryption, an Internet user is able to create a digital signature which can be attached to their electronic transmissions to authenticate the identity of the sender of the message. Digital signatures can also verify that electronic records and mail have not be tampered with while in storage or in transit. And in the same way hand written signatures not only provide proof of authenticity, digital signatures also provide non-repudiation - the author or sender cannot later deny having created or sent the electronic transmission.7 Although digital signatures themselves do not make electronic transmissions confidential, the technology of public key encryption can be used to render them confidential.
Digital Signatures
Like a physical signature, a digital signature is a small piece of information which someone adds to a document or message to indicate their authorship or agreement. Unlike physical signatures, digital signatures use cryptography technology and are thus harder to forge. The signature on a digitally signed document can be checked using the signatory's public key (which should be obtainable from a certification authority). Verifying a digital signature not only establishes the identity of the signatory, it also reveals whether the document has been altered after it was signed.
Digital signatures therefore enable the implementation of secure applications such as on-line banking, electronic funds transfer and digital cash payments because public key encryption binds the digital signature to the document.
The third parties that will issue digital certificates used to verify digital signatures are commonly called certification authorities. Currently before a bank issues you with a visa card, it knows who you are, where you live and what your credit rating is. The bank acts as your guarantor for financial transactions as long as the "supplier" follows the basic rules set down by VISA (e.g. not exceeding the card limit). A certification authority is similar to your bank (and potentially banks may in future become certification authorities) in that it will confirm who you say are by maintaining a record of your digital signature. The question of whether it will also act as a guarantor is not clear.
Certification authorities could be set up by either the private sector or by government. In practice, it is expected that certification authorities might operate by certifying each other and probably in a hierarchical structure. As some private sector certification authorities may not perform sufficiently thorough identity checks, there may be a role for the government or one of its agencies in developing standards for certification authorities. To do so, the agency may issue certificates authorising other organisations so they can prove they are who they claim to be. However, this may be problematic as the Crown may find itself liable for the negligence of a certification authority it has authorised, or be deemed to be a guarantor.
In New Zealand, work is currently under way on a pilot implementation of a New Zealand Public Key Infrastructure by the Government Communications Security Bureau and may be extended to cover the whole public sector. Other countries are also beginning to consider establishing public key infrastructures, with some Governments considering defining a framework for the whole country. A number of commercial organisations such as VeriSign in the US and EuroSign in Europe are beginning to offer certification services.
The Legal Framework for Digital Signatures
Digital signatures will have a crucial role in contract negotiation and dispute resolution, particularly if the courts treat them as evidence in the same way that paper records are treated. However, at this stage there is uncertainty as to the legal validity of digital signatures and other electronic transmissions. It is unclear whether the courts will accept them in evidence, as the existing legal framework in New Zealand is defined by reference to a paper environment, so any legal disputes can be resolved by reference to a written contract.
The Ministry of Commerce is establishing a working group to examine this issue and whether the Government should consider legislation to ensure digital signatures are recognised by the courts in electronic contracting. As yet there is no relevant case law that can be drawn on. In any case, there is a certain amount of risk in leaving the legal definition of digital signatures to case law, anecdotal evidence suggests that no organisation wishes to be a test case taken to the courts. The Ministry is particularly interested in the issue of contracts that have specific requirements in legislation before they are complete e.g. a wet ink signature independently witnessed, and how they would be treated in an electronic environment.
It should also be noted that using a digital signature does not define the jurisdiction of an Internet transaction that is across national borders, unless this is contractually defined prior to the transaction, leaving the question of enforcing the contract open. It also does not solve the problem of how any additional conditions required by law for the contract to be finalised are met in an electronic contract.
It is not clear that legislation is a requirement for the establishment of certification authorities. Private sector initiatives could lead to the set up of these institutions without legislation. Trust is obviously an issue. Users of certification authority services may feel more confident if an organisation is legislatively guaranteed. However, this does not appear to be a requirement for confidence in such institutions as banks and it also raises the likelihood of the Crown being liable for the negligence, criminal or not, of the certificate authorities.
Evidence
In an electronic environment, the issues surrounding the definition of contract formation turn on whether the courts will accept computer records in evidence. The present common law rules relating to machine produced evidence are complex and in some respects unclear. We understand that the Ministry of Justice is hoping to clarify the law in this respect.
Some countries have legislation that specifically deals with computer produced documents. However, to be effective this legislation must adequately cover the range of machine produced evidence and in order to avoid constant amendment, must as far as possible allow for future technological developments.
New Zealand and UK courts have shown that they judge computer produced evidence on the basis of its relevance and whether the reliability of the machine can be sufficiently established. However, there is still uncertainty as to whether documents stored on disk are admissible in evidence and whether a computer produced document is an original or a copy.
International Developments - APEC
Electronic commerce is increasingly being given priority by APEC, particularly following the declaration of the Second APEC Ministerial Meeting On Telecommunications And Information Industry (Australia, September 1996) in which the APEC Communications Ministers jointly agreed to promote electronic commerce through the Internet and greater regulatory compatibility between countries. The Ministers noted the positive value of electronic commerce as a boost to the efficiency of trading enterprises and agreed to support continued efforts to develop co-operative activities in these areas, and to identify the environment required for the promotion of business/private sector investment in telecommunications. The Ministers also directed the Telecommunications Working Group to continue to facilitate business in the region through promoting electronic commerce, particularly on the Internet.
At the 16th meeting of the Telecommunications Working Group, held in Wellington in September 1997, the TEL established a task force to create a sustainable electronic commerce framework, content rating and identification systems, rights management systems, digital signatures and encryption; and promote initiatives that will assist the growth of commerce using future communications methods. New Zealand agreed to join the task force.
United States
The US is recommending the APEC Leaders at their next meeting in Vancouver in November provide a vision of the digital economy in the 21st century. By January 1 2000, APEC should have in place:
- A consistent approach to tariffs and taxes for electronic commerce;
- A uniform commercial code for electronic commerce;
- Intellectual property protection for the Internet;
- Technologies which empower consumers to limit content they do not wish to receive;
- A market driven means for developing technical standards;
- A common, market-driven approach to electronic payment systems;
- A duty-free Internet;
- Means to ensure the security of digital communications, networks and transactions.
In particular the US will be calling for APEC Leaders to give clear instructions to harness the technology by:
- declaring the Internet a tariff free environment by pledging to continue the current practice, under which electronic transmissions are not considered to be imports for customs purposes;
- calling on Finance Ministers to provide recommendations for the next APEC Leaders meeting in Kuala Lumpur on how to implement a neutral system for taxing Internet sales (i.e. one that neither discriminates against nor favours virtual commerce from physical commerce); and
- requesting that ABAC create an ad hoc working group to bring together representatives from the public and private sectors, for a concrete APEC agreement on a technology-neutral approach to electronic authentication.
The US Administration's strategy for fostering increased business and consumer confidence in the use of electronic commerce is described in A Framework for Global Electronic Commerce, which presents five principles for government intervention in electronic commerce: the private sector should lead; governments should avoid undue restrictions on electronic commerce; government involvement should be to support and enforce a predictable, minimalist, consistent and simple legal environment for commerce; governments should recognise the unique qualities of the Internet; and electronic commerce over the Internet should be facilitated on a global basis.
The paper also makes recommendations in nine areas where international efforts are needed to preserve the Internet as a non-regulatory medium. The key area is tariffs and taxation. The US advocates the Internet be declared a tariff free environment whenever it is used to deliver products and services and recommends no new taxes be imposed on Internet commerce. Existing taxes that are applied to electronic commerce should be consistent across national and international jurisdictions and should be simple to understand and administer.
Australia
Australia's regulatory response to electronic commerce comprises over twenty domestic reviews. Comprehensive reviews of 15 Commonwealth Acts regulating the financial sector are to occur over the next four years.
The most significant of these is the Financial Systems Inquiry which reported to the Australian Government in March 1997. The final report says a purely reactionary approach toward Internet regulation could inhibit the growth of electronic commerce. The report recommends the removal of legislative impediments to electronic commerce and argues that regulation should not differ between different technologies, but concludes that electronic commerce should be subject to regulation to ensure the safety and integrity of the payments system. It noted that a large number of regulatory and legislative changes will be required in Australia simply to allow for electronic commerce.
The Australian Tax Office has also launched an Internet and Electronic Cash project which seeks to examine the efficacy of the existing tax structure in the light of electronic commerce. Specific issues to be considered include the capacity of existing tax law and administration to deal with money laundering, tax evasion and income non-disclosure on the Internet, the potential erosion of the tax base from commercial use of the Internet and the extent to which compliance with tax laws may be promoted through organisations involved in Internet commerce.
A proposal has been developed for the establishment of an Australian Public Key Authentication Framework by the Australian Standards Authority. This would create a hierarchy of certification authorities that will provide digital certificates to individuals and organisations.
The Australian Competition and Consumer Commission is also developing a code of conduct for on-line shopping and is examining the implications of electronic commerce for consumer protection.
Japan
In May 1997, the Ministry of Trade and Industry released a report, Towards the Age of the Digital Economy, which sets out the Japanese approach to the promotion of electronic commerce. The report recognises that for the smooth development of electronic commerce, it is necessary to swiftly remove non-conformity between rules and economic activities. It concludes that in order to flexibly deal with changes in IT, the private sector's role in setting rules governing commerce practices, standards agreements and guidelines will be greater in the future and therefore the role of the government is to set up an environment such that the voluntary rule making in the private sector progresses smoothly.
Europe - Bonn Declaration
Ministers from 29 European countries adopted the Bonn Declaration on Global Information Networks in July. They agreed that special taxes should not be levied on Internet products, adopted principles designed to make data communications safer and cheaper for consumers and business. Ministers also endorsed the position that the private sector should take the lead in the expansion of electronic commerce and that regulation should be done on an international level. It was agreed that users should continue to have access to a free flow of information over the Internet. At the same time, consumer protection and the right to privacy should remain top priorities.
The Ministers stressed that the legal frameworks should be applied on-line as they are off-line. In view of the speed with which new technologies are developing, ministers will encourage the framing of regulations which are technology neutral. They agreed that any regulatory framework should be clear and predictable, pro-competition, strike the right balance between the freedom of expression and the protection of private and public interests and ensure consumer protection. The Ministers supported the principle of non-discriminatory taxes on electronic networks and that tax issues require international co-operation.
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