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United States General Accounting Office:
GAO:
Report to the Ranking Senate Minority Member of the Joint Economic
Committee:
March 2002:
International Electronic Commerce:
Definitions and Policy Implications:
GAO-02-404:
Preface:
The rapid growth in the use of Internet-based computer technologies
over the past several years has significant implications for the
United States. In particular, the ability to conduct business via the
Internet has brought about important changes not only in the way
companies do business with each other but also in the way they
interact with consumers. The Internet allows businesses and consumers
from different countries to interact as easily as if they were
physically close to each other. This borderless aspect of
international electronic commerce creates a wider marketplace that
facilitates new transactions and business relationships. However, the
potential for widespread adoption of international electronic commerce
by businesses and consumers raises a number of questions, from the
technical to the policy-related. These fall into several areas,
including the following: (1) What is international electronic
commerce? (2) What data on international electronic commerce (IEC)
does the U.S. government collect? (3) What is being done to remove
obstacles and facilitate consumer and business use of international
electronic commerce? (4) What are some of the efforts being made to
adapt the legal framework for international electronic commerce
transactions? and (5) How do international trade agreements and
negotiations address barriers to international electronic commerce?
This report provides information on these emerging electronic commerce
issues.
Overview:
Despite widespread use of the term "international electronic
commerce," it has no commonly accepted definition. Different
institutions use the term electronic commerce to describe different
things. For example, some definitions imply use of the Internet, while
others define electronic commerce more broadly to include transactions
that involve devices such as facsimile (fax) machines, telephones, and
computer-based systems. However, for measurement purposes, there is
general agreement that the on-line commitment to sell a good or
service is necessary for any transaction to be categorized as
electronic commerce. International electronic commerce, as a subset of
total electronic commerce, generally involves an on-line commitment to
sell that results in the import or export of goods and services.
The U.S government does not produce an official statistic for the
value of international electronic commerce. Current government
statistics for electronic commerce are drawn only from selected
industries: namely, manufacturing, merchant wholesale trade, selected
services, and retail trade. However, these statistics do not
distinguish between domestic and international electronic commerce.
Although statistics on international trade in goods and services cover
many major types of international electronic commerce transactions,
these statistics do not distinguish between electronic and traditional
types of transactions.
Policymakers are working on how to facilitate consumer use of
international electronic commerce. They recognize that the adoption of
international electronic commerce will depend in part on consumers'
confidence that they will be treated fairly in on-line transactions
and that their personal information will be protected. Therefore, the
efforts to adopt international electronic commerce address the
problems of coordinating consumer protection measures internationally
and protecting data privacy on line. In addition, policymakers
consider that ensuring the security of financial information on
computer networks is important to ensuring consumer confidence, and
that concerns about existing payment mechanisms for some international
consumers is a challenge to the future growth of international
electronic commerce.
International electronic commerce also creates new challenges for the
legal regimes governing cross-border commerce. For example, although
international electronic commerce offers the potential to execute
contracts electronically, only a few countries currently have laws in
place that recognize the validity of the electronic signatures and
contracts that would make this possible. Several U.S. government
departments and agencies, as well as U.S. businesses and civil society
groups, are working through international forums to adapt the existing
legal, intellectual property, and taxation regimes to remove the
obstacles that hinder international electronic commerce from thriving.
However, many of these actions are still in the early stages.
Finally, while the Internet facilitates electronic commerce across
national boundaries, some steps in an electronic transaction still
face physical or legal barriers at the frontier (such as delivering a
physical product ordered on line). Ongoing trade negotiations are
addressing barriers that reduce the efficiency of conducting business
and consumer transactions in Internet services, information technology
products, express shipments, and other components of international
electronic commerce.
We undertook this review at the request of the ranking Senate minority
member of the Joint Economic Committee. As arranged with that office,
unless the contents are publicly announced earlier, we plan no further
distribution of this report until 30 days after its issue date. At
that time, we will send copies to interested congressional committees
and the Honorable Paul O'Neill, secretary of the treasury; the
Honorable Donald Evans, secretary of commerce; the Honorable Colin
Powell, secretary of state; the Honorable John Ashcroft, attorney
general; and the Honorable Robert Zoellick, U.S. trade representative.
Copies will also be made available to others upon request.
In this report, we provide general information. For readers who are
interested in more detailed information on the topics covered here, we
have included relevant sources and Web site addresses. If there are
any questions regarding this report, please contact Loren Yager at
(202) 512-4347. Additional GAO contact and staff acknowledgments are
listed in appendix IV.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Contents:
Preface:
Section 1: Defining International Electronic Commerce:
Section 2: Collecting U.S. Government Data on International Electronic
Commerce:
Section 3: Removing Obstacles and Facilitating International Electronic
Commerce:
Section 4: Adapting Commercial and Legal Frameworks:
Section 5: Addressing Barriers through International Trade Agreements
and Negotiations:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Definitions and Measurement of Electronic Commerce:
Appendix III: U.S. Government Collection of International Trade
Statistics:
Appendix IV: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: U.S. Laws Governing Privacy of Personal Information:
Table 2: Summary of Basic Principles of Data Privacy and Protection Laws
in the OECD Guidelines:
Table 3: Limitations of Existing Payment Mechanisms:
Table 4: Definition of Electronic Commerce:
Figures:
Figure 1: Estimates of U.S. International Electronic Commerce, 2000-
2004:
Figure 2: U.S. Electronic Commerce Retail Sales, 1999-2001:
Figure 3: eBay Net Revenue, 1997-2001:
Figure 4: The U.S. Federal Trade Commission's Econsumer.gov on the
Internet:
Figure 5: The Internet Fraud Complaint Center on the Internet:
Figure 6: Examples of Trustmarks for BBBOnline, SquareTrade, and CPA
WebTrust:
Figure 7: GAO's Privacy Statement on the Internet:
Figure 8: Example of an Electronic Money Transaction:
Figure 9: Proposed EU Approach for Collecting Value-added Tax on
Transactions Involving EU Citizens:
Figure 10: Current Approach for Collecting Value-added Tax on EU
Citizens:
Figure 11: Time Line of WTO Agreements and Decisions Related to
Electronic Commerce:
Figure 12: Electronic Commerce as a Percentage of Total Retail Sales,
2000: An International Perspective:
Figure 13: U.S. B-to-C Electronic Commerce Estimates, 1998-2000:
Abbreviations:
BEA: Bureau of Economic Analysis:
EU: European Union:
EDI: Electronic Data Interchange:
FTAA: Free Trade Area of the Americas:
FTC: Federal Trade Commission:
IEC: International Electronic Commerce:
OECD: Organization for Economic Cooperation and Development:
NCCUSL: National Conference of Commissioners on Uniform State Laws:
UETA: Uniform Electronic Transactions Act:
UNCITRAL: United Nations Commission on International Trade Law:
USTR: U.S. Trade Representative:
WIPO: World Intellectual Property Organization:
WTO: World Trade Organization:
[End of section]
Section 1: Defining International Electronic Commerce:
International electronic commerce (IEC) involves cross-border
transactions through computer networks. It is a subset of electronic
commerce (E-commerce), which itself generally involves buying or
selling on line. Definitions of IEC vary widely, although general
agreement exists that an international electronic commerce transaction
must involve an on-line commitment to sell a product that results in
the import or export of goods or services. The value of IEC is not
generally measured, as only one private research firm has made an
estimate of its size. The estimate suggests that IEC accounts for a
small portion of overall international trade.
Q. How Is International Electronic Commerce Defined?
There is no widely accepted, specific definition for international
electronic commerce. Nevertheless, several government and private-
sector entities have developed functional definitions of electronic
commerce so that they can collect useful statistics.[Footnote 1] These
efforts have led to a general acceptance of transaction-based
definitions, many of which require an on -line commitment to sell a
good or service for an activity to be categorized as electronic
commerce. In a transaction-based definition, electronic commerce is
restricted to buying and selling, as distinct from conducting E-
business. E-business includes all aspects of on-line business
activity-�purchasing, selling, tracking inventory, managing
production, handling logistics, and supplying communications and
support services. Therefore, international electronic commerce, as a
subset of overall electronic commerce, can be generally defined as any
transaction that involves an on-line commitment to purchase and
results in the import or export of goods and services.
Q. What Are Some Examples of International Electronic Commerce and Non-
electronic Commerce Transactions?
Although a variety of definitions exist, the following transactions
would likely be considered international electronic commerce, provided
the on-line orders generate the cross-border movement of goods or
services: (1) the purchase of a book ordered over the Internet from
Amazon.com by a French customer, for delivery in Paris; (2) the
reservation of a hotel room or rental car over the Internet by a U.S.
citizen traveling to Italy; (3) the purchase of the rights to download
software by a manufacturer in Moscow from a California-based company;
or (4) the purchase of office supplies from a U.S. company, using an
on-line auction service, for delivery to a business in Canada.
Other E-business transactions that generate disagreement over whether
they qualify as E-commerce under this definition include international
transactions that (1) occur over non-Internet applications or private
networks or (2) do not involve an on-line commitment to engage in a
transaction. Examples of these transactions include (1) the conducting
of research by a Mexican car dealership on car prices on the Web site
of a Detroit-based manufacturer that leads to an off-line purchase;
(2) the purchase of raw materials by a Belgium-based company from a
U.S. manufacturer using the latter's private, interactive network; (3)
the purchase of catalog items by a U.S. citizen from a London-based
company using an interactive telephone system; and (4) the
withdrawal of money from an automated teller machine in Nigeria from
an offshore account in New York.
See appendix II for a more detailed discussion of electronic commerce
definitions.
Q. What Is the Value of U.S. International Electronic Commerce?
Forrester Research, an independent research firm that analyzes
technological trends and their impact on business, industry, and the
economy, estimates that U.S. on-line exports accounted for $7.4
billion and on-line imports for $16.2 billion in 2000. These figures
amount to just 0.69 percent of total U.S. exports and 1.12 percent of
total U.S. imports. Forrester defines international electronic
commerce as international trade in goods and services in which the
buyer places the final order over the Internet. The U.S. government
does not collect statistics specifically on international electronic
commerce (see section 2), and Forrester Research, Inc., is the only
research firm that produces estimates and forecasts for international
electronic commerce.[Footnote 2] Although international electronic
commerce accounts for a small fraction of international trade at
present, Forrester predicts that international electronic commerce
will experience rapid growth, ultimately making up 20.5 percent of
total U.S. exports and 25.6 percent of total U.S. imports by 2004.
Forrester Research's international electronic commerce forecasts for
2000-2004 indicate that there was a small Internet trade deficit (the
amount by which imports into the United States exceed exports from the
United States) in 2000 and that even larger deficits will develop in
subsequent years (see figure 1). Forrester's finding that on-line
imports dominate on-line exports is consistent with existing aggregate
trade patterns. At present, aggregate imports of goods and services
exceed exports in U.S. trade. However, because there are no comparable
official government statistics and GAO has not done a systemic
analysis of Forrester's methodology, we cannot evaluate the
reliability of these estimates.
Figure 1: Estimates of U.S. International Electronic Commerce, 2000-
2004:
[Refer to PDF for image: vertical bar graph]
The graph depicts estimated Imports and Exports in billions of dollars
for the calendar years 2000 through 2004.
Source: Forrester Research, Inc. (2001).
(See appendix II for a more thorough presentation and discussion of
electronic commerce measurement, including the Census Bureau's
electronic commerce measurement program.)
[End of figure]
Web sites for more information on electronic commerce measurement:
U.S. Bureau of the Census: [hyperlink, http://www.census.gov/estats]
eMarketer: [hyperlink, http://www.emarketer.com]
[End of section]
Section 2: Collecting U.S. Government Data on International Electronic
Commerce:
The Commerce Department's U.S. Census Bureau and Bureau of Economic
Analysis (BEA) collect general trade statistics. The focus of these
agencies' programs is on complete coverage of international
transactions, not on separate data for international electronic
commerce. Collecting such data is difficult, because electronic
commerce is a recent and rapidly evolving phenomenon and because
additional surveys would be needed. In some cases, the phenomenon
would require agencies to reassess their methodologies and data-
gathering techniques and to devise new techniques to fill the gaps in
their statistics. In other cases, the agencies would need to expand
the detail collected on existing surveys of services and on the
administrative records used to compile the statistics on goods. The
Census and the BEA have been attempting to improve the quality of
their aggregate international trade statistics. Over the last several
years the BEA has added new surveys and made others mandatory to
provide estimates of previously unreported services.
Q. What Other Data Does the U.S. Government Collect on the Value of
International Electronic Commerce?
Currently, the United States collects no separate, official data on
the value of international electronic commerce. The Census Bureau and
the Bureau of Economic Analysis provide aggregate trade data but do
not collect statistics specifically on international electronic
commerce. (See appendix III for a discussion of international trade
statistics collection.) The Census Bureau also conducts a measurement
program that focuses on total electronic commerce activity in selected
sectors of the U.S. economy. However, international electronic
commerce statistics are not among the electronic commerce statistics
that the bureau provides.[Footnote 3] In its measurement program, the
bureau produces baseline measurements of electronic commerce, and some
consider the Census Bureau to be the definitive source for this
information. Figure 2 shows U.S. electronic commerce retail sales from
1999 through 2001. These statistics show that electronic commerce
represented only a small share (approximately 1 percent) of overall
U.S. retail sales. U.S. Department of Commerce officials believe that
the vast majority of electronic commerce transactions are captured in
the aggregate international trade statistics. However, Commerce
officials also acknowledge that some significant gaps may exist in the
coverage of international transactions because of unresolved data
collection challenges posed by international electronic commerce (see
next question), and that ongoing efforts are necessary to ensure that
the data collection system responds to new developments.[Footnote 4]
Figure 2: U.S. Electronic Commerce Retail Sales, 1999-2001:
[Refer to PDF for image: combination vertical bar and line graph]
The graph depicts E-commerce in billions of dollars and total retail
sales in percentage for the time period of 4th quarter 1999 through
4th quarter 2001.
Source: U.S. Bureau of the Census.
[End of figure]
Q. What Challenges Does International Electronic Commerce Present for
Collecting Statistics?
Collecting statistics on IEC poses several challenges, as listed below:
* Accounting for the growth of low-value exports. The rise of
electronic commerce may lead to an increase in the volume of low-value
goods exports (valued at less than $2,500), including exports shipped
out in small parcels through the postal service. Because the Census
Bureau does not directly count low-value shipments but rather
estimates them on the basis of information from 1989, this export-
undercounting problem is likely to intensify (see appendix III for a
discussion of low-value shipments and the undercounting problem).
[Footnote 5]
* Dealing with transactions that are underreported. International
electronic commerce, if it leads to an increase in small-scale
services, may exacerbate problems with collecting data on service
transactions that fall below the threshold requirements set by the BEA
for businesses reporting on their transactions. For several types of
services, such as legal services, the exemption levels are so high ($1
million) that the BEA has to indirectly estimate some types of
transactions.
* Providing coverage for new services. Use of the Internet results in
new, electronic commerce-related services that are not covered in
current BEA surveys, such as on-line auction services. Figure 3 shows
the steady increase in the net revenues of eBay Inc., an international
on-line marketplace, from 1997 to 2001. Unless these electronic
commerce activities fall within the scope of existing service
categories, aggregate trade statistics may not include those
transactions. For example, in 1989 BEA discovered an additional $20
billion in net receipts for U.S. service transactions for 1985-1987 by
improving the coverage of its surveys on travel and adding new surveys
on other selected services.[Footnote 6] The BEA has added new Internet-
related services to its surveys as it has become aware of them, either
as separate categories or as examples given in definitions and
instructions for existing categories. Some new categories, including
auction services, have been added to BEA surveys, beginning with data
for 2001.[Footnote 7]
Figure 3: eBay Net Revenue, 1997-2001:
[Refer to PDF for image: vertical bar graph]
The graph depicts net revenue in millions for the period of calendar
years 1997 through 2001.
Source: eBay, Inc.
[End of figure]
* Quantifying the amount of service transactions. Electronic commerce
increases the output of "difficult-to-measure service sectors" such as
the finance, insurance, and real estate industries. To the extent that
the Internet facilitates international banking, insurance, and
brokerage services as well as other on-line service activities, data-
collection will be more difficult. Electronic commerce may also result
in an increase in transactions conducted by individuals and smaller
companies that, according to BEA officials, are inherently difficult
to survey in a detailed fashion.[Footnote 8]
* Determining which transactions to record as international.
Electronic commerce may result in transactions occurring between
domestic and foreign parties that may not be recorded as international
transfers. This situation may arise because it can become difficult at
times to establish the residency of buyers and sellers of services
over the Internet. As a result, U.S. companies and individuals may not
be aware that they are conducting transactions with foreign parties.
The BEA has attempted to mitigate this problem by adding new
instructions to its existing surveys and indicating that Internet
transactions are to be reported according to who is involved in the
transactions, not according to where the buyer and seller are located.
* Distinguishing between a good and a service. Electronic commerce
also blurs the distinction between international goods and services.
When a book or a magazine is transmitted electronically, has the
person received a good or a service? Electronic books and magazines
include features such as searching capabilities that may resemble
services. While the distinction between goods and services has always
been problematic, with electronic commerce the line can become even
fuzzier. This issue affects domestic measurement as well. However,
conventions have been adopted for data collection purposes.
Electronically transmitted items do not pass through customs or enter
into tabulations of goods trade, and are therefore collected in the
BEA's surveys as trade in services.
* Locating new service providers. Electronic commerce poses additional
measurement challenges, because E-businesses can expand their product
lines and enter into entirely new kinds of activities at a much faster
rate than companies previously could do.[Footnote 9] Because the BEA
must locate new service providers in order to survey them and to
obtain trade information, identifying and monitoring electronic
commerce imposes additional challenges to ensuring the
comprehensiveness of international trade statistics.
[End of section]
Section 3: Removing Obstacles and Facilitating International
Electronic Commerce:
Although international electronic commerce provides consumers with
many benefits, including a 24-hour global marketplace and convenient
shopping from their own homes, it also may create new opportunities
for fraud, abuse, and invasions of privacy. If buyers find that they
do not have effective consumer protections, that their personal data
are not safeguarded, that their transmissions are not secure, or that
shopping on line is more cumbersome than purchasing off line, then
they may be less likely to use the Internet to make purchases. For
example, a 1998 survey found that 61 percent of those who had never
made an on-line purchase cited concerns about credit card security as
a reason.[Footnote 10] The United States, the European Union, and
other government, business, and consumer interests have placed a high
priority on fostering confidence in electronic commerce by addressing
concerns in four areas: (1) on-line consumer protection, (2) data
protection and privacy, (3) security, and (4) payment methods.
However, constructing a coherent international framework for
addressing these issues is challenging because national approaches
differ and technologies continue to evolve.
Q. How Does International Electronic Commerce Affect Consumer
Protection Efforts?
International electronic commerce complicates consumer protection
activities because most efforts have traditionally focused on handling
domestic complaints, providing enforcement, and disseminating
education. Prior to the development of the Internet, most consumers
did not directly interact with foreign retailers when making consumer
purchases.[Footnote 11] Therefore, consumer protection activities did
not require international coordination. However, as international
electronic-commerce transactions increase, consumers may experience
greater problems with fraud and deception from foreign-based
enterprises. Although international consumer complaints still make up
a small share of the total number of electronic commerce-related
consumer complaints that the U.S. Federal Trade Commission (FTC)
receives, the FTC has seen an increase in both the number and
percentage of them in the past five years. To meet this growing
challenge, efforts are under way to better coordinate activities among
different countries' national authorities. In the following pages, we
answer several questions related to how international electronic
commerce complicates consumer protection efforts:
* What is the U.S. government doing to foster on-line consumer
protection internationally?
* How has the private sector tried to promote consumer confidence?
� What problems do consumers and businesses face in resolving on-
line disputes?
* What alternatives exist outside of the court system for resolving
international on-line disputes?
Q. What is the U.S. government doing to foster online consumer
protection internationally?
The United States attempts to protect consumers on line by
coordinating with other countries' authorities on education and
enforcement. The Federal Trade Commission and the U.S. Department of
Justice are the principal government agencies tasked with enforcing
consumer protection laws and preventing fraud for domestic and
international electronic commerce.[Footnote 12] Besides providing
consumers with information on common Internet fraud schemes and tips
for on-line shopping, the FTC and Justice also bring law enforcement
actions to discourage fraud and deception on the Internet.[Footnote
13] Both the FTC and Justice pursue Internet fraud cases regardless of
whether they are domestic or international in scope. In addressing
international electronic commerce issues, the United States
collaborates with other national consumer protection and law
enforcement agencies both bilaterally and through multilateral forums.
On enforcement issues, the Federal Trade Commission participates with
28 other countries in the International Marketing Supervision Network,
which seeks to improve cooperation and information sharing among law
enforcement agencies and to address deceptive international marketing
practices. In 2001, the FTC began hosting a pilot Web site for
consumers from the United States and 12 other countries in the Network
to file electronic commerce complaints (http://www.econsumer.gov).
[Footnote 14] Consumer protection and law enforcement agencies can use
this site to track complaints and identify patterns of fraud. In
addition, Justice (through the Federal Bureau of Investigation) and
the National White Collar Crime Center (a national network for law
enforcement agencies) jointly established the Internet Fraud Complaint
Center (www.ifccfbi.gov) to receive on-line complaints, analyze them
to identify the types of fraudulent schemes, and refer the complaints
to law enforcement agents.[Footnote 15] (See figures 4 and 5 for the
Internet home pages of both econsumer.gov and the Internet Fraud
Complaint Center).
Figure 4: The U.S. Federal Trade Commission's Econsumer.gov on the
Internet:
[Refer to PDF for image: web page]
Source: Econsumer.gov at www.econsumer.gov.
[End of figure]
Figure 5: The Internet Fraud Complaint Center on the Internet:
[Refer to PDF for image: web page]
Note: The Internet Fraud Complaint Center is a joint effort of the
Justice Department's Federal Bureau of Investigation and the
independent National White Collar Crime Center.
Source: The Internet Fraud Complaint Center at www.ifccfbi.gov.
[End of figure]
To coordinate consumer protection policies, the Federal Trade
Commission and the Department of Commerce collaborate with the other
30 member countries of the OECD in the Committee for Consumer Policy.
In 1999, the OECD adopted international guidelines for consumer
protection. According to the guidelines, online shoppers should be
afforded protection that is not less than the protection afforded
offline. Although not legally binding, the guidelines provide a
blueprint for governments, the private sector, and consumers about
fair business practices on line. The United States also has addressed
coordination of international consumer protection through the Asia-
Pacific Economic Cooperation forum. This group of 21 economies from
the Pacific Rim area, including Australia, China, Japan, and the
United States, provides a forum for sharing information on government
policies and is also currently developing a set of voluntary consumer
protection principles.
Q. How has the private sector tried to promote consumer confidence?
Private-sector groups have been seeking ways to improve consumer
confidence in electronic commerce through developing guidelines and
codes of conduct for on-line transactions. Some businesses that comply
with these principles can choose to post seals, or "trustmarks," on
their Web sites indicating that they adhere to the principles. These
trustmarks provide consumers with an indication of the types of
policies with which a business complies and may increase consumers'
confidence in dealing with a particular Web site. For example, the
Better Business Bureau's BBBOnline (http://www.bbbonline.orgi) has a
set of good business guidelines. If businesses comply with these
guidelines, they can display the bureau's reliability seal on their
Web site. Other organizations also provide trustmarks to enable
businesses to demonstrate to potential customers that they abide by
guidelines that promote fair business practices. Some examples shown
in figure 6 are SquareTrade (http://www.squaretrade.com), and CPA
WebTrust (http://www.cpawebtrust.orW).[Footnote 16]
Figure 6: Examples of Trustmarks for BBBOnline, SquareTrade, and CPA
WebTrust:
[Refer to PDF for image: illustration]
Note: The trustmarks shown above are graphical representations
indicating a Web site's compliance with the providers' principles and
criteria. They are reproduced here for illustrative purposes only.
Source: BBBOnline, SquareTrade, and CPA WebTrust.
[End of figure]
Q. What problems do consumers and businesses face in resolving on-line
disputes?
Currently, consumers and businesses may face uncertainty in seeking
legal redress for problems arising in electronic commerce. First,
there are concerns about the appropriate jurisdiction to adjudicate
the dispute: Can the consumer sue the business in the consumer's home
court? Second, there are concerns about applicable law: Which
country's laws will govern a cross-border E-commerce transaction?
Finally, there are concerns about enforcement: Even if the consumer
sues in his or her home court and obtains a favorable judgment, can
the judgment be enforced against the business in its home country?
There has been an ongoing public policy debate about the first two
issues of jurisdiction and applicable law.
U.S. courts generally allow consumers to sue businesses in the
consumers' home forum, as long as it is fair and reasonable to do so.
They also generally apply the consumers' home country law, based on
the application of several factors. European law gives, if a number of
requirements are met, consumers the right to sue businesses in the
consumer's home country and for the consumer protection laws of the
consumer's home country or key aspects of those laws to be applied in
determining the dispute.
Generally, consumer groups favor a "country of destination" approach,
under which consumers can rely on their home country protections and
sue in their home country courts. They argue that this is the only way
to ensure adequate consumer protection. Some industry groups favor a
"country of origin" approach, under which companies would be subject
only to the laws and courts of their home country. They argue that
this approach is needed to encourage the growth of electronic
commerce, as the "country of destination" approach would be too costly
for businesses. The U.S. government has been involved in discussions
on these issues and has been promoting alternative dispute resolution
as a method of providing practical and cost-effective dispute
resolution for E-commerce transactions, and it continues to engage in
the public policy debate on these issues.
The issues of jurisdiction and enforcement of consumer judgments are
being discussed in negotiations on a Hague Convention for Jurisdiction
and Judgment Recognition. The negotiations under the Hague Conference
have been under way for several years, and no deadline has been set
for when they will be completed.
Q. What alternatives exist outside of the court system for resolving
international on-line disputes?
Some organizations have been developing new mechanisms for resolving
international on-line disputes between businesses and consumers
outside of the court system. Given the costs and difficulties that
both consumers and businesses face in pursuing international
litigation, government, consumer, and business interests are
discussing how to develop alternative dispute resolution mechanisms.
The goal of these efforts is to create mechanisms that can provide
practical and inexpensive redress for consumers without unduly
burdening business. For example, a U.S. consumer who purchases a
product from a French business and experiences a problem could file a
complaint through an on-line alternative dispute resolution system.
The complaint could be examined by a neutral third party, with the
business responding on line, so that neither party has to travel.
Currently, most on-line alternative dispute resolution mechanisms for
consumers primarily address domestic complaints. However, some
organizations have begun operating international alternative dispute
resolution mechanisms, and others have announced plans to develop
them.[Footnote 17] There have also been discussions in many forums on
ways to promote and develop alternative dispute resolution mechanisms.
Businesses and consumer groups tend to disagree on certain aspects of
the mechanisms. For example, consumer groups argue that consumers
should never be bound by the outcome of alternative dispute mechanisms
and should always be permitted to go to court. Business groups
disagree. Nevertheless, both businesses and consumer groups support
voluntary alternative dispute resolution.
Web sites for more information on consumer protection issues:
U.S. Federal Trade Commission:
[hyperlink, http://www.ftc.gov/ftc/consumer.htm]
U.S. Department of Justice Internet Fraud:
[hyperlink, http://www.usdolgov/criminal/fraud/Internet.htm]
U.S. Department of Justice Consumer Litigation:
[hyperlink, http://www.justice.gov/civil/ocl/index.htm]
European Union Consumer Affairs:
[hyperlink, http://www.europa.eu.int/comm/consumers]
Organization for Economic Cooperation and Development:
[hyperlink, http://www.oecd.org]
Asia-Pacific Economic Cooperation:
[hyperlink, http://www.apecsec.org.sg] and
[hyperlink, http://www.apec.org]
Hague Conference on Private International Law:
[hyperlink, http://www.hcch.net]
Q. How Does International Electronic Commerce Affect the Privacy of
Personal Data?
Technology has enhanced the capacity of on-line companies to collect
and analyze vast amounts of data from and about consumers who visit
their Web sites, which raises concerns about how this information is
treated. Businesses worldwide routinely collect a variety of
information about their customers in order to better understand their
clients, target special offers, and improve their business operations.
Whereas before the creation of the Internet, a company could track an
individual customer's purchases, now a company can also track what a
customer looks at by recording what pages of a Web site a customer
chooses. Such information can be compiled with data from other sources
to construct a profile of individual customers. The increase in the
collection and use of data has raised public awareness and consumer
concerns about on-line privacy.[Footnote 18] Governments have
responded by using different approaches, including establishing and
enforcing laws and regulations and encouraging business self-
regulation. However, these different approaches have led to different
national standards and may create difficulties for companies that
transmit personal data between operations located in different
jurisdictions. In the following pages, we answer questions related to
how international electronic commerce affects the privacy of personal
data:
* How does the United States foster the protection of individuals'
personal data and privacy?
* How does the EU's approach to data privacy differ from that of the
United States?
* What international principles exist for ensuring data protection?
Q. How does the United States foster protection of individuals'
personal data and privacy?
The United States has generally promoted industry self-regulation,
supplemented by government laws and regulation in certain sectors, as
the best approach to ensuring data privacy in an evolving area like
electronic commerce. Specifically, U.S. privacy laws provide
protection for personal health and financial information and for all
personal information about children (see table 1). However, different
interests in the United States, including consumer groups, businesses,
and various FTC commissioners, have debated the need for more
comprehensive legislation. In some countries, these laws are
comprehensive, covering all types of personal data; in other
countries, such as the United States, the laws are specific to certain
types of information.
Table 1: U.S. Laws Governing Privacy of Personal Information:
Name of law: Fair Credit Reporting Act (1970);
Purpose of law: Covers communication of an individual's personal
information by consumer reporting agencies (CRAs), such as credit
bureaus. This was the nation's first major privacy protection law that
seeks to strike a balance between privacy and the use of consumer
information and allows for disclosure of information by CRAs only for
"permissible purposes." The law provides consumers with avenues for
learning the information about them in the files of CRAs, and for
correcting erroneous information.
Name of law: Health Insurance Portability and Accountability Act
(1996);
Purpose of law: Provides certain rights for consumers in terms of the
use of their personal health information.
Name of law: Identity Theft and Assumption Deterrence Act (1998);
Purpose of law: Makes the FTC a central clearinghouse for identity
theft complaints, which occur when an individual's personal
information is used
fraudulently to create new financial accounts, such as credit cards.
Makes identity theft a federal crime with substantial penalties.
Name of law: Children's On-line Privacy Protection Act (1998);
Purpose of law: Prevents the collection of personally identifiable
information from young children without their parents' consent. Self-
regulatory programs can set up their own compliance mechanisms for the
act and apply to the FTC for safe harbor status. If approved for such
status, companies that adhere to safe harbor programs will be deemed
in compliance with the law.
Name of law: Gramm-Leach-Bliley Act (1999);
Purpose of law: Provides certain rights for consumers in terms of the
use of their personal financial information, requires financial
institutions to notify customers about their privacy practices, and
allows consumers to "opt our of having their nonpublic personal
information disclosed to nonaffiliated third parties. Also outlaws
"pretexting" (calling a financial institution claiming to be a
customer to get personal information).
Note: Except for the Children's On-line Privacy Protection Act, the
above laws are not specific to the Internet or international
electronic commerce. However, these laws do affect how personal
information is treated, including data transferred electronically.
Source: The U.S. Federal Trade Commission and the Department of Health
and Human Services.
[End of table]
In addition to these laws, the FTC can provide further protections to
consumers under the 1914 FTC Act when businesses violate their own
stated privacy statements. Many businesses state their privacy
policies on their Web sites. In fact, the FTC and several business and
consumer groups seek to have businesses post such privacy policies to
provide consumers with information on their practices. For example,
see figure 7 for the General Accounting Office's (GAO) privacy
statement on the Internet. If a business violates its stated
practices, the FTC may challenge the company for using deceptive
business practices. Recently, the FTC has brought several legal
actions against on-line companies who sold consumers' personal
information in violation of their posted privacy policies.[Footnote
19] The FTC has also brought a recent law enforcement action against a
company that did not adhere to its stated privacy and security
policies.[Footnote 20] The FTC has noted an increase in the number of
on-line companies adopting and posting privacy policies, including the
majority of the most popular websites.
Figure 7: GAO's Privacy Statement on the Internet:
[Refer to PDF for image: web page]
Source: U.S. General Accounting Office at www.gao.gov/privacy.html.
[End of figure]
Q. How does the EU's approach to data privacy differ from that of the
United States?
In the European Union, data protection legislation is comprehensive,
covering how a company in any field may collect, store, and process
personal information. The 1995 EU Data Protection Directive became
effective in 1998 and stipulates that if a company transfers personal
information outside the European Union, the country in which the
receiving company resides or the company itself must have adequate
data protections in place.[Footnote 21] When the directive first came
into force, there were concerns about how these requirements would
affect data regularly transferred between U.S. and EU companies,
because the United States has a different approach to privacy
protection than the European Union has. Negotiations began between the
European Commission and the U.S. Department of Commerce. A framework,
known as the Safe Harbor, went into operation in 2000 to bridge the
gap between the U.S. and EU approaches.
The Safe Harbor framework allows data from subjects of EU member
states to be transferred to U.S. companies that self-certify with the
Department of Commerce that they comply with the Safe Harbor framework
[see hyperlink, http://www.export.gov/safeharbor].[Footnote 22] The
framework has allowed data transfers to continue between the United
States and the European Union, and the functioning of the framework is
currently under European Commission review. More than 150 companies
have self-certified under the Safe Harbor framework, including
Microsoft, Intel, Hewlett-Packard, Proctor & Gamble, and DoubleClick.
The European Commission has also adopted its own draft of model
contract clauses that could be used as an alternative means for U.S.
companies to comply with the EU directive. However, the U.S.
Departments of Commerce and the Treasury, as well as U.S. industry,
have criticized the European Commission version as being overly
burdensome for U.S. companies and not a practical alternative for
ensuring compliance. The International Chamber of Commerce has
proposed an alternative to the European Commission's clauses, but this
alternative has not yet been certified by the European Commission.
Several countries, including Canada, Australia, New Zealand, and
Argentina, have also adopted comprehensive data privacy legislation.
So far, the United States has not adopted agreements with these
countries similar to the Safe Harbor framework with the European Union.
Q. What international principles exist for ensuring data protection?
Internationally, the 30 member countries of the Organization for
Economic Cooperation and Development agreed in 1980 to the principles
in the OECD's Guidelines Governing the Protection of Privacy and
Transborder Flows of Personal Data (see table 2). These principles
were developed by government agencies in the United States, Canada,
and Europe.
Table 2: Summary of Basic Principles of Data Privacy and Protection
Laws in the OECD Guidelines:
Principle: Notice/awareness;
Definition: Data collectors (such as Web sites) should provide
consumers with clear and conspicuous notice of their information
practices, including what information they collect; how they collect
it; how they use it; and how they provide choice, access, and security
to consumers.
Principle: Choice/consent;
Definition: Data collectors should offer consumers choices about how
their personal identifying information may be used beyond the use for
which the information was provided (for example, to consummate a
transaction). Consumers should have the choice of whether the
information could be used internally, as well as whether it could be
disclosed to outside firms.
Principle: Access/participation;
Definition: Data collectors should offer consumers reasonable access
to the information a Web site has collected about them, including
giving them a reasonable opportunity to review information and to
correct inaccuracies or delete information.
Principle: Integrity/security;
Definition: Data collectors should take reasonable steps to protect
the security of the information they collect from consumers.
Principle: Enforcement/redress;
Definition: Some entity should have authority to enforce the above
principles, and
consumers should have avenues for redress when the principles are
violated.
Source: The U.S. Federal Trade Commission's summary of the basic
principles embodied in the OECD guidelines [hyperlink,
http://www1.oecd.org/dsti/sti/it/secur/prod/PRIV-EN.htm] and other
privacy laws.
[End of table]
Specific legislation will vary on how countries implement the
components. For example, on "choice/consent," the Gramm-Leach-Bliley
Act requires financial institutions to provide customers the
opportunity to "opt out" of having their nonpublic personal
information shared with nonaffiliated third parties, with certain
exceptions.[Footnote 23] If the individual does not respond to the
opportunity, the company then may share the individual's personal
information. The Children's On-line Privacy Protection Act, however,
requires on-line companies to first gain the consent of the child's
parent before collecting information. This is known as an opt in
requirement. It is a more stringent privacy requirement than an opt
out, because an individual is not required to do anything in order to
keep his or her personal information from being collected.
Web sites for more information on data privacy:
U.S. Federal Trade Commission:
[hyperlink, http://www.ftc.gov/privacy/index.html]
U.S. Department of Commerce Safe Harbor Web site:
[hyperlink, http://www.exportgov/safeharbor]
European Union Data Protection:
[hyperlink,
http://www.europa.eu.int/comm/internal_market/en/dataprot/index.htm]
Canadian Commissioner for Privacy:
[hyperlink, http://www.privcom.gc.ca]
Organization for Economic Cooperation and Development:
[hyperlink, http://www.oecd.org]
Q. How Does International Electronic Commerce Affect Security Efforts?
There are several security threats to consumers' transactions that may
affect consumer adoption of international electronic commerce.
Criminals in foreign countries have successfully penetrated computer
systems of major U.S. financial institutions, and numerous cases of
credit, debit, and ATM card fraud, telemarketing fraud, and copyright
piracy have caused significant losses for U.S. individual and
corporate victims. Equally important as these well-publicized cyber
attacks are traditional crimes committed by means of the Internet,
such as theft of proprietary information and content, fraud, money
laundering, and identity theft. Specifically, some of the challenges
that law enforcement faces on the international front include
improving cooperation in locating and identifying perpetrators across
borders, securing electronic evidence of their crimes so that they may
be brought to justice, and overcoming differences in countries'
criminal laws. As with other aspects of international electronic
commerce, jurisdictional issues arise at each step. In the following
pages, we answer some questions related to how international
electronic commerce affects security efforts:
* What are some of the security challenges for IEC?
* To what extent are new security arrangements for IEC being developed?
* How are security challenges being addressed by the private sector?
Q. What are some of the security challenges for IEC?
* Cooperation. National laws apply to the Internet and other global
networks. But while the enactment and enforcement of criminal laws
have been, and remain, a national responsibility, the nature of modern
communications networks makes it impossible for any country acting
alone to address this emerging high-tech crime problem. For example,
consider a computer hacker in Paris on the left bank of the Seine who
disrupts a corporation's communications network on the right bank.
Before accessing his victim's computer, he routes his communication
through service providers in Romania, Australia, and Argentina. In
this case, French police will need assistance from law enforcement
authorities in Bucharest, Canberra, and Buenos Aires before
discovering that the criminal is right in their midst. Because of the
perishability of evidence and the mobility of people, evidence must be
gathered quickly to minimize the chances that the data will be
unavailable or lost.
* Legislation. The failure of a country to criminalize computer-
related offenses is one such obstacle. When one country's laws
criminalize certain activities on computers and another country's laws
do not, effective cooperation in solving a crime and prosecuting the
perpetrator may not be possible. The investigation of the "Love Bug"
virus provides an example. Although U.S. investigators worked closely
with investigators in the Philippines, international coordination
would have proceeded more quickly and effectively had there existed
common computer crime laws between the two countries.
Q. To what extent are new security arrangements for IEC being
developed?
* Council of Europe. The U.S. government is working with foreign
governments through many channels to address global threats related to
computer crime. For example, the United States has participated in the
drafting of the Council of Europe (COE) Convention on Cyber-Crime
since the project began in 1997.[Footnote 24] Specifically, the United
States, represented by the Departments of Justice, State, and
Commerce, in close consultation with other U.S. government agencies,
has actively participated in the negotiations in both the drafting and
plenary sessions, working closely with both COE and non-COE member
states. Among other non-COE states participating in the negotiations
were Canada, Japan, and South Africa.
By virtue of their having participated in the convention's
elaboration, the United States and these other non-COE states will
have the right to become parties to the convention if they choose to
do so. On June 29, 2001, the Council of Europe released the final text
of the draft Convention on Cyber-Crime, which is the first
multilateral instrument to address the problems posed by the spread of
criminal activity on computer networks. The Convention makes progress
in this area by (1) requiring signatory countries to establish certain
substantive offenses in the area of computer crime, (2) requiring
parties to adopt domestic procedural laws to investigate computer
crimes, and (3) providing a solid basis for international law
enforcement cooperation in combating crime committed through computer
systems. On November 23, the United States signed the treaty.
Criminals, including terrorists, can cause large economic losses and
threaten our infrastructure through computer-related attacks (for
example, hacking, viruses, and denial-of-service attacks). Criminals
around the world are also increasingly using computers to commit
traditional crimes, such as fraud, child pornography, and copyright
piracy. The Cybercrime Convention is expected to be of considerable
benefit to the United States, because it will help remove procedural
and jurisdictional obstacles to international cooperation that can
delay or endanger law enforcement investigations and prosecutions of
computer-related crime.
* EU Forum. The European Commission intends to establish and chair an
EU Forum, similar to forums that exist in certain EU member states.
The EU-wide forum would bring together law enforcement agencies,
service providers, network operators, consumer groups, and data
protection authorities. Their aim would be to enhance cooperation by
raising public awareness of the risks posed by criminals on the
Internet, promoting best practices for information technology
security, developing effective counter-crime tools and procedures, and
encouraging further development of early warning and crisis management
mechanisms. In addition, the European Commission promotes security and
trust through a number of programs.[Footnote 25]
* OECD Security Guidelines. The OECD has convened an Experts group to
review the 1992 OECD Guidelines for the Security of Information
Systems (the Security Guidelines). The Experts group is charged with
the mission of reviewing the Security Guidelines and reporting their
recommendations to the OECD Working Party on Information Security and
Privacy (WPISP). Delegates to the Experts group include government
representatives from OECD member countries and representatives of
industry and consumer interests. The U.S. delegation is made up of
representatives from the FTC and the Departments of State, Commerce,
Justice, and the Treasury. The original Security Guidelines, adopted
in 1992, were issued prior to the explosive growth of the Internet and
E-commerce. Their provisions have become particularly relevant since
the tragedies of September 11.
Q. How are security challenges being addressed by the private sector?
The private sector is trying to address security challenges through
the use of security-enhancing technologies. For example, the common
use of Secure Socket Layer (SSL) technology provides the benefit of
encryption for information exchanged with certain Web sites. Software
solutions to address security challenges include applications that
look for patterns of questionable behavior or other indicators of
irregularity. Address verification services (AVS), conducted by
payment processors, help ensure that a payment cardholder's billing
address matches the shipping address. Payment card companies have also
tried to address security concerns. Visa has recently rolled out a new
service to its U.S. customers that allows consumers to add personal
passwords to existing Visa cards ("Verified by Visa"). Recently, some
issuers have also introduced "disposable" card numbers that can be
used only once. In addition, others use smart cards that embed card
data in a microchip.
Web sites for more information on security issues related to IEC:
Council of Europe:
[hyperlink, http://press.coe.int/cp/2001/893a(2001).htm]
Council of Europe:
[hyperlink,
www.coe.int/T/E/Communication_and_Research/Press/_Themes_Files/Cybercrim
e]
U.S. Department of Justice:
[hyperlink, www.cybercrime.gov/]
Federal Trade Commission:
[hyperlink, www.ftc.gov/bcp/menuinternet.htm]
U.S. Department of Commerce:
[hyperlink, www.ciao.gov/]
National Institutes of Standards and Technology:
[hyperlink, http://csrc.nist.gov/]
Q. How Does International Electronic Commerce Affect International
Payment Methods for Consumers?
International electronic commerce gives consumers the ability to
search for goods and services around the world. In some cases,
however, consumers may have difficulty finding a reasonable way to pay
for the product. American consumers are generally able to purchase
goods from foreign sites using credit cards but may be deterred by
security and fraud concerns (see the section on security). However,
foreign consumers shopping for goods and services from U.S. sites are
less likely to use credit cards and therefore may face expensive or
time-consuming payment options that could deter purchases. In the
following pages, we answer questions related to how the IEC affects
international payment methods for consumers:
* What are the limitations of existing payment mechanisms?
* To what extent are new payment mechanisms for IEC consumer
transactions being developed?
Q. What are the limitations of existing payment mechanisms?
As table 3 shows, traditional payment mechanisms can have significant
limitations for low-value, international electronic commerce
transactions. For example, a German consumer in Berlin can search for
goods on a Web site from a small U.S. company based in Minnesota. But
if the consumer finds a product he or she likes, how can he or she pay
for it? Ideally, the German consumer would be able to send a payment
to the U.S. company electronically.
Table 3: Limitations of Existing Payment Mechanisms:
Payment mechanism: Cash;
Limitations: A U.S. retailer probably will not accept an envelope
full of euros, and it would be costly and time-consuming for a German
consumer to exchange euros for dollars and then send the dollars via
the mail.
Payment mechanism: Check;
Limitations: A U.S. company may not accept a check drawn on a foreign
bank because of concerns about fraud and the possible extra expense of
depositing a euro-denominated check in its local bank.
Payment mechanism: Credit card;
Limitations: A credit card could work, if a German consumer has one
and a U.S. company accepts it. However, consumers in many other
countries do not use credit cards as often as American consumers do.
In addition, some U.S. on-line retailers will not accept foreign
credit cards because of concerns about fraud.
Payment mechanism: Wire transfer;
Limitations: Most banks offer international wire transfers. However,
the fees that banks charge for this service (typically $20�$40 per
transaction) could exceed the cost of the item being purchased.[A]
[A] A September 2001 EU study of 1,480 credit transfers of $93 found
that the average fee within the European Union was $22.35.
Source: GAO analysis.
[End of table]
Q. To what extent are new payment mechanisms for IEC consumer
transactions being developed?
The global reach of the Internet, combined with the limitations of
existing payment mechanisms, creates market pressure for alternative
ways to pay for purchases that can quickly, cheaply, and safely
transfer small amounts of money across borders. However, the
development of new, international, Internet-based payment systems is
still in its early stages. For example, in November 2001, the Bank for
International Settlements reported that so-called electronic money was
in use or being planned in 82 countries.[Footnote 26] Most electronic
money systems allow the user to add money to a smart card that can be
used to purchase items from certain vendors. Some even allow users to
"download" money to their cards or account via the Internet (see
figure 8 below). However, most forms of electronic money cannot be
used across borders. The few that do allow international purchases are
generally linked to a preexisting credit card account. An official
from the U.S. Federal Reserve Bank told us that E-money alternatives
that are not linked to existing payment mechanisms face significant
barriers to entry because of uncertainties about cost, potential
market, and profitability.[Footnote 27]
Figure 8: Example of an Electronic Money Transaction:
[Refer to PDF for image: illustration]
1) Consumer downloads funds from bank account.
2) Consumer transfers funds to stored value card.
3) Consumer purchases goods from merchant who accepts card.
Source: GAO analysis.
[End of figure]
Because development of new international payment mechanisms is still
in the very early stages of growth, discussion of the policy
implications is largely based on speculation about what could happen
in the future. Also, creating new forms of payment to ease
international transfers of funds raises potential concerns about money
laundering and the financing of international criminal activity. In
fact, the ability of private companies to "issue" money or provide
payment services could someday pose challenges to banking supervision
and the applicability of banking laws.[Footnote 28]
Web sites for more information on payment methods:
Federal Reserve Board:
[hyperlink, http://www.federalreserve.gov]
U.S. Treasury:
[hyperlink, http://www.fms.treas.gov/payments.html]
NACHA, the Electronic Payments Association:
[hyperlink, http://www.nacha.org]
Bank for International Settlements:
[hyperlink, http://www.bis.org/cpss/index.htm]
European Union:
[hyperlink,
http://http://www.europa.eu.int/comm/internal_market/en/index_ob.htm]
[End of section]
Section 4: Adapting Commercial and Legal Frameworks:
The continued growth in international electronic commerce is creating
new complications for the legal system governing international
commercial transactions. As businesses, consumers, and governments
develop new and innovative ways to interact, existing commercial
frameworks are under increasing pressure to adapt. For example,
international commercial transactions have long created legal
complexities in the areas of contracts, intellectual property rights,
and taxation. The development of entirely new ways of conducting
business, coupled with the jurisdictional uncertainties arising from
international electronic transactions, makes dealing with long-
standing legal complexities in international commerce even more
complex. In this section, we discuss some of the efforts under way to
adapt existing regimes in three areas: (1) commercial law, (2)
intellectual property rights, and (3) taxation.
Q. What Are the Implications of International Electronic Commerce on
Commercial Laws?
The ability to conduct transactions on line as easily as those
traditionally conducted off line is integral to fully exploiting the
potential of international electronic commerce. Commercial laws differ
considerably from country to country, and as discussed previously in
the section on consumer protection, there is uncertainty with respect
to which country's laws will apply and where disputes will be
adjudicated. For example, businesses and consumers cannot be certain
that electronic signatures and contracts will be considered legally
binding. In the following pages, we address specific areas closely
related to international electronic commerce transactions:
* Is there a global E-signature policy?
* What are some of the U.S. and EU efforts to facilitate electronic
transactions?
* What international initiatives promote electronic contracting?
Q. Is there a global E-signature policy?
Harmonizing the use of electronic signatures is important to the
growth of international electronic commerce, but there are
difficulties in achieving international harmonization. For example, E-
signature policies vary by degree of technological neutrality (the
degree to which the policy requires or assumes a specific technology)
and regulation. Developing and other countries may follow very
different models, thereby creating multiple E-signature policies. This
situation could lead to disputes over contract authenticity in the
future.
Q. What efforts have the United States and the European Union made to
facilitate electronic transactions?
* Electronic signatures. On June 30, 2000, the Congress passed the
Electronic Signatures in Global and National Commerce Act (ESIGN Act).
[Footnote 29] The ESIGN Act is intended to promote electronic commerce
by providing a consistent national framework for electronic signatures
and transactions. It is also intended to eliminate legal barriers to
the use of electronic technology to form and sign contracts, collect
and store documents, and send and receive notices and disclosures.
Specifically, section 101(a) of the act places electronic records and
signatures on a legal par with their paper and ink counterparts. In
the European Union, most member states have already recognized the
equivalence between electronic and handwritten signatures and have
recognized the admissibility of electronic signatures as evidence in
court proceedings. The European Union has also adopted a 1999
Electronic Signatures Directive that lays out the framework for the
use of electronic signatures for reliable and legally valid
communication by electronic means.[Footnote 30] Under this directive,
electronic signatures accompanied by a valid certificate will now be
considered equivalent to handwritten signatures throughout the
European Union.
* Electronic contracts. In the United States, the legal rules
governing contracts and commercial transactions have traditionally
been established by the state governments, working through an
organization of legal experts called the National Conference of
Commissioners on Uniform State Laws (NCCUSL). In July 1999, NCCUSL
approved the Uniform Electronic Transactions Act (UETA) and sent it to
state governments for adoption. This measure builds on the
international consensus established by the UNCITRAL Model Law on
Electronic Commerce and contains specific provisions that the states
can use to remove paper-based barriers to electronic transactions.
ESIGN and UETA are somewhat complementary; ESIGN may apply in those
states that have not adopted UETA. It is likely, as electronic
commerce and particularly international electronic commerce grow, that
more changes will be needed in existing legal and regulatory
frameworks to make these transactions as convenient and reliable as
traditional ones. The European Union has taken several measures to
facilitate the conclusion of contracts by electronic means, such as
the 2000 Electronic Commerce Directive. It provides, for example, that
any kind of contract may, in principle, be validly concluded
electronically. EU member states are, however, permitted to exclude
certain categories of contracts from this general rule (for example,
contracts regarding real estate and contracts involving public
notaries, public authorities, or the courts, among others).
Q. What international initiatives promote electronic contracting?
Internationally, UNC1TRAL has completed work on a model law that
supports using international electronic contracts for conducting
business. This model law:
* establishes rules and norms that validate and recognize contracts
formed through electronic means,
* sets rules for forming contracts and governing electronic contract
performance,
* defines the characteristics of valid electronic writing and of an
original document,
* provides for the acceptability of electronic signatures for legal
and commercial purposes, and,
* supports the admission of computer evidence in courts and
arbitration proceedings.
At its 33rd session, UNCITRAL in 2000 held a preliminary exchange of
views regarding future work in the field of electronic commerce. Three
topics were suggested:
* Electronic contracting. Participants believed that additional work
is needed to develop uniform rules to govern dealings in services or
"virtual goods": that is, items (such as software) that might be
purchased and delivered in cyberspace.
* Dispute settlement. Participants believed that in order to improve
IEC dispute settlement options, current laws might have to be amended
or interpreted to authorize the use of electronic documentation and,
in particular, to do away with existing requirements regarding the
written form of arbitration agreements. In addition, new rules should
be designed to facilitate the increased use of on-line dispute
settlement mechanisms. For example, one such rule might deal with
making dispute settlement techniques such as arbitration and
conciliation available to both commercial parties and consumers.
* Dematerialization of documents of title, in particular in the
transport industry. Participants believed that more has to be done by
way of establishing a uniform statutory framework to replace the
traditional, paper-based bills of lading with electronic messages. It
was widely felt that such work should not be restricted to shipping
but should also include other modes of transportation.
More recently, according to a State Department official, UNCITRAL has
prepared a draft convention on electronic contracting. As conceived,
the proposed treaty will address the rules on formation of contracts
through computer communications. It would apply to transactions in
tangible goods and would exclude consumer contracts, licensing of
software, and sales of "virtual goods" (where the products are data
rather than tangible goods).
Web sites for more information on efforts to facilitate the use of
electronic signatures and contracting:
UNCITRAL (Working Group IV on E-Commerce):
[hyperlink, http://www.uncitral.org/en-index.htm]
World Trade Organization:
[hyperlink, http://www.wto.org]
Organization for Economic Cooperation and Development:
[hyperlink, http://www.oecd.org]
European Union:
[hyperlink, http://www.europa.eu.int]
Hague Conference on Private International Law:
[hyperlink, http://www.hcch.net/e/]
UNIDROIT:
[hyperlink, http://www.unidoit.org]
Q. What Are the Implications of International Electronic Commerce on
Intellectual Property Rights?
Commerce on the Internet will often involve the sale and licensing of
intellectual property such as music, movies, and games. To promote
this commerce, sellers must have confidence that their intellectual
property will not be stolen, and buyers must have confidence that they
are obtaining authentic products. International agreements that
establish clear and effective copyright, patent, and trademark
protection are therefore necessary to prevent piracy and fraud. While
technology, such as encryption, can help combat piracy, an adequate
and effective legal framework is also necessary to deter fraud and the
theft of intellectual property and to provide effective legal recourse
when these crimes occur. In the following pages, we answer several
questions related to how IEC affects intellectual property rights:
* How are intellectual property rights protected internationally?
* What are the principles underlying these treaties?
* What are some of the European efforts under way to improve
intellectual property protection for IEC?
Q. How are intellectual property rights protected internationally?
The World Intellectual Property Organization (WIPO) is an important
forum for addressing the development of intellectual property
protection.[Footnote 31] The organization currently administers 11
treaties that set out internationally agreed rights and common
standards for intellectual property protection. The states that sign
these treaties agree to apply those rights and standards within their
own territories.
While the cornerstones of WIPO's treaty system remain the Paris and
Berne Conventions, subsequent treaties have widened and deepened the
protection they offer and have encompassed technological change and
new areas of interest and concern. Two recent examples are the WIPO
Copyright Treaty and the WIPO Performances and Phonograms Treaty.
These treaties contain basic rules updating the international
protection of copyright and related rights to the Internet age. U.S.
copyright law has been modified to conform to the WIPO treaties.
[Footnote 32]
While there is no such thing as an international copyright, there is a
set of international treaties that establishes minimum standards for
protecting the copyrighted works of participating nations. The
situation is complicated, because worldwide there are different legal
traditions applicable to the protection of what the United States
regards as copyrighted works.
For example, under U.S. copyright law, sound-recording producers and
performers are regarded as joint authors of sound recordings. Under a
different legal system, such producers' and performers' rights would
be protected differently and may be protected at a lower level as
entirely separate and distinct from the rights granted under the U.S.
system. These differences in the rights granted under various
intellectual property systems are sometimes areas of conflict.
Q. What are the principles underlying these treaties?
The principle of national treatment is the cornerstone of many
international intellectual property treaties as well as international
trade treaties such as the General Agreement on Tariffs and Trade and
the World Trade Organization (WTO). The principle of national
treatment means that under a nation's laws, a foreigner enjoys the
same rights and benefits that a citizen of that nation receives
(subject to the specific terms of the relevant international
conventions). In copyright terms, it means, for example, that a German
work for which copyright enforcement is sought in the United States
would be treated under U.S. law exactly as if it were a U.S. work.
Q. What are some of the European efforts under way to improve
intellectual property protection for IEC?
The European Union has held a number of deliberations in various
forums on the treatment of intellectual property over the Internet.
Among the recent actions was the adoption in 2001 of a Directive on
Copyright. The directive is intended to ensure a uniformly high level
of copyright protection throughout the European Union for creators of
copyright-protected works and related entities (artists, music
editors, broadcasting companies, and so on) whose works are
transmitted over the Internet. The European Communities are a
signatory to the WIPO Performances and Phonograms Treaty. In addition,
the European regulatory framework provides directives on:
* the legal protection of computer programs,
* the legal protection of databases,
* the rights for rental and lending,
* the rights related to broadcasting by cable and satellite, and,
* the term (length) of protection.
Web sites for more information on efforts to protect intellectual
property:
World Intellectual Property Organization:
[hyperlink, http://www.wipo.org]
World Trade Organization:
[hyperlink, http://www.wto.org/english/tratop_e/ecom_e/ecom_e.htm]
U.S. Copyright Office:
[hyperlink, http://www.loc.gov/copyright/]
U.S. Patent and Trademark Office:
[hyperlink, http://http://www.uspto.gov/]
Q. What Are the Tax Implications of International Electronic Commerce?
The taxation of international transactions involving U.S. companies
and consumers is currently based on (1) the statutory tax laws of the
countries in which each party to the transaction is a citizen and (2)
a series of bilateral tax treaties between the United States and its
major trading partners. The advent of international electronic
commerce creates additional complexities in the interpretation of
these statutes and treaties, as well as raises entirely new issues.
The extent to which international electronic commerce complicates
taxation efforts depends on the product and the transaction.
According to a U.S. Treasury official, existing tax regimes can in
general be applied to international electronic commerce without
significant modifications being required, and without raising
significant new tax policy or administrative issues. For example, with
respect to physical products ordered on line and then shipped across
borders, IEC has not significantly complicated the implementation of
statutory provisions or international tax agreements. The only
difference is in how a product is ordered, not in how it is shipped or
taxed. However, for digital products such as books and magazines,
authorities differ on whether these should be considered goods or
services. This distinction may have an important effect on the tax
levied. In the following pages, we answer several questions related to
how the taxation of international electronic commerce is being
addressed:
* How does IEC complicate international taxation?
* What is the U.S. position on IEC taxation issues?
* How does the U.S. position differ from the European Union's position
on taxation issues for IEC?
* What is the position of business groups?
* Where are international differences in IEC taxation policy addressed?
Q. How does IEC complicate international taxation?
IEC creates new kinds of goods and services, including those that can
be "shipped" digitally. Adapting existing tax regimes to address these
new kinds of products has proven to be difficult and at times
contentious.
* The borderless nature of electronic commerce can frustrate efforts
to define where income is earned, a product is purchased, or value is
added.[Footnote 33] There are many new ways to conduct business or
trade that were not envisioned several years ago, when many U.S.
bilateral tax treaties were negotiated and tax laws promulgated. As a
result, it may be difficult to determine under these rules at what
point profits are being made and what country is allowed to tax them.
* The ability to access books, magazines, music, and video on line has
led to disagreements about what tax rules to apply if a consumer in
one country downloads material from a Web site based in another
country. If taxation is based on where the consumer is located,
businesses face the technological challenge of determining where their
users are located and the administrative challenge of complying with
tax regulations from several different countries. Currently, a state
or local government in the United States cannot require a foreign
company to collect taxes from U.S. citizens downloading material if
the company does not have a physical presence in that government's
jurisdiction.[Footnote 34]
According to Treasury and EU officials, the decisions on these issues
are not likely to have much impact on tax revenue in the near term
although countries have concerns about setting precedents that will
affect future agreements and disadvantaging their corporations'
ability to compete globally. Taxation policies adopted today could
have important implications for future revenue streams and trade
flows. How ongoing differences over the taxation of IEC are resolved
in the next couple of years will set the foundation for future
taxation of what is widely expected to be a much more significant
revenue stream.
Q. What is the U.S. position on IEC taxation issues?
The general U.S. policy on the federal taxation of international
electronic commerce has remained consistent since 1998, when the U.S.
supported the following principles articulated by the Organization for
Economic Cooperation and Development:[Footnote 35]
* use existing tax treaties to the extent possible;
* do not discriminate between electronic and physical products: that
is, tax the digital version of a product in the same way as the
physical version;
* minimize compliance costs;
* enact clear and simple tax rules;
* provide for effective and fair taxation;
* set up flexible systems for taxation to ensure that they keep pace
with technological changes.
Q. How does the U.S. position differ from the EU's position on
taxation issues for IEC?
The United States and the European Union agree on the six principles
of international electronic commerce taxation outlined above. However,
they disagree on how these principles should be applied in a number of
cases. For example, in early 2000, the European Union proposed that
companies that transmit digital products to consumers located in the
European Union should be required to pay an EU value-added tax on the
product.[Footnote 36] In practice, this would require U.S. companies
to register with EU tax authorities and send value-added tax proceeds
to the European Union for purchases made by consumers resident within
the European Union (see figure 9).
Figure 9: Proposed EU Approach for Collecting Value-added Tax on
Transactions Involving EU Citizens:
[Refer to PDF for image: illustration]
1) US company registers with EU.
2) Consumer buys software on line and pays VAT collected by U.S.
vendors.
3) U.S. company transmits software to EU consumer.
4) U.S. company sends VAT payments to EU.
Source: GAO analysis.
[End of figure]
The United States views this proposed tax regime as placing an unfair
compliance burden on U.S. firms, noting that companies cannot know for
certain where a consumer is resident. The United States also contends
that the proposed regime will discriminate against U.S. companies by
requiring them to collect EU value-added tax charged at a higher rate
than will be charged on sales of identical products to the same
consumers made by EU companies. The European Union's position is that
the proposed tax was based on the desire to harmonize rules within the
European Union and to ensure fair treatment for EU firms. Under the
current system, EU firms that provide digital products to EU consumers
must pay the value-added tax, whereas U.S. firms do not (see figure
10). The European Union contends that this gives U.S. companies an
unfair advantage.
Figure 10: Current Approach for Collecting Value-added Tax on EU
Citizens:
[Refer to PDF for image: illustration]
1) EU consumer buys software on line from a U.S. company; no EU
taxes paid.
2) U.S. company transmits software to EU consumer.
Source: GAO.
[End of figure]
Q. What is the position of business groups?
Business groups want clear, consistent rules that do not hinder
international commerce.[Footnote 37] For example, the Global Business
Dialogue's working group on taxation policy supports principles of
taxation that are similar to those articulated by the OECD and the
U.S. government: neutrality, simplicity, fairness, and enforceability.
[Footnote 38] The Global Business Dialogue has worked with the U.S.
government and the European Union to ensure that electronic commerce
continues to grow, and to avoid competitive distortions and excessive
compliance burdens.
Q. Where are international differences in IEC taxation policy
addressed?
The Organization for Economic Cooperation and Development has been the
primary forum for discussing and resolving these and other tax-related
issues. In 1998, OECD member countries agreed to general principles on
taxation and created several working groups to address technical
issues. Since then, representatives from OECD member countries have
surveyed member states on various aspects of tax policy and discussed
potential approaches to the taxation of IEC in an effort to build
international consensus. Agreements reached at the OECD are not
binding on its member states, although, according to U.S. Treasury
officials, they do carry weight in bilateral discussions.
Web sites for more information on taxation:
Organization for Economic Cooperation and Development: [hyperlink,
http://www.oecd.org]
Department of the Treasury, Office of Tax Policy: [hyperlink,
http://www.treas.govitaxpolicy/index.html]
European Union:
[hyperlink,
http://www.europa.eu.int/comm/taxation_customs/taxation/taxation.htm]
Global Business Dialogue:
[hyperlink, http://www.gbde.org/taxation/]
[End of section]
Section 5: Addressing Barriers through International Trade Agreements
and Negotiations:
International trade agreements, such as those produced multilaterally
through the World Trade Organization, and negotiations, such as those
ongoing bilaterally and regionally with countries in the Western
Hemisphere and Asia, are deeply involved in addressing issues
concerning IEC. These agreements and negotiations discuss electronic
commerce as it relates to trade and attempt to expand the use of IEC
through minimizing barriers to bolstering its efficiency. The United
States, as a key developer and user of IEC, participates in these
discussions in order to foster an open trading environment.
Q. How Is International Electronic Commerce Affected by International
Trade Agreements?
International electronic commerce is affected by international trade
agreements because barriers to goods, services, and investment affect
the development of the structures and networks that facilitate
international electronic commerce transactions. Faced with expanded
use of the Internet and eager to foster its potential economic
benefits, U.S. trade negotiators have begun to consider how existing
trade agreements cover electronic commerce activities and whether new
commitments are needed. These topics include:
* tariffs on information technology products,
* customs duties on electronic transmissions,
* existing trade agreements' coverage of electronic commerce,
* intellectual property protections for original works on the World
Wide Web,
* improvements to customs facilitation,
* removal of barriers to Internet service providers.
International electronic commerce encompasses a wide variety of
issues, because it can be used to facilitate different steps in the
production, distribution, and payment of products across national
borders using a variety of networks (depending on the product). A
bottleneck at any point in this chain of operations-�whether it is the
imposition of high telecommunications costs, restrictions on express
shipments at airports, or placement of onerous customs requirements-�
may reduce the benefits to consumers and businesses of connecting to a
global market. As a leading user and developer of electronic commerce,
the United States has a commercial interest in expanding its use and
maintaining an open trading environment for digital products and
services. The explicit trade policy of the United States is to expand
market opportunities for U.S. goods, services, and intellectual
property by keeping electronic commerce free from trade barriers.
[Footnote 39] In the following pages, we answer questions related to
how international trade agreements and negotiations address barriers
to international electronic commerce:
* What has the World Trade Organization done to address IEC issues?
* How have bilateral and regional trade negotiations addressed IEC?
Q. What has the World Trade Organization done to address IEC issues?
The WTO, a primary forum in which the United States has pursued its
electronic commerce agenda, has undertaken several initiatives that
are important to the development of electronic commerce. Figure 11
shows a time line of key WTO agreements and decisions related to
electronic commerce.
Figure 11: Time Line of WTO Agreements and Decisions Related to
Electronic Commerce:
[Refer to PDF for image: time line]
1996: WTO information Technology Agreement completed � eliminates
tariffs on key IT products by 2000.
1997: WTO Basic Telecommunications Agreement completed � liberalizes
telecommunications services markets.
1998: WTO moratorium on imposing customs duties on E-commerce
transmissions established and work program on E-commerce initiated.
2001: WTO moratorium and work program extended until next WTO
Ministerial (approximately 2 years).
Note: IT = information technology.
Source: World Trade Organization.
[End of figure]
As of 2000, 55 WTO members were participants in the Information
Technology Agreement, which covers 95 percent of trade in the $600
billion-plus global market for information technology products. Also,
69 WTO members made market opening commitments in 1997 under the Basic
Telecommunications Agreement, which liberalizes the telecommunications
services market�part of the infrastructure of the Internet and
electronic commerce. WTO members committed under the 1998 moratorium
to continue the current practice of not imposing customs duties on
electronic commerce transmissions. This moratorium was extended again
at the WTO Ministerial meeting in Doha, Qatar, on November 14, 2001,
until the next WTO Ministerial Meeting.
In addition to these commitments, several areas of importance to
electronic commerce are currently under discussion at the WTO. In
1998, WTO members began a work program involving each of the major
bodies of the WTO (the Council for Trade in Goods, the Council for
Trade in Services, the Council for Trade-related Aspects of
Intellectual Property Rights, and the Committee on Trade and
Development). Through this work program, WTO members have discussed
the classification of digital products (such as electronic
transmissions of books, music, and software), the application of the
existing WTO agreements to electronic commerce, and other issues
related to trade and electronic commerce.
In particular, the classification of digital products has been an
important area of disagreement among WTO members. Some members, such
as the European Union and Singapore, argue that these digital products
should be classified as services, because their electronic qualities
give them unique features more similar to services. For example,
digital newspapers, unlike their paper versions, can be electronically
searched, copied, and manipulated. However, the United States and
other members are concerned that classifying all digital products as
services may allow countries to place higher trade barriers on digital
products than on their physical counterparts.[Footnote 40] The United
States believes that it is premature to reach a definitive conclusion
on the classification of electronic commerce, given its evolving
nature and the uncertainty of how such a decision could affect market
access and other trade rights.[Footnote 41]
In addition to the work program, WTO members recently initiated at the
Doha Ministerial, a new round of trade negotiations scheduled to be
completed in 2005. The results of this round, particularly in areas
such as services and customs facilitation, could have important
ramifications for the development of electronic commerce, even if new
agreements do not address electronic commerce directly. Greater trade
liberalization and facilitation could lead to removing some of the
bottlenecks that international electronic commerce currently faces in
various markets.
Q. How have bilateral and regional trade negotiations addressed IEC?
The United States has pursued discussions on electronic commerce with
other trade partners through negotiations of free trade agreements.
[Footnote 42] One potential benefit of these narrower negotiating
arenas is that the United States and the individual partners may be
able to craft state-of-the-art agreements that can then be used to
promote U.S. objectives for electronic commerce in wider forums, such
as the WTO. The 2000 U.S.-Jordan Free Trade Agreement was the first
free trade agreement to include explicit language covering electronic
commerce.[Footnote 43] In the agreement, both countries stated that
they would "seek to refrain from" imposing customs duties on
electronic transmissions, creating unnecessary barriers on electronic
transmissions, and impeding the electronic supply of services that
were being liberalized under the agreement. In future free trade
agreements, such as those being negotiated with Singapore and Chile,
U.S. negotiators are seeking to develop these types of disciplines
into more concrete obligations that will maintain the current liberal
trade environment for electronic commerce.
At the regional level, the negotiations on the Free Trade Area of the
Americas with 33 other Western Hemisphere countries include the
presence of a "non-negotiating" committee on electronic commerce.
[Footnote 44] This committee comprises both government and private-
sector representatives and is tasked with making recommendations to
trade negotiators on how to increase and broaden the benefits to be
derived from the electronic marketplace. It also provides a forum for
countries to share their experiences and initiate approaches to
encouraging the development of electronic commerce activities. The
committee has issued two public reports that made recommendations on
topics such as increasing the use of governments, smaller economies,
and small businesses that engage in electronic commerce; clarifying
the rules of the electronic commerce market; developing on-line
payment services; and addressing security issues. Besides the Free
Trade Area of the Americas, the United States has also been involved
in electronic commerce discussions through the Asia-Pacific Economic
Cooperation forum and the Organization for Economic Cooperation and
Development, focusing on trade as well as consumer protection,
privacy, and other areas.
Web sites for more information on international trade:
U.S. Trade Representative:
[hyperlink, http://www.ustr.gov/sectors/electronic_commerce.shtml]
Free Trade Area of the Americas:
[hyperlink, http://www.ftaaalca.org/SPCOM1WCOMMECE.ASP]
World Trade Organization:
[hyperlink, http://www.wto.org]
Asia-Pacific Economic Cooperation forum:
[hyperlink, http://www.ecommerce.gov/apec]
World Customs Organization:
[hyperlink, http://www.wcoomd.org]
Organization for Economic Cooperation and Development:
[hyperlink, http://www.oecd.org/ecommerce]
[End of section]
Appendix I: Objectives, Scope, and Methodology:
At the request of the Ranking Senate Minority Member of the Joint
Economic Committee, we undertook a review of international electronic
commerce. Specifically, our objectives were to answer the following
questions: (1) What is international electronic commerce (IEC)? (2)
What data on international electronic commerce (IEC) does the U.S.
government collect? (3) What is being done to remove obstacles and
facilitate consumer use of international electronic commerce? (4) What
are some of the efforts being made to adapt the legal framework for
international electronic commerce transactions? (5) How do
international trade agreements and negotiations address barriers to
international electronic commerce?
To define electronic commerce, we interviewed officials and reviewed
documents from the Bureau of the Census, the Bureau of Economic
Analysis, and the Departments of Commerce and the Treasury In
addition, we met with representatives from electronic commerce and
business consulting firms that specialize in electronic commerce,
including International Data Corporation; Forrester Research, Inc.;
and eMarketer, Inc. These firms presented us with a general overview
of their methodologies and access to their estimates on electronic
commerce activity. However, we did not analyze the quality of the
methodologies, nor did we independently verify their estimates. The
methodology use by Forrester to arrive at their estimates on
international electronic commerce transactions reported in section 1
of this report relies on a mix of quantitative and qualitative
analysis based on economic data and surveys.
To determine what data the U.S. government collects on international
electronic commerce, we interviewed officials from the Office of the
U.S. Trade Representative; the Board of Governors of the Federal
Reserve; the Departments of State, Commerce, and the Treasury; and the
U.S. Federal Trade Commission.
To examine efforts to remove obstacles and facilitate consumer use of
international electronic commerce, we interviewed officials from the
Office of the U.S. Trade Representative; the Board of Governors of the
Federal Reserve; the Departments of State, Commerce, Justice, and the
Treasury; the European Commission Delegation to the United States; the
U.S. Federal Trade Commission; and several representatives of private-
sector firms and organizations. In addition, we reviewed documents
including papers and articles, industry journals, and information
available at various sites on the World Wide Web from several U.S.
government, international, and private organizations, including the
Departments of State, Commerce, Justice, and the Treasury; the Office
of the U.S. Trade Representative; the Board of Governors of the
Federal Reserve; the Asia-Pacific Economic Cooperation Forum; the
Council of Europe; the European Commission; the Organization for
Economic Cooperation and Development(OECD); the Bank for International
Settlements; the International Marketing Supervision Network; the
Global Business Dialogue; and NACHA, the Electronic Payments
Association.
To identify the efforts to adapt the legal framework for international
electronic commerce transactions, we interviewed officials from the
Office of the U.S. Trade Representative; the Board of Governors of the
Federal Reserve; the Departments of State, Commerce, and the Treasury;
the European Commission Delegation to the United States; the U.S.
Federal Trade Commission; and several representatives of private-
sector firms and organizations. In addition, we reviewed papers and
articles, industry journals, and information available at various
sites on the World Wide Web from the Departments of Commerce and the
Treasury, the Advisory Commission on Electronic Commerce, the OECD,
the European Commission, and the Global Business Dialogue. Documents
from these sources included former U.S. policy and strategy documents
for approaching electronic commerce, research studies by the
technology practices of investment banks, law firms, and consulting
firms, as well as the research studies and publications firms
specializing exclusively in Internet or electronic commerce issues.
To determine the extent of efforts in international agreements and
trade negotiations, we interviewed officials from the Office of the
U.S. Trade Representative; the Departments of State, Commerce, and the
Treasury; and the European Commission Delegation to the United States.
In addition, we reviewed U.S. government, international organization,
and private-firm documents, reports, and articles; industry journals;
and information available at various sites on the World Wide Web.
International organizations included the World Trade Organization
(WTO), the Free Trade Area of the Americas, the Asia-Pacific Economic
Cooperation Forum, the OECD, and the World Customs Organization.
The information on foreign laws and regulations in this report is
based on secondary sources and interviews and does not necessarily
reflect our independent legal analysis.
We conducted our work in Washington, D.C., New York, and Boston
between May 2001 and November 2001, in accordance with generally
accepted government auditing standards.
We requested comments on the technical accuracy of this report from
officials at the Departments of State, Commerce, and the Treasury; the
Office of the U.S. Trade Representative; the U.S. Federal Trade
Commission; and the European Commission Delegation to the United
States. Their comments have been incorporated where appropriate.
[End of section]
Appendix II: Definitions and Measurement of Electronic Commerce:
The definition and measure of international electronic commerce (IEC)
is dependent on how electronic commerce (E-commerce) is defined and
measured more broadly. This appendix presents information on available
definitions and measures of electronic commerce. The first portion
shows that there is no single definition of electronic commerce and
that available definitions differ in scope. The second section shows
the variation in the available estimates of the size of electronic
commerce from official government sources. The third section reports
on private-sector estimates of electronic commerce. As a consequence
of the variation in definition and measurement of electronic commerce,
IEC, in turn, lacks a single definition or measure.
Definitions of Electronic Commerce:
Despite the prevalence of the term "electronic commerce," it has no
widely accepted definition. Some academics use very broad definitions,
because their focus is primarily on electronic commerce as a business
model and on its impact on industrial organizations. Policymakers at
times employ equally broad definitions that emphasize the impact of
electronic commerce on all aspects of economic activity. At other
times, narrower definitions are used to address specific policy areas,
such as taxation or intellectual property rights. Statisticians
typically use more precise definitions that focus on the transaction,
where a product or service is exchanged between two parties. Even for
statistical purposes, the definition used varies with the measurement
objective and, in the case of private consulting firms, with
particular client needs.
Electronic commerce can be separated into two broad categories:
business-to-business (B-to-B) and business-to-consumer (B-to-C). Other
types of on-line interactions involve governments and transactions
between consumers (consumer-to-consumer, or C-to-C).
While electronic commerce definitions can include all transactions,
including C-to-C transactions, measures of electronic commerce focus
primarily on B-to-B and B-to-C electronic commerce. B-to-B and B-to-C
electronic commerce estimates are typically collected using narrow,
transaction-based definitions but differ with respect to the type of
activity that is considered to qualify as electronic commerce.
Essentially, these narrow electronic commerce definitions differ
because of two key elements:
1. Networks. Definitions for electronic commerce differ with respect
to what types of communications networks are included. Many
definitions include only transactions that occur over the Internet (a
worldwide system of public [open] computer networks, through which
users can access, send, and share information) as electronic commerce.
Although the Internet is in the public domain, recent adaptations of
the Internet technology, the Intranet and the Extranet, are private
(closed) networks. An Intranet computer network is internal to a
particular enterprise, while an Extranet is part of a company's
Intranet that is extended to select users, including, for example,
vendors outside the firm.[Footnote 45] Before the widespread adoption
of the Internet, electronic transactions between businesses were
conducted via electronic data interchange (EDI).[Footnote 46] The main
purposes of the Extranet and EDI are to share confidential information
with important nonemployees such as suppliers, vendors, partners, and
customers, including basic orders and invoices. Given these different
networks, electronic commerce definitions vary according to whether
they include Intranet, Extranet, and EDI transactions or focus solely
on the Internet.[Footnote 47]
2. Type of transaction. Electronic commerce definitions also vary with
respect to the scope of the transactions included. Some definitions
broadly include all business activity that involves any on -line
activity (including advertising and research), while others include
only transactions that involve on-line processes at particular steps
in conducting a transaction. Most definitions agree that at a minimum,
an electronic commerce transaction must involve the on-line commitment
to buy or sell a good or service, emphasizing that the method of
payment or delivery of the good or service is immaterial.[Footnote 48]
Table 4 illustrates the variation in definitions of electronic
commerce by selected sources attributable to differences in their
inclusion of different networks and types of transactions. The
variation in the definitions helps to explain the wide range of
estimates for electronic commerce discussed in the following sections.
Table 4: Definition of Electronic Commerce:
Defining source: Boston Consulting Group
Definition of electronic commerce: Internet- and EDI-based
transactions.
Defining source: eMarketer;
Definition of electronic commerce: Internet transactions in which the
buyer completes the purchase order or
transactional contract via the Internet; includes only Web-based EDI.
Defining source: Forrester Research, Inc.
Definition of electronic commerce: Trade of goods and services in
which the final order is placed over the Internet; excludes EDI.
Defining source: Gartner Group;
Definition of electronic commerce: Sales of goods and services for
which the order-taking process is completed via the Internet; includes
Internet EDI, e-marketplaces, and Extranets, but excludes activity
over proprietary networks.
Defining source: International Data Corporation;
Definition of electronic commerce: The process by which an order is
placed or accepted via the Internet, therefore representing a
commitment to transfer funds in exchange for goods and services;
excludes EDI transactions that do not use a Web-enabled gateway.
Defining source: Jupiter Media Metrix;
Definition of electronic commerce: Any transaction where the terms or
the majority of the terms are agreed upon on line, or where the
majority of item features are configured on line.
Defining source: Keenan Vision;
Definition of electronic commerce: Internet transactions that create a
sale process that ultimately performs an electronic funds transfer
between buyer and seller.
Defining source: Organization for Economic Cooperation and Development:
Definition of electronic commerce: Broad: The sale or purchase of
goods and services conducted over computer-mediated networks; includes
EDI; excludes Intranet transactions;
Definition of electronic commerce: Narrow: the sale or purchase of
goods and services conducted over the Internet; includes Web-enabled
EDI and any other Web-enabled application; excludes Intranet
transactions.
Defining source: U.S. Census Bureau;
Definition of electronic commerce: The value of any monetary
transaction completed over a computer-mediated network that involves
the transfer of ownership or rights to use goods and services;
includes Internet, Intranet, Extranet, and EDI transactions[A].
Defining source: Yankee Group;
Definition of electronic commerce: Total value of goods and services
exchanged electronically between businesses.
[A] The Census definition includes propriety networks such as pure
electronic data interchange, which predates the Internet. However,
most definition in table 4 include EDI only if it is Web-enabled (for
example, if the business uses the Internet as the front end to the EDI
system.
Sources: eMarketer, Forrester Research, Inc., IDC, U.S Bureau of the
Census.
[End of table]
Official Government Data on Electronic Commerce:
Because electronic commerce is a relatively recent development, the
U.S. government's statistical agencies are just beginning to collect
information in this area. As a result, U.S. official electronic
commerce statistics exist only for selected segments of the economy.
The U.S. Census Bureau first began in 2000 to collect the information
necessary to form estimates for electronic commerce retail sales,
manufacturing shipments, merchant wholesale trade, and electronic
commerce revenues for selected services. However, Census's EStats
measurement program does not include the entire economy, only the
sectors and industries covered by its existing monthly and annual
surveys with the major emphasis on retail trade.[Footnote 49] The
Census estimates suggest that despite rapid growth, electronic
commerce accounts for only a small percentage of total economic
activity in the U.S. sectors surveyed. Section 2 of this report showed
that U.S. electronic commerce retail sales between 1999 and 2001 made
up only about 1 percent of total sales.
Electronic commerce accounts for an even smaller percentage of retail
sales in Europe than in the United States (see figure 12). This low
level of penetration reflects the fact that a limited number of
consumers are using the Internet for commercial purposes. OECD
research shows that electronic commerce (the percentage of individuals
using and ordering goods over the Internet) is unevenly developed in
the OECD countries. Especially notable is the difference between North
America and northern Europe, on the one hand, and the rest of the OECD
countries, on the other.[Footnote 50] The OECD reports that the
largest numbers of Internet transactions take place in the United
States, and most frequently among U.S. residents.
Figure 12: Electronic Commerce as a Percentage of Total Retail Sales,
2000: An International Perspective:
[Refer to PDF for image: vertical bar graph]
The graph depicts electronic commerce as a percentage of total retail
sales for the following countries:
United States;
Korea;
Sweden;
United Kingdom;
Australia;
Netherlands;
Germany;
Switzerland;
Japan;
Canada;
Norway;
Austria;
Finland;
Denmark;
Belgium;
France;
Italy;
Spain.
Source: OECD, "Business-to-Consumer Electronic Commerce," 2001.
[End of figure]
Although Census has primarily concentrated its electronic commerce
statistics collection (published quarterly) efforts on retail sales,
it also has annual estimates for 1999 for three other sectors�selected
services, manufacturing, and merchant wholesale trade. (The 2000
figures for these three sectors are scheduled to be released in March
2002.) Electronic commerce accounted for just 0.6 percent ($25
billion) of the total selected services industry revenue in 1999. The
numbers for the manufacturing and merchant wholesale trade sectors
suggest a more significant role for electronic commerce, however. The
Census data show that electronic commerce accounted for 12 percent
($485 billion) of all manufacturing shipments and 5.3 percent ($134
billion) of total merchant wholesale sales in 1999.
Census does not collect separate data on B-to-B and B-to-C electronic
commerce, so there are no official estimates. However, Census arrives
at 1999 estimates for both indirectly by assuming that all
manufacturing shipments and wholesale trade were entirely B-to-B and
that all retail and service sales were B-to-C. With this simplifying
assumption, the numbers suggest that about 90 percent of electronic
commerce transactions occur between businesses.[Footnote 51]
Private-sector Data on Electronic Commerce:
In the absence of extensive official statistics, the gap has been
filled by private estimates and by forecasts from Internet
organizations and research, polling, and consulting firms. The
resultant electronic commerce estimates vary widely. Figure 13 shows
that the statistics for U.S. B-to-C electronic commerce in 2000
present a high estimate of $200 billion and a low estimate of just $7
billion, a difference greater than a factor of 10. eMarketer, a
secondary research firm that specializes in aggregating and analyzing
information on various aspects of the Internet, reported estimates for
B-to-C electronic commerce that ranged from $15.9 billion to $61.1
billion for 2000 (see figure 14 for seven estimates). All these
private-sector estimates of B-to-C electronic commerce are dwarfed by
the sales revenue of Wal-Mart Stores ($191.3 billion in 2000).
[Footnote 52] The B-to-B electronic commerce estimates show greater
variation than the B-to-C estimates (see figure 14). Measurement
problems such as double counting are a serious concern in this area,
to the extent that some deem many of the estimates to be exaggerated.
Figure 13: U.S. B-to-C Electronic Commerce Estimates, 1998-2000:
[Refer to PDF for image: vertical bar graph]
The graph depicts B-to-C electronic commerce estimates, both high and
low for the calendar years 1998 through 2000 in billions of dollars.
Sources: Barbara Fraumeni, "Electronic Commerce: Measurement and
Measurement Issues," American Economic Review 91 (2001): 318-22.
[End of figure]
Figure 14: Seven Estimates of U.S. B-to-C and B-to-B Electronic
Commerce Revenue, 2000:
[Refer to PDF for image: vertical bar graph]
The graph depicts B-to-C and B-to-B electronic commerce revenue in
billions of dollars for the following estimates:
Census[A];
eMarketer;
Forrester;
IDC[B];
Jupiter Media;
Keenan Vision;
Yankee.
Note: These numbers were reported in eMarketer's March 2001 release
(prior to Census's yearly estimate for retail E-sales). Some estimates
may have been revised since then. We are including just those data
produced by the research firms monitored by eMarketer, and for which
we have definitions of E-commerce.
[A] Census figures are for 1999.
[B] IDC = International Data Corporation.
Sources: eMarketer, Inc. (2001), U.S Bureau of the Census.
[End of figure]
The wide variation in estimates produced by private firms is
attributable to several factors:[Footnote 53]
* Differences in client base. In serving the diverse needs of their
clientele, firms emphasize different indicators for the potential of
electronic commerce.
* Differences[Footnote 54] in methodologies and in varying sample
sizes (sometimes small).
* Differences in definition for electronic commerce, as was discussed
above.
* Differences in coverage. For example, Keenan Vision includes
insurance and adult entertainment in its measure of B-to-C electronic
commerce�areas that are excluded in most other estimates.
With differences in definition, coverage, and methodology, it is
difficult to accurately compare and evaluate the conflicting
estimates, even though they purport to measure the same thing.
Commerce officials noted that they have not performed a systematic
analysis of the various private-sector estimates, but eMarketer holds
many to be overly optimistic. The client focus and the small sample
sizes also imply that the data are not always representative of the
whole U.S. economy.
[End of section]
Appendix III: U.S. Government Collection of International Trade
Statistics:
The Census Bureau and the Bureau of Economic Analysis (BEA) in the
Department of Commerce are the primary agencies responsible for
compiling, processing, and publishing international trade statistics
in the United States.
Census:
Census produces the statistics on the trade in goods, which are drawn
from import and export documents that the U.S. Customs Service
collects at various ports and points of entry throughout the United
States. In lieu of filing paper documents, exporters and importers may
file electronically through the Automated Export System for exporters
or the Automated Commercial System for importers. Two-thirds of all
U.S. exporters utilize the Automated Export System filing procedure to
declare their shipments, and 99 percent of all import transactions are
transmitted directly to Customs electronically, resulting in more
accurate trade estimates. The filing procedure is mandatory only for
exports shipped with a value greater than $2,500 or for those that
require a license (for dual-use goods: that is, goods with military
and commercial applications, some textiles, dairy products, and
others). Likewise, the reporting threshold for importers' documents is
$2,000, or $250 for restricted items (such as furs, leather, toys, and
those under quota). The Census Bureau estimates the value of "low-
value" international goods and services transactions by using
information on historical trade patterns (the historical relationship
between low-value shipments and total shipments) rather than by
counting them individually.
BEA:
BEA collects statistics for international trade in several dozen types
of services, using a variety of mandatory surveys that vary in
frequency, extent of coverage, level of detail, and level of exemption
from reporting requirements. BEA uses a periodic survey methodology,
because there are no official locations or "checkpoints," such as
ports-of-entry, where service transactions can be recorded, and
therefore there is no official record of customs documentation. Thus,
an important difference between the data-collecting programs conducted
by Census and BEA is that BEA must actually locate service providers
in order to survey them to get the relevant data. To accomplish this
task, BEA mails surveys to potential respondents�those who reported
previously and those identified as potentially having engaged in
covered transactions, based on various government sources. Full
coverage is difficult, because it is hard to locate all possible
providers of a service, including new companies. Respondents who
engage in transactions that fall below the varying exemption levels
are not subject to mandatory reporting requirements on the sample
surveys. Low-value international service transactions are collected
using BEA's extensive 5-year benchmark survey (essentially a census),
which has a lower dollar reporting threshold and more detail than the
sample surveys. In this benchmark survey, U.S. firms are still exempt
from reporting data by service but must provide information on the
aggregate value of transactions. For periods not covered by a
benchmark survey, low-value transactions are estimated indirectly by
extrapolating forward the data reported on the benchmark survey, based
on growth in the data reported on sample surveys.
Problems with international trade statistics have been well documented
by the statistical agencies themselves, GAO, and others.[Footnote 55]
Numerous improvements have been made in recent years to enhance the
quality of the international trade statistics, but some problems
remain unresolved. One major problem is the undercounting of exports,
partially attributable to the use of outdated information to estimate
low-value shipments. The Census Bureau estimates that the actual
undercount ranges from 3 percent to 10 percent of the published export
value. The Census Bureau has not collected data on exports valued
below $1,000 in more than 10 years. Information on transactions valued
at between $1,500 and $2,500 has not been reported since 1989.
[Footnote 56] Although it is widely held that the data on imports are
of higher quality because tariffs, quotas, and other enforcement
activities are involved, GAO and others have reported problems in this
area as well.[Footnote 57]
Additionally, our previous work has indicated that statistics agency
officials and users of trade statistics have stated that statistics on
service transactions lacked adequate detail and coverage. BEA has
taken numerous steps to improve the comprehensiveness and detail of
its data on trade in services in general, instituting new surveys and
making some existing surveys mandatory under strengthened legal
authority. Nevertheless, complete coverage of international services
has not been obtained, and a number of data improvement tasks remain.
Web sites for more information on trade statistics collection and
methodology:
U.S. Bureau of the Census:
[hyperlink, http://www.census.gov]
Bureau of Economic Analysis:
[hyperlink, http://www.bea.doc.gov]
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Emil Friberg (202) 512-8990.
Acknowledgments:
In addition to those named above, Claude Adrien, Mark Dowling,
Lawrance Evans Jr., Gifford R. Howland, David Maurer, Rona Mendelsohn,
Timothy Wedding, and Michael Zola made key contributions to this
report.
[End of section]
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Footnotes:
[1] Institutions such as Statistics Canada, the U.S. Department of
Commerce, the Organization for Economic Cooperation and Development
(OECD), and several U.S. private research and consulting firms have
pioneered this work. The Department of Commerce's E-business steering
group was initiated in 1998 and drew heavily from previous work by
Statistics Canada. The OECD is an international organization
representing 30 countries that researches a variety of economic,
social, and governance issues to help member states better address the
challenges of a global economy.
[2] We met with researchers from Forrester Research, Inc. However, we
did not independently analyze the quality of the company's methodology
for developing international electronic commerce estimates. The
methodology used to arrive at the company's estimates relies on a mix
of quantitative and qualitative analysis. (See appendix I.)
[3] Although the U.S. Census Bureau surveys generally do not allow a
separation of international from domestic transactions, data from a
1999 bureau retail survey provide a rough "guess-estimate" about the
size of electronic commerce-related international trade. In that
survey, the bureau attempted to get an estimate for international
electronic commerce by asking companies to check the percentage range
for electronic commerce sales that were generated by foreign
customers. While a large number of companies did not report, the
respondents typically noted that international electronic commerce
sales accounted for less than 5 percent of total E-retail sales. If
this percentage were applied to the entire sample, it would imply that
international E-retail sales were less than $264 million for the
fourth quarter of 1999 (a small portion of an already small number).
One Census Bureau official noted that from this rough estimate it
appears that the leading electronic commerce retailers are channeling
international E-sales through foreign subsidiaries in lieu of
conducting cross-border trade in goods and services.
[4] See Barbara Fraumeni, "Electronic Commerce: Measurement and
Measurement Issues," American Economic Review 91 (May 2001): 318-22;
Ralph Kozlow, "International Accounts Data Needs: Plans, Progress, and
Priorities," prepared for presentation to BEA Advisory Committee,
Washington, D.C. (November 17, 2000); and Barbara Fraumeni, Ann
Lawson, and Christian Ehemann, "The National Accounts in a Changing
Economy: How BEA Measures Electronic Commerce," presented at the
Brookings Workshop on Measuring E-commerce, Washington, DC (September
1999). Likewise, the president's 2003 budget submission to Congress
states that the growth of electronic commerce presents challenges to
the statistical agencies and threatens the accuracy and timeliness of
the nation's key statistics.
[5] There is some skepticism about whether electronic commerce will
lead to an explosion in low-value exports, since the Census Bureau's
estimates indicate that business-to-business manufacturing and
wholesale trade dominate electronic commerce activities and are more
likely to consist of higher-valued goods. Forrester's research also
suggests that international electronic commerce consists primarily of
large packages, with low-value transactions making up a tiny portion
of this commerce. Moreover, analysts and government officials maintain
that because the electronic commerce-related portion of international
trade is very small, the quality of the international trade statistics
is not compromised. However, as the volume of electronic commerce
trade increases, the undercounting of low-value transactions may
worsen, if the information used to value them is not updated.
[6] National Research Council, Behind the Numbers (Washington, D.C.:
National Academy Press, 1992).
[7] The president's 2003 budget submission to the Congress highlights
the U.S. Department of Commerce's request for funding to generally
strengthen federal statistics, especially in light of the growth of E-
commerce. For example, Commerce requested funds to improve measurement
of services in the new economy, mainly through new quarterly surveys.
[8] Kozlow, "International Accounts Data Needs," November 2000.
[9] Fraumeni et al., "National Accounts in a Changing Economy."
[10] See Pew Research Center for the People and the Press, "The
Internet News Audience Goes Ordinary," at [hyperlink,
http://www.peoplepress.org/tech98sum.htm].
[11] Exceptions to this general pattern of consumers dealing only with
domestic retailers include cases such as going on foreign travel or
using international mail order catalogs. However, because these were
not widespread activities compared with those in the overall economy,
authorities focused primarily on handling domestic complaints.
[12] For certain types of products, other regulatory agencies may also
provide consumer protection. For instance, the Food and Drug
Administration is involved in addressing international pharmaceutical
sales over the Internet.
[13] For example, the FTC has brought more than 140 law enforcement
actions since 1994 against more than 490 companies and individuals.
Similarly, Justice has brought a number of criminal prosecutions
against individuals and groups involved in Internet fraud, including
auction schemes, investment schemes, and credit card fraud. However,
most of these cases involved domestic issues.
[14] This effort built upon FTC's existing database, Consumer
Sentinel, which collects consumer complaints from the United States as
well as Canada and Australia.
[15] Both the Internet Fraud Complaint Center and econsumer.gov
receive on-line complaints from consumers. Information can be shared
from both sites, depending on the relevancy to each site's mission.
FTC's econsumer.gov addresses consumer complaints broadly, while
Justice's Internet Fraud Complaint Center focuses on criminal activity
whether or not it involves consumers.
[16] The Global Business Dialogue provides an inventory of trustmarks
at [hyperlink, http://consumerconfidence.gbde.org/t_inventory.html].
[17] For example, the Better Business Bureau has announced
partnerships with European, Japanese, Korean, and Chinese associations
to offer international alternative dispute resolution with compatible
complaint resolution procedures and technologies. See [hyperlink,
http://www.BBBOnline.org].
[18] Consumer surveys have found that consumers are also concerned
about government access to and monitoring of their personal
information on line. However, law enforcement agencies' ability to
deter and prosecute criminal activity on line requires some degree of
access to personal information.
[19] See, In the Matter of Geocities, File No. 982 3051 (1998),
available at [hyperlink,
http://www.ftc.gov/opa/1998/9808/geocitie.htm];
FTC v. Liberty Financial, File No 982 3522 (1999), available at
[hyperlink, http://www.ftc.gov/opa/1999/9905/younginvestor.htm];
FTC v. Toysmart.com, LLC, and Toysmart.com, Inc. (Civ. Action No. 00-
11341-RGS) (D. Mass. 2000), available at [hyperlink,
http://www.ftc.gov/opa/2000/07/toysmart2.htm].
[20] See, In the Matter of Eli Lilly, File No. 012 3214 (2002),
available at [hyperlink, http://www.ftc.gov/opa/2002/01/elililly.htm].
[21] A country is considered to have "adequate" data protections if
the European Commission certifies that its laws and regulations
maintain the same levels of protection as the EU law. A company can be
considered to have adequate data protections if the commission
certifies it individually or if a special arrangement is made (such as
a model contract) that is considered adequate by the commission.
[22] The Safe Harbor is available to companies subject to enforcement
of their privacy commitments by the Federal Trade Commission of the
Department of Transportation. At the time the Safe Harbor framework
was concluded, both sides agreed to continue discussions on the
financial sector. The U.S. Treasury will lead these discussions.
[23] A financial institution is obligated to comply with the opt-out
provisions under Subtitle A only with respect to individual consumers
who obtain a financial product or service to be used primarily for
personal, family, or household purposes.
[24] The Council of Europe (website. www.coe.int) consists of 43
member states, including all of the members of the European Union. It
was established in 1949 primarily as a forum to uphold and strengthen
human rights and to promote democracy and the rule of law in Europe.
Over the years, the COE has been the negotiating forum for a number of
conventions on criminal matters in which the United States has
participated.
[25] These programs include, but are not limited to, the eEurope
initiative [hyperlink, http://cybercrime-forum.jrc.it/default/], the
Internet Action Plan [hyperlink,
http://www.europa.eu.int/information_society/programmes/iap/index_en.htm
], the Information Society Technologies IST Program [hyperlink,
http://www.cordis.lu/ist] and the next framework program for Research,
Technological Development and Demonstration (RTD).
[26] The Bank for International Settlements defines electronic money
as "a stored-value or prepaid product that allows consumers to make
small-value transactions using a chip or smart card or over computer
networks such as the Internet." Internationally, the bank has been
researching the potential policy implications of electronic money
since 1996. The bank issues an annual report on the current status of
electronic money development in countries around the world.
[27] Within the U.S. government, the Federal Reserve takes the lead on
tracking issues associated with the development of alternative payment
systems. According to one Federal Reserve official, the issue is still
too small to be of much concern. However, the Fed tracks the issue
quite closely, because it could someday directly affect the Fed's
primary mission of conducting monetary policy and providing oversight
of the country's banking system.
[28] In one domestic example, when Florida State University initially
developed an E-money system to allow students to pay for books, fees,
and other items from local vendors state banking regulators found the
university was improperly engaging in banking without a license.
[29] Public Law No. 106-229, 114 Stat. 464 (2001).
[30] The EU "Directive on a Community Framework for Electronic
Signatures," 1999/93/EC, dated December 1999.
[31] WIPO administers 23 treaties (2 of those jointly with other
international organizations) and carries out a program of work,
through its member states and secretariat, that seeks to: harmonize
national intellectual property legislation and procedures, provide
services for international applications for industrial property
rights; exchange intellectual property information; provide legal and
technical assistance to developing and other countries; facilitate the
resolution of private intellectual property disputes; and marshal
information technology as a tool for storing, accessing, and using
valuable intellectual property information.
[32] The United States ratified the World Intellectual Property
Organization Copyright Treaty and WIPO Performances and Phonograms
Treaty following the Senate's advice and consent, after the enactment
of the 1998 Digital Millenium Copyright Act.
[33] Taxes in the United States are generally levied based on the
income earned or retail price of the product in question. In addition
to income taxes, EU member countries also collect taxes based on the
value added during each stage of the production and distribution
process.
[34] U.S. local and state governments may, however, collect taxes on
that material directly from their own residents.
[35] The OECD is an international organization representing 30 countries
that researches a variety of economic, social, and governance issues to
help member states better address the challenges of a global economy.
[36] In February 2002, the finance and economics ministers from all 15
member states of the European Union agreed on the broad outlines of
this approach. The proposal will go into effect in July 2003.
[37] We spoke with the European American Business Council, a business
association representing a large number of companies in North America
and Europe, as well as several individual U.S. companies involved with
international electronic commerce.
[38] The Global Business Dialogue is a business association
representing companies from North America, Europe, and Asia that works
with national governments and international organizations to further
the development of a global policy framework for electronic commerce.
[39] See the president's 2001 International Trade Legislative Agenda
at [hyperlink, http://www.ustr.gov].
[40] Services are negotiated under a separate agreement from goods,
and members are able to negotiate commitments in a way that may limit
the expansion of electronic commerce. For example, members may limit
market access for suppliers of telecommunications services, which
could thereby prevent the expansion of important services
necessary for electronic commerce.
[41] As a general principle, the United States has proposed that
digital products should, at a minimum, receive the most liberal trade
treatment possible under existing trade rules.
[42] Free trade agreements generally eliminate tariff duties and other
barriers on substantially all trade between the member countries and
may include other provisions covering subjects such as antidumping of
goods, investment, and government procurement.
[43] For more information on U.S. trade agreements, see the Web site
of the U.S. Trade Representative at [hyperlink, http://www.ustr.gov].
For the text of the U.S.-Jordan Free Trade Agreement, see [hyperlink,
http://www.ustr.gov/regions/eu-med/middleeast/US-JordanFTA.shtml].
[44] Free Trade Area of the Americas negotiators established nine
negotiating committees to draft different components of the eventual
trade agreement, such as services, agriculture, and investment. In
addition, three non-negotiating committees, including electronic
commerce, were established to provide input to negotiators on broad,
cross-cutting issues.
[45] Intranet computer networks are used to share confidential
information and resources among an enterprise's employees without
having the data available to everyone who has Internet access.
[46] EDI allows the direct communication of standardized trading
messages between computer systems. In the pre-Internet era, EDI
systems were used primarily by large businesses and were strictly
proprietary: that is, conducted over private networks. This
interchange required custom software and dedicated communication links
and, at times, strictly compatible equipment. With the advent of the
Internet, some EDI systems were transformed into open networks.
[47] Some electronic commerce definitions include transactions enabled
by other electronic communication media such as facsimile (fax) and
automated teller machines.
[48] The emphasis on commitment extends directly from the standard
definition for commerce itself. According to the American National
Standards Institute's definition, commerce is "the process by which an
order is placed or accepted, therefore representing a commitment for a
transfer of funds in exchange for goods or services." Consequently,
the majority of the entities with electronic commerce-measurement
programs consider a transaction to be an electronic commerce
transaction if the commitment to buy a good or service is expressed on
line.
[49] These include the Annual Survey of Manufactures, the Annual Trade
Survey, the Service Annual Survey, and the Annual Retail Trade Survey.
Census's electronic commerce estimation program does not cover
agriculture, mining, construction, utilities, non-merchant wholesale
trade, or some parts of the service sector and therefore does not
measure the entire E-economy.
[50] An important prerequisite for international electronic commerce
is that the population must have access to the Internet, which in turn
requires a personal computer. However, within the OECD, the rates of
home computer ownership and network connection differ dramatically
(see OECD, "Measuring the New Economy: Trade and Investment
Dimensions," Working Party of the Trade Committee, 2001).
[51] See Thomas Mesenbourg, "Measuring the Digital Economy,"
[hyperlink, http://www.census.gov/estats].
[52] eMarketer, Inc., eCommerce: B2C, 2001.
[53] Differences in definitions, methodologies that underpin the
estimates, assumptions about growth potential, and sample sizes
guarantee not only a wide range of estimates for electronic commerce
but also difficulty in comparing and evaluating those estimates.
[54] GAO economists were instructed on the methodologies used by
Forrester Research, IDC, and eMarketer by these firms, respectively.
The differences between the methodologies were significant, partly
explaining the large discrepancies in forecasts. However, there is
debate over which of the many private-sector estimates are more
accurate, especially because for many estimates the methodology,
coverage, and survey questions underlying the estimates are not
transparent.
[55] For example, see "U.S. Merchandise Trade Statistics: A Quality
Profile," on the Census Bureau's Web site (www.census.gov); Ralph
Kozlow, "International Accounts Data Needs: Plans, Progress and
Priorities," (2000); J. Steven Landefeld and Barbara Fraumeni,
"Measuring the New Economy," Survey of Current Business (March 2001);
U.S. Trade Deficit Review Commission, "The U.S. Trade Deficit: Causes,
Consequences, and Recommendations for Action," www.ustdrc.gov;
November 2000; National Research Council, Behind the Numbers
(Washington, D.C.: National Academy Press, 1992); U.S. General
Accounting Office, Economic Statistics: Measurement Problems Can
Affect the Budget and Economic Policymaking, [hyperlink,
https://www.gao.gov/products/GAO/GGD-95-99] (Washington, D.C.: May
1995); and Peter Hooper and J. Richardson, International Economic
Transactions (Chicago: University of Chicago Press, 1991).
[56] U.S. Census Bureau, "Understatement Export Merchandise Trade
Data," (Washington, D.C.: 1998), [hyperlink,
http://www.census.gov/foreigntrade/aip/expunder2.html].
[57] See, U.S. General Accounting Office, Measuring U.S.-Canada Trade:
Shifting Trade Winds May Threaten Recent Progress, [hyperlink,
https://www.gao.gov/products/GAO/GGD-94-4] (Washington, D.C.: January
1994); U.S. General Accounting Office, Customs Service: Trade
Enforcement Activities Impaired by Measurement Problems, [hyperlink,
https://www.gao.gov/products/GAO/GGD-92-123] (Washington, D.C.:
September 1992); U.S. General Accounting Office, Federal Trade
Statistics�Some Observations, [hyperlink,
https://www.gao.gov/products/GAO/OCE-89-1BR] (Washington, D.C.: April
1989); U.S. Census Bureau, "U.S. Merchandise Trade Statistics: A
Quality Profile" (Washington, D.C.. December 1998); hyperlink,
http://www.censlis.gov/foreign-trade/aip/qprofile121198.html];
National Research Council, Behind the Numbers.
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