USCIB Response to the USTR Request for Comment on

E-Commerce in the Transatlantic Economic Partnership

February 12, 1999

The Trade-Related Aspects of Electronic Commerce:

The global scope of the Internet, coupled with low barriers to entry, makes it a new and compelling international medium that internationally connects large companies and SMEs to consumers, and enables those consumers to connect themselves. While estimates for growth of electronic commerce are prodigious, and user populations are approximately doubling on a yearly basis, electronic commerce is still in its formative stage. At present, business is developing new business and risk models to take advantage of the possibilities inherent in the medium, two important characteristics of which are that it is dematerialized (paperless) and the trade can be direct, without brokers, and thus disintermediated. In addition to the unwillingness of countries to allow cross-border provision of services, the greatest danger to the continued growth of electronic commerce is premature or inappropriate regulation, much of which was developed and refined in the paper world with controllable country borders, and third parties.

Many of what have been termed the "broader electronic commerce issues" (privacy content, digital signatures/authentication) may act either as inhibitors or facilitators/growth engines for electronic commerce depending upon national implementation and international interoperation. In looking at e-commerce issues it may be necessary to reexamine how we look upon and characterize trade issues and implications of trade issues.

Business values the extent to which governments, especially the United States, have consulted industry on the subject of regulation. We urge the U.S. and the E.U. to continue this approach and to take care to prevent the creation of trade barriers through new bureaucratic structures and burdensome regulation.

Specific Issues:

Telecommunications: Telecommunications and information networks provide the underlying infrastructure and services upon which all forms of electronic commerce depend. To ensure rapid deployment of E-commerce services and applications, both basic telecommunications networks and the applications they support should be left free to develop in an open, competitive marketplace with minimal government intrusion.

Ensuring open competition in basic telecommunications requires effective application by governments of the principles enumerated in the WTO Reference Paper. The U.S. and the E.U. should continue to vigorously promote effective liberalization of telecommunications markets globally. This would be best achieved by encouraging WTO member states:

·         that scheduled commitments to ratify the Agreement and effectively implement their commitments as soon as possible;

·         that scheduled commitments but did not sign-on to the Reference Paper to do so;

·         that did not schedule commitments or did not agree to full liberalization to schedule meaningful market-opening commitments which at a minimum would include: 1)specifying a date certain for full market liberalization; 2)progressively removing foreign ownership restrictions; and 3)adopting the Reference Paper in its entirety;

·         to include as one of the highest negotiating priorities in any accession protocol the scheduling of meaningful market opening commitments in basic telecommunications services.

A recent issue of interest to USCIB members is the German and Spanish proposal to require new entrants to install a minimum amount of infrastructure in order to qualify for the lowest interconnection rates. At some level, such a requirement becomes anti-competitive in that it inhibits new entrants into the marketplace.

USCIB members also believe that states acceding to the European Union should be required to harmonize their telecommunications regulations according to the relevant E.U. Directives at the time of accession or shortly thereafter -- derogations should be no longer than necessary to ensure technical compliance. In addition, acceding states should be required to schedule meaningful market-opening commitments in the context of the WTO. Failure to ensure harmonization and the scheduling of meaningful commitments could effectively restrict U.S. telecommunications providers from an acceding country's market.

Two final issues of general concern to USCIB members include 1) the call from several countries for an Internet Financing regime and 2) the potential affects of increased regulation as a result of convergence. The best means of ensuring access to the information infrastructure is through competition. Therefore, the U.S. and the E.U. should continue to promote globally the adoption of pro-competitive and pro-investment policies that will work to ensure affordable access to the information infrastructure globally.

Privacy: The potential restriction of the transborder flow of data from the E.U. to the U.S. resulting from the implementation of the E.U. Privacy Directive would pose a significant trade barrier. Article XIV of the GATS includes an exception for "... the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts . . ." However, this exception is qualified to ensure that it is "... not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services." The best means of ensuring the free flow of information over the Internet is the application of non-discriminatory treatment of the different effective approaches to privacy protection that exist within the U.S. and the E.U.

USCIB members recognize the significant efforts of the U.S. Government to negotiate a resolution to this issue. Our members support in theory the concept of a safe harbor so long as the safe harbor principles do not go beyond internationally recognized privacy protection principles as espoused in the OECD Privacy Guidelines. The E.U. and its member states should also be encouraged to be flexible in their review of innovative solutions such the deployment of technology solutions and the use of model contracts.

Taxation: Regarding taxation and electronic commerce, USCIB supports the principle of neutrality, i.e., the tax system should treat income from economically comparable [or similar] transactions similarly, whether earned electronically or through traditional non-electronic means. The best way to achieve neutrality is through the application of existing tax principles and rules rather than the introduction of a new tax regime aimed specifically at electronically generated transactions.

In this connection, no nation should create a new regime or alter its existing regime to accommodate electronic commerce without serious consideration as to the impact on its trading partners. An international solution must be sought, and the U.S. should continue to manifest its leadership in electronic commerce by strongly promoting an internationally accepted approach to the taxation of electronic commerce. We believe that, since the OECD is the most appropriate intergovernmental forum for sponsoring the required international dialogue, the U.S. and the E.U. should consider these issues at the OECD.

USCIB supports the OECD's Framework Conditions for the Taxation of Electronic Commerce issued at the 1998 Ottawa Ministerial and has actively participated, through its BIAC affiliation, in the formation of the OECD proposed government/business technical advisory groups (TAGs) on issues such as permanent establishment, characterization of income, consumption tax , technology, and data access and authentication. USCIB plans to provide private sector input on these issues through the participation of its members in the TAGs.

Consumer Protection: Given the nascent state of business-to-consumer electronic commerce, premature regulations could create unforeseen negative consequences. For example, the potential ramifications of the application of a "country-of-destination" principle in the context of choice of law and choice of forum would place significant burdens on global electronic commerce. An obligation of compliance with the laws of many different countries would impose tremendous costs on business and would be prohibitively expensive for small and medium-sized enterprises. This could result in many companies voluntarily restricting their territories of operation to the detriment of citizens living in countries not served. Electronic commerce will not be a viable medium for transatlantic and global commerce if every on-line transaction were subject to each set of laws in the jurisdiction of every potential consumer.

Therefore, the U.S. and the E.U. should promote the adoption of a "country-of-origin" principle in this context. In addition, governments should encourage the use of alternative dispute resolution mechanisms and consumer empowerment technologies that are being developed, which may provide a partial solution to this problem. Efforts are underway to address broader jurisdiction issues and this work may further inform the discussion.

Marketing and Advertising: As is the case with consumer protection, subjecting advertising and marketing messages on the Internet to compliance with the laws of all countries which could potentially receive the commercial message would constitute a significant barrier to the flow of commercial communications on global networks. Compliance with the advertising laws and regulations of all countries would impose unrealistic legal, financial and technical burdens on business. Thus, USCIB members feel that U.S. and E.U. should promote the "country-of-origin" principle in the context of advertising and marketing on the Internet.

Additionally, international business has and is continuing to recognize the importance of existing advertising self regulation in the U.S. and the E.U. Established and effective self regulation should be given the opportunity to succeed in this nascent environment.

Electronic Contracting: In order to ensure that electronic contracts have legal effect the U.S. and the E.U. each need to establish a minimalist and predictable legal framework that gives legal effect to electronic contracts, including legal recognition of electronic documents and contracts. Such a legal framework should be based on objective criteria, which do not require certifying authorities or other authentication service providers to be established in a jurisdiction in order for electronic signatures it issues to be recognized. The USCIB supports the adoption of a non-discriminatory approach to electronic authentication from other countries (OECD Ministerial Declaration on Electronic Authentication issued at the Ottawa Ministerial Conference). Governments should implement the UNCITRAL Model Law on Electronic Commerce which provides an internationally accepted framework and should continue to work together with business through UNCITRAL to develop principles and frameworks for facilitating and recognizing digitally authenticated documents.

USCIB is concerned that certain jurisdictions have implemented laws and regulations that are not based on objective criteria or favor local operators. Of particular concern are laws like the German Digital Signature law of 1997 and its related Ordinance which provide for German licensing of international CAs and exceedingly strict and implementation-specific government-mandated technical standards. While these government-mandated standards may be minimally "objective", their failure to account for broad commercial uses of digital signatures and commercially reasonable market-based practices, coupled with the specificity of implementation, make them potential inhibitors of global electronic commerce. It should be noted that a small minority of US states, such as Utah, have also opted for a milder licensure scheme, but this is contrary to the majority and current trends in the US.

USCIB is also concerned that entities should be able to meet objective criteria through private sector accreditation or certification. Lastly, USCIB supports the concept of the ability of parties to best determine appropriate relationships between themselves and strongly supports the concept of party autonomy.

Content Regulations: Both foreign content quotas and content regulations can impede the unrestricted flow of information from the U.S. to the E.U. Foreign content quotas are in simple fact a protectionist measure to ensure market share for a country's domestic content. Such regulations clearly distort the market and present a barrier to the free flow of content over the Internet.

Content regulations, like both consumer protection and marketing and advertising are based on different legal and cultural traditions. Nevertheless, content regulations should be kept to a minimum as they, in essence, constitute censorship of the Internet, thereby restricting the free flow of information into the marketplace of ideas. Where content regulations exist, it is the role of the appropriate law enforcement authority to enforce the law. In the context of potentially inappropriate, but otherwise legal content, the U.S. and the E.U. should encourage the use of market-driven solutions, including the numerous filtering and blocking technologies, many of which are based on the Platform for Internet Content Selection (PICS), rather than restricting access to such content through regulation. Such technologies empower the user to make informed decisions about the types of content he/she wants and does not want to access.

Finally, as in the case of consumer protection and marketing and advertising, application of choice of law and forum in the context of content regulations should be governed by the "country-of-origin" principle. Application of this principle rather than the "country-of-destination" principle will minimize restrictions to the free flow of information over the Internet.

Copyright Protection: Inconsistent frameworks for copyright protection can also restrict the transborder flow of content over the Internet. The U.S. industry compromise as represented in Digital Millennium Copyright Act of 1998 strikes the balance between strong copyright protection and all efforts to prevent unauthorized, illegal and copyright infringing activities and the apportionment of accountability/liability for copyright infringements over the Internet. The basic features of a balanced framework include:

·         recognizing the common stake of right holders and service providers in ridding the electronic marketplace of pirated goods;

·         promoting responsible business practices by all parties involved in the transmission and/or storage of copyrighted materials;

·         refraining from imposing economically unreasonable or technically unfeasible burdens on intermediaries that neither generate nor select nor control content, without creating blanket immunities;

·         enhancing incentives for cooperation in the development of marketplace solutions to the problem of on-line piracy, including "notice and takedown", and in the deployment of technological tools and solutions to fight it; and

·         preserving an appropriate role for the courts, especially in the prevention of ongoing infringements.

An E.U. Directive should incorporate this framework in the context of its legal culture and traditions. If an E.U. Directive fails to adopt this framework, it may prevent content providers from distributing their content over the Internet and intermediaries from carrying that information over their networks. Thus, it could serve as a barrier to the flow of information upon which trade is based.