29 October 1997
Source: http://www.gip.org/GIP4F.HTM

GLOBAL INTERNET PROJECT

## FRAMEWORK FOR ELECTRONIC COMMERCE ON THE INTERNET

October 27, 1997

1. Introduction - Internet as a Global Platform for Computing, Communications and Commerce

1a. The Global Internet Project (GIP) strives to inform and educate governments, industry, international organizations and individuals on the nature and significance of the Internet and what it can become. The GIP is committed to promoting the Internet as the global platform for computing and communications. The GIP members believe that Internet expansion will depend to a great extent on the ability of companies and consumers to obtain products and services in a secure, flexible, convenient, and easy-to-use manner. A fundamental precept of the GIP is that because the Internet is a global medium, it is critical to address its challenges globally. The group is working with appropriate national and international bodies to find answers to a variety of difficult issues to assure the best possible future for all members of the Internet community.

1b. The GIP notes that the acceptance and use of electronic commerce plays a key role in the evolution of the Internet. While the amount of electronic commerce conducted on the Internet may be small today, it is expected to grow in the future as concerns are addressed relating to enforcement of contracts, taxes, intellectual property protection, privacy, security and other matters. Because many of the same public policy issues involve the Internet, the GIP believes its positions to promote the Internet will also help the promotion of electronic commerce. Policy decisions on electronic commerce and Internet participation and usage made in each country should be done with the knowledge that others are considering the same issues, often with a somewhat different historical and cultural perspective as well as different legal and regulatory frameworks. With a global medium such as the Internet, national policies on electronic commerce have implications far outside national borders, creating a unique shared interest. At the same time, it is also clear that nations making policy decisions that encourage electronic commerce on the Internet will have a significant competitive advantage over nations whose policies impede such progress.

1c. What Is Electronic Commerce?

1d. The GIP views electronic commerce as any use of electronic networks and technology for commerce and other economic activity. This includes the use of electronic communication as the medium through which goods and services of economic value are designed, produced, advertised, catalogued and inventoried, purchased and accounts settled. Private and public enterprises, citizens, companies, entrepreneurs, public institutions and government organizations, all types of social organizations and corporations will be able to freely participate in economic activities over a wide range of sectors including agriculture, forestry and fishery, industry, private and government services. Electronic commerce will allow products to be marketed worldwide, while providing a wide array of options to the consumer. Electronic commerce can also enhance a nation's economic position in an increasingly competitive global market.

We acknowledge that this broad definition of electronic commerce includes commercial activity that may not be conducted over the Internet today. Nevertheless, it is designed to accommodate current and future developments in electronic networks and technology for commerce.

1e. Electronic Commerce over the Internet Is Growing

1f. One estimate from Forrester Research in July 1997 indicated that business-to-business commerce over the Internet will reach $8 billion in 1997, a tenfold increase from 1996. In 2002, it is estimated that the value of goods and services traded between companies will rise to $327 billion. Forrester Research predicts that durable goods manufacturers will lead the rush to Internet-based electronic commerce, reaching $99 billion in sales by 2002. Makers of paper, plastics, apparel, and other non-durable good will sell $17 billion online by 2002 .

1g. National and international debates have already begun in many of these areas, but because technology is racing ahead and markets are still evolving, policy debates in these areas are far from resolved. These debates should be cast not in narrow technical terms, but in broad economic and political terms that capture the fundamental choices facing each nation.

1h. In promoting the development of electronic commerce and the Internet, the GIP has an immediate interest in supporting the deregulation of telecommunications markets, fostering competition and thus increasing user choice, and lowering prices for consumers and businesses.

The essential challenge is to let markets unfold without rigid government regulations on electronic commerce in ways that satisfy the demands of consumers and businesses, and to promote competition and innovation.

1i. GIP Recommended Principles for Electronic Commerce - Private Sector Leadership in Cooperation with Governments and International Organizations

> 1. The private sector will lead in the growth and development of electronic commerce on the Internet and maximize benefits for individuals and businesses.

> 2. For the next several years, industry should work actively with governments and appropriate international organizations to promote understanding of the evolution of electronic commerce on the Internet and the implications for national and international public policy.

> 3. Governments around the world should minimize regulatory burdens on electronic commerce in order to facilitate its use as a reliable and secure way of doing business.

> 4. Governments must resist the temptation of imposing new regulatory frameworks on electronic commerce and must focus instead on promoting competitive framework for traditional as well as newly emerging industries doing business electronically.

2. Important Public Policy Issues Linked to the Promotion of Electronic Commerce

2a. The GIP has identified several specific categories where governments must make certain that law, regulation, and policy promote, not hinder, the development of electronic commerce. Many of these same issues affect the Internet. These categories are:

> 1. Taxation and Customs Matters
> 2. Uniform International Commercial Principles for Electronic Commerce
> 3. Intellectual Property Protection
> 4. Security
> 5. Privacy
> 6. Telecommunications Infrastructure
> 7. Standards (Interoperability)
> 8. Regulation of Content
> 9. Import and Export Regulations

3. Taxation and Customs Matters

3a. Unreasonable tax burdens will hinder the growth of electronic commerce. Taxation of electronic commerce should be guided by the principle of neutrality. Neutrality rejects the imposition of new or additional taxes on electronic transactions and instead simply requires that the tax system treat such transactions equally, regardless of whether it is through electronic means or through existing channels of commerce. Where the administration of transactional taxes in this medium may be complicated given the difficulty in capturing relevant customer information, government and industry must work together to provide acceptable solutions.

3b. Cross-border transactions may run the risk that states and countries will claim inconsistent taxing jurisdictions, and that taxpayers will be subject to unpredictable taxation. The adoption of consistent taxing terms, definitions and concepts would eliminate many of the problems that will otherwise occur when one jurisdiction seeks to impose income tax based on one criteria while another jurisdiction embraces a conflicting taxing criteria. Rules that provide certainty and prevent double taxation are required. At the international level, changes may be needed to existing international tax treaties for the avoidance of double taxation.

3c. Concerning customs, we believe that the Internet should be a tariff-free environment for products and services delivered over the Internet. This is consistent with current trends to reduce or eliminate tariffs on products with the recent example of the World Trade Organization's International Technology Agreement designed to eliminate tariffs on technology products.

3d. The GIP recommends:

> 1. No unique taxes should be imposed on electronic commerce. Existing structures are flexible enough to adapt to electronic commerce.

> 2. Intangible products sold and delivered over the Internet should be treated the same way for tax purposes as products purchased off-line in the tangible world.

> 3. Tangible goods purchased electronically and physically delivered should be subject to the same transnational tax requirements imposed on the mail order industry.

> 4. Any new tax requirements imposed on electronic commerce transactions by states and localities will potentially have global ramifications, and should avoided.

> 5. Application of any telecommunications service or sales taxes on Internet services should be avoided.

> 6. Bit taxes based on the number of bits transmitted to or downloaded by a user is an inappropriate and complicated way of taxation and should be avoided.

> 7. Governments should take action to prevent double taxation both at national and international levels.

> 8. Continued efforts to promote a tariff-free environment for electronic commerce and the Internet.

4. Uniform International Commercial Principles for Electronic Commerce

4a. In order to facilitate international electronic commercial transactions, it is important to establish a unified treatment for commercial transactions. The private sector should continue to shape the rules governing transactions in electronic commerce, such as commercial practices, agreements and industry guidelines, as it does today in more traditional commercial activities. The role for government is to ensure that the legal environment supporting commercial transactions in the private sector is flexible and adaptable to electronic commerce. We recognize and encourage the ongoing work of groups and organizations to define national and international sets of uniform principles for electronic commerce.

4b. We note the international work done on a Model Law on Electronic Commerce by the United Nations Commission of International Trade Law (UNCITRAL). The Model Law, adopted in 1996, is intended to facilitate the use of modern means of communications and storage of information, such as electronic data interchange (EDI), electronic mail and telecopy, with or without the use of such support as the Internet. It is based on the establishment of functional equivalent for paper-based concepts such as "writing", "signature" and "original". By providing standards by which the legal value of electronic messages can be assessed, the Model Law should play a significant role in enhancing the use of paperless communication and in promoting the use of electronic commerce.

4c. Concerning disputes that may arise between parties conducting commerce over the Internet, particular attention should be paid to the functions of arbitration and mediation. If the structure necessary to conduct arbitration and mediation on the Internet is established and functions well, disputes may be resolved before they become more complicated, thereby reducing the costs to solve such disputes. Current arbitration organizations should study possible systems and structures for arbitration and mediation on the Internet, with a goal of giving arbitration awards on the Internet the same effect as traditional arbitration decisions. The use of the Internet is also worth considering for litigated disputes, given the litigation cost for the parties involved may be enormous due, in part, to the geographical distance between the parties.

4d. The GIP believes that the issue of digital signatures needs immediate attention as well as additional study. Just as in traditional "paper-based" commercial transactions, signatories have to be identified, documents authenticated, non-reputability established in electronic commerce. Digital signatures can provide the confirmation of the identity of the sender of a message, and of the authenticity and integrity of the message. Compared with a manual signature, a digital signature can offer added functions and specific advantages in terms of security and flexibility. Adoption of minimum rules and standards on the infrastructure for digital signatures, which includes certification authorities is clearly required. Because formal requirements for legal transactions, including the need for signatures, vary in different legal systems, digital signatures should have full recognition in the context of national laws and regulations. The recognition of digital signatures should be drafted to cover all transactions likely to be carried out electronically. There is also a need for clarifying the liability of those issuing certificates and their responsibility for accurate information and for ensuring respect for the right to privacy.

4e. The GIP recommends:

> 1. The continued role of the private sector in shaping voluntary commercial electronic practices through custom, usage and agreement of the parties;

> 2. Efforts by government to ensure that the legal environment for commercial transactions can accommodate electronic commerce;

> 3. Common international rules to promote electronic commerce by validating and authorizing the use of electronic records and signatures;

> 4. Harmonization of the law worldwide relating to the use of electronic means of effecting and performing contractual transactions as well as money payments and financial settlement.

> 5. If a dispute occurs relating to electronic commerce transactions, issues of court jurisdiction and applicable law may arise. These issues should be recognized and harmonized internationally.

5. Intellectual Property Protection and Rights

5a. A balanced approach to intellectual property protection and rights will help to expand the use of electronic commerce. The Internet permits rapid and efficient dissemination of information in digital form. It has the potential to be a major medium for distribution of content in various forms, for example, textbooks, papers, drawings, music and video. Appropriate policies governing the communication and distribution of this information to the public are being put in place as a result of the World Intellectual Property Organization's landmark global conference held in Geneva in December 1996 and the two treaties that resulted from it. We applaud the results of WIPO efforts to create the two new treaties. We also support WIPO activities to assess and resolve future intellectual asset issues. We must also be aware of new issues such as the liability of network access and information providers - with a goal of multilateral solutions and international harmonization.

5b. The GIP recommends:

> 1. Intellectual property protection implemented in the era of the Internet should provide appropriate rights to authors to control dissemination of their content. However, this must be done recognizing that in order to assure the broad usage of the Internet, users' access to and use of such content should be warranted. Industry is developing technical capabilities to enable authors of content to track reproduction and dissemination of their intellectual property over the Internet, and these efforts should be encouraged to proceed in a market-driven environment. In the context of the Internet, technical solutions created through open standards are more desirable tools to protect intellectual property than the threat of litigation.

> 2. However, it should also be recognized that Internet service providers do not generally screen and control material that they transmit, and therefore cannot be held liable for reproduction by end users. Internet Service Providers should be given a safe harbor for transmission of content that they do not control but that uses the connectivity they provide. Likewise, transient copies of content that is incidental to functions such as caching and browsing should be treated as such and not subjected to any regulation.

6. Security

6a. The GIP supports policies that work globally on information security, giving companies and individuals the ability to ensure that their communications have an adequate level of security. Because the Internet is not designed to provide centralized information security, individuals and companies bear the responsibility for securing and verifying information sent or received over open networks. To promote confidence in and usage of electronic commerce on the Internet , the private sector requires effective encryption for information security of business and personal data, including confidentiality, authenticity, and integrity of information in electronic form.

6b. The GIP notes an important international step taken in March 1997 with the adoption of the OECD's "Guidelines for Cryptography Policy", setting out principles to guide countries in formulating their own policies and legislation relating to the use of cryptography. The OECD Guidelines are intended to promote the use of cryptography, to develop electronic commerce through a variety of commercial applications, to bolster user confidence in networks, and to provide for data security and privacy protection.

6c. The GIP recommends:

> 1.No nation's cryptography policy can stand alone.

> 2. Immediate steps should be taken to solve pressing cryptographic needs that directly affect the global Internet.

> 3. Reliable and international systems for authentication and integrity should be established.

> 4. Governments and industry must respond to legitimate user concerns.

> 5. Users should be permitted to decide whether and the degree to which key escrow, trusted third party, or key recovery technologies will be desirable in their environments or not.

> 6. Trade barriers should not be disguised as cryptographic regulations.

> 7. Export controls on encryption should be made multilateral in practice and when used, focused narrowly and genuinely on national security threats. They should not be used as indirect domestic controls.

> 8. Governments should establish and publish the process by which keys will be obtained for government purposes. This process should include independent judicial review, time limits on access, reasonable notice to the key owner when this would not interfere with the purposes of the decryption, and opportunities for independent audit of compliance with legal process.

> 9. Liability for misuse of escrowed keys should be the subject of international understanding.

> 10. When key recovery is voluntarily chosen by the user, self-retention of key recovery information should be encouraged.

7. Privacy

7a. The GIP encourages the private sector to implement processes for protecting customer and personal privacy. The increasing capability of computers and telecommunications to obtain and correlate personal information about individuals will continue to raise privacy concerns. If not addressed, these concerns could severely limit the growth of electronic commerce. In the near term, industry is studying different approaches to achieve an equitable balance between privacy interests and the desire to use personal information to promote electronic commerce.

7b. Appropriate consumer protection is also essential for the healthy development of electronic commerce over the Internet. As consumer activities occur on a global level, an international consensus will be required with respect to minimum required regulations for consumer protection. Work is already underway within the OECD to establish international principles for consumer protection.

7c. The GIP supports the use of the 1980 OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data as the basis for many national and international privacy protection norms. Additional efforts should be directed toward the establishment of global consensus and an international framework for privacy protection.

7d. The GIP recommends:

> 1. Protection of privacy should be at least as strong as under telecommunications law.

> 2. Privacy protection for individuals should be respected. Industry initiatives, such as corporate codes of conduct or industry standards for privacy should be encouraged to ensure protection of personal information.

8. Telecommunications Infrastructure

8a. Competitive environments for the provision of both local and long distance transport underlying the provision of Internet services, including electronic commerce, should be encouraged. This will help provide greater choice, functionality and value to Internet Service Providers for building their services on top of the infrastructure, and will ultimately benefit users. The World Trade Organization's recent agreement on basic telecommunications services which opens telecommunications markets to competition is another helpful step to promote electronic commerce on the Internet.

8b. Many countries still maintain a monopoly provider of Internet access, or restrict the number of competing providers by adopting a licensing process that serves ultimately to limit competition, thereby reducing the choices available to users. OECD studies have shown positive correlation between the freedom to compete and provide Internet services within a country and the attractiveness of price and feature packages for consumers and businesses in that country.

8c. The GIP recommends:

> 1.Implement rules that utilize, to the greatest extent possible, market forces to drive down costs for access to advanced telecommunications technologies - for instance by eliminating the hidden universal service subsidies built into telecommunications rates that impede competition. Universal service subsidies should be targeted at needy users and be provided directly to end users in a way that does not distort the market or handicap some providers relative to others. Such rules, whether national, state, local or regional, should be harmonized.

> 2.Interconnection charges such as access charges and international settlements between interconnecting carriers should be driven to the economic cost of providing access or terminating services, in conjunction with a competitive marketplace for the provision of such interconnection. The imposition of excessive, uneconomic charges for access or interconnection at any level, domestic or international, hampers the development of competitive markets, and should be avoided. This will significantly reduce the risk of impeding the growth of the Internet as well as other innovative service capabilities.

> 3. Encourage the development of competitive markets without burdensome licensing requirements, with a view to facilitating competition among ISPs and providing better value to users. Monopoly or duopoly arrangements for ISP licensing limit the incentive for these ISPs to be efficient, and should not be adopted.

9. Standards (Interoperability)

9a. Electronic commerce will benefit from the development of technical standards to secure Internet interoperability. The Internet's development was based on voluntary industry standards and global interoperability. This key strength should continue to be fostered for its future growth. Governments should promote interoperability by encouraging industry-led global standards-setting processes, and by advocating open interfaces where multiple providers can interoperate. Such essential interfaces, where they are not open, can be used to diminish user choice by forming bottlenecks to access which limit or deny competition. Market-driven processes should be encouraged wherever feasible in order to facilitate interoperability that can keep up with the rapid pace of technological and industry growth.

9b. The GIP recommends:

> 1.Standards to promote the GII should be developed in the framework of international standards bodies, focused on essential open interfaces developed through market-driven, international, voluntary and industry-led initiatives.

> 2.Permit consumers to access the widest variety of advanced technologies at the lowest cost by not mandating standards except where: a) private, industry-led standard setting bodies have failed; b) a proposed standard is needed to remedy a legitimate consumer harm that otherwise is not addressed by industry, even after a clear opportunity has been provided; and c) the standard does not unnecessarily limit options for its technical implementation and offers a level playing field for all competing products.

> 3.Increase market competition and innovation by ensuring that existing and proposed standards do not discriminate against any particular industry segment.

> 4.Intellectual property involved in the technology of essential open interfaces should be licensed for use on reasonable terms and conditions and on a non-discriminatory basis.

10. Regulation of Content

10a. The GIP recognizes that the diversity of individual nations enriches the global environment. The promotion of diversity of content and respect for national culture and traditions are important. Encouraging trade in content (by removing barriers) is a means of promoting diversity of content, including cultural and linguistic diversity, and of preserving and maintaining the various national and regional cultures.

10b. There is concern on the part of various governments regarding access to inappropriate information over the Internet. In the U.S. this concern primarily focuses on protecting children from pornographic content. The level of concern varies with the norms of each society, but countries as varied as the U.S., the U.K., China and Singapore have varying levels of concern. Censorship by governments can significantly dampen Internet growth and use. The Internet industry, including the GIP member companies, are developing and deploying content filtering mechanisms as a form of industry self-regulation, and are committed to supporting continued progress in this area.

10c. Certain governments view the Internet's free flow of information across borders as a political threat and are putting in measures that stifle its growth. This kind of censorship and government controls pose major challenges to the Internet.

10d. The GIP recommends:

> 1.Industry needs to continue to lead through self-regulation. The Internet industry has made considerable headway in this area by creating mechanisms for empowering users to select and/or screen content. For example, the Platform for Internet Content Selection (PICS) holds great promise in enabling content selection tailored to varying norms worldwide.

> 2.While acknowledging and sharing governments' legitimate concerns relative to content and the need for users to have access to screening capabilities, it is important that absolute access prohibitions are not the most effective means for addressing the issues of content protection. Most diverse cultural needs can be addressed with content rating, blocking and filtering technologies that enable users and parents to selectively screen Internet and other on-line content.

11. Import and Export Regulations

11a. Use of the Internet to conduct transactions for products delivered electronically, such as software, is likely to grow because it can be more cost-effective than products delivered traditionally. This feature of electronic commerce over the Internet should not be impeded.

11b. The GIP recommends:

> 1. New import and export regulations should not be introduced solely because the products concerned are distributed over the Internet.

1997 GIP (Global Internet Project) All rights reserved.