REPORT on the communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on a European Initiative in Electronic Commerce (COM(97)0157 - C4-0297/97)

4 May 1998

Committee on Economic and Monetary Affairs and Industrial Policy
Rapporteur: Mrs Erika Mann

By letter of 18 April 1997 the Commission forwarded its communication on a European Initiative in Electronic Commerce to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions.

At the sitting of 25 June 1997 the President announced that he had referred the communication to the Committee on Economic and Monetary Affairs and Industrial Policy as the committee responsible, and the Committee on Research, Technological Development and Energy and the Committee on Environment, Public Health and Consumer Protection for their opinions.

At the sitting of 5 November 1997 the President announced he had referred the communication to the Committee on External Economic Relations for its opinion.

At its meeting of 14 July 1997 the Committee on Economic and Monetary Affairs and Industrial Policy appointed Mrs Erika Mann rapporteur.

The Committee on Economic and Monetary Affairs and Industrial Policy considered the Commission communication and the draft report at its meetings of 28 October, 1 December 1997, 4 February, 24 February and 23 April 1998.

At the last meeting it adopted the motion for a resolution unanimously.

The following were present for the vote: Karl von Wogau, chairman; Katiforis and Secchi, vicechairmen; Erika Mann, rapporteur; Areitio Toledo, Argyros (for Mr de Brémond d'Ars), Arroni, Barton (for Mr Fayot), Blot (for Mr Lukas), Boogerd-Quaak (for Mr Gasòliba i Böhm), Camisón Asensio (for Mr Fourçans), Carlsson, Cassidy (for Mr Friedrich), Caudron, Christodoulou, Colajanni (for Mr Imbeni), Cox, Donnelly, Filippi (for Mr García-Margallo y Marfil), Funk (for Mr Konrad), Gallagher, Glante, Harrison, Hendrick, Herman, Hoppenstedt, Ilaskivi, Kestelijn-Sierens, Kuckelkorn, Langen, Lindqvist (for Mrs Larive), Lulling, Thomas Mann (for Mr Mather), Metten, Mezzaroma, Miller, Murphy, Paasilinna, Peijs, Pérez Royo, Peter (for Mrs Billingham), Porto (for Mr Rübig), Rapkay, Ribeiro, de Rose, Soltwedel-Schäfer, Tappin (for Mrs Randzio-Plath), Thyssen, Torres Marques, Watson and Wolf (for Mrs Hautala).

The opinions of the Committee on Research, Technological Development and Energy, the Committee on External Economic Relations and the Committee on Environment, Public Health and Consumer Protection are attached.

The report was tabled on 4 May 1998.

The deadline for tabling amendments will be indicated in the draft agenda for the relevant partsession.

A. MOTION FOR A RESOLUTION

Resolution on the communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on a European Initiative in Electronic Commerce (COM(97)0157 - C4-0297/97)

The European Parliament,

- having regard to the Commission communication on a European Initiative in Electronic Commerce (COM(97)0157 - C4-0297/97),

- having regard to the Green Paper from the Commission on the Convergence of the Telecommunications, Media and Information Technology Sectors, and the Implications for Regulation: Towards an Information Society Approach (COM(97)0623),

- having regard to the communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on ensuring security and trust in electronic communication - towards a European framework for digital signatures and encryption (COM(97)0503 - C4-0648/97),

- having regard to its resolution of 13 January 1998 on Electronic Money and Economic and Monetary Union (A4-0417/97)[1],

- having regard to its resolution of 26 June 1997 on the Commission Communication on Europe at the Forefront of the Global Information Society: Rolling Action Plan (A4-0208/97)[2],

- having regard to its resolution of 24 April 1997 on the Commission communication on illegal and harmful content on the Internet (A4-0098/97)[3],

- having regard to its resolution of 23 November 1995 on the EU Directive on Protection of Personal Data (95/46/EC)[4],

- having regard to the working document “On fiscal aspects of electronic commerce - a synthesis” by the European Parliament Directorate General on Research,

- having regard to the Commission document entitled "International policy issues related to Internet governance", (COM(98)0111), and to the Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on “Globalisation and the Information Society - The Need for Strengthened International Coordination”, (COM(98)0050),

- having regard to the US Green Paper on Internet Governance and the Reply of the EU and its Member States to the US Green Paper,

- having regard to the US proposal to improve technical management of internet names and addresses,

- having regard to the conclusions of the Industry Council of 13 November 1997 and the Telecommunications Council of 26 February 1998, and the preparatory work of the Council ad-hoc Working Group on Electronic Commerce, preparing the EU-Position for the Conference in Ottawa in October 1998,

- having regard to the Joint EU-US statement on electronic commerce of 5 December 1997,

- having regard to the US Framework for Global Electronic Commerce,

- having regard to the OECD's conclusions on Electronic Commerce: the Challenges to Tax Authorities and Tax Payers, from its Round Table in November 1997,

- having regard to the Rome Communiqué by the Transatlantic Business Dialogue (TABD), November 1997,

- having regard to the Bonn Ministerial Declaration, July 1997,

- having regard to the WTO Agreement on Basic Telecommunications (Reference Paper and GATS), concluded in April 1997,

- having regard to the Study from the WTO Secretariat on “Electronic Commerce and the Role of the WTO”,

- having regard to the UN Commission on International Trade Law (UNCITRAL) document "Planning of future work on electronic commerce: Digital Signatures, Certification Authorities, and Related Legal Issues", February 1997,

- having regard to the UNCITRAL Model Law on Electronic Commerce,

- having regard to the Copyright Treaties issued by the World Intellectual Property Organization (WIPO) in December 1996,

- having regard to the document from the International Chamber of Commerce Information Security Working Party on General Usage for International Digitally Ensured Commerce (GUIDEC),

- having regard to the Memorandum of Understanding “Open Access to Electronic Commerce for European SMEs” and the Guidelines developed in the framework of this MoU,

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy and the opinions of the Committee on Research, Technological Development and Energy, the Committee on External Economic Relations and the Committee on Environment, Public Health and Consumer Protection (A4-0173/98),

A. Whereas electronic commerce covers all commercially relevant activities undertaken by companies, governments or consumers over electronic networks such as the Internet and www, including trading, sales and purchases, contracting, advertising and diverse marketing activities - all in all creating the electronic market place,

B. Whereas electronic commerce covers services (both transport and telecommunications services as well as content services, such as legal services, financial services, music and audiovisual etc.) and physical goods, whose sale is conducted by electronic means,

C. Whereas the advent of electronic commerce changes the balance of physical and intangible goods, in favour of intangibles, to a degree requiring fundamental review of the trading environment,

D. Whereas electronic commerce is only one of many activities undertaken on the Internet, www and related networks, and whereas rules and regulations for these networks therefore should take all of these activities into account, such as information exchange, research cooperation, conferences, chats as well as corporate and personal web-sites,

E. Whereas electronic commerce is developing rapidly at the European as well as at the international level, driven by the unique character of the Internet, and whereas the development of electronic commerce is expected to continue during the years to come, constituting one of the cornerstones of the Information Society; and whereas electronic commerce essentially is global in nature and thus will contribute to the ongoing globalization of the economy,

F. Whereas trade will have a major impact on European economies and could improve competitiveness on condition that the Internet is universally accessible,

G. Whereas there is already a relatively predictable and clear international legal environment (GATS) for the provision of electronic services,

H. Whereas national taxation systems so far have been rooted in traditional commerce and have been in the process of being revised for the past decade; whereas electronic commerce will contribute to the development of deeper and further changes in these systems; whereas consistent taxation approaches at international level are absolutely crucial to ensure the effectiveness of taxation laws on the Internet,

I. Whereas electronic commerce enhances the opportunity to expand and refine the dialogue between producers and consumers, thereby improving the quality of products as well as preand after-sales service, and will have the potential of improving Europe's competitiveness in opening up new business opportunities; and whereas the dynamics of the market will change by broadening, accelerating and facilitating customer choice, thereby creating new employment possibilities in both traditional and new sectors,

J. Whereas new jobs are being created in the service industries as new services and new service needs come into existence,

K. Whereas electronic commerce by its nature offers a potential to support the creation and development of small and medium-sized enterprises, through reducing costs and lowering the barriers to entry in new markets for these companies, and whereas electronic commerce only will become fully established in Europe if a large majority of small and medium-sized enterprises actually participate in electronic commerce and communication,

L. Whereas full competition in the telecommunications market as well as in the access and service provision markets is essential for the sound development of electronic commerce, and therefore the full completion of the telecommunications liberalisation from 1 January 1998 is vital,

M. Whereas a prerequisite for the development of electronic commerce in Europe is that businesses and consumers become fully aware of its capacity to empower consumers and of all the potential benefits it has to offer, such as the opportunity for its users to have quick and cheap access to goods and services, and for enhancing their freedom of choice, as this awareness is crucial to stimulate investment in the enabling technologies and engagement in electronic commerce; whereas the promotion of universal access to the Information Society, to the use of electronic commerce and information technologies will facilitate the awareness process,

N. Whereas the usage of information and communication technologies in the European Union is unequal in the different Member States,

O. Whereas consumers only will be willing to use electronic commerce if they are convinced that it is as safe and reliable as conducting transactions on the traditional market, and whereas ensuring secure trading in the on-line environment by means of technologies involving encryption and/or digital signatures therefore is essential,

P. Whereas privacy and a high level of consumer protection is a fundamental right of individuals and should be safeguarded and whereas the rights of consumers have to be ensured and adapted to this new environment,

Q. Whereas public administrations have an important role in promoting electronic commerce, both by creating the right framework of regulations, and by supportive actions such as making use of the Internet through the performance of public procurement and taxation activities on line, thereby greatly benefitting from electronic commerce by simplifying procedures and reducing paperwork, and in narrowing the gap between citizens and administrations, making public services friendlier for the citizens,

R. Whereas the development of a regulatory environment for electronic commerce, considering the speed of its development, has to be flexible, allow for quick adaptations and take into account the developments of the market, and whereas governments should encourage and support industry self-regulation wherever appropriate. whereas, however, the establishment of the framework for action as well as final responsibilities remain with the public regulator,

S. Whereas unnecessary regulation of commercial activities will distort development of the electronic marketplace by decreasing the supply and raising the cost of products and services for consumers the world over,

T. Whereas existing laws and regulatory frameworks in the fields of commerce telecommunications and the media may need to be reviewed, in order to reflect the needs of electronic commerce,

U. Whereas international harmonisation and interoperability in the field of electronic commerce is needed in order to avoid that users become locked in specific solutions and to fully benefit from its global nature, among other things through the existing standardization process, MRAs, de-facto-standards or other appropriate mechanisms,

V. Whereas a process of technological and market convergence in the telecommunications, audiovisual and information technology sectors is going on, and whereas this convergence is of key importance to the development of electronic commerce, through the creation of new competitive pressures between content and infrastructure industry, degrees of convergence, but also new diversity within these sectors,

W. Whereas the use of electronic payments will help reducing the frictions associated with the implementation of Economic and Monetary Union, by lowering the costs associated with the transition to the Euro and by speeding up its use; whereas a possible scenario may be the creation of a parallel payment system outside of conventional banking,

X. Whereas electronic commerce has the potential to stimulate the development of peripheric regions and thereby contributing to regional cohesion within the European Union, and whereas it also has a positive social impact by making access to electronic commerce easier for disabled people,

1. Welcomes and supports the Commission communication on a European Initiative in Electronic Commerce, which provides a framework as well as guidance for the European policy in the field of electronic commerce and encourages its development; stresses that it is vital, in the interests of the competitiveness of European industry in the field of electronic commerce, that European businesses, and hence citizens too, can derive full benefit from the internal market;

2. Believes that the increased use of electronic commerce will have an impact on employment; therefore supports the Commission's initiative to investigate and report in the form of studies on the employment effects of electronic commerce; these studies are to be carried out rapidly and communicated to the European Parliament as well as to the Member States;

3. Considers that every possible effort must be made to exploit the potential for new job creation in high-grade information-based services by introducing new and special education and training facilities to impart these new skills;

4. Considers that electronic commerce possesses enormous potential but that precautions should also be taken to deal with the anticipated structural changes, particularly in such sectors as the retail trade, marketing and tourism; calls for SMEs, in particular, to be prepared for the conversion process by means of training and further training measures, by means of appropriate research and development programmes funded by the Commission and by means of information about the necessity of this development;

5. Stresses the paramount importance of increasing skills and awareness of consumers and businesses in the European Union of the nature and possibilities of electronic commerce, and considers that government plays an important role in this in view of its statutory powers in the field of education, and therefore encourages the creation of educationnetworks, the provision of new incentives for training, as well as the improvement of knowledge diffusion and learning methods and, on account of the pioneering role which government can play, both in the way in which it organizes its own departments and in encouraging the use of electronic commerce in society, considers it important that government services should be made available electronically - both for citizens and for businesses, especially SMEs;

6. Recognises that electronic commerce provides SMEs with the opportunity to reach new and distant markets, identify new market segments at lower costs and enhances possibilities to develop cooperative schemes; in order to improve the possibilities for this development, asks for specific actions for SMEs at the European level, such as the establishment of Web based business directory services, the intensification of the Euro Info Centres awareness activities on electronic commerce, as well as the setting up of a quality label associated to a number of requirements in order to increase consumer confidence for products and services from relatively unknown smaller companies;

7. Urges the Commission and the governments of the Member States to seek international agreements in this area and stresses that international policy coordination is especially needed regarding issues such as taxation, liability, payment systems, security, data protection, interoperability, IPR, public procurement, contract law, regulated professions, commercial communications and electronic authentication/digital signatures; in this context, asks for clarification at the international level of the respective responsibilities of different international bodies in the field of electronic commerce; recommends that national initiatives in the field of electronic commerce should be mutually coordinated;

8. Stresses that greater cooperation, particularly between EU States and Eastern European States, in the field of electronic transactions is desirable;

9. Considers that the future organization of the Internet, and the associated consequences for electronic commerce, are of strategic importance to the development of electronic commerce in Europe, and advocates the setting-up of a worldwide, market-based system to register, assign and manage Internet domain names, which system should take full account of the geographical and functional diversity of the Internet;

10. Calls for the investigation of the possibilities and necessities of the creation of an international Universal commercial code in the area of electronic commerce, to be negotiated within the WTO context; this code should include all issues that have not so far been solved by international agreements such as taxation, place of establishment, liability and payment systems;

11. Calls, however, for coordination at the European Union level in order to avoid fragmentation of the Internal Market, and for the establishment of an appropriate European regulatory framework as well as a common and strong negotiation position, and stresses also the importance of a simple, minimalist and predictable legal framework for electronic commerce; calls on the Commission to make proposals without delay to ensure the proper functioning of the internal market in the field of electronic commerce and complete freedom for European enterprises to provide services, and in particular to ensure that enterprises which meet the legal requirements in their country of origin can transact business freely throughout Europe;

12.Calls for a better internal organisation in the creation of a single point of coordination, responsible to all European institutions and calling on relevant specialist services of the Commission for support in combining the different parts of the European strategy for electronic commerce: which may include regulation, taxation, international harmonisation, skills and awareness, employment impact, online-crime, consumer dialogue and industry dialogue;

13. Encourages governments and the Commission to make constructive use of input from industry, consumer associations and other interest groups while setting up a legal and regulatory environment for electronic commerce; this regulatory framework should not hinder its rapid development and must therefore be flexible and ensure technology neutrality but should also ensure that consumers have access to electronic commerce and be beneficial for both suppliers and users, it must also promote interoperability between systems and allow for self-regulatory measures to ensure speed and flexibility whenever possible;

14. Urges the Commission to speed up the process of presenting a proposal for a directive on Information Society services, including electronic commerce, in order to clarify the regulatory framework and to safeguard the rights of the users of electronic commerce; stresses that such a directive should include for example the definition of the place of establishment for service providers in the on-line environment and the place of transaction, liability, commercial communications and regulated professions. In order to ensure transparency and coordination, any other issues in the area of electronic commerce where Community initiatives may be envisaged (such as patents, trademarks, domain names, jurisdiction as well as the clarification of the legal role of information security involving the aspects of confidentiality, authenticity and integrity should be clearly indicated on a “road map” with a detailed timetable;

15.Emphasizes the vital and urgent need to resolve in an international acceptable manner the precise legal and accounting nature of intangible materials, traded on electronic networks in order to resolve issues of legislation, taxation, corporate accounting and consumer redress;

16. Acknowledges the horizontal nature of the liability problem, covering diverse issues such as copyright, consumer protection, trademarks, misleading advertising, protection of personal data, product liability, obscene content, hate speech, etc.; In this regard is looking forward to the coming Commission Directive on Information Society services, including electronic commerce, which should address this problem amongst others;

17. Asks the Commission to present a proposal on how to solve certain aspects of contract law in view of the new problems that arise in a transfrontier and networked environment, including the recognition of on-line contracts and the determination of when and where a contract is concluded as well as the necessary clarification on which laws are applicable to contracts, taking into account uniform rules on freedom of choice and the role of mandatory rules;

18. Is looking forward to the discussions in the context of the recently adopted proposal for a Directive on Copyright, recognizing the complexity of dealing with Intellectual Property Rights in an electronic medium; demands that any rules to protect Intellectual Property Rights should balance the interests of right holders and users; and believes that defining exceptions for fair use is essential for electronic commerce;

19. Urges the Commission and Council to continue and complete as soon as possible the harmonization of national consumer legislation concerning the sale of goods and services (e.g. harmonization of statutory guarantees after the sale of goods, and distance selling of financial services) with the aim of giving consumers the necessary confidence to make use of electronic commerce and thereby derive greater benefit from the internal market;

20. Urges the Commission and the Member States to work at international level to create coherence in taxation laws - particularly with regard to value added tax - in order to provide legal certainty, to avoid undue revenue losses and to ensure neutrality;

21. Believes that new taxes should not be imposed on electronic commerce which would penalize it compared to other trading activities;

22. Asks the Commission to clarify whether electronic commerce trading should be taxed according to the traditional system or whether new realities on the Internet create worldwide challenges that require a complete reformulation of all tax principles (eg. definition of territorial concepts, rules of origin, sourcing of income);

23. Stresses that an agreement has to be reached at the European level concerning the taxation issues, in order to create a clear and common framework for taxation in the area of electronic commerce - preferably through the use of a single VAT rate; furthermore, asks for a clarification concerning the question whether taxation should take place in the country of origin or in the destination country; encourages also tax authorities to work together to develop a consistent cross-border approach; Stresses its view that discussions are necessary in the international arena on questions of customs and taxation;

24. Recalls that building trust and confidence for the citizens is a key element for the promotion of electronic commerce and that privacy is one essential element to create this confidence; reminds that a framework on the issue of privacy is ensured by the EU Directive 95/46/EC on Data Protection, which will be fully transposed by October 1998; stresses however that the implementation of this directive has to be monitored very carefully in order not to create unnecessary barriers and to ensure a flexible approach;

25. Affirms furthermore that issues concerning the protection of privacy and data protection should preferably be negotiated at a global level where an initiative within the multilateral context of the WTO should be launched, with the view to agree on binding rules concerning the effective protection of privacy; does not exclude the possibility of consultation in other fora, such as the OECD and the UN, concerning this; suggests also to promote industry selfregulation at the international level to achieve the same goal;

26. Asks in the meantime the Commission to negotiate a Mutual Recognition Agreement with the United States on data protection, as a first step to solve the current difficulties in defining a common approach; asks also the Commission to ensure that certain principles concerning protective standards are included in this negotiation process as well as notice and consent issues and clarification of use and re-use of personal information. The European Parliament should be involved in this process;

27. Recognises the blurring of the distinction between information and advertising as well as the enhanced possibilities for tracking and tracing of individuals, with related problems of privacy and protection of data, the risk of misuse of consumer profiles and the lack of cross-border redress; Urges therefore the Commission to present a proposal on how to establish a crossborder redress system;

28. Stresses that the most effective known means of user defence against on-line crime are strong encryption technologies, therefore access to these technologies should be ensured for businesses and citizens and limits to the use of encryption should be avoided; highlights also that current legislation at EU level (Article 19 of the Dual Use Regulation), which obliges Member States to control intra-Community shipments of cryptography products, is not compatible with the well-functioning of the Internal Market and is outdated in this political and technical context, and considers therefore that this Regulation should be amended so as gradually to eliminate intra-Community controls on cryptography products, thereby enabling cryptography products for commercial and private purposes to circulate freely;

29. Encourages the establishment by the EU and its Member States of an adequate and comprehensive industrial policy in the field of cryptography products and digital signatures along the lines of the Commission communication on "Ensuring security and trust in electronic communication towards a European framework for digital signatures and encryption";

30. Is in favour of applying the Internal Market approach when regulating digital signatures, in order to establish minimum requirements at Community level and safeguard their free circulation; this could be done through the use of cross border legal recognition of digital signatures, preferably on the basis of home country control and mutual recognition or, if necessary, by use of EU harmonisation; highlights that standardization has an important role to play as a facilitator of mutual recognition of digital signatures;

31. Calls for international police and justice coordination to combat crime and fraud in the cyberspace; encourages furthermore systems of policing to be put in place, enabling the tracking of suspected criminals in an appropriate way without impeding the legitimate commercial and private use of strong encryption;

32. Supports the creation of an international arbitration mechanism, self-regulated by industry, for settling disputes on electronic commerce transactions when the existing settlement organs prove not appropriate;

33. Stresses the importance of technologies ensuring safe means of electronic payment and asks the Commission to propose the establishment of a framework which allows both banks a nonbank financial institutions to issue stored value and electronic payment products in Europe on a competitive basis within an interoperable system, under observance of the future ECB which will have the duty of management of monetary policy; considers it necessary to explore, in the interests of protecting privacy, the possibility of making payments via the Internet anonymously, i.e. without the payer's identity being recorded;

34. Affirms that the fifth framework program for research under the “user friendly information society” heading must include support for development of electronic commerce specific technical standards (electronic signature, encryption) and for generic network technologies such as database access management, search engines for access to vast arrays of distributed information, and network management; calls also for the fifth framework programme and the research programmes of the Member States and regions to include efforts to boost technical capacity so as to reduce costs;

35. Reminds the Commission that the new interactive services for electronic commerce raise the demand for higher band networks, second-generation Internet and multimedia technology. These developments should be taken into consideration both in the fifth framework research programme and in the TEN programme. Both satellite and cable technology should be kept under consideration;

36. Instructs its president to forward this resolution to the Commission and the Council.

• [1]  Minutes of 13.1.1998, PE 265.058, p. 22.
• [2]  OJ C 222, 21.7.1997, p. 14 and 41.
• [3]  OJ C 150, 19.5.1997, p. 16 and 38.
• [4]  OJ L 281, 23.11.1995, p. 31.

B EXPLANATORY STATEMENT

1. Background and definition

Electronic commerce (e-commerce) is not a completely new phenomenon, as companies have exchanged business data for many years by using different communication networks. As the Internet now is growing rapidly, e-commerce is no longer limited to big companies, but open to everyone around the world. Driven by this Internet revolution, electronic commerce is dramatically expanding and undergoing radical changes. E-commerce is a "win-win game" and presents enormous potential opportunities for consumers and for businesses, particularly SMEs, and will have a considerable impact on Europe's competitiveness in global markets. Electronic commerce therefore offers tremendous possibilities for job creation, which is at the top of the EU agenda. Furthermore, there are several social advantages of e-commerce, such as making access easier for disabled people and for people in remote areas. Even though the development is lead by the private sector, public administrations have an important role to play in this field, apart from the creation of an legal and regulatory framework, through public procurement and awareness raising measures.

There is no universally accepted definition of e-commerce so far, but it is clear that it involves commercial transactions, over telecommunications networks, by using electronic means. It includes indirect e-commerce (electronic ordering of tangible goods), as well as direct e-commerce (online delivery of intangibles). The transactional nature of the exchange is the key feature, involving agreement to deliver goods, to perform services or to transact intellectual property rights. A fast-moving environment, e-commerce is engendering a wide array of innovative businesses, markets and trading communities - creating new functions and new revenue streams. However, e-commerce should be distinguished from basic telecommunication services and from the simple use of the Internet and of electronic databases to obtain information without the establishment of a commercial transaction.

2. The Commission initiative in Electronic Commerce - a summary

The aim of the present Commission Communication "A European Initiative in Electronic Commerce" (COM(97)0157) is to encourage the vigorous growth of e-commerce in Europe. Building upon the Commission's work to date, it provides a policy framework for future Community action, and aims at establishing a common European position to achieve global consensus through international negotiations. The initiative proposes a comprehensive set of actions in the field of e-commerce, to be implemented by the year 2000. These actions must be considered in the wider framework of Information Society initiatives and will be integrated into the Rolling Action Plan for the Information Society. The communication is divided into four main parts, which are summarized below:

I. The Electronic Commerce revolution: challenges and opportunities

Stimulating competition in the Single Market, e-commerce is already bringing profound structural changes. E-commerce makes it possible to trade at low cost across regional frontiers. New skills will be required to for the new jobs. Europe's main competitors have already seized opportunities offered by e-commerce, with the US in the lead. However, Internet commerce is catching up in a number of Member States. Europe has a number of strengths in the fields of technologies, content creation and linguistic and cultural diversity. Similarly, the use of the single currency will represent a strong incentive for the take up of e-commerce. The rapid development of e-commerce is an urgent challenge for industry and governments in Europe. There is a need to engage in an early political debate with the aim of providing a stimulus to e-commerce and avoiding a fragmentation of this promising market. To reap its full benefits, the development of efficient distribution channels and trans-European networks is absolutely essential for the physical delivery of goods, including efficient, modern postal services.

II. Ensuring access to the global marketplace: infrastructures, technologies and services

High telecommunication tariffs have long been a major stumbling block for e-commerce in Europe. However, the implementation of the telecommunications liberalisation measures will result in lower and more flexible pricing. The WTO Agreement on Basic Telecommunications will contribute directly to the emergence of a global marketplace in e-commerce. Similarly, recent international agreements to eliminate tariff (ITA) and non-tariff barriers (MRA) should rapidly reduce the cost of IT products, reinforce EU competitiveness and encourage the take up of e-commerce. Removing capacity bottlenecks and providing high-bandwidth infrastructure is another challenge for Europe, which is actively addressed both by the private sector and by the Community. Interoperability also has to be ensured, and the Commission will launch specific actions on standardization projects for electronic commerce. The Commission is promoting global interoperability in areas such as secure technologies and payment systems, and is giving special importance in a number of R&D programmes to e-commerce to ensure wide availability and ease of use of key technologies.

III. Creating a favourable regulatory framework

The Single Market framework must be made to work for e-commerce. In order to build confidence among businesses and consumers secure technologies (digital signatures and certificates, secure electronic payment mechanisms) need to be developed, as well as a predictable legal and institutional framework at EU level to support these technologies. Regulatory responses, where appropriate, need to be addressed at every step of the business activity, from the establishment of business, to the promotion and provision of e-commerce activities, through conclusion of contracts, to the making of electronic payments. In parallel, a number of horizontal issues, such as data security, protection of IPRs and conditional access services, privacy, and taxes, need to be addressed. Given the transnational nature of e-commerce, global consensus is of vital importance. The Commission will pursue international dialogue, involving government and industry, at multilateral and bilateral levels. This includes cooperation to fight organised transnational crime on communications networks.

IV. Promoting a favourable business environment

Awareness and confidence in e-commerce for consumers and businesses need to be reinforced, as well as encouraging best practice among European businesses (particularly through SME programmes, support actions, and R&D and G7 pilot schemes). Public administrations also have a key role to play through their procurement power and their early implementation of key e-commerce technologies. Education and training activities are also to be implemented.

3. The approaches in the US and in Japan on Electronic Commerce

There is broad convergence between the EU, US and Japan concerning many issues, like IPR, taxes, legal and harmful content on the Internet and liability issues. The main differences lie in the legislative approach, which is more directed towards self-regulation in the US, and concerning data protection. The awareness issue is important in Europe and in Japan, but no longer in the US.

The position of the US Administration

The goal of the US Administration Strategy for creating a framework for global electronic commerce is to foster business and consumer confidence in a market place shaped by competition and consumer choice. It is based on coordination between industry, consumers and the Administration. The principles to guide the government's support to e-commerce, according to the US Strategy, sum up in: minimum government intervention, letting the private sector lead and encouraging self-regulation; support and enforce a simple and predictable legal environment, coordinated on a global basis, and review of existing laws and regulations on telecommunications that may not fit the Internet.

The recommendations that the Administration develops from the above principles are:

1. The Internet should be declared a tariff-free environment. No new taxes should be imposed. Existing taxes applied to e-commerce should be consistent across national jurisdictions.

2. On Electronic Payment Systems inflexible regulations and rules are inappropriate. Case-by-case monitoring of EPS experiments is preferable.

3. Create a Uniform Commercial Code for e-commerce, dealing with recognition of electronic contracts, dispute resolution mechanisms, exposure to liability and electronic registers.

4. Protect Intellectual Property by copyright, patents, and trademark rules. Ratify WIPO treaties.

5. Assure personal privacy. Information and choice should be given by data gatherers.

6. Security of the global information infrastructure. The Administration and industry will promote a market driven public key infrastructure that will enable trust in encryption.

7. Development of telecommunications infrastructure: global digital networks to remove barriers.

8. Regarding content, encourage industry to self-regulate and eliminate overly burdensome content regulations that create non-tariff trade barriers.

9. The marketplace should determine technical standards and mechanisms for interoperability.

The Japanese approach to electronic commerce

The introduction of e-commerce in Japan lags behind the United States. However, efforts are beginning to be made, including recent positive signs in investment in IT and e-commerce in some sectors.

The guiding principles for the new government policy rules for the digital economy are:

1. Constructive efforts and swift response to change by institutions and systems.

2. Resolution of problems through Technology and the Marketplace. Regulation should be kept at a minimum and harmonized with traditional solutions.

3. Security and trust: if not protection against crime, trust is not possible.

4. Universal Access: ensuring equal opportunity for SMEs and people to access IT and ecommerce. But also protect privacy.

5. International coordination is necessary given the global nature of e-commerce.

4. Global challenges - work done within the WTO, OECD, WIPO and UN

The OECD approach

The approach by OECD is summarized in "Overview of the OECD work bearing on e-commerce" (7/97). A policy framework is described in two documents: "Global information infrastructure and Global information society" (5/97), stating the need for high speed interactive infrastructures, fair access and use of these, their interoperability, growth of multimedia and security, as well as privacy and IPR protection; and the "Sacher Report" (6/97), with recommendations from the private sector to governments. Regarding the Information Economy, work has been done on Electronic data interchange (EDI), economics of the information society, measuring e-commerce, business to customer e-commerce, intermediation, intelligent agent software, barriers and value chains. Content has been analysed as a new growth industry, and how it should be controlled if unlawful. Guidelines have been issued for protection of privacy and transborder data flows (4/85), for security of information systems (11/92) and for cryptography policy (3/97).

The OECD has also studied the access to telecommunications infrastructure, market liberalisation and domain names. The "Industry Committee Working Party on SMEs" has assessed SME needs, made policy recommendations, and concluded the need for the promotion of e-commerce among SMEs. On consumer policy the following issues have been dealt with: consumer protection, charge backs, distance sellers, fraud, liability and product delivery. On taxation the need has been expressed to analyse how e-commerce relates to existing legal concepts (source, residence, etc.) and for a consistent international approach. The "OECD Model Treaty on Income and Capital" deals with consumption taxes, transfer pricing, tax administration and compliance etc.

The WTO approach

The "Negotiations on Basic Telecommunications", concluded in April 1997, produced two documents of importance to e-commerce: the "Reference Paper" and the "General Agreement on Trade and Services". They establish a regulatory environment conducive to marketization, setting principles on competition, interconnectivity, transparency, regulator independence, and on use of networks and services, striking a balance between interests of users, operators and regulators. The private sector has been playing a pioneering role in the process leading to landmark global agreements such as the Information technology Agreement (ITA) and the Mutual Recognition Agreements on conformity assessment (MRAs).

The UN approach

The "UNCITRAL Model Law on Electronic Commerce" (6/96) sets up a framework to orient governments on the regulation of data messages in the context of e-commerce. It deals especially with data message recognition, authentification and security. Specific work by UNICTRAL on digital signatures is exposed in "Planning of future work on e-commerce: Digital Signatures, Certification Authorities and Related Legal Issues" (2/97). It drafts provisions for uniform rules on digital signatures, defining digital signatures, certificates, certification authorities, users, attribution of signatures, revocation and register of certificates, liability and cross certification.

The WIPO (World Intellectual Property Organization) approach

The two most relevant documents to e-commerce issued by WIPO (12/96), setting an international framework for IPRs, are: the "Copyright Treaty" and the "Performances and Phonograms Treaty".

5. Different areas of concern

Your rapporteur would like to highlight below some areas of importance for the e-commerce issue. Issues of particular concern and which have to be addressed quite urgently are awareness raising measures, liability, taxation, privacy and security, encryption, IPR as well as content issues.

5.1. Skills and awareness

It is of paramount importance for the development of electronic commerce in Europe that businesses and consumers become fully aware of all the potential benefits it has to offer, such as the opportunity for its users to have quick and cheap access to goods and services, and for enhancing their freedom of choice. This awareness is crucial to stimulate investment in the enabling technologies and engagement in electronic commerce. Recommended measures to enhance skills are: creating an education network, giving new financial incentives for training, improving knowledge and diffusion of learning methods, and producing high-quality, low-price learning materials. Given the rate of knowledge obsolescence, educating becomes more expensive and cannot be left alone to the private initiative if it is to be universal. The involvement of the SME sector in this field has to be promoted, as it offers job creation possibilities for the future.

It is also important that research and development activities are done in cooperation with the global players, who have the skills and capabilities. The development of user interfaces should help SMEs and consumers. The socio-economic impact of e-commerce is another area worth of research.

Consumers will only be willing to use electronic commerce if they are convinced that it is as safe and reliable as conducting transactions on the traditional market. Therefore it is also essential to ensure secure trading in the on-line environment by means of technologoes involving encryption and/or digital signatures.

5.2. Guidelines for a regulatory framework

In order to be able to reap the full benefits of e-commerce, it is in the interest of industry and the citizens of Europe that a proper regulatory framework is implemented at the European level. Just as the Commission is stressing in its e-commerce initiative, it is important that new legislation is not done just for the sake of regulation, is based on all the Single Market freedoms and takes into account the realities of business, as well as meets the general interest objectives effectively. As it is of extreme importance that the citizens of Europe have access to this new world and that the legislative framework takes into account the need for freedom of choice, there is a discussion going on in the European Parliament on how best to secure this.

Governments and EU institutions should take into account input from industry, consumer associations and other interest groups while setting up a legal and regulatory environment for electronic commerce. A dialogue between industry and consumer organisations as well as with politicians at both national and European level should therefore be established. The regulatory framework should not hinder the rapid development of electronic commerce and must therefore be flexible and ensure technology neutrality and be beneficial for both suppliers and users. It must also promote interoperability between systems through standardisation. Overregulation must be avoided.

Some of the issues must be solved by means of new legislative proposals, in most cases at European level and also at an international level. It is of vital importance that the European policy approach to e-commerce is supported by appropriate initiatives also globally, as e-commerce will take place on a global level and not only at a European level. The main areas where international coordination is needed concern issues such as taxation, liability, payment systems, security, privacy, interoperability, IPR, public procurement, contract law, regulated professions, commercial communications, electronic authentication/digital signatures, and filtering and rating technologies. It is also important that clarification is made at the international level of the respective responsibilities of different international bodies in the field of electronic commerce.

However, in order to speak with one voice internationally, the EU first has to develop a European framework. It is important, though, that internationally acceptable solutions are kept in mind as European solutions are being worked out. Considering the speed of development in this area, it is also important to find European solutions first - as this is often quicker than to find international solutions.

5.3. Issues related to the Single Market legal framework required for electronic commerce

As mentioned above, coordination at the European Union level is essential in order to avoid fragmentation of the Internal Market and to establish an appropriate European regulatory framework as well as a common and strong negotiation position. The Commission should present a proposal on a road-map for the missing legal issues in the area of electronic commerce, such as liabitity, definition of the place of establishment for service providers in the on-line environment, commercial communications, regulated professions, patents, trademarks and domain names, in order to clarify the regulatory framework for these issues and to safeguard the rights of the users of electronic commerce.

Convergence

The current trend is that there is a process of technological convergence going on in the telecommunications, audiovisual and information technology sectors. Through this process a number of media, previously attached to a specific hardware, are now available in a multiplicity of platforms. This convergence is of key importance to the development of electronic commerce. The decisions taken in this field are therefore of huge importance.

There is also convergence going on in another sense, as e-commerce has a great cohesion potential. Business location is not as important anymore, so rural or remote regions could compete on equal terms. Urban congestion problems could also diminish. However, the development of the infrastructure necessary for e-commerce in the EU varies greatly between countries and regions. To ensure access to e-commerce anywhere, support programmes and funds should be set up. Inclusion of such issues in the framework of the Structural Funds would be another possibility.

Competition

An open competition policy in the provision of facilities, products and services has to be ensured. The state of the competition situation and the barriers to entry should be assessed. It is important to keep barriers low in this new market, as it is has much scope for efficiency improvements. International cooperation concerning competition matters is fundamental, as is reacting quickly to changing conditions.

Security, privacy and payment systems are related issues as they are concerned with the unlawful access to confidential data, which opens the possibility of crime and fraud. The issue of anonymity also needs to be addressed in the context of privacy. A framework on the issue of privacy is ensured by the EU Directive 95/46/EC on Data Protection, which will be fully transposed by October 1998. The implementation of this directive has to be monitored very carefully, though, in order not to create unnecessary barriers and to ensure a flexible approach as this is seen as a trade barrier by our main trading partners. It is still needed, however, for consumers to have confidence in the new technology.

The most effective known means of user defence against on-line crime are strong encryption technologies. Therefore access to these technologies should be ensured for businesses and citizens and limits to the use of encryption should be avoided. In the Bonn Ministerial Declaration (6-8 July 1997) the importance of the availability of strong encryption technology for e-commerce is recognised. Current legislation at EU level (Article 19 of the Dual Use Regulation), which obliges Member States to control intra-Community shipments of cryptography products, is not compatible with the well-functioning of the Internal Market and should therefore be amended. The establishment by the EU and its Member States of an adequate and comprehensive industrial policy in the field of cryptography products and services should also be encouraged, as well as the engagement by the Member States in a political discussion in order to achieve a balance between national and common interests in the field of encryption technologies.

Digital signatures and certificates are needed to create user confidence. Your rapporteur is in favour of applying the Internal Market approach when regulating digital signatures, in order to establish minimum requirements at Community level and safeguard their free circulation. This could be done through the use of cross border legal recognition of digital signatures, preferably on the basis of home country control and mutual recognition or, if necessary, by use of EU harmonisation. Standardization has an important role to play in this context as a facilitator of the mutual recognition of digital signatures. As digital signatures will be used everywhere in society, the protection of citizens should be given due attention. The rights of individuals to maintain anonymity should be respected and not unnecessarily restricted.

Payment systems

The development and use of smart cards and e-money will make payments through the Internet easy and secure, building the necessary confidence among users. Another issue to solve is who is allowed to issue electronic money - banks only or also other institutions, and how these can be controlled. EU Directives on Distance selling of financial services and on Electronic Payments are on their way.

Contract law

The conclusion of contracts electronically in a transfrontier and networked environment brings about a number of important questions which will have to be addressed in order to facilitate electronic commerce transactions across borders. For instance, the determination of where and when an electronic contract is concluded and which country's law is applicable, could be addressed differently by the Member States. These questions, which go beyond the legal recognition of digital signatures, should be clarified in order to facilitate electronic contracting within the EU.

Definition of the place of establishment of information society service providers

This is a key element for the functioning of the Internal Market and in particular for the application of the country of origin principle. In order to ensure both the control of services by the Member State which is best placed to effectively do so and the free provision of services within the Single Market, there is a need to clarify how the concept of place of establishment applies in the on-line environment. This will be to the benefit of both consumers and businesses.

IPRs should be protected by adapted copyright rules. These rules should be enforceable and balance interests of rightholders and users, defining exceptions for fair and non-commercial copying, and allowing the general public access to copyrighted material by use of facilities similar to public libraries. The Commission recently adopted a proposal for a Directive on Copyright, recognizing the complexity of dealing with Intellectual Property Rights in an electronic medium. At the moment the opinions of the different sectors concerned are divergent.

Exercise of regulated professions

Certain aspects of regulated professions (lawyers, accountants and doctors etc.) in the networked environment need to be addressed in order to facilitate the offering of some of these services, such as legal advice, over the network. These will particularly benefit consumers living in small communities or in peripheral regions.

Commercial communications (advertising, sponsorship, sales promotion etc.)

There are a number of questions in this area that need to be clarified in the on-line environment. For instance: how should a commercial web-site be treated - is it advertising, direct marketing or simply a shop window? On the basis of work already undertaken in this area (the Commission Green Paper on Commercial Communications and Parliament's resolution on it (A4-0219/97)) these questions should be addressed within the framework of the forthcoming Commission communication on this issue.

Liability

The issue of liability is often raised in the copyright context. There is no doubt, however, about the horizontal nature of this problem. The liability of Internet service and access providers may arise in multiple areas - copyright, trademarks, misleading advertising, protection of personal data, product liability, obscene content, hate speech etc. The Commission intends to deal with this issue in the context of a Directive - at Community level and in a horizontal manner. This is foreseen in the 1998 Commission Working Program (in the context of a Directive dealing with e-commerce and other Information Society services).

Crime and fraud

As argued above fight against cybercrime has to be done mainly by the use of secure technologies such as encryption, but liabilities, crimes and penalties also have to be defined. Issues on registration, jurisdiction, contract law, advertising, etc. have to be solved. At international level, police and justice cooperation has to be improved. An international system of electronic arbitration would also be highly desirable to help solving disputes. The dissemination of information on fraudulent practices should be encouraged, as this constitutes a very effective tool to protect consumers against such practices.

Taxes and tariffs

Your rapporteur is of the opinion that no new taxes should be imposed on electronic commerce, and that a bit tax which would negatively affect electronic commerce and could give rise to double taxation has to be avoided. Taxation issues should be agreed internationally and tax neutrality should be pursued. Furthermore, burdensome regulation on taxation should be avoided.

Ways of adapting VAT to the particular characteristics of electronic commerce should be studied and implemented, in order to ensure equal taxation of all services whose consumption takes place in the Community and practical means of control should be developed which keep compliance costs at the lowest possible level. The question wether taxation should take place in the country of origin or in the destination country also has to be made completely clear. Regarding direct taxation, issues like compliance, the characterisation of income (royalties or not), residency, source rules and the concept of "permanent establishment" should be examined.

Concerning tariffs, the US will advocate in the WTO and other fora that the Internet should be declared a tariff-free environment, whenever it is used to deliver products or services. The area where specific interests are vested is the content area. Your rapporteur would like to stress the importance of ensuring a tariff-free environment for electronic commerce at the international level.

5.3. Infrastructure

Bottlenecks

Investment in infrastructure is urgently required, but not at the cost of increased prices. Prices should follow the current downward trend to enable competition with the US. Industry and government should work together and competing infrastructures should be allowed.

Telecommunications liberalisation

The liberalisation of telecommunications to be completed by 1 January 1998 is crucial to the further development of e-commerce. The liberalisation process will increase competition in this area and therefore ensure lower prices. This is important, as price levels now are higher in Europe than in the US, our main competitor in e-commerce. The Commission must ensure that competition rules are applied in the Member States and that the timetables concerning the liberalisation process are met.

Interoperability

Interoperability has to be ensured to allow transactions between any operators and to reap the full benefits of e-commerce, but standards should not jeopardize the development of infrastructures or build barriers of entrance to new providers. The standardisation process, leading to increased interoperability, has to be market driven. Standards should be technology neutral so as not to favour one specific solution. The European Standardisation system needs to become more efficient and integrated into the global system. Standards are necessary in the areas of management, data protection, digital signatures - to mention but a few.

"Next Generation Internet Initiative"

The US has already devised an Action Plan, and allocated $100 million, to develop new infrastructures to cope with the amount of users and technical requirements of the future, offering a faster and more reliable service. The EU cannot miss the train and a similar programme should be launched. It cannot be left to the market, as it requires long term and high-risk investment. It should rest on partnership between researchers, governments and industry, as well as with third countries, especially the US.

9 December 1997

OPINION

(Rule 147)

for the Committee on Economic and Monetary Affairs and Industrial Policy

on the communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on a European Initiative in Electronic Commerce (COM(97)0157 - C4-0297/97); report by Mrs Erika Mann

Committee on Research, Technological Development and Energy

Draftsman: Mr Franco Malerba

PROCEDURE

At its meeting of 2 July 1997 the Committee on Research, Technological Development and Energy appointed Mr Franco Malerba draftsman.

It considered the draft opinion at its meetings of 29 October 1997 and 8 and 9 December 1997.

At the last meeting it adopted the following conclusions unanimously.

The following were present for the vote: Scapagnini, chairman; Quisthoudt-Rowohl and Lange, vicechairmen; Malerba , draftsman; Bloch von Blottnitz, Chichester, Estevan Bolea, García Arias (for Adam), de Gaulle, Heinisch (for Ferber), Holm (for Ahern), Izquierdo Collado (for Desama), McNally, Marset Campos, Matikainen-Kallström, Mombaur, Plooij-van Gorsel, Tannert, Velzen van W.G, West.

INTRODUCTION[1]

Electronic commerce covers the entire spectrum of electronic business relationships, including the processing and transmission of commercial or product data including text, sound, and video material; and the provision, sale, and purchase of products and services. It thus includes electronic trading of physical goods and services, on-line delivery of digital content, electronic fund transfers, electronic auctions, electronic trading of shares, collaborative design and engineering, and direct consumer marketing and after-sales services.

Electronic commerce is not new: for many years now companies have used a variety of electronic networks to exchange business data, but the recent growth in electronic commerce has essentially been driven by the development of the Internet, and more particularly by widespread access to the World Wide Web (WWW). Thus, until relatively recently, electronic commerce was essentially a business-to-business activity on closed proprietory networks; it is now expanding into a complex global web of commercial activities.

The Commission initiative which is the subject of this opinion attempts to provide a coherent framework for the mutually re-enforcing technological, regulatory and support activities which are necessary to facilitate the development of electronic commerce, whilst at the same time safeguarding the public interest. There is obviously also a clear need to keep pace with developments in this domain in the USA, which is the world leader in the development of electronic commerce.

Electronic Commerce Applications

1. Trade Facilitation Mechanisms

Product characteristics and trade documents can be exchanged electronically. Large manufacturers, retail outlets, and government departments are already exchanging trade documents via Electronic Data Interchange (EDI): these include invoices, orders, inventories and customs documents. EDI can use existing, relatively low speed telecommunication networks, at relatively low cost.

Product data (including, for example, design and engineering data), is much more complex, and is thus beyond the capacity of EDI. A system known as Continuous Acquisition Life-cycle Support (CALS) has been developed for this purpose. It was pioneered by the US Department of Defence, and further encouraged by the US Department of Commerce. Variants of CALS are also being used by the UK and French defence departments.

Other applications of data exchange include Computer-Aided-Design and Computer-AidedManufacturing (CAD/CAM), and concurrent engineering. These enable various firms in the supply chain to work together easily and quickly in the design, planning and production processes, which naturally shortens the time required to bring a product to market. It also dramatically improves the ability to respond to changing customer requirements and market conditions.

2. Internet Business

This covers four main areas: mass-market retailing, advertising, business - to - business markets; and electronic payments and other financial services. Prognostications concerning each of these areas range from the overly optimistic to the overly pessimistic: though all are characterised by the same uncertainty. Nonetheless there is widespread agreement that the total market, which currently is worth about BECU 1, is widely expected to be worth several billion ecu by the year 2000.

Mass markets

The future of the mass-market is characterised by uncertainty about how many people use the Internet, how often they use it, and what they use it for. Given the cost of computer equipment, the cost of local telelphone calls (in Europe: they are free in the USA), and the cost and complexity of Internet access, then unsurprisingly the largest group of current users, especially in Europe, are thought to be middle-class professional people (mainly males), and their teenage children. This means that the mass-markets which have so far been developed have tended to concentrate on the 'recreational interests' of this group, which are also reckoned to be somewhat price-insensitive. The most successful examples of 'Net-marketing' in the USA have been in the area of subscriptions to niche sports information markets. Moreover many of the apparently successful niche marketeers are not actually profitable: most earnings are being ploughed back into developing the business. One obvious area for mass-marketing is that of daily newspapers, since real newspapers, which require paper, ink, and printing machines, are much more expensive to produce than electronic copies: indeed the latter are routinely produced in any case, before the print run takes place.

In order to develop a genuine mass market, Internet access is going to have to become much cheaper (in terms of hardware), much easier, much quicker, and, of course, secure. Europe is still a long way from having a unified and transparent market for conventional mail-order trade, not least because of the taxation problems faced. It is possible, of course, that the development of an Internet mass-market could leapfrog this apparently stalled market, though the issue of who taxes whom, for what, and where, remain.

Advertising

Advertising growth is also dependent on a greater penetration of Internet access and use, and a much greater ability to identify and target the specific audience which the advertiser seeks to reach, a capacity which runs directly counter to the users requirement for anonymity and privacy. Very much faster data transmission rates to ordinary homes are also essential, since graphics, of course, (and even more so moving images with sound), are (a) essential to advertising, but (b) use vast amounts of data, which humble copper wires have difficulty in transmitting fast enough. The main role of the Commission in this context would appear to be to maintain the downward pressure on telephone charges via liberalisation and increased competition in the telecommunications sector, to encourage the development and installation of trans-European fibre-optic networks, and the promotion of secure means of electronic payment.

Business to business markets

This may well be the most important area of growth, as businesses switch from the older EDI technology to Internet compatible secure data transmission systems. For businesses to have confidence in dealing with each other via the Internet or via their own dedicated private Intranets, they must be able to:

• identify, unambiguously, and with absolute confidence, the other business / customer, the product or service, and the means of payment;

• have total confidence in the network hardware and software which enables them to do all this;

• integrate the Internet business with the rest of the business, including, of course, linking shipment of goods with production, and with inventory and stock control functions.

None of this is likely to be beyond the technical capacities of the firms who choose to follow this path. The main role for the Commission in Europe would appear to be as helpmate and standards harmoniser, since the development of incompatible standards for data transmission, or digital signatures, would obviously seriously hamper the development of this market.

Electronic payment and e-cash

This subject is addressed in more detail in this Committee's Opinion on New Technologies and Money (draftsman: Alain Pompidou)[2], but some preliminary remarks are in order here. Electronic cash - or e-cash - is probably an essential requirement of electronic commerce, either via the direct provision of 'electronic tokens' with cash value, or via secure transmission of credit card details. So far, the progress in this area has been somewhat stumbling and intermittent. National Central Banks are naturally nervous about possible loss of control over the money supply, and the electronic dissolution of national borders; conventional banks are unsure what is in it for them; and customers have yet to be persuaded 'en masse' of the advantages offered. One 'virtual bank' has already gone bankrupt.

A key issue is, of course, security and data privacy. On 1 February 1996, MasterCard and Visa, together with Microsoft, Netscape, IBM and Cybercash, announced the development of a single technical standard for safeguarding payment/credit card verification made over the Internet. This SET standard (Standard Encryption Technology) may encourage more entrants into the market place. It does not, however, resolve the dispute between the US Governments' insistence on maintaining access, via a 'master decryption key', to private transactions - so as to combat fraud, money-laundering, tax-evasion and other crimes - and the European tendency to regards individual privacy as permanent, whilst acknowledging the need to guard against Internet crime.

Free trade on Internet: tariffs and taxation considerations

A few months ago the US administration launched a proposal for a "free trade zone within Internet" with a goal to further the development of electronic commerce. The rapporteur believes that this idea should be studied and experimented with, because in this phase of early market development the prime objective is to promote growth of electronic commerce rather than tightly regulate it.

In this respect the rapporteur believes that European network operators should take an active role in the development of electronic commerce accepting lower tariffs for Internet sessions (considering that the average duration of an Internet call is usually ten times longer than a voice call). The full liberalisation of the Telecommunications marketplace should not prevent the European Commission from putting pressure on the TNOs to set advantageous tariffs for interactive services.

The Committee on Research, Technological Development and Energy therefore proposes that the Committee on Economic and Monetary Affairs and Industrial Policy incorporate the following 'amendments into its draft resolution on this subject:

1. Insists that the European Commission"s role in promoting the information society and electronic commerce must not limit itself to support for the telecommunications infrastructure development and definition of market and network access rules only, but must also contribute to the broadening of the range of users, hence support must be given to applications development for electronic commerce including access to information, advertisement, electronic catalogue and software products trade over the network.

2. Considers that high telecommunications tariffs in Europe are a handicap to the development of electronic commerce while lower costs of services are a vital lever to increase demand and asks the Commission to put pressure on telecommunications network operators to adopt tariffs for Internet access and network transactions lower than those for voice telephony.

3. Considers that the European Commission must carry out further technical and socio-economic research in cooperation with the Member States to understand the European users' demand in terms of personal data privacy and network security, to contribute to the definition of international standards for electronic signature and encryption, to ensure international rules and practices reflect the European specific requirements, and to preserve access to network management technologies by European industry.

4. Affirms that the fifth framework program for research under the “user friendly information society” heading must include support for development of electronic commerce specific technical standards (electronic signature, encryption) and for generic network technologies such as database access management, search engines for access to vast arrays of distributed information, and network management.

5. Reminds the Commission that the new interactive services for electronic commerce raise the demand for higher band networks, second-generation Internet and multimedia technology. These developments should be taken into consideration both in the fifth framework research programme and in the TEN programme. Both satellite and cable technology should be kept under consideration.

6. Calls for the fifth framework programme and the research programmes of the Member States and regions to include efforts to boost technical capacity so as to reduce costs.

7. Calls on the Commission to appeal to information and communications technology operators to practise a policy of minimum prices accessible to small enterprises and businesses

8. Considers that the European Commission must support work both at technical and legislative levels in the WTO-WIPO framework to define and enforce realistic intellectual property right rules and techniques for information and products trade over the network.

9. Regards the 'free trade zone on Internet' proposal by the US administration as worthwhile and suggests further consideration; and consistently discourages all 'bit tax' proposals in this early phase of the development of electronic commerce.

10. Emphasises that the European Commission must contribute to the diffusion of the technical and scientific culture which must give a base of competence and interest to all the UE citizens as the potential users of the information society and so stimulate the new services demand.

23 March 1998

• [1]  The draftsman found the following document particularly useful : "The Development and Application of New Information Technologies in the Next Decade", European Parliament STOA Report, PE 166.631/Final, June 1997
• [2]  PE 224.182 (Fdr 334385).

OPINION

(Rule 147)

for the Committee on Economic and Monetary Affairs and Industrial Policy

on the communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions on a European Initiative in Electronic Commerce (COM(97)0157 - C4-0297/97); report by Mrs Erika Mann

Committee on External Economic Relations

Draftsman: Mrs Elly Plooij-van Gorsel

PROCEDURE

At its meeting of 27 October 1997 the Committee on External Economic Relations appointed Mrs Plooij-van Gorsel draftsman.

It considered the draft opinion at its meetings of 24 February 1998 and 19 March 1998.

At the last meeting it adopted the following conclusions unanimously.

The following were present for the vote: Moniz, acting chairman; Kittelmann, vice-chairman; Ploijvan Gorsel, draftsman; Ferrer, Leperre-Verrier (for Sainjon), Malerba (for Tajani), E. Mann, Miranda de Lage, Schwaiger, Seppänen (for Castellina), Sonneveld (for Porto) and Van Dam (for Souchet).

. Electronic commerce is not a totally new phenomenon as companies have exchanged business data for many reasons over a variety of communication networks. With the rapid growth of the Internet, electronic commerce is, however, no longer limited to medium sized or big companies. It is practically open to everybody around the world. Consumer sales over the Internet were estimated at USD 500 to 600 million in 1996, representing less than 0.01% of total world trade. It is estimated that electronic commerce revenues on the Internet may increase to 200 billion ECU world-wide by the year 2000.

The expansion of electronic commerce raises a series of complex questions, in particular with regard to international trade, which can only be summarily mentioned in this opinion; the Commission has adopted, on 4 February 1998, a Communication on the "Globalization and the Information Society: the Need for Strengthened International Coordination"[1], which outlines the main problems in this sector and will have to be dealt with by our committee in a separate report.

. Electronic commerce involves a commercial transaction over telecommunications networks by using electronic means. A series of problem areas can be identified:

- Tariffs and charges. When a contract has been concluded via a "digital handshake", goods and services can be delivered in the traditional way. On the other hand, services can also be delivered electronically (including services which were usually transmitted as goods, such as books, video cassettes, CDs). This gives rise to the problem of avoiding imposition of new charges on cross-border services, which, even if technically feasible, would result in hindering exchanges, and distorting trade. The EU has yet to take a clear position on this point, while the US has announced its intention to work within the WTO in order to turn the Internet into a "free trade zone". The Joint EU-US statement on electronic commerce, approved at the EU/US Summit on 5 December, contains the commitment to work towards a global understanding, as soon as possible, that

. when goods are ordered electronically and delivered physically, there will be no additional import duties applied in relation to the use of electronic means;

. in all other cases relating to electronic commerce, the absence of duties on imports should remain

- Taxation. Unequal treatment of traditional transactions (with tax) and on-line transactions (without or with double tax) would create a tax-induced distortion of competition. The idea of "tax neutrality" for electronic commerce is widely supported, and in particular within the OECD Committee on Fiscal Affairs. There is however clearly the need for a global understanding on taxing electronic services at the WTO/GATS level

- Government procurement. The creation of a harmonized database, allowing for access to information on a non-discriminatory basis, or at least of a uniform research tool would greatly enhance possibilities for enterprises to compete globally for procurement opportunities; the WTO, by the process of review of the Government Procurement Agreement, could greatly contribute to this effort

- GATS. The forthcoming GATS negotiations on further liberalization of services will have an impact also on services delivered in electronic form: in fact the GATS Annex on telecommunications guarantees that whenever a WTO Member has specific market access and national commitments for a particular service sector/subsector, such commitments apply also to those services when delivered in electronic form.

A special multilateral initiative might be however needed on problem issues, such as data protection.

. TRIPs

The copyright/related rights Treaties, adopted in WIPO will have to be incorporated in the TRIPs agreement in the near future. The revision of TRIPs should allow for detailed discussion of issues connected with electronic commerce.

. A series of highly important and sensitive subjects, which have a crucial relevance within the EU market, involve an international aspect: these include

- privacy and personal data protection

- encryption

- digital signatures

- Intellectual Property Rights

- Internet Domain names

- electronic payments systems

- illegal/harmful content.

Broadly speaking, the earlier the EU establishes common principles and interoperable systems internally, and a common position on the above mentioned issues, the better it will be able to have an impact on the global disciplines which will have to be worked out in the relevant multilateral fora. Coordination of multilateral action is however hampered by the sheer number of organisations involved (WTO, OECD, WIPO, UNCITRAL, standardisation bodies). Developing countries should be adequately involved in this process.

. The Commission is evaluating at present the possibility of taking the initiative of a process leading to an International Charter for Global Communications.

The Communication adopted by the Commission on 4 February 1998[2], contains an examination of this approach, which needs however to be discussed more in depth in the near future.

. Conclusions

The Committee on External Economic Relations

a) points to the need to keep international electronic commerce free from new tariff duties and charges,

b) with regard to taxation, insists on the principle of tax-neutrality and non-discrimination between traditional and electronic delivery of services, as a way of avoiding distortions of trade,

c) Points to the need of interoperability as a facilitator of international electronic trade,

d) Considers it necessary, in the interests of protecting privacy, that it should also be possible to make payments via the Internet anonymously, i.e. without the payer's identity being recorded,

e) considers that only by establishing internally effective disciplines on subjects such as privacy and personal data protection, encryption, digital signatures, electronic payments systems, illegal/harmful content ea., the EU will be in a favourable and strong position to have an impact on multilateral negotiations,

f) considers equally that, given the fact that the global dimension is of crucial importance to electronic commerce, and that fragmentation of competences at multilateral level hampers growth of electronic commerce, a specific Initiative on an International Charter for Global Communications might be needed; takes note of the Communication on the "Globalization and the Information Society: the Need for Strengthened International Coordination" adopted by the Commission on 4 February 1998,

g) considers that the expansion of global electronic commerce should be essentially market-led, whereas the role of government is to provide a clear, pro-competitive consistent and predictable legal framework which does not hamper private initiative and industrial selfregulation while ensuring adequate protection of public interest objectives,

h) draws special attention to the importance of such a legal framework for SME's, stimulating their economic growth and growth of employment,

i) broadly supports the approaches identified in the EU/US joint statement on electronic commerce, agreed at the EU/US Summit on 5 December 1997.

• [1] COM(98)0050.
• [2] COM(98)0050.

OPINION

(Rule 147)

for the Committee on Economic and Monetary Affairs and Industrial Policy

on the communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions A European Initiative in Electronic Commerce (COM(97)0157 - C4-0297/97); (report by Mrs Mann)

Committee on the Environment, Public Health and Consumer Protection

Letter from the committee chairman to Mr von Wogau, chairman of the Committee on Economic and Monetary Affairs and Industrial Policy

Brussels, 22 January 1998

Dear Mr von Wogau,

The Committee on the Environment, Public Health and Consumer Protection considered the above subject at its meeting of 21 January 1998.

At the last meeting it adopted the following conclusions unanimously[1]:

The Commission's Communication

The aim of the Commission's Communication is to encourage the growth of electronic commerce in Europe. Building upon the Commission's work to date, it outlines a coherent policy framework for future Community action seeking to establish a common European position in international negotiations.

The Communication is divided into four main chapters. The first chapter,"The electronic commerce revolution", outlines the background to the development of electronic commerce, its different applications and opportunities for Europe compared to its main competitors. The chapter also describes actions being taken to combat cyber-crimes.

The second chapter, "Ensuring access to the global marketplace: infrastructure, technology and services", estimates that the EU package of telecommunication liberalisation will lead to lower and more flexible pricing of IT-products. Other international agreements will also contribute to lower transaction costs. Other major challenges for Europe consist of removing capacity bottlenecks, providing high-bandwidth infrastructure end ensuring interoperability for electronic commerce.

The third chapter "Creating a favourable regulatory framework" pinpoints two complementary objectives for the EU regulatory framework in order to enhance electronic commerce: building trust and confidence and ensuring full access to the single market. According to the Commission these objectives can be attained through addressing issues such as contracts negotiated at a distance, secure electronic payments, ensuring data security and privacy, protection of intellectual property rights and ensuring a clear and neutral tax environment.

In the context of electronic payments, the Commission recently published an updated version[2] of the 1988 Recommendation[3] concerning payment systems, and in particular the relationship between issuer and holder. The new Recommendation contains a provision stating that if the Recommendation is not satisfactorily implemented at the end of 1998, the Commission will propose a Directive in this domain.

The fourth chapter "Promoting a favourable business environment" analyses ways of obtaining widespread adoption of electronic commerce by consumers, businesses and public administrations through improved consumer information, SME pilot programmes, relevant R&D programmes and through bench marking initiatives aimed at public administrations.

The Communication also contains an indicative timetable for ongoing Commission initiatives in the area of electronic commerce.

Conclusions

The Committee on the Environment, Public Health and Consumer Protection:

1. Believes that the rapid growth of electronic commerce can enhance consumer's freedom of choice and thus market efficiency;

2. Shares the Commission's view that in order to boost consumers' confidence and willingness to make full use of the potential of electronic commerce, clear, coherent and unambiguous rules must govern the relationship between consumer and supplier in areas such as security of payments, possibility of redress and privacy;

3. Believes that the successful implementation of electronic commerce requires common open and transparent standards at an international level, and that consumers should be involved in setting those standards;

4. Notes the low compliance[4] with the 1988 Recommendation concerning electronic payment systems, and in particular the relationship between cardholder and card issuer;

5. Therefore regrets that the Commission while updating the above recommendation, did not take the opportunity to assess the effectiveness of a recommendation in the area as compared to other possible instruments eg. binding measures;

6. Stresses that electronic shoppers have the right to expect a similar level of information and possibility of redress as other consumers, especially in the case of the delivery of intangibles (financial services, computer software);

7. Believes information should be available to consumers concerning the location of the providers of electronic commerce, and of the national laws applicable to contracts;

8. Urges the Commission to assess the consumers possibility for consumer redress in an electronic environment and the possibility of establishing cross border redress systems;

9. Welcomes the forthcoming Commission proposal for a directive on distance selling of financial services as a valuable tool in establishing clear rules for electronic commerce.

Yours sincerely,

(sgd) Ken Collins

• [1]  The following took part in the: Collins, chairman and draftsman; Dybkjær and Lannoye, vice-chairmen; Apolinário, Bébéar, Blokland, Bowe, Correia (for Díez de Rivera Icaza), Eisma, Flemming, Florenz, Gebhardt (for Graenitz), Grossetête, Hulthén, Jensen K., Kuhn, Lange (for Kokkola), Lehne (for Burtone), Lienemann, Olsson, Oomen-Ruijten, Pollack, Schnellhardt, Sornosa Martínez (for Bertinotti), Tamino, Trakatellis, White, Whitehead and Wieland (for Campoy Zueco).
• [2]  Recommendation 97/489/EEC, OJ L 208, 2.8.1997, p. 52.
• [3]  Recommendation 88/590/EEC, OJ L 317, 24.11.1988, p.55.
• [4]  See International Consumer Policy Bureau "Payment cards and conditions, a survey of the implementation of Recommendation 88/590/EEC on payment systems" 1994.