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City of London and Electronic Commerce

8.1 p.m.

Lord Renwick rose to ask Her Majesty's Government: What steps they intend to take to ensure that the City of London remains the leading centre for world-wide electronic commerce in the face of United States government initiatives intended to ensure that Internet-based commerce is conducted under US law and to US security standards.

The noble Lord said: My Lords, the world has moved on since I tabled this Question before the Summer Recess to urge Her Majesty's Government to take advantage of the opportunity afforded by President Clinton's policy announcement on 1st July on electronic commerce. Within the past 10 days, the European Community has issued a report, written up in the Guardian newspaper last Thursday under the memorable headline:

That, in fact, goes some way to providing the framework for an answer to my Question.

Even more recently, the French Government proposed legislation to ensure their continued access to corporate electronic communications, which is causing the same worry as parts of the US initiative. As chairman of the Parliament Industry Group for the European informatics market, EURIM, I welcome the Commission report, so far as it goes, and fear the French move.

Before I explain the reasoning behind my Question, I ought to declare an interest apart from EURIM. I am chairman of a new company called Virtual Precincts Limited which will be offering electronic commerce services and home shopping over broader bandwidth than is currently available on the Internet. My relationship with SAP (UK) Limited should also be mentioned, although that too is commercial and has nothing to do with lobbying. But the EURIM working party members are lobbyists. I should like to think that they are effective ones too. Neither I nor my fellow directors from both Houses are paid and I am delighted

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to see the two from this House--the noble Baroness, Lady Dean of Thornton le Fylde, and my noble friend Lord Chelmsford--preparing to do stalwart service at this late hour. Among our membership, we claim 23 other Members from your Lordships' House, 46 (and rising) from another place and 21 Members of the European Parliament, from all the main political parties. But the 60 or so suppliers and users who brief us have a vested interest in seeing that their views are heard and we expect them to represent those vigorously in our working parties. Where they can agree, we ask them to summarise those views on four sides of A4, so that these can be absorbed even by their chairman.

The briefings relevant to my Question today have been made widely available to all sections of your Lordships' House. I should like to thank Graham Marriner of the Post Office and David Harrington, Director General of the Telecommunications Managers Association, for acting, respectively, as chairman and rapporteur of our electronic commerce working party; and, of course, Philip Virgo, Secretary General of EURIM, who keeps us all on course.

My justification for wording my Question as I did is, of course, that from Petty France to Old Jewry, from Lombard Street to Russia Court, London has been a multicultural community as well as an international trading centre for nearly 1,000 years. Today, London is still at the heart of the global electronic market place, with initiatives supported by the Corporation of London, such as the London Link Association and the PORT project, the latter in association with the Worshipful Company of Information Technologists. Those running the markets may now be physically based almost anywhere in the UK. But for how much longer? We hear much talk of the global information society of the future. But most of those planning for that future appear to assume that the language will be American, the values those of Hollywood and the legal framework that of Perry Mason.

But the United States model of the information society is not the only one. I am told that over half the credit card outlets around the world do not have electricity, let alone a telephone line. Over the next decade or so, the Latin American, Indian, Chinese and Moslem world are likely to leapfrog the West into a world of low-cost mobile communications. The impact will be dramatic if they also leapfrog the world of Windows and Internet browsers into a world of mobile electronic commerce accessed by GSM videophones using local language speech and TV zapper controls.

A crude analysis suggests that in 20 years' time the main languages of the information society will be English, Mandarin, Arabic, Hindi, Spanish, Russian and German. Those selling to some of the world's wealthiest communities will need to handle many more languages, from Finnish to Hebrew. The global electronic marketplace will be more like an eastern bazaar than a western shopping mall, with business conducted under Chinese, Indian or Islamic law as often as under common or Roman law.

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The proposals from President Clinton are best viewed as opening bids in a global negotiation. It is now up to the UK and Europe to respond positively and work towards a consensus that is acceptable to all trading nations and cultures. We must avoid the backlash that would follow were we merely to adopt "the American way", albeit modified to meet the most deeply felt prejudices of the British, French and Germans and the aspirations of the Commission.

However, we must also recognise reality. The Internet is still merely the standby capacity for United States military communication networks, made available for academic use in peacetime in return for testing and development. Over 80 per cent. of Internet users are American. Most Americans, including most American businessmen, have never been out of the United States. Meanwhile, most of the world's population do not speak English, let alone know how to use Windows or wish their commerce, education and entertainment to be policed by American regulatory lawyers.

The main American players, public and private, are only too well aware that their future prosperity depends on leading the rest of the world into the global information society and creaming the high value-added jobs. We can see how they have worked with their government to achieve that in computer hardware and software, films and entertainments and communications infrastructure. We can see how they are currently achieving this with regard to information services and educational materials. We can see the remaining British world-class players moving key operations, and the jobs that go with them, across the Atlantic. Can we afford to watch the traders of London follow suit? For once, we must be equally far-sighted. We must also recognise that we should be playing bridge and not poker. There is a win-win scenario.

There is much to be welcomed in the current proposals from the United States for international electronic trade, as stated by President Clinton on 1st July and expounded around Europe by his envoy, Ira Magaziner. But how does one interpret a communications policy which claims to be driven by market forces and just happens to include a 2 billion dollar cross-subsidy for education? How do you interpret a policy which claims to rely on private sector investment but is underpinned by billions of dollars of federal spend on the Intranets that service the United States defence infrastructure and link its users direct to its suppliers and product developers?

We need to work with and through our many allies among those Americans who recognise the need to think multicultural and not just to preach global Americanisation. For example, most US based multinationals oppose their Government's policy on encryption. At the global Internet project encryption summit in London in April, the heads of security for General Motors and IBM spoke out against it in front of invited delegates from around the world. I am told that EDS recently took a quarter page advertisement in the Washington Post to protest against policies designed for a bygone world.

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When we look at frameworks for secure electronic commerce, the concept of keys in escrow to recover or unscramble confidential traffic should come last, not first. The first role of a trusted third party is to provide the electronic equivalent of the letter of introduction: "This man is good for such and such a sum". The second is to authenticate traffic: "This man is who he says he is, is authorised to do this and is now legally bound by what he has agreed". Most businesses in most parts of the world would not trust a third party who was liable to pass their keys to the local government, let alone use only keys which can be broken by current and former members of the Cold War security services.

The target should be a workable consensus for pan-European electronic commerce that provides both a sensible negotiating position vis-a-vis the United States and a model for a truly multicultural information society, unconstrained by current technology assumptions and trusted around the world. The recent European Commission report, Ensuring Security and Trust in Electronic Communications, appears to provide a good basis for action during the UK presidency.

The image of the Internet and of electronic commerce as being outside the law is as misleading as the image of untraceable anonymity. One well-known American Internet service provider has already had to be requested to stop selling analyses of the personal interests of its customers based on the web-sites they have visited. Those whose facilities are used to access content that is already illegal under existing UK and European law can be held to be publishers. They may share liability for breach of copyright, libel and slander as well as breaches of consumer protection laws covering misleading advertising or mail order. The international transfer of files for routine back-up may also be an offence under data protection legislation. Unless and until UK law is clarified it would appear that ignorance as to what is being carried or where it is processed is no defence for the network provider. Similar situations exist in most nations of the world, though there are significant differences as to what is illegal.

Hence the expected proposals from the European Commission for a liabilities directive. The need is to harmonise not only liabilities for breach of copyright but also rights and responsibilities for all the other activities for which Internet users or suppliers may be held liable. We should use the UK presidency of the Commission to ensure that any proposals balance the rights and responsibilities of customers and consumers with those of content providers and network operators. We must ensure that ill-thought out proposals do not cause communications and content providers to move offshore or otherwise destroy or distort the industries and markets of the future.

We also need to move fast enough for the Americans to see us as partners and not just rivals, let alone mere obstacles. There is little indication that the urgency of the need for action has been widely appreciated. We must respond rapidly, actively and positively in partnership with the rest of Europe to the initiatives announced by President Clinton to reduce the risk of growing conflicts on legal jurisdiction, encryption policy, data protection and intellectual property rights,

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with US-based operations powering ahead while we try to negotiate from positions of ever-increasing weakness. But we in the UK need not only to use our presidency of the European Union to progress these matters on a European front; we also need to be in the lead within Europe if London is not to lose out to Frankfurt or The Hague as the legal location of choice for electronic trading.

There are many more issues that need to be addressed than I have time to cover, but I conclude by commenting that I am told that many more UK jobs and tax revenues ride on the timely implementation of the Law Commission's work on electronic signatures than on any of the measures in the current legislative timetable.

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