Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 1280 - 1299)

THURSDAY 8 JUNE 2000

MR JOHN DRYDEN AND MR SAM PALTRIDGE, PHD

  1280. So it breaks it down and then it comes back again?
  (Dr Paltridge) Exactly.

Lord Faulkner of Worcester

  1281. What do you think of the main factors inhibiting business and consumers from going more rapidly online? You would presumably argue that it is the tradition of the telephone tariff and telephone access.
  (Dr Paltridge) Similarly on the infrastructure side.

  1282. What other factors though?
  (Dr Paltridge) I could duck this question by saying that I only work on the infrastructure, but there are certainly many other factors.
  (Mr Dryden) We think basically that the problem is access, not only access to the appropriate infrastructure but the services available on the infra structure. That really comes first. Secondly, there is the issue of trust. Trust has a lot of different aspects to it—trust and confidence from the sense of the security of the network, the availability of consumer protections, privacy protection and so forth. The third general area would be the regulatory framework on things like taxation, trade issues and commercial law relating to electronic transactions and authentication and so forth. The final area would be the approach of public authorities to electronic commerce where the role of government is very important. It is things like the human factor, education, training, awareness, availability of skills, small and medium enterprise involvement and the rules of the game under which enterprises work in order to be able to go online with respect to public institutions.

  1283. Is it a combination of these factors which causes Europe to be behind North America?
  (Mr Dryden) Yes, probably all of them to some extent, but not uniquely. In some cases the Europeans may be said to be ahead of the United States. In privacy protection there are much stronger privacy protections which exist in Europe than they do in the United States. Is that a good thing or a bad thing for electronic commerce? There are arguments on both sides. Excessive privacy protections may inhibit enterprises from doing quite reasonable things. They might say, "Oh well, I am not going to go into business because there are all these privacy laws and they are terribly onerous and we might get into trouble quite innocently engaging in business". These four categories: trust, infrastructure, regulatory framework and what I would call actions to maximise and diffuse the benefits of electronic commerce, are the main areas.

  1284. How much has the French attachment to the Minitel over the last 20 years deflected them from developing the Internet?
  (Mr Dryden) Quite a lot, we think. There are a lot of positive elements about it because they did develop a kind of Teletel technology similar to the technology which is still used on British TV screens of Teletext. They gave away terminals to millions of people. One of the objectives was to save paper and have electronic phone books instead of paper phone books, but it did familiarise large sections of the population with keyboards and online services. There was a brief honeymoon period years and years ago when something like 90 per cent of the users of online services in the world were actually French and France was streets ahead of anyone else.

  1285. Because of the Minitel?
  (Mr Dryden) Because of the Minitel. However, it was a lock-in technology. It is a case study in government technological choices which were quite reasonable at the time. History overtook it and, partly because of the position of France Telecom and the lack of competition to France Telecom, perfectly reasonable commercial decisions by France Telecom actually were impeding uptake of the Internet and all kinds of arguments were expressed. Okay, the Minitel is French and the Internet is foreign, so let us go for the Minitel. Even flag waving was brought into the game.

  1286. They were not able to turn the Minitel into the Internet?
  (Mr Dryden) No.

  1287. So the Minitel is a sort of cul-de-sac?
  (Dr Paltridge) The Minitel was a proprietary closed network, whereas the Internet is an open network. The patterns of use for the Minitel developed very differently. As John said, France Telecom developed the Minitel in a certain way so it would not compete with other services. For example, you could not have e-mail because e-mail would have competed with the postal system and the telecom system, so it was never developed on Minitel. If you have one provider developing a network they will develop it in a way that suits themselves rather than the needs of users and that is why the Minitel did not develop. Even today there are vast differences between the way people use the Minitel and the way they use the Internet. The best example is that the average Minitel session is four and a half minutes and it is charged in a way that a good deal of the revenues go back to France Telecom rather than to the actual service provider. If the telecom network operators of the world developed online services in every country that is really the direction in which we would have gone and different networks would not communicate with each other in the same way as the Internet because they would have been closed proprietary networks.

  1288. I wanted to know how OECD would have developed the system.
  (Mr Dryden) They did succeed in building on to that a payment system. When you paid for a service you paid through your phone bill. When you paid for an information service like, say, employment exchange or whatever, part of the fee would go to the service provider and part of it would go to France Telecom but the user would pay it as part of his phone bill.

Lord Paul

  1289. The Chairman and some of our colleagues who went to the United States were impressed with the Global Business Dialogue organisation which is leading the development of the major global and cross-border regulatory issues. Should Europe be encouraging more strongly the participation of its businesses and EU end use, in other words discussing with them, and what is OECD's relationship with that?
  (Mr Dryden) I cannot really understand why the Global Business Dialogue is a dialogue because it is a business organisation. It is a business with a capital "B". It is a big business organisation. It is global in the sense that it has its three geographical regions. It is interesting that it was felt necessary to create the Global Business Dialogue. What I think is lacking in the Global Business Dialogue at the present time is dialogue because it is very much a business closed shop at the present. There is not much dialogue with governments and none with non-governmental organisations that I can see, although it does regroup many of the major players on the business side in the three major geographical areas of the world and can thereby draw upon those resources of analysis of thinking and is an extremely powerful lobby. We do talk to the Global Business Dialogue, but we go to them. The OECD does talk to business. We have a Business and Industry Advisory Committee to the OECD. They have a committee on information and communication technologies, electronic commerce. They sit at the table in all of our meetings. When we develop our policy work we do so with them. This advisory committee, the BIAC (Business and Industry Advisory Committee) does regroup also what we call the Alliance for Global Business. It is a loose consortium of industrial organisations: the International Chamber of Commerce, INTUG, that is the International Telecommunications Users Group, the WITSA (the World Information Technology and Services Alliance), and the Global Information Infrastructure Commission. These are all industry groups. Global Business Dialogue is consulted and provides input to that policy formulation process but it is outside it. Interestingly, many of the enterprises in the Global Business Dialogue are also members of these other business federations. We do accept invitations when we are invited to go to Global Business Dialogue conferences but I repeat: they have yet to prove that they are a dialogue.

  1290. So this will not come to fruition yet because you are seeing what they can produce?
  (Mr Dryden) I think the Europeans do participate in it quite strongly. Many of these industrial federations in this particular area of information communications technologies and electronic commerce tend to be strongly dominated by the United States, mega enterprises. It is not the case in the Global Business Dialogue. There is a very strong European representation. Vivendi is the company which has taken the lead this year on the European perspective. Last year it was Bertelsmann. These are very big influential enterprises which weigh very heavily on the overall position of the Global Business Dialogue.

  1291. On the copyright issues they were concerned with notice and take-down. How much do you think ought to be put into legislation rather than left to the carriers?
  (Mr Dryden) That is a difficult question. To be honest, I am not an IPR expert. I think that with these IPR issues it is necessary to adopt a pragmatic solution and notice and take-down has a lot of appealing characteristics in the same way as alternative dispute resolution has in resolving the jurisdiction disputes and facilitating turning the wheels of electronic commerce.

Lord Faulkner of Worcester

  1292. What do you think about the eEurope Action Plan, eEurope: An Information Society for All? Does this cut across work you are doing?
  (Mr Dryden) As I said earlier, the actions taken by the Commission and within the European Union are possible because of the commitment of the European Union member countries to the single market and may not necessarily be applicable outside the European Union. Also, the use of the European Union funds to push forward on some of these actions is not possible on a global basis. That kind of money is not there. Generally speaking many of the non-European OECD countries think that actions such as the eEurope Plan are a little bit too interventionist but generally speaking I think there are a lot of very good ideas in there. The proof of the pudding is in the application of it, whether it be positive action or whether it be to promote such things as the liberalisation of telecommunications which we think is an extremely good thing, or some of the other action areas like access for disabilities, research facilities and students. I can run through the 10 action areas for you. The first one is European Youth into the Digital Age. Clearly the human resources skills not only for IT workers but IT users are extremely important. We go along with much of that except that I believe personally that there is not enough emphasis on lifelong learning and post-education system skills. It is on the right track regarding the education system but what happens after that? Until the education system radically changes then there are still going to be some difficulties there. Cheaper Internet access—we go right along with those goals and that should not be difficult to do. You simply have to keep the liberalisation process and engendering competition and open markets. Accelerating e-commerce—there are various directives and it includes the dispute resolution mechanisms. It is facilitating electronic commerce and in so far as that is removing obstacles that is fine. The research one, fast Internet access for researchers and students: that builds on existing IT programme initiatives in the European Union. Smart cards—why focus on Smart cards? Europe has a lead but promoting Smart card solutions seems to be prejudging technology a little bit. If tomorrow other solutions come along then that might prove to be incorrect. Improving capital markets, particularly for hi-tech SMEs, clearly in the US and in some other countries has been very successful in risk capital and it is normal for the European Union to look at why this is not happening over here. There are some positive actions which are justified on the grounds of inclusiveness, so e-participation for the disabled is obviously one socially valuable area which will also promote technological development which could have applications outside that area. We think that is pretty good. Health care online is an important application area too. This is going to be a major area where efficiencies have to be obtained in the future. Health care is already a great black hole for funds. People's demands for health care are going to increase. Society is ageing. Electronic technologies for health care clearly are going to be extremely important and it is worth investing in this. It makes sense for governments to go into this because the demographic and health time bomb is already ticking. All the sick people who are going to need these services are already born, so that is definitely a good thing. Intelligent transport—again there are some good ideas in that. Government online is another area. Basically we think all these areas are very useful. We have concerns or questions about Smart cards and the educational one seems to be a little bit incomplete. Whether this duplicates or not the OECD actions the answer is generally no because of the complementary nature of the work of the OECD with that of the European Union. Generally speaking the eEurope concept is a very good effort at bringing together, taking a global policy view on, quite a disparate set of actions which have something in common into quite a thoughtful programme.

Viscount Brookeborough

  1293. Are you worried (almost yes or no) about the social issues vis-à-vis European youth and the digital age and you talked about post-schooling? There is the idea that every pupil will have a computer and no doubt they will give them to them when they leave school because they will be out of date anyway after a couple of years of use. What are going to be the practical problems between the parts of society which are able to use the computer to either retain or improve its wealth and the parts of society which are not? I am not only talking about the linking in to telecommunications for free. It is not quite that and it is not even the fact that they can go to the library to get it. There is a part of society which does not go to the library anyway, let alone to link up with a computer. Are you as the OECD concerned about the social issues that may follow this?
  (Mr Dryden) Absolutely. This is particularly important for government people, government use and government adoption of electronic commerce and information technologies as a way of communicating with citizens. The digital divide has many aspects between social groupings of different kinds and between countries and so forth. Digital divides are a phase in the technological development of nations. We are assuming that access to the Internet and networking equate in some way with information communications technology skills and so forth. We are going through a phase where that is the case. We are heading for a phase, and Sam can perhaps confirm this, where that need not necessarily be the case because at the moment the way to access these services and these networks is through a one thousand dollar PC and that is the way that people do it and they are attaching it to a phone line. It requires a certain amount of skill and a certain amount of wealth and, like all technologies since history started, technologies have increased divides. The first cars were the preserve of the wealthy and the privileged. The first TVs, it was the wealthy and the privileged who lived in the technologically most developed countries that had them and everyone else followed along.

  1294. But when it becomes digital TV it will be more available but you are still going to get a part of society which does not have access to it.
  (Mr Dryden) But when the connection device to these services becomes the mobile phone, becomes the television set, then you will find that universality of access will happen. It is a question of accelerating this process by allowing the technology to develop and the services to be provided. The way to do that is to create the conditions in which the private sector is going to deliver these services. There will be a lot of failures. There will be a lot of technological choices which will go the way of the dinosaur but ultimately many digital divides will be no more than a temporary problem. Having said that, clearly there are some areas right now where social divides exist and we can take the opportunities provided by the existence of these technologies to try to even them out. If we do not do that there is a chance that these divides will increase because in the early stage of the digital revolution it looked at one point as if it was going to increase all of the divides that already exist in society. The users were in wealthy countries, they were educated, they were white, they were people with jobs, they were people without physical disabilities, they were people who spoke English. The people who were privileged anyway were moving further ahead. It is at a later phase of the uptake of the technology that this balance can be redressed. In the eEurope Action Plan we have got something on disabled people, but it could be schools. To be honest, looking at targets, we are going to connect every school to the Internet by 2001. What does that mean? One computer for 500 pupils? What then? Is it going to be a 10-year old 286? What does it mean? That is not going to make any difference.

Chairman

  1295. It might make more difference if you found more means of accelerating the take-up on digital TV so that every home had one.
  (Mr Dryden) Because every home is going to do that.

  1296. Almost every home has got a TV.
  (Mr Dryden) Yes. As for IT skills, we are not all going to be programmers. We are going to be users in some sense. You just have to look at your own kids and how they can programme their mobile phones without even looking at the things and how they can handle technology because they grew up with it. Basically the next generation may need some help but I have a lot of faith that the next generation is going to be able to handle this.

  1297. I wanted to place on record that when we were starting our inquiry we used A Borderless World as one of the base documents to enable us to launch and we found it very helpful indeed. I would like to congratulate you on it.
  (Mr Dryden) Most of the grey hairs I have were connected in some way with the OECD Ministerial Conference in Ottawa in 1998. One of the things we do in the OECD is take a broad overview of these kinds of developments. As you have heard today, one of the things we can do in the OECD is talk. We organise these fora and we started off in Turku in Finland in 1997 and moved on to the Ministerial Conference which was the landmark in 1998. We had a follow-up conference in Paris to take stock of the first year's progress in October 1999. I have the documentation for that which has the report of the forum and the main papers that were produced for it, which include a progress report for the first year's action at the Ottawa Ministerial Conference. One of the things that we do each year (I will just put in a little publicity for this) is that there is a whole alphabet soup of international organisations involved in electronic commerce. You name it, it is doing electronic commerce. Every year we survey them for their work programmes on electronic commerce. We do a synthesis every year—a document which gives a bird's-eye view of the actions of international organisations on electronic commerce. This is the 1999 version and we will update this for the year 2000. We work of course with business people who do it. I will leave this set of documentation for you for 1999. On the main achievements since the Ministerial Conference in 1998, as I understand that you are very pressed, I will leave you with a bullet-point list of major achievements with the websites where these things can be found and we can supply any or all of this documentation should you wish it. The main subject areas where we have done work are in consumer protection, privacy protection, authentication and security, enhancement of infrastructure and access to it, taxation. Economic analysis, because the so-called new economy and digital economy is now a significant part of the economy and yet the economic analysts and analytical tools that we use in this house to do our economic analysis are rather traditional ones and so these need to be updated. We have done work in the unspectacular but essential areas, like measurement, statistics, data, definitions and so forth, in trade. Following the failed Seattle Ministerial Conference there are still trade issues which have not gone away despite that unfortunate event and that need to be tackled, where we are doing background work but actually the negotiation will be somewhere else.

  1298. That is for the WTO?
  (Mr Dryden) Mainly the WTO, to some extent WIPO. We are doing work increasingly in development co-operation and in the two different sets of problems dealing with what we call the emerging market economies—countries who already have functioning market economies that are just starting to spring forward into the digital economy, and then an entirely different set of solutions for the least developed countries and what are the opportunities afforded by these new technologies for major improvements in that situation. Of course there is our provision of dialogue. This is a draft document called The e-Commerce Policy Brief and it has an annex to it with these points which I will leave with you. I would like to complement that by saying that there has been the Turku meeting in 1997, the Ottawa Ministerial in 1998, and a one-year stocktaking meeting in Paris in October 1999. In January 2001 we are organising our two-years-on meeting in Dubai, which is actually in itself quite an exciting little case study in the digital economy. Dubai resembles Singapore and it is moving very fast. For the Dubai meeting we will be revising much of this documentation, producing updated reviews and also looking at some of the new issues that are coming along which were not treated in such great detail in Ottawa. These range from the Internet security of the network, digital divide issues, public management and outreach to non-member economies in the OECD. One of the major purposes of the meeting is to build dialogue between the OECD, which is 29 countries, and the next group of 30 or so emerging market economies. That is just a little add-on for our next big event.

Lord Faulkner of Worcester

  1299. How much are you involved in the new WTO round, further to eliminate tariffs on technology products and to ensure the application and extension of commitments to facilitate the growth of the broadband environment world-wide?
  (Mr Dryden) We see four main issues on the trade agenda here. They are the continuing of the market liberalisation on an international basis in telecom which you referred to; ITA2, that is the elimination of tariffs on information technology products; the moratorium on tariffs of digitally delivered products and intellectual property rights related issues with TRIPs. The OECD is mainly concerned with the first three of these in the sense that, luckily for me, these three issues are dealt with by other departments in the OECD so what I can say in general is that we do a lot of the analysis here. We point out the areas in which liberalisation is appropriate and that it makes sense and the reference paper and GATS 2000 is the basis for some of the work done in our division on Sam's side. The Trade Directorate is dealing with the physical products which will come under ITA2. The Fiscal Affairs Division is keeping an eye on the progress of the moratorium on customs tariffs on digitally delivered products where, as you know, the main issue is non-discrimination between the physical manifestation of the good and the digital manifestation of it, like a CD for instance. As I say, the negotiation on this will take place in other fora. We do a lot of the groundwork in the OECD precisely because we are not the place where the negotiation will take place. Our member countries will allow us to do some work on liberalisation issues where they would be unwilling to take that to the WTO because they are not ready yet. They want the situation clarified before they go into the negotiation.


 
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