Select Committee on European Union Fourteenth Report


Lunch co-hosted by Congressman Goodlatte (Republican, Virginia) and Congressman Rick Boucher (Democrat, Virginia), Co-Chairs of the Congressional Internet Caucus


Congressman Goodlatte described the Internet Caucus, a bipartisan and bicameral foundation with four co-chairs, two from the House of Representatives and two from the Senate, and 146 members. Its task is to promote e-commerce and the Internet in the context that one role of government is to prevent the rise of self-regulating regimes which do not fit in with growth policies.

Goodlatte explained that he represented South Virginia, a rural constituency, and that Boucher was in an adjacent ward. He then introduced Jerry Berman of the Centre for Democracy and Technology, who was hosting the lunch, and Tom Giovanetti, President of the Institute for Policy Innovation (IPI). He spoke of the Internet Advisory Group, which had a broad cross section of private sector representation, and mentioned that the European Internet Forum had made contact.


This had been the second of two visits Goodlatte had made in his capacity as a member of the Judicial Committee, primarily to look into IPR issues. On this occasion, he and his colleagues had visited London, Brussels, Geneva and Berlin. In 1998, they had visited London, Brussels and Paris. He was struck by the change in such a short time.

On wireless communications Europe seemed to be ahead of the US: there were geographical and regulatory reasons for this, as well as the fact that the price differential between mobile telephony and ground-based telephony was less in Europe than in the US.

There had been progress on privacy issues such as the "safe harbour" proposal.

The US does not regard the EU as monolithic.

They had encountered conflicting reactions when talking to Italians, Germans or Britons.

They were keen to bridge the gap between the EC Directive and the US self-regulatory approach: policy makers should proceed with a system which does not impede the free flow of e-commerce by over-regulating it.


The US now seems to be moving towards a compromise with the EU. Most US websites have already signed up to agreements which effectively self-regulate the Internet. Voluntary action will not achieve 100 per cent compliance so the US believes there should be a minimum disclosure requirement. There is no consensus, however, in Congress to move forward on privacy: it looks to self-regulation. The EU's Directive is comprehensive but compliance is poor, nor is enforcement much better. In the US, with its self-regulatory and voluntary regime, compliance is almost universal and the SRO agreements could be enforced. This, therefore, is the paradox: self-regulation in the US has produced high compliance and high levels of enforcement whereas strict regulation in the EU has led to low compliance and even poorer enforcement.


It is important that countries should not over-react. Privacy and IPR are potential points of conflict in the relationship between the US and the EU.


It is unlikely that there are online solutions that do not already exist offline. As for security, this could be dealt with by strong encryption regimes.


Very few members of Congress understand the Internet and political leadership is well behind the curve. Nevertheless, the Internet will not be free of law. Taxation policy is, in Boucher's view, irrelevant because it is unenforceable. Unenforceable law erodes the rule of law so encryption is the key to solve some of these problems. Technology makes control possible and in any case legislators are chary of harming "the golden egg". The issue will have to be addressed eventually—the problem is that no one knows what to do. The mail order regime has been cited as the possible model for an Internet Tax but this is not politically viable. It is, in effect, asking Congress to raise taxes (national sales taxes or equivalents) for the benefit of others, "the States". However, the moratorium will continue and there will be no new taxes. In Goodlatte's view sales tax will eventually have to go. It is regressive and therefore bears most heavily on the poorest members of society. Taxation on property would probably be preferable, but would be resisted, and there are, as usual, considerable differences in Congress. After all, what is a good tax?

There are important differences between states. Texas, for example, levies no income tax and will therefore be considerably worried about the impact of e-commerce on sales taxes. If Mr Bush were to be the next President, this would obviously be an issue that would attract his attention.


The Government would intervene to protect the Internet but there are practical problems in dealing with denial of service attacks. The government does not have a solution: it is for industry to provide one. The message from industry is that it is reluctant to involve government because it might jeopardise its own interests and security. Companies use hackers to test other companies' systems as well as defend their own. Go-slow policies allow industry to solve its own problems.

There was discussion of the distinction between preventative and curative policies, the responsibilities of government and the reality, or otherwise, of self-regulation. In Mr Berman's view self-regulation is a "squeaky wheel issue", and there will have to be some form of government regulation, even if it is not overt.


Law enforcement agencies want Congress to enact key escrow encryption legislation but Congress is unwilling to authorise such additional power. It has recently passed a Bill which effectively denies the key escrow request but has, as compensation, authorised $180 million to help the law enforcement agencies come up with a technological response of their own. The head of the FBI had, in effect, shot himself in the foot by publicly announcing that "we need a new fourth amendment for the Internet Age". There is resistance to providing the law enforcement agencies with access to stored data on the Internet because this smells of government surveillance. As for communications privacy, it is better to design a network which allows tapping to occur, rather than to allow the law enforcement agencies to acquire additional power.

Companies are using profiling to promote business but there is concern about government having access to this sort of information. It is not possible to stop the government but it is relatively easy to regulate profilers or to demand a warrant before the information can be used. In Boucher's view the proposal in some States to put court files on the Internet is an absurdity. By definition only 50 per cent of the material can be right—there must be an editorial function.

With regard to pornography, there is unhappiness with the idea of the government trying to filter content. Issues like this are not really controllable, and Congress is still looking at the Internet as though it were television. Internet content providers are numerous, and therefore, by definition, difficult to pin down. The Digital Millennium Copyright Act deals with the question of ISP liability.


The Chinese are concerned with security and regulation but theirs is a creaky structure which simply won't work.


There was discussion about the government setting an example. One area where government could demonstrate a lead was in procurement—what Boucher termed "the reverse auction". He also pointed to the joint purchasing site set up by Ford General Motors and Chrysler and said that other industries had immediately followed suit. This would increase B2B and the government would simply have to follow. There was discussion of the issue of IT skill shortages and immigration to solve it. There was concern that everybody appears to be in the same game and that all are bidding from the same pool—India.

Dr Jeff Cooper, Director, and Dr Amy Friedlander, Associate Director for Research, Center for Information Strategy and Policy, Science Applications International Corporation

Dr Cooper sought to address the questions which had the Sub-Committee had put to him. After a slide show, the discussion covered the following issues.


The Internet was not designed for e-commerce but grew out of the military and academic networks. Therefore it was not built with security in mind. This does not matter for B2B because protection is afforded by contract. For B2C, protection by regulation is appropriate.


Within the US administration, this is poor. The vertical system of Secretaries can only be rationalised by the President. Because of divisions within Congress and the political parties, it has been hard to establish policy. The usual process is that e-commerce develops and then regulatory agencies move in to sort out the problems. This process is acceptable. Fraud, for example, is mostly against the business vendor, not the consumer. For the latter, industry provides its own redress. Visa, for example, covers losses suffered by anyone using the Internet. Wells Fargo advertises this "insurance" in the Wall Street Journal.

Further evidence of the lack of co-ordination is that the FCC has been allowed to delve into social policy by imposing, without statutory authority from Congress, a 3 per cent tax on the second telephone line. "All hell broke loose" when the telcos revealed this e-tax. However, taxation is not such an important issue because current prosperity makes it relatively insignificant.


This is not a political party issue.


  • Copyright has received insufficient attention. The recent US Copyright Act is "stupid".
  • The US is waking up to the implications of the draft convention on computer crime and terrorism, which the Russians have tabled at the UN. It makes the US, and to a lesser extent the United Kingdom, position unsustainable. Both will have to consider serious negotiation.
  • There are cultural differences in the application of the Internet: in Germany less than 19 per cent of the population use credit cards.
  • Mobile telephony. The security of current and future standards is weak.
  • Self-regulation. The important issue is liability. For example, Visa accepts liability. Given the speed of technological change, regulation is a poor option.

In Dr Cooper's view e-commerce is a real revolution. In Silicon Valley there is a tangible excitement which is not based merely on the desire to make money. The Government's role is to create the conditions for e-commerce to flourish. There was no need to stimulate it. It has its own impetus, which comes from the user.


Dr Cooper's paper on the US pioneering culture and its relevance to the development of e-commerce contains more interest than his presentation. He also signalled that the US is developing an argument that mobile telephony is insecure. This may be how the US will attack the European lead in this area.

Lisa Barry, Vice President for International Public Policy and Casey Anderson, Director of International Public Policy, America Online


Miss Barry gave a presentation on AOL. AOL want to see open access and increasing consumer confidence, and for 7 months has had a team working on the development of global policy. AOL offers different services from country to country. The policy is to have a local partner, a local manager and local content. In the US AOL offers some guarantees, particularly of privacy and parental control, but this is not "underwriting" in the sense that the Sub-Committee had inferred from Mr Hampton's evidence.


Over the past year AOL has moved from the mantra on 'self-regulation' towards recognition that government has a role. AOL's stance has "matured". Government intervention is both necessary and desired by industry. AOL looks to government to provide:

  • Harmonised IPR rules which are enforced
  • Encryption rules
  • A liberal trading environment
  • Open and competitive access to all platforms (broadband, wireless etc.). Government has the lead role internationally at the WTO on the subjects of liberalisation and competition.


Close collaboration with governments, both the US and globally, is essential. AOL co-chairs with Time Warner a policy dialogue with governments (GBD), founded in January 1999 and comprising some 30 CEOs. In the first year GBD mapped out a broad agenda as to how industry and government should work together to manage the new economy. This includes IPR, tax and telecoms liberalisation. GBD has now split into regional groups and the EU group consults with the EC regularly.

Miss Barry is surprised that there is no British representation on GBD. The bulk of the membership is American and German, with some French and Spanish members. Miss Barry thought this could be the result of AOL's take-over of Bertelsmann. AOL has made efforts to attract UK companies but without success. GBD is a unique organisation and has recently recruited 12 CEOs from Latin America. An alternative forum is the Transatlantic Business Dialogue (TBD) but Miss Barry made it quite clear that it is not in the same league as GBD.


AOL has co-operated with government over denial of service attacks but is not unduly concerned since it has strong protective devices and much experience in dealing with attempted security breaches. On digital signatures, AOL is wary of government standard-setting because this could turn out to be discriminatory. The market should lead, allowing events to run their course.


AOL is represented on the Internet Tax Commission and does not take a "no taxation" position. AOL wants a degree of conformity and does not want to be penalised by having to produce different systems to match different jurisdictions. AOL is also unhappy at the prospect of an ISP collecting taxes. AOL has no definitive answers to the taxation problem but any system should be simple and the online economy should match the offline.

Miss Barry then sent for Miss Lisa Nelson, AOL's tax expert, to join the meeting. She gave a short account of the background of the Internet Tax Freedom Act. A group was established which comprised 6 business representatives and a range of elected officials and governors at State and local levels, and representatives of the Federal government. Among the latter there had been strong advocates for a "no tax" regime on e-commerce. The business group, however, sought simplicity and neutrality but eventually combined with Governor Gilmore of Virginia who was strongly against e-taxes. AOL found that it was not possible to pluck the Internet out of commerce, and defining what was meant by a physical presence in a State was difficult. The general trend is for cyber-companies and "store fronts" to merge. The outcome of the negotiation was the extension of the current moratorium for a further 5 years, and a permanent ban on access fees. The danger is that Congress will proceed in a piecemeal fashion, going for the low-hanging fruit. The business group preferred a comprehensive legislation approach. The Commission did not come up with a simple majority and had unearthed new difficulties. It is therefore important for Congress to proceed with caution.


AOL prefers the alternative dispute resolution (ADR) approach. It has persuaded 7-8 companies to agree a code, which involves guarantees of prompt shipment, credit card charging when the goods are shipped, and conformity with local legal requirements. AOL believes that business generally prefers to adopt an ADR approach, probably involving a third party. In the US the "certified merchant" programme is probably sufficient. Businesses are free to bind to these codes and thus reduce the need for government regulation. Consumers, in effect, have forced a resolution and if they find this to be unsatisfactory, they are still free to use local law to pursue claims. In discussions with the EC, where AOL had difficulty in discerning any degree of co-operation between the different DGs, the sticking point had been a European reluctance that consumers should have to first use the non-legal dispute resolution system before resorting to court.


With regard to the future structure of the industry, the Time Warner style of "clicks and bricks" is likely to be the prevailing theme. However, the only constant element in the Internet is the lack of constancy. But consumers, not engineers, will drive industry. AOL's company objective is "AOL anywhere", and this is particularly relevant given the gathering convergence of the media. The next big issue is likely to be the need to prevent a digital divide at global level.


Miss Barry gave an energetic presentation of which the most important part was probably the role of GBD in transatlantic government/industry negotiations. There is no United Kingdom representation and, from the European point of view, there seems to be a German domination. Miss Barry stressed that this group is more important than the TBD. This contrasts with Lord Brittan's evidence. He emphasised the role of the TBD, pointing to the importance of the organisations and the high level of management involvement.

12 April 2000

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