What does e-commerce do?
10. For the supporters of the new Internet revolution,
the argument runs thus: human "progress" is the record
of an expansion of collective knowledge. The Internet speeds and
disseminates the flow of knowledge. It is therefore different
in scale to anything that has happened before.
In practical terms, this is best illustrated by the effect on
industry. Here its major impact is to increase the efficiency
of the supply chains, an activity which is claimed to have produced
substantial savings in certain industries such as automobile manufacture.
eCommerce opens new markets for Small and Medium Enterprises
(SMEs) and for individual consumers. It pushes national and supranational
economies towards the goal of global markets and transforms the
11. Sceptics might question whether e-commerce is
anything more than an enabling agent. How much of the alleged
savings it produces can be attributed to a one-off changeover,
and how much to the effect of the business cycle? Is it really
a new revolution? Or is it simply the speeding up of the existing
12. And how global is global? Undoubtedly, the major
economies will take rapidly to the new phenomenon, but, individual
users apart, this still leaves vast swathes of Africa, central
Asia and Latin America in unwired darkness. Access costs may appear
low in advanced economies, but they represent formidable barriers
in developing States.
13. The current ethos of the Internet has been largely
determined by its parentage: it grew as an unexpected side effect
of United States' public sector investment (military research)
and the linking of United States universities, and flourished
within an American concept of citizens' rights and the limitations
placed on government. Its potential was recognised at first by
individuals in the private sector who seized the chance to expand
into small, knowledge-based companies. With the establishment
of the World Wide Web (WWW) in 1993, infrastructure and commercial
opportunity met. The effect has been an unprecedented expansion
of e-commerce and IT technologies into the global economy.
14. The new technologies generate enthusiasm, innovation,
and creativity. They also generate exaggerated expectation which
is nicely caught in the neologism "cyberbole"! One observer
drew a parallel between the expansion of e-commerce and the winning
of the American West, and implied that anarchy and lack of regulation
were often driving forces in the creation of markets. But he admitted
that anarchy was not the natural condition of human society and
that regulation and law had to be applied to this new phenomenon.
The questions were, to what extent, and by whom? A simple mantra
appeared: "What applied offline should apply online".
But this in itself was inadequate in dealing with the acceleration
of cross-border trade which e-commerce epitomised.
15. The approach adopted
by the United States government was to proceed cautiously, to
allow business its head, and to intervene only where it was deemed
unavoidable; business recognised a need to regulate itself in
order to build up a position of trust. On the important issue
of taxation, the United States Administration declared a moratorium
on new taxation affecting e-commerce. Congress renewed this moratorium
in the early part of 2000, admitting, in effect, that it was difficult
to know how to tax e-commerce effectively and without distorting
the market. Taxation in the United States is imposed at both State
and Federal levels (and at various levels at local government).
It is not uniform; while most States levy sales tax, a few do
not. Businesses can sometimes relocate rapidly to avoid obligations
that they judge onerous. The nature of e-commerce means that the
ability of governments to govern has been diminished in some respects.
16. Development in the United Kingdom, and the EU,
has not followed the American model in all respects, though there
is a presumption that a "light touch" in regulation
best serves industry and the community.
17. It is evident, for example, from the eEurope
Action Plan, that European governments are concerned as much with
the social consequences of e-commerce as they are with its promotion.
There is also confusion about how to apply the mantra "online
= offline", because of the speed with which e-commerce moves
and the slowness with which the mills of justice or procedures
of democratic accountability grind. This can be clearly seen in
the e-Commerce Directive
which passed with unexpected and unusual alacrity through the
institutions of the European Union, from the Commission, through
the Council and the Parliament. This was the bare minimum necessary
to legitimise e-commerce. It addressed the issues of cross-border
trade: location, commercial communication, online conclusion of
contracts, liability of intermediaries for transmission and storage,
and the implementation of existing rules. It called for the principles
of the Internal Market to inform Member States' application of
the Directive. It contains important exclusions and derogations
on taxation, personal data, notaries' activities, representation
and defence of clients before courts, and gambling. Member States
were authorised to impose restrictions on online services provided
from another Member State on public policy, public health, public
security, and consumer protection grounds. This may reflect a
perceptible cultural difference in approach, which could be to
the disadvantage of the European Union if, as seems likely, the
rest of the world follows the American model. It may be noted,
however, that some individual States within the USA have their
own distinctive policies with respect to e-commerce on some of
the above issues, eg public health, public policies, consumer
protection and sales taxation.
18. Compare the United States approach to e-commerce
(see paragraph 15), to that of the European Commission. The European
Commission tabled a draft Directive, amending the Sixth VAT Directive,
which seeks to apply existing offline taxes to online servicesa
proposal which could have the effect of funnelling e-commerce
originating outside the EU through Luxembourg, the Member State
with the lowest rate of VAT in the Union (14 per cent).
19. This Report has been divided into Parts which:
- list recommendations (Part 2);
- describe the context in which e-commerce operates
- identify the factors which influence e-commerce
- consider what governments are doing currently
- examine the role of Government (Part 6);
- examine the Government's role in stimulating
e-commerce (Part 7);
- examine the Government's role in regulating e-commerce
- examine what the Government needs to do to lead
by example (Part 9);
- review institutional mechanisms (Part 10); and
- reflect on what we have learned (Part 11).
20. We make recommendations,
some of which are directed at the United Kingdom Government, and
others offered as suggestions for action at EU level.