Select Committee on European Union Fourteenth Report


Between the Coral Reef and the Deep Sea[1]

    "Here is an element [electricity] which may, and I foresee will, be made the means of intelligible communication"[2]

1. In July 1996, the House of Lords Select Committee on Science and Technology mapped the outlines of a new phenomenon—the Internet—in a Report entitled Information Society: Agenda for Action in the UK.[3] The Report recorded the essential elements of an infrastructure to support the introduction of information technology (IT) and identified essential issues which would have to be addressed as nations embraced this new technology. These included privacy and data protection, copyright, retrieval and navigation software, problems of cryptography and "undesirable" material, problems of legal uncertainty and payment, and the need for governments to provide training and education in the skills on which future employment in the Information Age would depend.

United Kingdom

2. In the United Kingdom, the Government addressed the problems and opportunities created by a rapid move towards this new technology in the White Paper on Competitiveness.[4] They issued a Consultation Document, Promoting Electronic Commerce,[5] giving their response to the House of Commons Trade and Industry Committee's Report on an earlier Consultation exercise, when it introduced draft legislation in mid 1999—The Electronic Communications Bill. The Performance and Innovation Unit of the Cabinet Office, created in 1998 to improve the capacity of Government to address strategic inter-departmental issues and promote innovation in the development of policy and delivery of the Government's objectives, produced a Report in September 1999—e­—which set out a number of targets and systems for monitoring such targets. The Government responded by appointing a Minister with sole responsibility for e-commerce, accepted the recommendation to create an E­Envoy to oversee the application of the new technology and, in March 2000, published e-government: a strategic framework for public services in the Information Age,[6] a blueprint for adapting Government machinery to the new technology.

Organisation for Economic Co-operation and Development (OECD)

3. In the world at large, although the new technology was driven largely by the United States of America, the Organisation for Economic Co-operation and Development (OECD) became the forum through which issues of global significance in adapting to the new technology could be addressed. The OECD's membership of 29 States[7] embraces the developed economies as well as other States of economic importance. A particular milestone in the international reaction to the new technology was the Ministerial Conference on Electronic Commerce convened at Ottawa, Canada, 7-9 October 1998, which issued a defining document A Borderless World: Realising the potential of global electronic commerce.[8] This was followed, on 12 and 13 October 1999, by the OECD Forum on Electronic Commerce, and a global action plan for electronic commerce, with recommendations for governments.

World Trade Organization

4. On 4 May 1998, World Trade Organization (WTO) Ministers set in motion a comprehensive work programme to examine all trade-related issues connected with global e-commerce and taking into account the particular needs of developing countries. The results of this work were to be reported to the Ministerial meeting in Seattle at the end of 1999. This meeting was abandoned because of differences between developed and developing countries, between the United States and the European Union within the conference, and disruption by demonstrators outside the conference.

European Union (EU)

5. In the European Union (EU), under the Finnish Presidency, a European approach to IT was agreed at the Helsinki Council on 8 December 1999 and launched as the Communication from the Commission on a Commission Initiative for the Special European Council of Lisbon, 23 and 24 March 2000: eEurope—An Information Society for All. The document was divided into ten chapters:

6. On 8 March 2000, the Commission produced a Report entitled eEurope: An Information Society for All: Progress Report for the Special European Council on Employment, Economic Reforms and Social Cohesions: 'Towards a Europe based on Innovation and Knowledge'. This document assessed progress that had been made in the three months since the Helsinki Council. The Special European Council held in Lisbon on 23 and 24 March 2000 set the ambitious objective for Europe to become the most competitive and dynamic economy in the world. The heads of State and Government invited the Council and the Commission to draw up "a comprehensive eEurope Action Plan…using an open method of co-ordination based on the benchmarking of national initiatives, combined with the Commission's recent eEurope Initiative as well as its Communication Strategies for Jobs in the Information Society. The new Action Plan revised targets and added two more chapters to the original plan:

    (xi)  Transport systems
    (xii)  Benchmarking eEurope

The Action Plan also set a key date—2002—by which all the targets should be achieved. The Report added that if Europe could not achieve change as quickly as this, it would be "too late".

7. The eEurope 2002 Action Plan was considered at the European Council meeting at Feira on 19 and 20 June 2000. The following passage appeared in the Presidency Conclusions issued at the end of the Council Meeting:

    "eEurope Action Plan

    The European Council endorses the comprehensive eEurope 2002 Action Plan and requests the institutions, the Member States and all other actors to ensure its full and timely implementation by 2002 and to prepare longer term perspectives for a knowledge-based economy encouraging info-inclusion and closing the numeracy gap. As a short-term priority, the necessary steps should be taken to bring down the cost of accessing the Internet through the unbundling of the local loop. A report should be presented by the Commission to the European Council in Nice, and on a regular basis thereafter, on progress in achieving the Action Plan's objectives. The European Council recalls the strategic importance of the Galileo project and of taking a decision on this matter by the end of 2000."

This Inquiry

8. We have sought to concentrate on Chapter 3 of the eEurope Action Plan—"Accelerating e-Commerce". We have done so because although we accept the premise that the new technologies are likely to alter radically the shape of our societies, the driving force at this stage of the revolution is the rapid advances in technology and the application of these advances to the market. We were also following up a recommendation in the Report by this Committee, Promoting Small and Medium Enterprises in the EU.[9] We were concerned to address the encouragement and application of e-commerce at both Member State level and at the level of the EU institutions. In particular, we wished to examine whether there was adequate co-ordination at both levels to be able to engage effectively the mechanisms of the new technologies. The influence of e-commerce extends laterally across the arbitrary divisions within Government and the Commission. It does not sit easily under any one Government Department or Directorate-General (DG).

9. e-Commerce, however defined,[10] raises a number of fundamental concerns about the nature of society and its place in society. Should the Internet be anarchical or subject to control? Should such control be voluntary, "light touch", or regulated by national States or by the institutions of the EU? If regulated, to what extent? Or, indeed, to what extent is it capable of being controlled? What cultural changes emerge as a result of the application of e-commerce? Will it be socially divisive? What are the risks and benefits to the community? How should the convergence of the media in the new digital world be addressed? How should governments anticipate technological change? How could governments keep themselves informed? In this inquiry we have attempted to address these questions.

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.[11] 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 business model.

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 economic system?

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.[12] 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[13] 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,[14] which seeks to apply existing offline taxes to online services—a 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 (Part 3);
  • identify the factors which influence e-commerce (Part 4);
  • consider what governments are doing currently (Part 5);
  • 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 (Part 8);
  • 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,[15] some of which are directed at the United Kingdom Government, and others offered as suggestions for action at EU level.

1   Michael Wild, Managing Consultant, ICL, p 43. Back

2   Goldsworthy Gurney, 1816 Back

3   Science and Technology Committee, 5th Report (1995-96): Information Society: Agenda for Action in the United Kingdom (HL 77) Back

4   Our Competitive Future: Building the Knowledge Driven Economy, Department of Trade and Industry, December 1998, Cm 4176. Back

5   Promoting Electronic Commerce: Consultation on Draft Legislation and the Government's Response to the Trade and Industry Committee's Report, Department of Trade and Industry, July 1999, Cm 4417. Back

6   e-government: a strategic framework for public services in the Information Age, Central IT Unit, Cabinet Office, April 2000. Back

7   The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28 April 1964), Finland (28 January 1969), Australia (7 June 1971), New Zealand (29 May 1973), Mexico (18 May 1994), the Czech Republic (21 December 1995), Hungary (7 May 1996), Poland (22 November 1996), and Korea (12 December 1996). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention). Back

8   A Borderless World: Realising the Potential of Global Electronic Commerce, Conference Conclusions, OECD Ministerial Conference on Electronic Commerce, Ottawa, 7-9 October 1998. Back

9   European Communities Committee, 20th Report (1998-99): Promoting Small and Medium Enterprises in the EU (HL Paper 115), paragraph 114 (b) Back

10   See paragraph 75 et seqBack

11   Adhocracy Consulting Ltd (UK & AUS) and DIT Solutions (UK) Ltd, p 386. Back

12   The CyberFrontier and America at the Turn of the 21st Century: Reopening Frederick Jackson Turner's Frontier, Jeffrey R. Cooper, Science Applications International Corporation. Back

13   COM(1999) 427 final, Council No. 10644/99-Amended proposal for a Directive of the European Parliament and of the Council on certain legal aspects of electronic commerce in the Internal Market. Back

14   COM(2000) 349 final, Council No. 9366/00-Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EEC) No. 218/92 on administrative co-operation in the field of indirect taxation (VAT); and Proposal for a Council Directive amending Directive 77/388/EEC as regards the value added tax arrangements applicable to certain services supplied by electronic means. Back

15   Part 2, p 10. Back

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