Select Committee on European Union Fourteenth Report


197. Governments already regulate all types of business. For example, accounts must be filed, directors have statutory duties, products must be "fit for purpose" and factories must not pollute. Governments have a variety of objectives in mind, including preventing crime, protecting consumers, ensuring companies are properly governed, collecting taxes, supporting ecological aims and creating employment opportunities.

198. They also take steps to encourage business to flourish through such devices as regional grant aid, tax breaks on certain types of capital equipment and providing support for SMEs.

199. Any one government action is likely to have diverse consequences, contributing to some objectives while damaging others. By adopting a portfolio of measures, governments wish to strike a balance between regulation and creating an environment in which business can flourish.

200. In principle the situation is no different for e-commerce. Governments wish to stimulate the positive aspects of e-commerce and control the negative consequences. The first question is whether existing regulation caters for e-commerce. There are clear reasons for supposing the answer is no, for example:

  • e-Commerce creates new situations that are not covered by existing regulations. Data protection laws deal with the storage and processing of information. What then is the situation when an ISP momentarily stores data which is in transit elsewhere? What sales tax or VAT is payable on products, for example software, that can be delivered digitally?
  • e-Commerce can work in ways that existing regulations have not envisaged. It may not be clear whether the existing regulations apply and thus they have to be re-interpreted. Is a website in effect the same as an advertisement? In the US, does the freedom that mail order businesses have from sales tax apply to e-commerce?
  • Existing regulations are often technology specific. Formal police evidence is only acceptable (to the Courts) in paper form. The circumstances in which investigating authorities can intercept telephone conversations do not extend to Internet traffic carried on a non-public network. (but see paragraphs 263 to 270)
  • e-Commerce companies may have no physical assets in countries in which they are trading. What then is the basis for taxation? For consumer protection? What regulations apply and how can they be enforced?

There is, therefore, a case for regulation.

201. The second question is whether governments can effectively regulate e-commerce. The situation is made more difficult for governments by three further factors.

    (a)  e-Commerce is global. A website can be "hit" from anywhere in the world and it is not always clear where a company and its websites are based. A video product, for example, might be sold from a company in China via web servers in other countries to a customer in the UK. What is then the position with regard to copyright? Much e-commerce regulation must therefore be international and involve co-operation between national governments.

    (b)  e-Businesses can easily move the location of their operations, especially their websites, from one country to another where they perceive that the regulatory regime and business environment are more favourable to them. Quick and easy moves are more difficult for companies with substantial bricks and mortar assets.

    (c)  As e-commerce grows, possibly at very rapid rates, there is competition between national governments to attract e-commerce to their own countries. So, some countries may strive to regulate less than others. However, in doing this, it may have consequences which would be felt elsewhere in the world.

There is therefore a role for government but it is a difficult one

202. There is tension between consumer and business interests, national and international obligations, and existing and new regulation. Overall government has the same broad objectives it has always had—crime prevention, consumer protection, the creation of an attractive business environment and so on—but in relation to e-commerce activity these objectives have to be met in a radically different context. Governments have to adjust the regulatory framework in a much shorter time-scale than they normally would work within but with the complication that they have to work with other governments to an ever-greater degree.

203. This suggests that governments may have to consider whether their own ways of working are in alignment with their e-commerce role. Can they react quickly enough to changing regulatory demands? Are the mechanisms for international collaboration in place? Do they have planning systems which will allow them to predict the consequences of e-commerce on jobs, education, taxation and so on, consequences which might occur extremely quickly? Are they able, or willing, to consult with a broad range of industry? It seems that government processes and structures will need to be re-examined if they are to cope with the implications of e-commerce.

204. There is another reason why governments should re-examine their operations. Their role in stimulating e-commerce will be better performed if they adopt e-commerce for their own transactions. These transactions would include dealing with the public for such matters as social security benefits, administering driving licences and issuing passports. They would also include their own procurement systems. Several witnesses have emphasised the importance that the United Kingdom Government should "lead by example".

205. This discussion allows us to break down governments' role in e-commerce into the following four areas.

    (a)  Stimulating e-commerce. This means what the EU and the United Kingdom Government can do to create and expand the positive impacts of e-commerce. This would include, for example, fully liberalising the telecommunications infrastructure, promoting appropriate venture capital arrangements and supporting SMEs. (Part 7)

    (b)  Regulating e-commerce. This refers to what the EU and the United Kingdom Government can do to combat the negative impacts of e-commerce - preventing frauds, protecting consumers and increasing security. (Part 8)

    (c)  Leading by example. This is what the EU and the United Kingdom Government need to do to move towards e-government. It would include making services available in the Internet and moving towards e-procurement ie G2B e-commerce. (Part 9)

    (d)  Managing the e-economy. This refers to the management processes, structures and mechanisms that need to be in place for what the United Kingdom Government has called the "Information Age". It would include government planning, government re-structuring and consultation mechanisms. (Part 10)

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