Select Committee on European Union Fourteenth Report


308. The Part should be read in the context of the detail provided by Part 4, The e-commerce environment, and Part 5, What governments are doing currently.

309. Parts 7-9 have been concerned with activities that influence the external e-commerce environment. However, the growth of the e-economy also has internal implications for the EU and the United Kingdom Government. Evidence suggests that the "Information Age" may require governments to re-consider their structures, co-ordination processes, planning methods, consultation mechanisms and internal cultures.


310. Many witnesses commented on the inadequacy of the present structure of the EU. They reported that it made policy development, implementation and decision-making in general too slow and too inflexible to cope with the rapid pace of change brought about by e-commerce.[144] A US witness characterised his perception of the EU's slow pace of change as follows.[145]

    "Your delay is the closest thing to investment in the US economy".

311. The present structure was said to be unstable and unsustainable.[146] Reference was made to its "stovepipe" characteristic whereby information tends to flow and processes to operate vertically rather than horizontally.[147] This means, for example, that EU directorates may independently develop policies on similar issues[148] and that United Kingdom Government Departments may be unaware that other departments are using the same suppliers.[149]

312. Three solutions to the problems within the European Commission were suggested.

  • Adopt flatter structures, in line with the practice of many private sector organisations that have found this allows them to react more quickly to constant change, including that brought about by e-commerce.[150]
  • Make minor changes to the present structure but overlay it with a new formal organisation to cut across existing directorates and all EU countries. It would observe and collect best practice, benchmark, follow up targets, and develop common agreements and voluntary standards as the basis for new products and services.[151]
  • Make minor changes to the present structure but create ad hoc cross-cutting teams to deal with specific issues as they arise.[152] This is close to current practice whereby Commissioner Liikanen created an informal working group, representing five directorates, initially to deal with the e-Commerce Directive.[153] However the MEPs the Sub-Committee met, while commending the unusual speed of the process, were concerned that it had led to mistakes.

313. In order to achieve the benefits of policy co-ordination, the EU and the United Kingdom Government should continue to work to dismantle structural barriers to "joined up" government. In doing so they should consider the following options: adopt a new, less hierarchical (ie flatter) structure; create a new, formal e-economy organisation; establish a mechanism for creating ad hoc teams to deal with issues as they arise.

314. Witnesses also pointed to other structural problems:

  • Inadequate leadership within the EU.[154] Witnesses have suggested that e-commerce did not receive enough management attention at lower levels within the Directorates-General. See Culture and Attitudes (paragraph 342) for more details.
  • Questions about the level of political leadership within the United Kingdom.[155] A view was expressed that political leadership was not sufficiently focused on Internet activities. The Prime Minister has assumed personal responsibility for the United Kingdom's drive towards an "Information Society". e-Commerce issues fall to a DTI minister. e-Government issues are dealt with by a junior minister in the Cabinet Office. The E-Envoy works to both ministers and reports to the Prime Minister. However, we believe the need for a rapid response to the growing complexity and speed of Internet- related activities calls for a higher level of political responsibility similar to the practice in the private sector of vesting supervision of IT issues in a main board director. The troubled passage of the Regulation of Investigatory Powers Bill might have been avoided had there been a Cabinet level IT champion.
  • e-Commerce is increasingly influenced by the convergence of several technologies, for example telecommunications, digital television and computers OFTEL's role is to regulate telecommunications only. It is difficult to regulate one of these technologies without affecting the others. In the US responsibility for regulating these technologies is combined within the Federal Communications Commission (FCC)

315. We recommend that the Government ensure that ministerial structures provide sufficient focus and oversight of Internet activities at Cabinet level.

316. We recommend that the United Kingdom Government consider combining the existing separate regulatory roles of OFTEL, ITC and the Radiocommunications Agency into a single authority.

317. Another suggestion for re-structuring within the institutions of the EU concerned the proliferation of sector Councils which acted as an impediment to effective co-ordination. This problem has already been recognised by the conflation of the Industry and Consumer Councils. Witnesses have argued that in the matter of e-commerce a further rationalisation which would bring together the Industry, Information and Telecommunications Councils into a Competitiveness Council would be desirable.[156]

318. We recommend that the Government propose to the Council of Ministers the rationalisation of the Industry, Information and Telecommunications Councils by creating a Competitiveness Council.

319. One witness, while agreeing that there is a problem with the current structure, did not agree that structural change was the answer, believing that liberalisation and increased competition would subsume many problems.[157] Other witnesses thought that structural change was impossible and therefore not worth pursuing.[158]

320. Not all the evidence on the decision-making performance of the EU was negative. One witness thought that the EU had "provided a surprising degree of flexibility and coherence" and that its processes are "an asset" to international communication and co-operation.[159] Another reported that, while the processes were not flexible and coherent, they were improving.[160]


Commonality between Member States

321. This role includes, for example, harmonising the interpretation and implementation of regulations, aiding negotiations over taxes and encouraging joint progress towards common goals. Witnesses agreed that these are key roles for the EU and ones that only it can perform.[161]

322. There is a perception is that the EU has been slow to bring about a common approach to issues at a time when speed is of the essence.[162] Witnesses believed there was a requirement to improve this process and then take it further to deal with issues of international agreements beyond the boundaries of the EU.[163]

Co-ordination within EU Institutions

323. The second role is that of internal co-ordination and this is an area where there is evidence that the EU has recently made progress, although improvements are still requested.[164] The e-commerce directive was pushed through at great speed although, as mentioned above, there was a price to be paid in terms of mistakes and inconsistencies.[165] It was reported that this experience had been a learning exercise that would be of benefit in the future. Commissioner Liikanen's informal working group is another instance which demonstrates that greater speed is achievable.


324. Witnesses questioned whether the implementation of directives and other regulation was done well[166] and whether the process was adequately financed.[167] There was a sense that once policy had been agreed it could be left to its own devices while attention was re-directed to developing the next new policy. Concern was expressed about the effect of derogations in directives and the scope which this gave Member States to transpose such directives in a way which worked against the intention of the directive to achieve a common position.

325. Responsibility for transposing EU Directives into national law rests with Member States. An agreed period for implementation attaches to directives and the institutions of the EU have the means to ensure that Member States comply. Historically this has been a slow process which has sustained market distortions.

Monitoring and Planning

326. Much of our evidence has predicted that substantial and radical change will result from the rapid adoption of e-commerce. However, no witnesses were willing or able to forecast, or comment upon, the nature and size of these changes, nor the scope of their impacts. It seems likely that neither the EU nor the United Kingdom Government has paid sufficient attention to the need to measure, predict and plan for these impacts, though we note the studies being carried out by Foresight.

Government statistics

327. In contrast to the EU and the United Kingdom Government, the US government has made substantial changes to the definitions and collection of those statistics that can measure the phenomenon of e-commerce. It is regarded as a prime role of the US government to do this.[168] Changes have included, for example, the re-classification of software from being a "non-capital consumable" to being a category of itself, reflecting its substantial impact on the US economy.[169]

328. We recommend that the EU and the United Kingdom Government consider whether the official statistics they collect provide a satisfactory means to measure the impact of e-commerce. They should consider whether current statistical definitions adequately reflect the true dimensions of the e-economy.


329. Similarly the US Department of Commerce has recently completed a study which shows the size of the impact of e-commerce on both inflation and economic growth.[170] This study reinforces the view that e-commerce is a vital constituent of modern economies and needs to be brought into government planning activities as matter of urgency. There is no evidence that the EU and the United Kingdom Government are carrying out investigations on a similar scale. Nor do witnesses think planning related to jobs[171] and IT skills[172] is being carried out.

330. We recommend that the EU and the United Kingdom Government establish medium—and long-term planning processes to assess the impact of the radical changes expected as a result of the "Information Society"—to cover economic variables, jobs, skills and education.

Information collection and dissemination

331. The EU has another potential role which is to act as a focus for the collection and dissemination of good e-commerce practice and information relevant to the development and stimulation of e-commerce. One witness expressed concern that various groups and consultants which currently publish such information are guided by self-interest and "cherry pick" their issues.[173] There are therefore likely to be gaps in what is available. For example supply chain auctions will probably have a large impact on jobs and skills in supplier industries but this is not being investigated.

332. Witnesses suggested this informational role should include the following.

  • Co-ordinating and clarifying existing information.[174]
  • Producing consumer related information such as quality of service (including response times), payment security, delivery.[175]
  • Benchmarking e-commerce performance and practice against international comparators.[176]

333. This informational role may be a temporary one during the early stages of e-commerce before business and related institutions have had time to undertake such activities for themselves. However, one witness thought that the EU would reject the view that it had a role as an information provider[177] although there was evidence from Brussels of a belief that the message about e-commerce should be spread more widely and more clearly.[178]

334. We recommend that the EU perform a valuable role in collecting and disseminating e-commerce development and practice internationally, especially in relation to other large trading groups, such as the US and the Far East. One way to do this would be by promoting e-commerce twinning arrangements between local communities. We further recommend that the Government should provide a service to United Kingdom industry by benchmarking e-commerce practice in other nation states across the world.

Liaison with the Business Community

335. The perceived inadequacy of the relationship between government and the business community in the UK and the EU has been a recurring theme of the Inquiry. The consultation processes are said to have incompatibilities and inconsistencies.[179] In contrast US witnesses have pointed to the strength of this relationship, described "hand in glove", and its impact on the development of e-commerce.[180]

336. The EU is said to consult better with the old economy than the new[181] and with large companies than SMEs. SANCO seems to set a good example of consultation through its "stakeholder" meetings with consumer groups but even then it is not sure that its selection of invitees is correct.[182] Commissioner Liikanen travels widely to consult industry but a more formal and systematic approach might be preferable.[183]

337. The deficiencies were characterised as:

  • A lack of openness and transparency.[184]
  • Liaison is not always with the right groups (see above).
  • Governments have insufficient information about what is going on. For example in the UK the DTI, while initiating a new support structure for SMEs, did not know that at the same time Freeserve, the UK's largest ISP, had launched a similar initiative[185] to introduce SMEs to e-commerce.
  • In the EU consultation is not always followed up.[186]
  • Industry has a significant role to play in combating crime and should be consulted specifically on this issue, as it is in the US.[187] Consultation over the UK's RIP bill could be described as "too little, too late". (a point admitted by the Home Office[188])
  • Lack of public involvement in debates where it would be appropriate.[189]

338. We observed a similar problem to the Home Office's failure to consult industry before moving to legislation when we visited Brussels. The Justice and Home Affairs Directorate-General appeared to be unaccustomed to the extensive consultation that was a feature of SANCO's working methods.

339. In the UK witnesses believed that the E-Envoy is important in improving consultation. He has already done this successfully with the UK Trust Initiative. Exploring the possibility of an EU e-envoy was suggested by one witness but thought that he would be "seriously frustrated" if he came into office at the moment, such was the unpreparedness of the EU for the wave of co-ordination demands that e-commerce placed on it.[190]

340. It is the view of Lord Brittan[191] that the mechanisms for consultation are already in place, and industry should be asked what use it is making of them. However, he did agree that there is uncertainty as to whether the voice of the new economy, as well as the old, is being heard.

341. We recommend the European Commission promote an awareness of the importance of, and improve the mechanism for, consulting industry, particularly SMEs and "new economy" entrepreneurs, and consumers whenever legislation is to be drafted which bears on e-commerce. We recommend the Government ensure that all departments accept the need for extensive consultation with industry when legislation which could affect e-commerce is being considered. The following areas should be addressed: openness and transparency, wider ranging involvement including the general public where appropriate, following up consultation and involving industry in cybercrime issues.

Culture and Attitudes

342. This report has already suggested that the successful deployment of e-commerce is to do with mindsets at least as much as with technology. The history of the introduction of new technologies has shown that behavioural and attitudinal factors play a significant role in their success.

343. The culture of an organisation can be summarised as the portfolio of values, received wisdom and attitudes held by the employees. New technologies are much more likely to be successfully deployed when the people involved as developers, implementers and users have positive attitudes to change.

344. The question is whether EU and United Kingdom Government departments have cultures which are receptive to new technologies and the organisational upheavals that go with them. Several witnesses have suggested that they do not.[192] Particular problems have been identified.

  • An unwillingness to change so-called back office processes when technology is introduced. For example, new computers normally work effectively only when there is a readiness to re-design the processes being automated.
  • A lack of commitment to, interest in and knowledge of new technology.[193] The EU seems to look upon e-commerce as no more than a small addition to existing business, not a radical new concept.[194]
  • Poor communication through the organisational hierarchy. There is a need for "the fine words to filter down".[195] As another witness stated,[196] "…there is an obsession amongst politicians with top level leadership." The problem is two levels down. Co-ordination is needed at that level "where the work is really done". (In this respect, we were struck by the French decision to create a portal for junior officials to feed in their ideas).
  • Pragmatism is lacking.[197]
  • A lack of entrepreneurial flair. What one witness called "social entrepreneurship" is highly relevant to Government's role in e-commerce especially with regard to the digital divide.[198]
  • Employees are not empowered to take action themselves or use their initiative.[199]

345. However, it is well recognised that to change an organisation's culture is a difficult task. Witnesses have suggested three approaches. The first is to ensure that the use of the Internet is part of the everyday routine of employees. This helps to remove psychological barriers such as technophobia.[200] The second is to reflect the use and deployment of technology in organisational reward and review systems as the French have done. Internet literacy must be part of civil servants' appraisal processes.[201] The third is to target these needs in management development programmes.[202] Support and grants should be given for education and training which emphasises new technology and change management.

346. We recommend that the United Kingdom Government and the EU should take steps to change organisational culture and attitudes within governmental departments and within the institutions of the EU. Options considered should include the following: making Internet use part of everyday routine, incorporating Internet literacy in reward and review systems—possibly adopting a system similar to the French "ideas' portal"—targeting Internet literacy in management development programmes.

144   See Alternative Thinking Ltd, p 394; AOL, Q 174; British Music Rights, p 400; BT, p 119; CBI, p 415; The Chartered Institute of Purchasing Supply (CIPS), p 407; First Tuesday, pp 10-11; Informix Software, p 454; Institute for the Management of Information Systems (IMIS), p 457; Internet Watch Foundation (IWF), p 461; and People Energy, p 396. In commenting upon present inadequacies the WIF emphasised the essential nature of the EU's role. Back

145   The Honorable Donald Upson, Appendix 5. Back

146   European Informatics Market, p 68. Back

147   Mr David Casey, Q 515; Ms Anne Houtman, Q 1131; Professor J Norton, Q 185. Back

148   For example the SANCO and the JHA directorates are pushing through Country of Reception regulation while the Internal Market directorate and Commissioner Liikanen favour Country of Origin. Back

149   Mr Alex Allan, Q 913. Back

150   Adhocracy Consulting Ltd (UK & AUS) and DIT Solutions (UK) Ltd, p 392; TrustMarque International Ltd, p 528; and World Internet Forum, p 119. Back

151   Ministry of Industry, Employment and Communications, Sweden, p 482. Back

152   Tesco Stores Ltd, p 525. Back

153   Mr Olli Rehn, Q 1036. Back

154   CBI, p 417; Digital Exchange, p 441; Tesco Stores Ltd, p 525. Back

155   World Internet Forum, p 120. Back

156   Ms Anne Houtman, Q 1140; Mr Olli Rehn, Q 1047. Back

157   The view of the TMA is that broadband access to the Internet and increased competition are more important (p 524). Back

158   BT, p 203; Licensing Executives Society, p 472. Back

159   Internet Watch Foundation (IWF), p 461. Back

160   London Investment Banking Association, p 471. Back

161   ICL, Q 151; Lord Brittan, Q 735. Back

162   See Clifford Chance Limited Liability Partnership, Q 357; First Tuesday, p 10; ICL, p 130; National Consumer Council, p 491; and OFTEL, p 499. BT was concerned that Directives were open to wide interpretation (p 202). ACPO was concerned that criminal law was a particular problem and that many potential prosecutions had been "lost" (Q 422). Back

163   The evidence of PWC was that the EU should be taking a role in fostering global standards on product liability, intermediary liability, fraud, IPR, privacy, security for payments (p 508). Back

164   Ms Anne Houtman, Q 1131; and Mr Martin Power, Q 985. Back

165   Tesco Stores Ltd, p 525. Back

166   AOL, Q 154; Clifford Chance Limited Liability Partnership, Q 357. Back

167   Financial Services Authority, Q 674. Back

168   Dr Robert Shapiro, Appendix 5. Back

169   ibidBack

170   Information can be found on the US Department of Commerce website: Back

171   Trades Union Congress (TUC), p 526. Back

172   Dr Peter Jagodzinski, p 468. Back

173   Groups such as the Digital Futures Consortium (DFC) may be driven by the agenda of their members (see Q 618). Back

174   London Investment Banking Association, p 474; Telecommunications Managers Association (TMA), p 523; TrustMarque International Ltd, p 530. Back

175   Consumers' Association, p 418; Institute for the Management of Information Systems, p 458. Back

176   AOL, p 32; World Internet Forum, p 119. Back

177   Mr Jean Bergevin, Q 1221. Back

178   Mr Olli Rehn, Q 1043; Ms Anne Houtman, Q 1147. Back

179   European Informatics Market (EURIM), p 69. Back

180   AOL, Mr Bob Litan, Mr Andy Pincus, and The Honorable Donald Upson, Appendix 5. Back

181   Adhocracy Consulting Ltd (UK & AUS) and DIT Solutions (UK) Ltd, p 393. Back

182   Mr Martin Power, Q 1023. Back

183   Mr Olli Rehn, Q 1061. Back

184   BT Cellnet, p 404. Back

185   Freeserve also believe that Scandinavian countries were better at this (Q 571). Back

186   European Informatics Market (EURIM), Q 307. Back

187   Internet Watch Foundation, p 462. Back

188   Mr Charles Clarke MP, Q 1371. Back

189   Inland Revenue and HM Customs and Excise, p 456. Back

190   AOL, Q 174. Back

191   The Rt Hon Lord Brittan of Spennithorne, QC, Q 758. Back

192   Ms Anne Houtman, Q 1132; Professor J Norton, Q 190; and Post Office, p 501. In Houtman's view, civil servants in the EU are used to working in "stovepipes" and not at all used to networking. Back

193   Professor Ian Angell, Q 11; Freeserve, Q 526, and, p 56. Back

194   Professor Ian Angell, Q 11. Back

195   Mr David Casey, Q 518. Back

196   European Informatics Market (EURIM), Q 310. Back

197   The Chartered Institute of Purchasing Supply (CIPS), p 407. Back

198   Digital Futures Consortium, Q 609. Back

199   Ms Anne Houtman, Q 1134. Back

200   ICL, Q 165. Back

201   World Internet Forum, p 121. Back

202   Ms Anne Houtman also suggested that EU research programmes should focus on collaborative, team-based work. (Q 1138) Back

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