Issues involved in Electronic Commerce | Networking | Computer Science

After reading this article you will learn about the financial, legal and market access issues involved electronic commerce.

1. Financial Issues:

Customs and Taxation:

For over 50 years, nations have negotiated tariff reductions because they have recognized that the economies and citizens of all nations benefit from freer trade. Given this recognition, and because the Internet is truly a global medium, it makes little sense to intro­duce tariffs on goods and services delivered over the Internet.

Further, the Internet lacks the clear and fixed geographic lines of transit that historically have char­acterized the physical trade of goods.

Thus, while it remains possible to administer tariffs for products ordered over the Internet but ultimately delivered via surface or air transport, the structure of the In­ternet makes it difficult to do so when the product or service is delivered electronically. Nevertheless, many nations are looking for new sources of revenue, and may seek to levy tariffs on global electronic commerce.

Therefore, the World Trade Organization (WTO) and other appropriate international fore should declare that the Internet be a tariff-free environment whenever it is used to deliver products or services. This principle should be established quickly before nations impose tariffs and before vested interests form to protect those tariffs.

Any taxation of Internet sales should follow these principles:

1. It should neither distort nor hinder commerce. No tax system should discriminate among types of commerce, nor should it create incentives that will change the nature or location of transactions.

2. The system should be simple and transparent. It should be capable of capturing the overwhelming majority of appropriate revenues, be easy to implement, and minimize burdensome record keeping and costs for all parties.

3.The system should be able to accommodate valid and existing tax systems. Wherever feasible, we should look to existing taxation concepts and principles to achieve these goals.

Any such taxation system will have to accomplish these goals in the context of the Internet’s special characteristics— the potential anonymity of buyer and seller, the capacity for multiple small transactions, and the difficulty of associating online activities with physically defined locations.

Electronic Payment Systems:

New technology has made it possible to pay for goods and services over the Internet. Some of the methods would link existing electronic banking and payment systems, including credit and debit card networks, with new retail interfaces via the Internet.

“Electronic money” based on stored-value, smart card, or other technologies, is also under development. Substantial private sector investment and competition is spurring an intense period of innovation that should benefit consumers and businesses wishing to engage in global electronic commerce.

At this early stage in the development of electronic payment systems, the commercial and techno­logical environment is changing rapidly. It would be hard to develop policy that is both timely and appropriate. For these reasons, inflexible and highly prescriptive regulations and rules are inappropri­ate and potentially harmful. Rather, in the near term, case-by-case monitoring of electronic payment experiments is preferred.

From a longer-term perspective, however, the marketplace and industry self-regulation alone may not fully address all issues. For example, government action may be necessary to ensure the safety and soundness of electronic payment systems, to protect consumers, or to respond to important law enforcement objectives.

As electronic payment systems develop, governments should work closely with the private sector to inform policy development, and ensure that governmental activities flexibly accommodate the needs of the emerging marketplace.

2. Legal Issues:

‘Uniform Commercial Code’ for Electronic Commerce:

In general, parties should be able to do business with each other on the Internet under whatever terms and conditions they agree upon. Pri­vate enterprise and free markets have typically flourished, however, where there are predictable and widely accepted legal environments supporting commercial transactions.

To encourage electronic commerce, the Indian and US Governments should support the development of both a domestic and global uniform commercial legal framework that recognizes, facilitates, and enforces elec­tronic transactions worldwide.

Fully informed buyers and sellers could voluntarily agree to form a contract subject to this uniform legal framework, just as parties currently choose the body of law that will be used to interpret their contract.

Participants in the marketplace should define and articulate most of the rules that will govern electronic commerce. To enable private entities to per­form this task and to fulfil their roles adequately, governments should encourage the development of simple and predictable domestic and international rules and norms that will serve as the legal foundation for commercial activities in cyberspace.

Internationally, the United Nations Commission on International Trade Law (UNCITRAL) has completed work on a model law that supports the commercial use of international contracts in electronic commerce.

This model law establishes rules and norms that validate and recognize con­tracts formed through electronic means, sets default rules for contract formation and governance of electronic contract performance, defines the characteristics of a valid electronic writing and an original document, provides for the acceptability of electronic signatures for legal and commercial purposes, and supports the admission of computer evidence in courts and arbitration proceedings.

The expansion of global electronic commerce also depends upon the participants’ ability to achieve a reasonable degree of certainty regarding their exposure to liability for any damage or injury that might result from their actions. Inconsistent local tort laws, coupled with uncertain­ties regarding jurisdiction, could substantially increase litigation and create unnecessary costs that ultimately will be borne by consumers.

The US should work closely with other nations to clarify applicable jurisdictional rules and to generally favour and enforce contract provisions that allow parties to select substantive rules governing liability.

Finally, the development of global electronic commerce provides an opportunity to create legal rules that allow business and consumers to take advantage of new technology to streamline and automate functions now accomplished manually. For example, consideration should be given to establishing electronic registries.

Protection of Intellectual Property Rights:

Commerce on the Internet often will involve the sale and licensing of intellectual property. To promote this commerce, sellers must know that their intellectual property will not be stolen and buyers must know that they are obtaining authentic products.

International agreements that establish clear and effective copyright, patent, and trademark protec­tion are, therefore, necessary to prevent piracy and fraud.

While technology, such as encryption, can help combat piracy, an adequate and effective legal framework also is necessary to deter fraud and the theft of intellectual property, and to provide effective legal recourse when these crimes occur. Increased public education about intellectual property in the information age will also contribute to the successful implementation and growth of electronic commerce on the Internet.

Copyrights:

There are several treaties that establish international norms for the protec­tion of copyrights, most notably the Berne Convention for the Protection of Literary and Artistic Works. These treaties link nearly all major trading nations and provide them with a means of protecting, under their own laws, each other’s copyrighted works and sound recordings.

The necessary treaties should be established and applied to ensure the proper growth of the Internet in general and electronic com­merce in particular. Several issues are related copyrights.

These include protection of databases, patents, trademarks and domain names. Since the matter is highly legal and depends upon discussions between governments, they need to be taken up by appropriate people in the various governments.

Security:

If Internet users do not have confidence that their communications and data are safe from unauthorized access or modification, they will be unlikely to use the Internet on a routine basis for commerce.

Security of electronic commerce on the Internet requires:

1. Secure and reliable telecommunications networks;

2. Effective means for protecting the information systems attached to those networks;

3. Effective means for authenticating and ensuring confidentiality of electronic information to protect data from unauthorized use; and

4. Well-trained Internet users who understand how to protect their systems and their data.

There is no single technology or technique that can ensure that the electronic commerce on the In­ternet will be secure and reliable. Accomplishing that goal requires a range of technologies (encryption, authentication, password controls, firewalls, etc.) and effective, consistent use of those technologies, all supported globally by trustworthy key and security management infrastructures.

Of particular im­portance is the development of trusted certification services that support the digital signatures that will permit users to know whom they are communicating with on the Internet. Both signatures and confi­dentiality rely on the use of cryptographic keys. These must be officially certified by governments and actively promoted.

Encryption products protect the confidentiality of stored data and electronic communications by making them unreadable without a decryption key. But strong encryption is a double-edged sword. Law abiding citizens can use strong encryption to protect their trade secrets and personal records.

But those trade secrets and personal records could be lost forever if the decrypt key is lost. Depending upon the value of the information, the loss could be quite substantial. Encryption can also be used by criminals and terrorists to reduce law enforcement capabilities to read their communications. Key recovery-based encryption can help address some of these issues.

3. Market Access Issues:

1. Telecommunications Infrastructure and Information Technology:

Global electronic commerce de­pends upon a modern, seamless, global telecommunications network and upon the computers and “information appliances” that connect to it. Unfortunately, in too many countries, telecommuni­cations policies are hindering the development of advanced digital networks.

Customers find that telecommunications services often are too expensive, bandwidth is too limited, and services are unavailable or unreliable. Further, many countries maintain trade barriers to imported information technology, making it hard for both merchants and customers to purchase the computers and in­formation systems they need to participate in electronic commerce.

While the Telecommunication infrastructure is peripheral to this discussion on electronic commerce, nevertheless a secure and good quality telecommunication network is required to make ii a success. While removing tariff barriers is strictly a matter for governments, developing and maintaining a good telecommunication infrastructure may be in private hands.

But in any case, governments need to be aware of the po­tential of electronic commerce and take steps to solve these problems so that electronic commerce can get a boost to realise its potential.

A straightforward policy for doing this could be by:

a. Encouraging private sector investment by privatizing government-controlled telecommunica­tions companies;

b. Promoting and preserving competition by introducing competition to monopoly phone mar­kets, ensuring interconnection at fair prices, opening markets to foreign investment, and en­forcing anti-trust safeguards;

c. Guaranteeing open access to networks on a non-discriminatory basis, so that Internet users have access to the broadest range of information and services.

The issues involved are:

1. Leased Lines:

Data networks of most online service providers are constructed with leased lines that must be obtained from national telephone companies, often monopolies or governmental enti­ties. In the absence of effective competition, telephone companies may impose artificially inflated leased line prices and usage restrictions that impede the provision of service by online service providers.

2. Local loops pricing:

To reach their subscribers, online service providers often have no choice but to purchase local exchange services from monopoly or government-owned telephone compa­nies. These services also are often priced at excessive rates, inflating the cost of data services to customers.

3. Interconnection and unbundling:

Online service providers must be able to interconnect with the networks of incumbent telecommunication companies so that information can pass seamlessly between all users of the network.

Monopolies or dominant telephone companies often price inter­connection well above cost, and refuse to interconnect because of alleged concerns about “network compatibility” or “absence of need for other providers“. This is clearly a monopolistic policy and will eventually hinder the growth and wide acceptance electronic commerce and governments must step in to remove such practices.

4. Attaching equipment to the network:

Over the years, some telecommunication providers have used their monopoly power to restrict the connection of communication or technology devices to the network. Even when the monopoly has been broken, a host of unnecessary burdensome “type acceptance” practices have been used to retard competition and make it difficult for consumers to connect.

5. Internet voice and multimedia:

Officials of some nations claim that “real time” services provided over the Internet are “like services” to traditionally regulated voice telephony and broadcasting, and, therefore, should be subject to the same regulatory restrictions that apply to those traditional services.

In some countries, these providers must be licensed, as a way to control both the carriage and content offered. Such an approach could hinder the development of new technologies and new services.