E-COMMERCE

E-commerce has been one of the many engines behind the growth of the Internet over the last ten years, also contributing to the Internet buzz in the late 1990s, which lead to the bursting of the dot.com bubble in !000. "fter this set-bac#, ecommerce began to steadily grow once again. "fter a long $eriod of consolidation, e-commerce has started to gain a new dynamic recently. "lthough the main media focus regarding e-commerce is on big e-com$anies, such as "mazon and e-%ay, the main e-commerce growth has been ta#ing $lace in business-to-business ecommerce. &he im$ortance of e-commerce is illustrated by the title of the document that initiated the reform of Internet 'overnance and established I("))* +ramewor# for 'lobal Electronic (ommerce ,199-., which states that the $rivate sector should lead the Internet 'overnance $rocess and that the main function of this governance will be to enforce a $redictable, minimalist, consistent, and sim$le legal environment for e-commerce. &hese $rinci$les are the foundation of the I("))-based Internet regime. /arious $olicy and regulatory mechanisms of high im$ortance to e-commerce are classified in other bas#ets such as the Infrastructure and 0tandardisation and 1egal %as#ets.

DEFINITION
&he choice of a definition for e-commerce has many $ractical and legal im$lications.213 0$ecific rules are a$$lied de$ending on whether a $articular transaction is classified as e-commerce, such as those regulating ta4ation and customs. +or the 50 government, the #ey element distinguishing traditional commerce from e-commerce is the online commitment to sell goods or services. &his means that any commercial deal concluded online should be considered an e-commerce transaction, even if the realisation of the deal involves $hysical delivery. +or e4am$le, $urchasing a boo# via "mazon.com is considered an e-commerce transaction even though the boo# is usually delivered via traditional mail. 6&7 defines e-commerce more $recisely as* the $roduction, distribution, mar#eting, sale, or delivery of goods and services by electronic means. &he 6orld (ustoms 7rganisation defines e-commerce as* a way of conducting business by utilising com$uter and telecommunications technology to e4change data between inde$endent organisational com$uter information systems in order to com$lete a business transaction. 223 E-commerce takes many forms:[3] business-to-consumer ,%!(.--the most familiar ty$e of e-commerce ,e.g., "mazon.com.8 business-to-business ,%!%. -- economically the most intensive, com$rising over 909 of all e-commerce transactions8 business-to-government ,%!'.--highly im$ortant in the area of $rocurement $olicy8 consumer-to-consumer ,(!(.--for e4am$le, e-%ay auctions.

:any countries have been develo$ing a regulatory environment for e-commerce. 1aws have been ado$ted in the fields of digital signatures, dis$ute resolution, cybercrime, customer $rotection, and ta4ation. "t the international level, an increasing number of initiatives and regimes is related to e-commerce.

THE

TO !ND E-COMMERCE

&he #ey $olicy $layer in modern global trade, the 6orld &rade 7rganisation ,6&7., regulates many relevant e-commerce issues, including telecommunication liberalisation, intellectual $ro$erty rights, and some as$ects of I(& develo$ments. E-commerce figures in the following 6&7 activities and initiatives* " tem$orary moratorium on custom duties on e-transactions which was introduced in 199;. It has rendered all e-transactions globally free of custom duties. &he establishment of the 6&7 6or# <rogramme for Electronic (ommerce, which $romotes discussion on e-commerce.2"3 =is$ute resolution mechanism. E-commerce was $articularly relevant in the 50">"ntigua 7nline 'ambling case. 2#3 "lthough e-commerce has been on the 6&7 di$lomatic bac#burner, various initiatives have arisen and a number of #ey issues have been identified. &wo such issues are mentioned here. $%o&'( e-commerce transact)ons *e cate+or)se( &n(er ser,)ces -re+&'ate( *y .!T$/ or +oo(s -re+&'ate( *y .!TT/0 =oes the categorisation of music as a good or a service change de$ending on whether it is delivered on a (= ,tangible. or via the Internet ,intangible.? 5ltimately, the same song could have different trade status ,and be sub@ect to different customs and ta4es. de$ending on the medium of delivery. &he issue of categorisation has considerable im$lication, because of the different regulatory mechanisms for goods and services. %at s%o&'( *e t%e ')nk *et1een TRI2s an( t%e 3rotect)on of I2Rs on t%e Internet0 0ince 6&7As &BI<0 agreement ,&rade-Belated "s$ects of Intellectual <ro$erty Bights. $rovides much stronger enforcement mechanisms for I<Bs, develo$ed countries have been trying to e4tend &BI<0 coverage to e-commerce and to the Internet by using two a$$roaches. +irst, by citing the $rinci$le of technological neutrality they argue that &BI<0, li#e other 6&7 rules, should be e4tended to any telecommunications medium, including the Internet. 0econd, some develo$ed countries reCuested the closer integration of 6I<7As digital treaties into the &BI<0 system. &BI<0 $rovides stronger enforcement mechanisms than 6I<7 conventions. %oth issues remain o$en and they will become increasingly im$ortant in future 6&7 negotiations. =uring the current stage of trade negotiations, it is not very li#ely that e-commerce will receive $rominent attention on the 6&7 agenda. &he lac# of global e-commerce arrangements will be $artially covered by some s$ecific initiatives ,regarding, for e4am$le, contracts and signatures. and various regional agreements, mainly in the E5 and the "sia-<acific region.

OTHER INTERN!TION!4 E-COMMERCE INITI!TI5E$

7ne of the most successful and widely su$$orted international initiatives in the field of e-commerce is 5)(I&B"1As :odel 1aw on Electronic (ommerce. &he focus of the :odel 1aw is on mechanisms for the integration of e-commerce with traditional commercial law ,e.g., recognising the validity of electronic documents.. &he :odel 1aw has been used as the basis for e-commerce regulation in many countries. "nother initiative designed to develo$ e-commerce is the introduction of e-business D:1 ,ebD:1. by the 5nited )ations (entre for &rade +acilitation and Electronic %usiness ,5)>(E+"&., which is a set of standards based on the D:1 technology. In fact, ebD:1 could soon become the main standard for the e4change of electronic trade documents, re$lacing the current one E Electronic =ata Interchange ,E=I.. &he Euro$ean 5nion has carried out a broad set of actions in the field of ecommerce, its main focus being on small and medium enter$rises ,0:Es..2 63 &he 7E(=As activities touch on various as$ects related to e-commerce, including customer $rotection and digital signatures. &he 7E(= em$hasises $romotion and research regarding e-commerce through its recommendations and guidelines. 5)(&"= is $articularly active in research and ca$acity-building, focussing on the relevance of e-commerce to develo$ment. Every year it $ublishes the E(ommerce and =evelo$ment Be$ort, which contains both a survey of the current situation and $ro$osals for future develo$ments.273 In the business sector, the most active international organisations are the International (hamber of (ommerce, which $roduces a wide range of recommendations and analyses in the field of e-commerce, and the 'lobal %usiness =ialogue, which $romotes e-commerce in both the international and the national conte4t.

RE.ION!4 INITI!TI5E$
&he E5 develo$ed an e-commerce strategy at the so-called =ot (om 0ummit of E5 leaders in 1isbon ,:arch !000.. "lthough it embraced a $rivate and mar#etcentred a$$roach to e-commerce, the E5 also introduced a few corrective measures aimed at $rotecting $ublic and social interests ,the $romotion of universal access, a com$etition $olicy involving consideration of the $ublic interest and a restriction in the distribution of harmful content.. &he E5 ado$ted the =irective on Electronic (ommerce as well as a set of other directives related to electronic signatures, data $rotection, and electronic financial transactions. In the "sia-<acific region, the focal $oint of e-commerce co-o$eration is "sia-<acific Economic (o-o$eration ,"<E(.. "<E( established the E-(ommerce 0teering 'rou$, which addresses various e-commerce issues, including consumer $rotection, data $rotection, s$am, and cyber security. &he most $rominent initiative is "<E(As <a$erless &rading Individual "ction <lan, aiming to create com$lete $a$erless trade in goods in the region by !010.

T!8!TION[1]
"fter +araday discovered the basic $rinci$le of electricity in 1;F1 ,electromagnetic induction., a sce$tical $olitician as#ed him what it ,electricity. was good for. +araday res$onded with the following* Sir, I do not know what it is good for. But of one thing I am quite certain, some day you will tax it. 223 &he Internet 'overnance dilemma of whether cyber-issues should be treated differently from real ones has been clearly mirrored in the Cuestion of ta4ation. 0ince the early days, the 50 has been attem$ting to declare the Internet a ta4-free zone. In 199;, the 50 (ongress ado$ted the &a4 +reedom "ct which was e4tended for another three years in =ecember !00G. In 7ctober !00- the "ct was e4tended by !01G 233, in s$ite of some fears that it could lead to a substantial revenue loss.2 "3 &he 7E(= and the E5 have $romoted the o$$osite view, that the Internet should not have s$ecial ta4ation treatment. &he 7E(=As 7ttawa <rinci$les s$ecify that no difference e4ists between traditional and e-ta4ation that would reCuire s$ecial regulations.2#3 %y a$$lying this $rinci$le, the E5 introduced a new law in !00F reCuesting non-E5 e-commerce com$anies to $ay /"& if they sold goods within the Euro$ean 5nion. &he main motivation for the E5As decision was that non-E5 ,mainly 50. com$anies had an edge over Euro$ean com$anies, which had to $ay /"& on all transactions, including electronic ones. "nother e-ta4ation issue that remains unresolved between the E5 and the 50 is the Cuestion of the location of ta4ation. &he 7ttawa <rinci$les introduced a destination instead of origin $rinci$le of ta4ation. &he 50 government has a strong interest in having ta4ation remain at the origin of transactions, since most e-commerce com$anies are based in the 50. In contrast, the E5As interest in destination ta4ation is largely ins$ired by the actuality that the E5 has more e-commerce consumers than sellers.

E-2!9MENT: E-:!N;IN. !ND E-MONE9

&he common element in various definitions of electronic ,e-. is that financial transactions occur in online environments through the use of online $ayment systems. &he e4istence of an electronic $ayment system is a $re-condition for the successful develo$ment of e-commerce. &he field of electronic $ayments reCuires differentiation between e-ban#ing and e-money. E-ban#ing involves the use of a <( and the Internet to conduct conventional ban#ing o$erations, such as card $ayments or fund transfers. &he novelty is only in the medium, while the ban#ing service remains essentially the same. E-ban#ing $rovides advantages to customers by introducing new services and reducing the costs of transactions. +or e4am$le, customer transactions, which cost H1 in traditional ban#ing, cost only H0.0! in Internet ban#ing.2 13In terms of governance, e-ban#ing $oses new challenges when it comes to the licensing of ban#s by financial authorities. Iow should virtual ban#s be licensed? "nother governance issue, already discussed during the course, is customer $rotection at the international level. E-money , on the other hand, introduces considerable innovation.2 23 &he 50 +ederal Beserve %oard defines e-money as money that moves electronically. Emoney is usually associated with so-called smart cards, issued by com$anies such as :onde4, /isa (ash, and (yber(ash. "ll e-money has the following characteristics* 1. It is stored electronically, ty$ically on a card with magnetic record or a micro$rocessor chi$. !. It is transferred electronically. In most cases, this occurs between consumers and merchants. 0ometimes it is $ossible to conduct transfers between individuals. F. &ransactions involve a com$le4 system, including the issuer of the emoney value, the networ# o$erators, and the clearer of transactions. 0o far, e-money is still in its early stages of develo$ment. It has not been widely used, because of limited security and lac# of $rivacy. E-money might develo$ in two directions* &he first is an evolutionary develo$ment, which would include more so$histicated methods for electronic-based transactions, including the develo$ment of efficient micro-$ayments. 5ltimately, all of those transactions would be anchored in the e4isting ban#ing and monetary system. &he second is a revolutionary develo$ment, which would move e-money out of the control of central ban#s. "lready, the %an# for International 0ettlements ,%I0. has identified a diminished control over ca$ital flow and money su$$ly as ris#s associated with e-money. (once$tually, issuing e-money would be a#in to $rinting money without the control of a central ban#ing institution. 0uch an a$$roach would enable $rivate institutions to issue money $rimarily for e-commerce. "s one $rominent ban#er has stated* the successors to %ill 'ates would have $ut the successors to "lan 'reens$an out of business. 0uch a develo$ment would have considerable im$lications for the future of the state and international relations or, as the same s$ea#er noted, 0ocieties have managed without central ban#s in the $ast. &hey may well do so in the future. 7ther $ossibilities for the use of e-money remain s$eculative. T%e Iss&es

 &he further use of both e-ban#ing and e-money could bring about changes to the worldwide banking system, $roviding customers with additional $ossibilities while simultaneously reducing ban#ing charges. %ric#s-and-mortar ban#ing methods will be seriously challenged by more cost-effective e-ban#ing.233 It should be noted that many traditional ban#s have already ado$ted e-ban#ing. In !00!, there were only F0 virtual ban#s in the 5nited 0tates. 0ecurity is one of the main challenges to the wider de$loyment of e$ayments. Iow can safe financial transactions via the Internet be ensured? Internet security was already covered in $revious segments of this course. 7n this $oint, it is im$ortant to stress the res$onsibility of ban#s and other financial institutions for the security of online transactions. &he main develo$ment in this res$ect was the 0arbanes-74ley "ct, ado$ted by the 50 (ongress as a reaction to the Enron, "rthur "ndersen, and 6orld(om financial scandals. &his act tightens financial control and increases the res$onsibility of financial institutions for the security of online transactions. It also shares the burden of security res$onsibility between customers, who have to demonstrate certain $rudence, and financial institutions.2 "3 0urveys of e-commerce list the lack of payment methods ,e.g., cards. as the third reason, after security and $rivacy, for not using e-commerce. (urrently, e-commerce is almost im$ossible to conduct without credit cards. &his is a significant obstacle for those develo$ing countries that do not have a develo$ed credit card mar#et. &he governments in those countries would have to enact the necessary legal changes in order to enable the faster introduction of card $ayments. In order to foster the develo$ment of e-commerce, governments worldwide would need to encourage all forms of cash-free payments, including credit cards and e-money. &he faster introduction of e-money will reCuire additional governmental regulatory activities. "fter Iong Jong, the first to introduce com$rehensive e-money legislation, the E5 ado$ted the Electronic :oney =irective in !000.2 #3 'overnments are reluctant to introduce e-money due to the $otential ris#s to the authority of the central ban#s. 0erious warnings are $rovided by views such as that e4$ressed by the economist =avid 0a4ton* =igital cash is a threat to every government on this $lanet that wants to manage its own currency. 'overnments are also concerned about the $otential use of e-money for money laundering. 0ome analysts believe that the real e4$ansion of e-commerce is lin#ed to the introduction of effective and reliable services for small transactions. +or e4am$le, Internet users are still reluctant to use credit cards for small $ayments ,of a few Euros>dollars., which are usually charged an additional amount for accessing articles or other services on the Internet. " micro-$ayment scheme based on e-money may $rovide the necessary solution. It is interesting to note that 6F(, the main Internet standardisation body, has ceased its e-commerce>micro$ayment activities, which was a setbac# to the global efforts towards standardisation in this field.2 63 =ue to the nature of the Internet, it is li#ely that e-money will become a global $henomenon E $roviding the reason to address this issue at the international level. 7ne $otential $layer in the field of e-ban#ing is the %asel (ommittee E-%an#ing 'rou$. &his grou$ has already started addressing authorisation, $rudential standards, trans$arency, $rivacy, money laundering, and cross-border su$ervision8 #ey issues for the introduction of e-money.273 /arious forms of electronic $ayments have been develo$ed, $rimarily within the advanced economies. Electronic $ayments reCuire a stable, secure, and functional legal ambience. Iowever, most developing countries

still feature cash-based economies. If the use of cards is allowed at all, it is $redicated on the use of signatures. &his huge discre$ancy also affects the develo$ment of e-commerce and increases the digital divide between the rich )orth and the $oor 0outh. 5nli#e such measures as the $urchase of eCui$ment, the introduction of electronic $ayments reCuires many gradually introduced institutional and technical arrangements. 7ne element essential to both e-commerce and e-$ayments and which cannot be acCuired Cuic#ly is consumer trust. &he recent reCuest from the )ew Kor# 0tate "ttorney 'eneral to <ay<al and (itiban# not to e4ecute $ayments to Internet casinos directly links electronic payment to law enforcement .2<3 6hat the law enforcement authorities could not achieve through legal mechanisms, they could through the control of electronic $ayments.

CON$=MER 2ROTECTION
(onsumer trust is one of the main $reconditions for the success of e-commerce. Ecommerce is still relatively new and consumers are not as confident with it as with real world sho$$ing. (onsumer $rotection is an im$ortant legal method for develo$ing trust in e-commerce. E-commerce regulation should $rotect customers in a number of areas* the online handling of $ayment card information, misleading advertising, and the delivery of defective $roducts. " new idiosyncrasy of ecommerce is the internationalisation of consumer $rotection, which is not vital issue in traditional commerce. In the $ast, consumers rarely needed international $rotection. 6ith e-commerce, an increasing number of transactions ta#e $lace across international borders. Lurisdiction is a significant issue surrounding consumer $rotection. Lurisdiction involves two main a$$roaches. &he first favours the seller ,mainly e-business. and is a country-of-origin>$rescribed-by-seller a$$roach. In this scenario, e-commerce com$anies have the advantage of relying on a $redictable and well-#nown legal environment. &he other a$$roach, which favours the customer, is a country-ofdestination a$$roach. &he main disadvantage for e-commerce com$anies is the $otential for being e4$osed to a wide variety of legal @urisdictions. 7ne $ossible solution to this dilemma is a more intensive harmonisation of consumer $rotection rules, ma#ing the Cuestion of @urisdiction less relevant. "s with other e-commerce issues, the 7E(= assumed the lead by ado$ting the 'uidelines for (onsumer <rotection in the (onte4t of E-commerce ,!000. and the 'uidelines for <rotecting (onsumers from +raudulent and =ece$tive (ommercial <ractices "cross %orders ,!00F..213 &he 7E(= established the main $rinci$les, now ado$ted by a few business associations, including the International (hamber of (ommerce and the (ouncil of %etter %usiness %ureaus. &he E5 offers a high level of e-commerce consumer $rotection. &he $roblem of @urisdiction has been solved via the %russels (onvention, which sti$ulates that consumers will always have recourse to local legal $rotection. "t the global level, no a$$osite international legal instruments have been established. 7ne of the most a$t, the 5) (onvention on (ontracts for the International 0ale of 'oods ,19;0., does not cover consumer contracts and consumer $rotection. " number of $rivate associations and non-governmental organisations also focus on consumer e-commerce $rotection, including (onsumers International,2 23 (onsumer <ro@ect on &echnology,233 the International (onsumer <rotection and Enforcement )etwor#,2"3 and (onsumer 6eb 6atch.2#3 he future development of e-commerce will require either the harmonisation of national laws or a new international regime for e-commerce customer protection.