EU Internet regulation

[Leni Mayo]

>From the London Economist.

Leni
============
Information society in the EU/ Regulating e-commerce

October 9, 1998

The Economist Intelligence Unit via
NewsEdge Corporation : The EU is working
hard to create a legal framework for the
Internet

The advent of electronic commerce has
prompted a slew of initiatives at European
level, all of which reflect a contradiction
between the Commission's and member
states' avowed preference for industrial self-
regulation and the move towards new or
adapted legislation. Indeed, legislation is
creeping into place in a wide variety of EU
policy areas, providing an indication of just
how extensive the impact of e-commerce will
be on both business and consumers alike.

These regulatory initiatives are designed in
part to prevent individual member states
from taking action into their own hands, but
also seek to clarify the legal environment so
that e-commerce can develop smoothly.

This sector-specific rulemaking coincides
with a broader reorientation of EU policies on
vertical restraints and commercial
communications, aimed at bringing these
policies into line with the needs of the single
market. As part of this review, the
Commission has looked closely into what
electronic commerce will require.

As a global phenomenon, initiatives at
European level all have their counterpart
internationally, and the trick will lie in
ensuring near- perfect compatibility. Industry
has a key role to play in assuring such
compatibility and in overseeing the legislative
process to avert a heavy- handed approach.

Getting the balance right

Recent research reveals why it is so
important to get the balance right between
legislation and self-regulation. A study by
Andersen Consulting has shown that
electronic commerce has already enabled
businesses to increase revenue by 10- 20%,
cut costs by 20-45% and reduce working
capital and physical infrastructure
requirements by as much as 60%. Currently
valued at $10bn worldwide, e-commerce is
projected to grow to $500bn or even $1trn
by 2002, according to some pundits.

The range of EU legislation affecting
electronic commerce is at various stages in
the EU's complex legislative process. Among
the most important measures enacted so far
is the so-called transparency mechanism,
adopted in June (BE Jul 15th). Its aim is to
stop member states from trying to regulate "
information society" services at national
level. Any time a government considers
introducing new standards for such services,
it must notify the Commission, which can

then order a standstill to make sure the new
rules do not represent a barrier to
crossborder trade.

On October 24th the EU's data privacy
directive (95/46) and the complementary
ISDN directive (97/66) will come into force,
setting out common rules for protection of
personal data stored or transmitted
electronically. The directive sets out
minimum requirements but calls on individual
sectors to implement the requirements by
drafting codes of conduct. A key concern is
to head off a looming clash with the US,
where self-regulation prevails (BE Jun 17th).

The Commission has proposed a directive to
make sure that all member states
acknowledge the legal validity of digital
signatures on contracts (BE May 20th).
Without such legislation the UK, for example,
will never achieve its objective of making
90% of routine purchases electronically by
2001.

Brussels has also proposed legislation on
electronic money, designed to ensure that
the issuers respect minimum prudential
standards (BE Aug 26th), and rules ensuring
the protection of encrypted services by
banning the import, sale and use of decoders
to gain access to protected services (BE Jun
3rd).

This autumn the Commission should come
forward with its long-awaited proposal for a
framework directive to settle the issues of
legal liability on the Internet. But controversy
even within the Commission over who has
responsibility when illegal material is
transmitted (operators, service providers or
infrastructure owners) could delay this key
directive even further.

If so, it could slow down ongoing discussions
within the Council of Ministers over the draft
directive adapting copyright protection to
the requirements of the digital world (BE Dec
17th). It was hoped that the Council would
approve this proposal in early 1999, but since
it ignored the question of liability, it is certain
that ministers will want to make sure its
provisions are in line with the upcoming
framework directive. (The copyright proposal
set aside liability issues in the belief that
these were best settled in a horizontal
directive dealing with all cases of illegal
transmission--copyright infringements,
pornographic material, drug trafficking or
other criminal activity.)

Equally important, and again tentatively
scheduled for year-end, the Commission will
put forward its strategy and possibly outline
proposals to deal with the issue of
convergence which is blurring the lines
between the IT, telecoms and audiovisual
sectors (BE Aug 26th).

In the integrally related field of telecoms
deregulation the Commission must submit by
year-end a massive review of progress to
date, with proposals for changes. Key
questions which the review should answer
cover whether the definition of universal
service should change to cover Internet
access, and whether steps should be taken
to unbundle ownership of the local loop (ie
the final connection from the network to the
home) from the other activities of former
telecoms monopolies.

Finally, the Commission and member states
are actively involved in the ongoing revision
of Internet governance to replace the
existing US- dominated system which expires
at the end of September (BE Sep 9th).

The international dimension

All these EU activities are feeding into a
multitude of international efforts that should
become more apparent during the two-day
OECD ministerial meeting on electronic
commerce which will be held in Montreal
October 8th-9th. On the agenda will be data
privacy, consumer rights, electronic
signatures and the thorny issue of how to
enforce taxes on the Internet (BE Jul 1st).
The conference will also discuss industry
commissioner Martin Bangemann's idea for an
international charter to improve co-ordination
of Internet-related policies.

Meanwhile Mr Bangemann is backing the
"global business dialogue" (BE Jul 15th),
which was launched at the end of June as a
means of promoting self- regulation, in
recognition that traditional legislative
procedures simply are not fast enough.
Insiders suggest that, since electronic
commerce is a whole new world even for
companies who are actively involved in the
phenomenon, they are just as eager to keep
a watch over what competitors are doing
and thinking, and the Bangemann group
provides this opportunity.

<<The Economist Intelligence Unit --
09-23-98>>

[Copyright 1998, The Economist Intelligence
Unit]