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REMARKS OF AMBASSADOR DAVID L. AARON
UNDER SECRETARY OF COMMERCE FOR INTERNATIONAL TRADE
AT E-COMMERCE MEXICO

HOTEL NIKKO, MEXICO CITY
SEPTEMBER 29, 1999

Good afternoon.

This gathering is proof of the growing awareness that electronic commerce can be of great value to Mexico. As it is increasingly adopted by Mexican business, e-commerce will enhance the already great advantages of NAFTA. Conversely, if Mexico does not keep up, NAFTA’s incentives to trade could be eroded by the ease and speed of electronic transactions with other markets.

We hope and expect that the government of Mexico and its private sector will be a strong partner in dealing with the many complex issues that must be resolved for electronic commerce to fulfill its millennial promise.

Today, I would like to talk to you about some of those issues. Specifically, what must be done to safeguard privacy on the internet, to assure consumers that they can conduct electronic transactions with confidence, and to keep cyberspace free of tariff barriers.

The private sector will have an unprecedented role in the creation of a regulatory framework to protect consumers on the Internet. The private sector must take the lead in developing solutions, and market forces must be the judge of their practicality. That is the basis of the Clinton Administration’s 1997 "Framework for Global Electronic Commerce," and these principles have guided all of our policy decisions since.

Government’s role is to advise and monitor, to watch for and legislate against specific abuses and problems, but otherwise to stay out of the way. Too much government -- either in the form of stifling regulation or suffocating duties -- could kill electronic commerce before it has a chance to take flight.

Yet lack of consumer confidence could also stunt the growth of electronic commerce. One private research group estimates that consumer fears already cost $13 billion in lost internet sales. The Internet lacks the familiar features of the marketplace -- showrooms, salespeople, floor models, et cetera -- so other ways must be found to generate trust that consumers will get value for their money, and that the information they provide will not be exploited to their detriment.

Assuring privacy is already better developed than other areas of online consumer protection. This is essential to the future of electronic commerce. People will not want to post their personal information on the Internet without adequate guarantees of confidentiality.

The U.S. has a well-developed data privacy protection regime. First, we target laws at individual privacy problems such as financial information or data on children. Supplementing these laws are industry self-regulatory codes. Individual companies pledge to adhere to the codes, and advertise their adherence. Examples are the Electronic Commerce and Consumer Protection Group, formed by some of the largest computer and telecommunications companies in the U.S.; TrustE; the Better Business Bureau’s BBB OnLine; and a number of others. Hundreds of U.S. companies engaged in electronic commerce have subscribed to one or more of these codes.

But what is to prevent companies subscribing to the codes and then ignoring them? The teeth behind these self-regulatory codes are tough set of fair trade laws administered by the Federal Trade Commission, and state consumer protection agencies.

If a company subscribes to a self-regulatory code and violates it, the company can be deemed to be engaging in deceptive business practices and heavily sanctioned. And almost invariably, the accompanying publicity severely damages the reputations of violators, and thus their ability to do business. So laws, and market, create powerful incentives to subscribe, and adhere, to codes of conduct.

The European Union has arrived at quite a different solution to the privacy issue -- the Directive on Data Protection. It is a comprehensive regulatory program that controls every aspect of personal data collection and distribution, including data privacy czars in each country. Moreover, the EU directive requires that data flows be blocked to countries deemed not to provide adequate privacy protection.

We think that our system is more than adequate. In fact, some of our laws surpass European standards. But the Europeans found our system suspect -- particularly our reliance on self-regulation. Still a cut-off in the flow of data between the U.S. and Europe would have been disastrous to both sides. So last year, the U.S. and EU began a dialogue on the issue.

Reconciling our approach has been difficult. In the 1980s we rejected the comprehensive EU approach as a potential invasion of privacy. The EU Directive was conceived a decade ago in a world of mainframes not today’s distributed information systems. The Internet did not exist. We were faced with the task of applying a rigid regulatory structure to the world’s most advanced information economy -- when most EU states had not yet tried to implement the Directive.

We advanced a proposal to bridge our different systems -- a set of "safe harbor" principles for U.S. companies to follow. The principles cover the seven basic elements of data privacy, such as notice to individuals about data being collected on them, choice as to how information may be used, access to the information, onward transfer, security, data integrity and enforcement. Organizations subscribing to the safe harbor principles would be presumed to be providing adequate privacy protections. Data transfers from the European community to them would continue. We have now essentially settled all the central privacy issues, and are now involved in the lengthy process of nailing down the details, particularly on enforcement.

However, privacy issues remain unsettled elsewhere in the world. About 25 countries have adopted omnibus legislation comparable to the EU directive. Adopting the EU Directive as a template may seem an easy solution, I believe that it will be very difficult to implement. Japan, on the other hand, has taken a self-regulatory approach. Canada now has a uniform though unofficial national standard, and is in the process of formalizing it into law. With the single issue of privacy between the U.S. and EU so time-consuming, we hope the ‘safe harbor’ approach will facilitate consensus on privacy between other nations of the world.

As with data privacy, questions will invariably arise in other aspects of consumer protection that can only be settled among governments.

For instance jurisdiction and liability -- if a consumer purchases online from a foreign business and a dispute arises, which country’s laws apply? In which country does the consumer seek redress? What constitutes fraud or deceptive business practice under one country’s laws might be perfectly legal under another’s. Remedies that are taken for granted in one country may be lacking in another.

Some believe in a blanket rule making the ´´point of sale´´ the place of jurisdiction. We believe that this could lead to a race to the bottom, where the ‘point of sale’ will be countries with little or no consumer protections.

Governments will have to decide this issue but the role of the private sector is still crucial. If reliable means of consumer redress can be developed by businesses, the jurisdiction issue will be much less acute.

One important worldwide forum seeking such a solution is the Global Business Dialogue on Electronic Commerce -- a consortium of world industry leaders.

At its first meeting in Paris recently, the GBDe committed to developing private systems to address the consumer protection challenge. If successful, this will be an unprecedented evolution in global business institutions.

In the Western Hemisphere, the FTAA Joint Government-Private Sector Committee of Experts on Electronic Commerce has been considering consumer protection among other important issues. Earlier this month it completed its draft report with recommendations to ministers. This is a significant step in the development of electronic commerce in a region where the Internet is still relatively new but where growth has been among the most rapid in the world.

There are many more regional groups at work around the world -- the Transatlantic Business Dialogue between the U.S. and the EU, the OECD, APEC, and so on. The private sector is involved in every forum. Eventually, all this work will need to coalesce into the worldwide consensus we seek. Above all, governments must resist the temptation to attempt to impose their own internal laws and attitudes on what should be a truly global system.

While we are trying to counter threats to the free flow of data used in electronic commerce, we are also working to keep electronic commerce free in another sense -- duty-free. Cyberspace, a world with no natural borders, has as yet no trade barriers. We believe that cyberspace must remain duty-free, if it is to achieve its potential. Recognizing that, the members of the WTO a moratorium on imposition of duties on electronic commerce transactions. It remains in effect until the Seattle Ministerial.

The United States led the movement for duty-free treatment of electronic transmissions at the last WTO Ministerial. This time several other countries have put forth detailed proposals on the issue.

With minor reservations, we can support a bold proposal by Indonesia and Singapore, which would put the WTO on record as extending and broadening the duty-free status of electronic transmission.

The proposal would strengthen the current moratorium by foregoing tariffs not only on electronic transmissions, but also on their physical counterparts. So, for example, since books, music and computer software downloadable from the virtual world would be tax free, so would books, music and computer software in the physical world.

This approach would not only further liberalize trade by removing tariffs on some goods, it would remove any disparity in the tariff treatment of like products that exist in both digital and physical form. The proposal would not, however, affect tariffs that might apply to goods ordered over the Internet that only exist in the physical world -- such as a blouse or a shipment of steel. And the proposal is limited to tariffs at the border. It would not affect a country’s tax policies.

Australia and Japan have also made constructive and useful proposals. We are particularly in agreement with the Australian principle of support for a minimalist, industry-led regulatory approach.

Of four proposals now on the table, the least appealing is that advanced by the European Union, which we fear could pave the way for duties and a burdensome regulatory regime in the future.

For example, the EU wants to label all electronic deliveries as "services." This would allow much more latitude for governments to restrict market access in areas such as audio-visual transmissions and possibly even software. This idea has little support outside Europe.

We are trying to appeal to the common sense and economic interest of all countries to build support for the much more constructive approach of Indonesia and Singapore. We urge the government of Mexico to study the proposals carefully, and hope it will support one or another of the WTO proposals that ensure the continuation of duty-free electronic commerce.

In conclusion, let me stress that there are a number of complex issues to be worked out in the development of electronic commerce. Government have a role. However, the temptation on the part of governments to do too much, to meddle, to direct, to control is going to be great -- already is great, as our experience with Europe shows. Governments must resist that temptation. For if governments stop electronic commerce short of its vast potential, they will not have served their people well. At the same time the private sector must step forward and accept the responsibilities that global e-commerce demands.

There is a saying in the United States, "Lead, follow or get out of the way." The last option is not one with which government is very familiar. Businesses around the world may not be accustomed to the first. But in the case of electronic commerce, that’s the way to go. So the U.S. will continue -- at the WTO and every other possible forum -- to urge other governments to join us on the sidelines, where we belong.

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