1 FEDERAL TRADE COMMISSION I N D E X SESSIONS: PAGE NO.: Electronic Commerce In American Trade Policy 3 Overview of the History and Future of the Internet 21 Jurisdiction and Choice of Law for Consumer Protection in E-Commerce: U.S. Perspectives 70 Alternative Frameworks: Role and Policy and Efficacy of Private Sector Initiatives 174 Jurisdiction and Choice of Law For Consumer Protection in E-Commerce: International Perspectives 244 Next Steps: What Should Government, Industry and Consumers Do Now? 316 For The Record, Inc. (301) 870-8025 2 FEDERAL TRADE COMMISSION In the Matter of: ) Global E-Marketplace ) File No. P994312 -------------------------) Wednesday, June 9, 1999 Room 432 Federal Trade Commission 6th & Pennsylvania Avenue, N.W. Washington, D.C. 20580 The above-entitled matter came on for discussion, pursuant to notice, at 9:00 a.m. For The Record, Inc. (301) 870-8025 3 U.S. PERSPECTIVES ON CONSUMER PROTECTION IN THE GLOBAL ELECTRONIC MARKETPLACE WEDNESDAY, JUNE 9, 1999 9:15 a.m. ELECTRONIC COMMERCE IN AMERICAN TRADE POLICY AMBASSADOR CHARLENE BARSHEFSKY U.S. TRADE REPRESENTATIVE REPORTED BY: LINDA BAHUR For The Record, Inc. (301) 870-8025 4 PANEL MEMBERS AMBASSADOR JEAN ANN FOX DAVID FARES CAITLIN HALLIGAN DAVID JOHNSON JONATHAN RUSCH JACK GOLDSMITH MARK SILBERGELD ANDREW PINCUS MANEESHA MITHAL TERESA SCHWARTZ LISA ROSENTHAL COMMISSIONER SWINDLE COMMISSIONER ANTHONY CHAIRMAN COMMISSIONER THOMPSON PETER HARTER TIM PHILIPS CARLA MICHELOTTI For The Record, Inc. (301) 870-8025 5 P R O C E E D I N G S - - - - - - MS. BARSHEFSKY: Good morning. I want to thank Chairman Pitofsky for inviting me to speak with you today. Our topic today is by no means a simple one. Electronic commerce, and the broader phenomenon of the Internet, are in their infancy. They are developing with great speed and unpredictable consequences, and are already forcing governments to think differently about many issues. Trade is no exception. And today I would like to offer some thoughts about the principles and specific objectives we believe can be a guide to trade policy as this new world develops. The Information Revolution, to begin with, is changing life and work in almost every field. In health, telemedicine is transforming rural health care as family doctors consult online with the NIH and the Centers for Disease Control. In science, virtual reality guides microscopic camera through blood vessels or a For The Record, Inc. (301) 870-8025 6 robot across the landscape of Mars. In travel, the Global Positioning Service helps safeguard shipping, makes family vacations easier and safer through immediate warnings of bad weather or traffic jams ahead or fights with kids. In the public life, democracy is strengthened as web site and e-mail gives students and citizens access to news information and debate. Of course, this has its darker side as hate groups and criminal organizations can use it as well. Information revolution is also changing business and trade. Global electronic commerce, the use of Net and other forms of electronic transmissions to buy and sell, will make companies more efficient as computers allow them to cut inventories, provide better and more timely customer service and meet consumer demand more effectively. To give a concrete example, estimates are that when you go to a bank, your transaction with the teller will cost about a dollar; when you use an ATM, the transaction will cost about 50 scents; when you use the Net, it drops to 13 For The Record, Inc. (301) 870-8025 7 cents. Likewise, the Net will make trade and make international business far easier than before. It will allow businesses and customers to find one another more rapidly, reduce the complexity of finding and filling out paperwork and erase borders completely for products available in digital form. Especially interesting and exciting is the potential of electronic commerce to spur entrepreneurialism particularly in disadvantaged areas where cost of capital are too high and risk adversity is common. And for consumers, electronic commerce will raise living standards and create new tremendous sources of leverage over companies. It gives consumers the power to compare price and quality among vendors all over the world. It makes daily life more convenient as consumers bypass, for example, department stores or malls in favor of ordering things off the Net and getting delivery directly at home. Electronic commerce, though, also raises a number of troubling questions. Governments must reflect on the way ways to adapt national For The Record, Inc. (301) 870-8025 8 trade and crime-fighting policies to a borderless world. Consumers and businesses, too, know that together with raising living standards and better prices come questions about Internet scam artists, abuse of credit cards, a collection of personal date and so on. And so, our immediate challenge emerges. Consumers should get the maximum benefits of these new technologies. Our companies, our national economy and our trade partners should be able to use them to the best effect. And at the same time, we must maintain high standards of public safety, privacy and consumer protection to help define the quality of life. This is a very complex challenge, made more so by the rapid growth of the Internet and e-commerce. The Net, with 3 million users in 1995, now has about 140 million, with 52,000 new Americans logging on each day. By 2005, it may reach a billion people around the world. Electronic commerce, which totalled about $200 billion, may reach 1.3 trillion in the U.S. alone by 2003. And new product and services develop every moment: From remote monitoring for forest health to long-distance education and more. For The Record, Inc. (301) 870-8025 9 At the same time, though, we're not necessarily faced with an utterly new and alien set of concepts. Electronic commerce and the Internet are new developments which depend on state-of-the-art technology. But they also represent something of a logical developments of earlier innovations in communications and information technology dating to the telegraph and the telephone a hundred years ago and more. So, while we must adapt our thinking and our policies in certain important ways, our traditional principles remain valid. We have generally believed that the government policies shall be in the form of self-regulation where possible, rather than attempts to control the development of industries and technologies. Where this does not succeed, of course, the government has an obligation to protect citizens, especially those most vulnerable, through impartial means. And in either case, we have maintained an open and non-discriminatory market, believing that trade generally creates competition and raises living standards. These principles, we believe, will be valid in the electronic commerce. It will be For The Record, Inc. (301) 870-8025 10 very difficult to predict precisely how an electronic marketplace will develop, so we don't propose to try; rather, we will whenever possible leave this to the private sector and to the market. Further, while government action to fight crime, protect children and protect privacy will be necessary, evaluating the need for new regulations will be a very complex task. Unless the decisions we ultimately make rest on a strong consensus among the private sector and consumers alike as well as governments, we will most likely see a set of regulations that are both burdensome for businesses and consumers and ineffective in their primary objective. And finally, there are no natural borders to cyberspace and the development of policies and solutions must ultimately be a worldwide effort. This action takes place in many different arenas. Over the past several years, we've been developing an institutional infrastructure for e-commerce to give businesses and consumers confidence and predictability we enjoy in traditional form of commerce. The issues involved ranging from managing domain names to For The Record, Inc. (301) 870-8025 11 establishing standards and a legal framework for digital signatures, ensuring adequate privacy protection, addressing tax implication as and so on. All of these issues are very important to the future of e-commerce and our colleagues in other agencies are addressing them through international talks and in our domestic agenda. But in trade policy, we are developing our broader principles through specific objectives at the WTO and through advisory committees in the regional and bilateral trade initiatives we have under way in each part of the world. These goals fall into three major categories: First, guaranteeing the unimpeded development of e-commerce. Second, ensuring enforcement of existing regulations to protect consumers, fight crime and so forth; and third, extending access to the electronic marketplace worldwide. Let me just review briefly each of these objectives in turn. First, we want to help ensure the unimpeded development of e-commerce. And here, we have several specific objectives: Duty-free cyberspace, technological neutrality, and ensuring the most liberal treatment of For The Record, Inc. (301) 870-8025 12 products carried on electronic transmissions. The most immediate initiative is to keep cyberspace duty-free. That is, to prevent the imposition of customs tariffs on electronic transmissions on the Net. To impose tariffs will be terribly burdensome. It will burden, of course the technology. That will be lightened only by the difficulty of collecting the charges. It would both slow the growth of e-commerce, and encourage that growth ultimately to take place outside the law. Today, there are no customer duties on phone messages, on fax, on data transmissions and that kind of cute duty-treatment should be applied also on a permanent basis to electronic transactions on the net. We have a temporary standstill in the WTO in this issue and we look forward to renewing that this year in Seattle in the fall.