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FTAA.ecom/01
FTAA - Joint Government-Private Sector Committee of Experts
Report with Recommendations to Ministers
Submitted by
September 1, 1999
PART I : INTRODUCTION AND OVERVIEW
Composition, Scope and Function of the Committee
Establishment of the FTAA Joint Government-Private Sector Committee of
Experts on Electronic Commerce was set out in the San Jose Ministerial
Declaration of March 1998 (paragraph 19), and subsequently endorsed by Heads
of State in the Santiago Summit Declaration of April 1998. The status of the
Committee is that of a non-negotiating body, with its composition drawn from
both public officials and private sector experts in the area of electronic
commerce. Membership in the Committee is open to all FTAA governments.
Private-sector experts in the Committee are identified by government
representatives on the basis of their expertise in the issues considered,
and with a view toward establishing balanced geographic representation.
The Joint Government-Private Sector Committee of Experts on Electronic
Commerce was requested by Vice Ministers to:
". . . .make recommendations to ministers on how to increase and
The Joint Committee held five meetings over the past year with broad
participation averaging 20 countries. Private sector experts attended all of
the meetings. The Committee was chaired by Senator Dale Marshall of
Barbados, with Ruben Morales from Guatemala elected as Vice Chair. A
detailed summary of the deliberations of the Joint Committee was prepared by
the Chair.
Overview of Electronic Commerce in the Western Hemisphere
Electronic commerce will be one of the principal means for conducting trade
in 2005 when the Free Trade Area of the Americas is concluded. Already
global electronic commerce stands at an estimated US$100 billion and is
expected to grow exponentially to about US$2-3 trillion by 2005*. During the
same period, the number of Internet users worldwide is forecast to jump from
today's 171 million to 345 million.
Within the Western Hemisphere, a significant disparity currently exists
among the countries of the region with respect to Internet use and
electronic commerce. For example, some 35 percent of U.S. and 25 percent of
Canadian citizens use the Internet, whereas most Latin American countries
have less than 3 percent of their citizens on-line. A similar disparity
exists in regional expenditures on electronic commerce.
At the same time, the recent growth of Internet use in Latin America has
been among the most rapid in the world. Latin America at present accounts
for only about 8 million Internet users, but by the year 2003 it is
estimated that there could be as many as 34 million users in the region.
Under this scenario, Latin America would double its participation rate from
5 percent to approximately10 percent of the world's Internet users.
Moreover, experts expect over half of all Internet users in the year 2005 to
speak a language other than English, with comparable gains made in the
posting of non-English content, thereby broadening usage and eroding
language barriers.
These developments suggest that while electronic commerce holds tremendous
potential for expanding trade throughout the Western Hemisphere and for
increasing the region's competitiveness in international markets, the
challenge lies in ensuring that electronic commerce contributes to the
integration and development of the whole Hemisphere. Attention will need to
be paid to address the opportunities and create an enabling environment in
order to avoid the deepening of inequalities in the access and use of
information technologies that could widen the social and economic gap
between and within countries of the Western Hemisphere.
Electronic commerce can help overcome the comparative disadvantages created
by long distances and geographic barriers, and make it possible to access
each other's markets at substantially lower costs. The dividends could be
especially high for the region's smaller companies and smaller economies
which traditionally have been hampered by limited information, high market
entry costs and distance from markets. While the most immediate gains are
likely to be in business-to-business electronic commerce, especially in the
banking and financial services, online purchases by consumers will continue
to grow. Both are expected to be drivers of electronic commerce.
Throughout the Hemisphere, companies should enjoy higher growth and improved
economic efficiency and profitability, while purchasers/consumers benefit
from broader product choice and lower prices. For governments, information
technologies facilitate the means to reach citizens and offer new
opportunities for information exchange and transparency, training, learning,
and development. At the same time, governments can cut the costs of their
activities, whether operating, procurement or contracting. The resulting
productivity gains should propel the economies of FTAA members, lead to a
higher standard of living for FTAA citizens, and generate new opportunities
for the well-being and development of our communities.
The Joint Committee concludes that electronic commerce can make an important
contribution to future sustainable economic growth in the Western
Hemisphere.
However, there are challenges that must be overcome in order to take full
advantage of the potential economic and social benefits offered by
electronic commerce.
With respect to infrastructure, the growth of electronic commerce in the
Western Hemisphere is slowed by barriers in the form of low quality of
telecommunications infrastructure, narrow bandwidth, and high connection
costs in some countries. The reliability and costs associated with delivery
of goods present additional barriers.
Increasing participation and expanding Internet use in all countries of the
Hemisphere will depend upon raising awareness among individuals and
companies, especially small and medium enterprises, and building a skilled
human resource base able to use and create with digital technologies.
Legal, commercial and financial frameworks were created to deal with
physical transactions and may currently be insufficient to secure the
enforcement of contracts, ensure the validity of electronic signatures, and
effectively protect intellectual property rights to support the growth of
electronic transactions. Low credit card use in the region is also a
problem.
The electronic medium does not initially create the trust characteristic in
"face-to-face" transactions. Uncertainty currently exists among consumers,
both individuals and businesses, that they may not be afforded similar
protections in the online world as they are in the physical world with
regard to privacy, security, authentication, and consumer protection.
Whether or not the region successfully meets these challenges will depend in
large part on the approach that FTAA governments and private sectors adopt
toward this innovative medium.
Electronic commerce is inherently global and transcends borders. Electronic
commerce policies and activities (national, regional, public or private
sector) will be most effective if they are compatible with a global
approach. International cooperation is necessary to avoid having national
approaches fragment regional and global markets, and unduly restrict trade.
Governments, business, consumers and academia must work collaboratively to
create an environment in which electronic commerce can grow to maximize the
social and economic benefits for all.
Governments should act to meet the public interest and create a policy and
regulatory environment for electronic commerce which is flexible, stimulates
innovation and competition, and does not favor any particular technology.
The private sector should play a leading role in stimulating the growth of
electronic commerce through investment and innovation. It also has a key
role to play in partnership with governments and consumers to ensure that
commercial practices build trust and confidence in electronic commerce,
including through effective self-regulation where appropriate.
The Joint Committee urges FTAA Trade Ministers to consider the growth of
electronic commerce a priority for the region and to act expeditiously to
realize its potential.
With a view toward increasing and broadening the benefits of electronic
commerce in the Hemisphere, the Joint Committee makes the following
recommendations.
PART II. RECOMMENDATIONS
BROADENING THE BENEFITS OF ELECTRONIC COMMERCE
A) Strengthening the Information Infrastructure
Network Access/Competition
Taking advantage of global electronic commerce depends upon access to
efficient and reliable telecommunications networks. In many FTAA countries,
this will require significant investment in developing infrastructure, which
in turn will rely heavily on attracting private capital. Regulation,
directed at encouraging competition and ensuring that providers can reach
end-users and each other under reasonable and non-discriminatory terms and
conditions, will tend to promote investment and infrastructure development
and enable e-commerce services and applications to be accessed easily.
Recommendations:
Standards
The continued growth of electronic commerce requires global
interoperability. The private sector, through voluntary associations and
through contributions to intergovernmental organizations, has developed
standards around which telecommunications networks are currently built.
These market-driven standards serve to ensure interoperability, allow
interconnection, broaden market acceptance, reduce costs and allow large
systems, such as the Internet, to be built from equipment and software
provided by a large number of manufacturers. Organizations with broad
membership, transparent practices, and which are responsive to the market
are more likely to develop widely acceptable standards.
Recommendations:
B) Increasing Participation
Governments as Model Users
FTAA Governments and their citizens can benefit significantly from providing
services online and using new technologies to meet citizens? needs.
Governments can reduce costs with resulting fiscal savings, be more
efficient and productive, provide new and improved services, make available
greater amounts of useful information, increase transparency, increase
citizen involvement, and ensure their economies participate in the emerging
digital economy by utilizing the tools of electronic commerce. Because of
their unique role and greater resources, governments can serve as catalysts
for the development of electronic commerce within their countries. The
benefits so generated will have a positive impact on the expectations of the
private sector.
Recommendations:
- the tender and procurement of goods and services;
Smaller Economies
Electronic Commerce has the potential to provide smaller economies with
improved access to information, improved means and ease of communications to
business contacts, lower priced products, reduction of barriers to entry to
world markets, reduced transactions costs and improved potential for
delivery of services. Thus, electronic commerce can enhance innovation and
economic efficiency for the region as a whole.
Recommendations:
Engaging Small/Medium Enterprises (SMEs) in Electronic Commerce
As one of the most dynamic features of a growing economy, SMEs play a
critical role in creating employment and enhancing GDP in the Western
Hemisphere. The use of electronic commerce by the SME community could reduce
traditional barriers to entry such as distance and size and enable them to
be more competitive in the international economy.
Recommendations:
Business-to-Business
Currently, business-to-business electronic commerce comprises the largest
share of electronic commerce activity, accounting for approximately 70
percent of its estimated total value. For the immediate future, it is likely
that the volume of business-to-business electronic commerce will preserve
its dominance over business-to-consumer transactions.
Recommendations:
Raising Skills and Awareness
Education and lifelong learning will be essential if electronic commerce is
to realize its full potential. At the same time, electronic commerce offers
new opportunities for training and education such as through distance
learning.
Recommendations:
C) Clarifying the Rules of the Market
WTO Agreements
The WTO agreements provide a global framework of rules governing trade in
goods, services and intellectual property. In recognition of the increasing
use of electronic means of contracting and delivering goods and services, in
May 1998, WTO Ministers agreed to establish a work programme to examine how
existing agreements apply to electronic transmissions, to identify any new
issues and to analyze the effects of electronic commerce on trade and
development. At the same time they agreed to continue for one year their
existing practice of not applying customs duties to electronic
transmissions. Some of the issues being examined in the work programme are:
(1) The classification of products transmitted electronically as goods or
services.
The results of the work programme and the agreement with respect to customs
duties will be considered by Ministers at the Third WTO Ministerial in
Seattle.
Recommendations:
Intellectual Property Protection
On-line distribution of literary or artistic works offers FTAA citizens the
enormous possibility of accessing goods and services related to commerce,
education, culture, science and training. Ecommerce also enables creators to
acquaint the public throughout the world with their works and
interpretations, or to disseminate research and studies to the world
academic community. The ability to perfectly copy electronic data, to
distribute it instantly on a global basis, and the growth of ecommerce raise
a number of issues for holders of intellectual property and governments
related to the effective protection of intellectual property.
Recently, several FTAA governments participated in the negotiation of two
new WIPO Treaties. The WIPO Copyright Treaty and WIPO Performances and
Phonograms Treaty address important issues of copyright in a digital
environment.
Recommendations:
Internet Governance/ ICANN and ccTLDs
The Internet Corporation for Assigned Names and Numbers (ICANN) is a new,
non-profit international corporation formed to oversee the Internet's core
technical management functions. By September 2000, ICANN is expected to take
over responsibility for coordinating the management of the Domain Names
system, the allocation of IP address spaces, the coordination of the
adoption of new Internet protocol parameters and the management of the
Internet's route server system. These functions are crucial to the Internet
and electronic commerce.
Recommendations:
Taxation and Electronic Payments
With the advent and recent growth of electronic transactions complementing
and in some cases replacing the traditional ways of delivering or exchanging
goods and services, governments are faced with a new challenge to their tax
administrations. The changing business environment is raising new issues for
governments with respect to tax collection and for businesses with respect
to their tax liabilities. Many countries have recognized that electronic
commerce will not reach its full potential if it is subject to
discriminatory tax treatment. Electronic commerce depends upon swift, secure
and effective payment systems. This requires an appropriate policy
framework.
Recommendations:
Contract Law
Electronic commerce depends on the ability of the parties to a transaction
to enter into a binding and legally enforceable agreement. Further analysis
is required to determine whether electronic commerce issues are adequately
covered by existing laws and regulations or whether there is a need to
introduce any changes.
Recommendations:
D) Increase Consumer Confidence/Build Market Confidence
Security and Reliability:
Widespread use of strong encryption is essential for electronic commerce to
flourish in the Western Hemisphere.
Recommendations:
Authentication, Electronic Signatures, and Records
The development and use of authentication technologies play an important
role in building user confidence in electronic commerce. Parties to
electronic transactions must be able to identify each other with certainty
and verify that the content of their messages has not been altered during
transmission. Thus, electronic authentication technologies and methods are
critical enablers of electronic commerce.
Recommendations:
Privacy
The facilitation of global electronic commerce is based upon transborder
access to information and requires consumer confidence that personal data
will not be misused. Guaranteeing the effective protection of data will
require cooperation among governments, consumers and the private-sector.
Differing approaches may be used, including laws, private sector
self-regulation, and/or privacy enhancing technologies. Any approach should
ensure that privacy protection regimes are not applied in a discriminatory
manner nor impede competition and would be enhanced by international
cooperation.
Recommendations:
Consumer Protection
Electronic commerce holds the potential to increase consumer choice,
stimulate price, quality and service competition, and better inform consumer
decision-making. At the same time, electronic commerce could facilitate
schemes to defraud consumers, and creates new challenges both for consumers
seeking to evaluate risks and for businesses seeking to provide traditional
consumer protections in the online environment.
Recommendations:
E) Dealing with Electronic Commerce in the FTAA Negotiations
Electronic commerce has enjoyed a robust growth up to now largely because it
has been unencumbered by the kind of trade barriers which have often
restrained more conventional economic activities. The continuation of such
an environment can continue to provide a major stimulus for the sustained
growth of electronic commerce and its attendant benefits.
Recommendations:
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