March II 2009

Fredric Morris, Editor-In-Chief, Connect-World
Fredric Morris

eRegulation – smoother than expected square wheels

Regulating anything can be a messy business. Regulating the world of ‘e’ – eCommerce, eFinance, eBanking, eServices, eAnything, online digital rights management, the Internet itself – is messy enough for the story lines of a whole slew of low-budget terror movies, and it gets even messier if it is international. Regulations in each country for online dealings are as different as the legal systems themselves and the culture of the country. They cover different pieces of the eWorld, they regulate them differently and enforce the regulations – or not – as they see fit. Despite the confusion, the eWorld is growing and this system, as makeshift as it seems, has generated enough friction to raise concerns and stimulate legislative concerns – but not enough raise a general alarm.

Most of us have never given the question a thought. The few who do either are in government or international organizations – or have businesses that stand to gain or lose depending upon the regulatory winds. Some consumers have found, to their disappointment or grief, that eCommerce is a slippery beast that slides past regulations developed over the years and centuries to deal with brick and mortar transactions.

The bigger countries, the international trade organizations, the EU and such have studied the question, published guidelines and even enacted laws and regulations, but it will be many years before there is a consolidated, consecrated, body of eLaw to deal reliably with all the issues involved.

Many of the problems associated with eRegulation are the direct result of the history of the Internet, or rather the lack thereof. In its short history, the Internet has passed from a tool for researchers, the military and government agencies to a global phenomenon. The Web is an integral part of the social and business lives of hundreds of millions of people. It is one of the world’s largest and most diverse marketplaces. It is the world’s greatest source of information – its reference library. The Web is a major source of entertainment, of news, of political debate, a focal point for science, for fantasy, for crime, a focal point, indeed, for almost every human activity.

Regulation and control was not an issue when the Web was designed, but given the reach of the activities online it is now a pressing need. Where do you start, how do you devise comprehensive legislation and regulation for a phenomenon that covers just about every conceivable human activity, especially when one considers the enormous diversity of interests in our society. The Internet, itself, the greatest public forum in the history of humankind, contributes to the difficulty; never before have so many people been aware of the issues or had a way to make themselves heard.

The very philosophy of the Web, implicitly believed by hoards of users, is that the Web is an instrument to extend our civil liberties by making all information (and just about everything else) free. It is important to remember that supporting deregulated markets was, until the recent financial market meltdown, considered an almost sacred obligation of forward-minded thinkers, so this, too, has made it difficult to comprehensively regulate the Internet.

Despite the ardent, but not always justified, positions the overwhelming need for regulation to protect users has pushed forward a patchwork of protective regulations. Regulatory issues still have to be decisively addressed, to sort out legal issues relating to contractual obligations and to deal with buy/sell transactions, intellectual rights, money transfers, digital services, advertising, child protection, questions of privacy, of fraud and a range of other questions. Although in the ‘real world’ we have a long history of regulating trade and protecting businesses and consumers alike, in the digital world we often seem at a loss or at odds.

Businesses want regulations that set eCommerce on a charted path, one that can be evaluated in unambiguous black or white terms; on the other hand they want to be sure the regulations do not take away any advantages they have in the free, unregulated, environment. In keeping with the prevailing competitive free market philosophy of recent decades, regulators and legislators have sought – as they have while liberalising the telecom sector – to ‘level the playing field’ for all competitors. Although legislators and regulators have had some success – more in the EU for example than the US – businesses and business associations have long called for a self-regulatory approach.

Given the conflicting interests involved, it was something of a wonder that practical good sense has triumphed in many instance around the world. Rules have been established which give the market some semblance of order and credibility without which it could not grow. Still, the rules are far from perfect and the balance of forces on each side of the issue is likely to hobble the pace of regulation for years to come. To be fair, no one really knows what is needed or how to achieve it. It took centuries for today’s ‘real world’ laws to take shape and they are still constantly pinched, poked tweaked and stretched as the need arises. Digital regulations still have a long way to go.

Finding cyberspace on the map is a problem for regulators. What laws, from what country, apply to a place you can’t find? When there is a cross border digital transaction, a fraud, a felony, a question of privacy violation, a financial transaction that goes awry – in what court do you settle it, using the laws of what country? Real world rules may not apply at all in many cases.

Many countries apply a ‘country of origin principle’ to determine which country has jurisdiction and which laws to follow. Now that sounds simple, doesn’t it? Well, in practice, things are not quite so neat; there is no universal law that says either party must necessarily agree. There are even areas where it is commonly recognised that the origin principle simply does not apply. This is the case, for example, with intellectual property rights such as copyrights, eMoney, spam and real estate transfers among others. Sovereign states can, and do, pass laws that ignore the country of origin principle when questions of public interest, consumer protection, national security, public safety and health are involved.

It is easy to let international organisations such as the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), draw up the rules, but they cannot pass laws, at best, they establish standards that the world’s countries might, or not, adopt. Then too, these groups lack the diplomatic credentials and reach needed to forge a global consensus that takes into account the interests of all segments of society. The EU, because of its structure, has the best chance of harmonising the regulations of its members, but even this falls short of the ideal – worldwide, universally adopted, regulations – since the EU only wields a stick in Europe.

Taxes are a problem for most governments and there is no universally agreed way for governments to dip their hands into the consumer’s pockets when business is transacted online. In the EU, value added taxes are tacked onto each transaction, but this has been hard, rather impossible, to collect when international transactions are involved. There has been talk for many years about requiring companies to register, collect and pay taxes in the countries where they do digital business, but anything that requires countries to collaborate on tax legislation, and involves so many conflicting special interests, is not going to happen quickly – if at all.

The United States Internet Tax Freedom Act of 2000 does not bar local sales taxes; online transactions pay the same taxes as any other, but the Act does prohibit taxes that apply only to the Internet, including Internet usage taxes and direct taxes on eCommerce. That, of course, does not mean that cities and states will stop trying to squeeze some money from the Net. So far, they have not had much success.

Privacy is another area where international regulation varies widely from country to country. The EU, as in so many areas, is a leader. Its Data Privacy Directive serves as a model for regulators in many parts of the world, but it cannot impose it on businesses from other countries. Businesses in the United States, after much pressure, consented to a form of auto-regulation in matters of privacy and the U.S. Federal Trade Commission (FTC) agreed to enforce it and punish the transgression of the privacy directive where the personal and financial information of EU consumers was involved.

To earn the trust of consumers, many companies promised to abide by U.S. Department of Commerce’s Safe Harbor Privacy Framework, which call for notifying consumers of the company’s privacy policies and giving customers the right to forbid disclosure to third parties among other rights.

The Internet is supposedly the worldwide equalizer, in principle, it gives everyone free access to information and tools to exchange it. Regulators around the world have tried to restrict access to material deemed harmful to children or society – pornography, hate sites, terrorist propaganda, instructions to make bombs and the like, but their efforts have often drawn fire from civil libertarians concerned about any attempt to abridge free speech and access to information. Many of the libertarians share the fears of the regulators regarding harmful materials, but they are even more fearful of censorship of the Web, so attempts to control content have been highly controversial. Opponents of Internet regulation point to attempts by countries such as China, among others, to control the content its citizens can view; such countries tend to view the control of information flowing over its borders as a question of national sovereignty and security.

The Internet, the Web, is an agent of profound social change. So far, considering its superficial anarchy, the Web has done much better at managing itself – if not exactly regulating – than we have any right to expect. Laws, social customs and even ethics evolve in response to all important agents of change, but it takes time for society to reach some sort of working consensus. In the past, we had centuries or decades for the right sort of structures to evolve and, even then, there were often severe social and economic dislocations and wars. The Web was born about 20 years ago, but it only really began to grow in the last ten years or so.

We haven’t got it quite right yet, but I don’t see high tech counterparts of the early industrial revolution-type sweat shops, rampant disease or a collapse of the old order. I see social and economic progress in the remotest and poorest regions of the world. Sure, there is spam and viruses and all sorts of crooked dealing, but that has always been part and parcel of every human society, we just code it in bits and bytes today.

The Information Society still has a lot to learn, negotiate and regulate, but all considered – slips, slides, falls and bangs – we are doing a sensational job of keeping the train on track despite the square regulatory wheels inherited from earlier revolutions. Nice going for a toddler.


The next issue of Connect-World Europe will be published next month. This edition of Connect-World will be widely distributed to our reader base and, as well, at shows such as: Sviaz/Expo Comm, Moscow (May 12-15, 2009)

The theme of this issue of Connect-World Europe will be – ICT and the EU Innovation Agenda

The EU has actively promoted innovation of all types through a series of programmes and conferences. The EU has committed over €2 billion to its plans for “Inventing the Future” by promoting research and development in ICT, including its use in such leading edge fields as ICT-bio, photonics, robotics and cognition. The far-reaching EU development programmes promise to open new markets, new sectors, and bring new players. This issue of Connect-World Europe will track the progress and the promise of these important EU initiatives.

Europe 2009 Media Pack; Click here


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