E-commerce has become one of the important mantras of branching out and marketing, in the business circle. Technological convergence, deep urban/rural penetration of personal computers, increasing computer literacy and training, liberalization of telecommunication policy and the availability of cheap Internet connectivity are factors that influenced both consumer as well as business behavior in favour of E-Commerce.
For business houses ‘the lure of conducting global operations through a web site has become irresistible…because a page on the World Wide Web can reach web surfers in every state in the nation and perhaps every nation on earth.’ [1] Attracted to the possibilities of E-Commerce, for a possible market expansion, and with hope of exploiting more avenues of trade in the international market, Internet has become another market place, though virtual.
DEFINITIONS OF E-COMMERCE
As commercial transactions over the Internet has captured the attention of businessmen, policy-makers, regulators and academics, they defined it using various terminologies such as Electronic Commerce [2] Internet Commerce etc. and to grasp the essence of these terms various attempts have been made to define them in various ways.
1. Qualitative and narrow definitions
Paying great attention to the qualitative changes the Internet has specifically brought to electronic commercial transactions; some define E-Commerce as buying and selling of goods and services via the Internet. [3] In the same manner some define it more narrowly concentrating on the benefits of business-to-consumer transactions on the Internet. They define E-Commerce as retail sales to consumers for which the transaction and payment take place on open networks like the Internet.
Criticisms against these definitions
These definitions tend to limit the potential of electronic commerce and its broader economic implications by totally forgetting the Business-to-Business [4] transactions and Consumer-to-Consumer [5] transactions that take place using the Internet. The reality is that E-Commerce transactions are much numerous and larger than Business-to-business and Consumer-to-Consumer commerce in terms of revenue and transaction size. By the same token, this definition also fails to consider E-Commerce transactions done through other modes of electronic networks like telephones and fax machines.
2. Broad Definitions of E-Commerce
According to few definitions E-Commerce is viewed to embrace all commercial and economic transactions that take place electronically, including Electronic Data Interchange [6] and Electronic Funds Transfer. [7] An example for such a definition is given by Organisation for Economic Cooperation and Development (OECD), which runs as follows:
All forms of transactions relating to commercial activities, including both organizations and individuals, that are based on the processing and transmission of digitized data, including text, sound, and visual images. [8]
According to this view, the use of Internet is not required for E-Commerce and includes all forms of transactions that process and transmit digitized data including text, sound and visual images. Even a commercial transaction involving telephone lines and fax machines would come under the definition of E-Commerce.
Another definition, which could be included under this category, runs as follows:
The application of information and communication technologies to one or more of three basic activities related to commercial transactions: (1) production and support, that is, sustaining production, distribution, and maintenance chains for traded goods and services; (2) transaction preparation, that is, getting product information into the market-place and bringing buyers and sellers into contract with each other; and (3) transaction completion, that is, concluding transactions, transferring payments, and securing financial services. [9]
IMPORTANT ISSUES IN GLOBAL E-COMMERCE
In the modern times E-Commerce has increasingly emerged as an important means of business and trade. But at the same time it has posed various challenges to national policy makers and legislators as regards its governance. Furthermore, its born global nature has created various jurisdictional issues, raising controversies over who should have authority to decide in case of a dispute as well as how they should be handled. Because of these reasons E-Commerce and its governance are involved in various policy dilemmas and issues. The following issues need special attention.
1)Issues relating to Access: Access issues include access to infrastructure,
access to content, universal access.
2)Issues relating to Trust: The various trust related issues are privacy, security, consumer protection and content regulation.
3)Issues relating to Ground Rules: Issues relating to ground rules are issues of taxation, intellectual property rights, commercial laws including contract law, international trade and standards are categorized as ground rules-related issues.
A. Issues relating to Access
The following are the main issues related to access. If E-Commerce is to spread into the population within a country as well as globally, these issues must be addressed and resolved in a timely manner at the domestic and international levels.
i. Access to infrastructure
In order to conduct commercial transactions over the Internet, consumers and business people must first have access to telecommunications networks and services, including backbone networks. Once connection to the networks and services is ensured, in turn, their capacities and quality become important for the users. It is thus of critical importance for E-Commerce to ensure that a proper and efficient access be available.
ii. Access to content
While access to infrastructure is a necessary condition for people to adopt and participate in E-Commerce, various types of content transmitted over this infrastructure are also critical elements for the success of E-Commerce. The contents have to be competitive as well as respecting the cultural values of others.
iii. Universal access
Connectivity to telecommunications networks is a prerequisite for enjoying the benefits of E-Commerce. With the increasing importance of Information and Communication Technologies in our everyday lives, universal availability of various communication services, including basic telephone service, is regarded as a principal policy objective in competitive market environment. At the same time a large number of people are even without the basic telephone services. This gap in the world population is called as digital divide.
Digital divide and universal access
“The term digital divide refers to the gap between those people with effective access to digital and information technology, and those without access to it. It includes the imbalances in physical access to technology, as well as the imbalances in resources and skills needed to effectively participate as a digital citizen. In others words, it’s the unequal access by some members of the society to information and communications technology, and the unequal acquisition of related skills.” [10] The OECD defines the digital divide as “the gap between individuals, households, businesses and geographic areas at different socio-economic levels with regard both to their opportunities to access information and communication technologies and to their use of the Internet for a wide variety of activities.” [11]
The digital divide affects the people’s capacity to access modern Information and Communication Technologies, which in turn impedes their capacity to access Internet and E-Commerce.
B. Issues relating to Trust
There is a need of trust when we engage in a relationship or interaction with other people. Generally lack of knowledge of those people requires us to take risks in the relationship or interaction. Renowned scholar Arrow says “virtually every commercial transaction has within itself an element of trust, certainly any transaction conducted over a period of time.” [12] Any type of commercial transaction presupposes trust between the transacting parties. In any contract parties to it must trust each other and perform their part of the contract. In normal contracts the rules and procedures for dealing with instances of breach of trust are all ready laid down. But this continues to be a problem in E-Commerce.
Any form of E-Commerce will never become successful unless the trading parties trust each other as well as the system through which the transaction is made. An analysis of this area would reveal that the following elements are critical for developing trust in a E-Commerce system:
1)Privacy and data protection
2)Security
3)Consumer Protection, and
4)Content Regulation
i. Privacy
Generally it is believed that privacy is a necessary precondition for trust. [13] But the increase of electronically mediated transactions over the information and communication network raises regulatory concerns on the collection, storing and manipulation of personal information without consent or even knowledge of consumers. Databases of consumer information may contain personal information. [14] There is a chance that without the consent or knowledge of consumers, those databases may be shared with or sold to others to whom the consumers have not chosen to give their personal information. Because of these matters the protection of privacy has emerged as one of the most important policy issues among policy-makers, businesses and consumers. At the same time the growth of E-Commerce is inevitably connected with and relies on the collection, storing of personal information obtained by voluntary and involuntary consumer surveillance. Taking these things into consideration the task of the policy makers to balance these conflicting interests becomes difficult.
ii. Security
The full potential of E-Commerce cannot be achieved until the system is capable of providing the same levels of trust found in traditional commercial transactions. This can be accomplished only if consumers of E-Commerce are confident of the security of transmitted information. Among the prime security concerns of E-Commerce confidentiality [15] , authentication [16] and integrity [17] of information are most important.
Encryption technologies and trust
E-Commerce security can be defined as “a protection of an information resource from the threats and risks in the confidentiality, authenticity andintegrity of the electronic transactions transmitted via a network” [18] With the rapid increase of amount and scope of information flow via the electronic networks raises concerns of fraud and misuse of data. [19] To solve this problem a reliable and strong cryptographic mechanism has to be used.
What is encryption?
Encryption is a process for protecting information by scrambling the contents to make it difficult and time consuming for an unauthorized recipient to unscramble and view the information. [20] To put it another way it renders electronic information unreadable, thereby guaranteeing confidentiality, security and integrity of the information. Its applications include protecting files from theft or unauthorized access, keeping communications secure from interception, and enabling secure transactions. [21]
iii. Consumer protection
Price and product information are essential for consumers to make informed purchasing decisions in any market. When a commercial transaction is made between parties without a direct face-to-face contact or a physical inspection of products, the lack of this information affects legitimate expectations of the consumers to receive quality goods and products. Unfortunately most of the B2C E-Commerce transactions are of this kind. The following two factors make this issue even more complicated:
Competition among the business: The competition results in an increasing entry of businesses into the E-market and the tendency of these people to go for unethical and unfair trade practices are also on the increase.
Convergence: [22] When convergence offers bundles of communication services in the same platform, the provision of reliable and detailed product and price information become more critical for the consumers. The consumers must be confident that they will be protected in the electronic marketplace as much as they are in the real marketplace. There are many consumer protection issues identified at various international forums as crucial for the further growth of electronic commerce.
The following are some of those major consumer issues [23] in the e-commerce:
1)Fairness and truthfulness in advertising. Some of the online merchants advertise their products and services in an unfair and unethical way so as to attract more number of customers. In real space commerce the customers can approach various authorities and courts with complaints. But this is difficult in e commerce particularly in the context of e-commerce across national borders. A small retail customer may find difficulty in approaching an authority in another country where the seller is situated.
2)Labeling and other disclosure requirements such as guarantees, product standards and specifications: Each country has got its own standards in labeling, quality of the product and terms and conditions regarding guarantee. In the cross border e-commerce if any of these standards are not maintained it would be difficult for a customer to seek remedy against this.
3)Refund mechanism in the case of cancelled orders, defective products, returned purchases and lost deliveries etc. This is another serious issue in the e-commerce. Proving the cancellation of orders, or a defect in the goods or services etc would depend on him proving these circumstances. Taking the global nature of e-commerce it would be really difficult to get the money back from the seller.
The Global Information Infrastructure Commission [24] also points out certain other areas of concern, which are as follows: [25]
1)Online fraud: The instances of online frauds are on the increase. A person who loses money in any of such frauds may face difficulty in enforcing his rights.
2)Privacy protection: It is also important that confidential information such as credit card information, bank account number etc. should be protected. Internet is a medium through which these information are very often misused.
3) Authentication and security of information: Similarly an ordinary consumer would also face difficulty in verifying the authentication and security information in an online atmosphere.
4)Lack of Consumer education: Many persons who use online platforms to engage in commercial activities fail to understand the vulnerability of Internet and taking appropriate safeguards.
In order create a trust-conducive environment for electronic commerce consumer protection issues will have to be answered. The governments across the globe will have to device reliable protection mechanisms with the help of industry and others. As a useful form of aid, the new Information and Communication Technologies may be utilized by regulators and consumer advocates for devising innovative solutions for consumer protection and education. [26]
iv. Content regulation
With the opening of borders and markets and the elimination of barriers to almost any form of communication, there will inevitably be certain types of transmission that will be deemed inappropriate, offensive or harmful to certain segments of consumers and users of E-Commerce. Adult materials, hate speech against minors and sedition are leading examples of those expressions that raise public concerns. There are various conflicting interests in these issues. For example those who bother about the vulnerability of minors to these harmful Internet contents advocate for regulatory intervention by government. At the same time another class argue against any such intervention on the ground of speech and expression. This is a problem for policy makers that the problem should be solved without deterring the growth of E-Commerce.
C. Issues regarding ground rules
When the E-Commerce develops as an important method of domestic as well as international trade and business, there is a requirement of a common ground rules and standards across the globe apart from the existing standards that are based on the national boundary of each State. New or modified rules and standards of governing E-Commerce are needed with respect to many issues of crucial importance to the development of electronic commerce. [27] The important issues are as follows:
1)Taxation
2)Intellectual Property Rights
3)International trade
4)Commercial law and standards
5)Dispute Resolution.
i. Taxation
As E-Commerce increased commercial transactions across national borders, the taxation issue has become one of the most debated topics. E-Commerce is considered by many national tax administrations not only as having the potential for creating a new stream of revenues but also as presenting daunting challenges to national tax systems because new technologies used for E-Commerce open up probabilities of tax evasion and avoidance. In order to properly tax commercial transactions, it is critical to establish the systems by which the tax authorities can obtain accurate and necessary information on those transactions, regarding transacting parties, time, place and volume. However, unlike traditional commerce, some unique aspects of electronic commerce greatly affect the way national tax systems operate. [28] Even though many scholars believe that existing domestic andinternational tax regulations may well fit E-Commerce, nonetheless, this new type of commercial transaction raises the need of modification and adjustment of these existing regulations because of the born-global nature of E-Commerce. In the past few years mainly three taxation issues have been much debated in international discussion. They are:
â- Issues regarding classification
â- Issues regarding source and place of residence
â- Double taxation and tax evasion
Issues regarding classification
The main issue regarding classification is that whether E-Commerce transactions are regarded as transactions of goods or services. This is really important for cross-border transactions because different classes of transactions are treated differently for tax purposes. In other words the question would be the applicability of General Agreement on Tariffs and Trade (GATT) or General Agreement on Trade in Services (GATS).
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Traditionally, goods are treated as end products that can be converted into a tangible or physical product. But Services are intangibles that cannot be converted into physical goods. [29] If E-Commerce transactions were classified as sales of goods, GATT rules would apply because when goods are physically moved across national borders, they are usually subjected to tariff as the GATT rules apply. On the contrary, if E-Commerce transactions were classified as sales of service, GATS rules would apply where tariffs will not be applied. At the same time a clear distinction between goods and services is always confusing in E-Commerce.
An example for this issue is given below. When software is ordered electronically and then is shipped physically in a CD, it could be classified as goods and are subject to tariffs. The confusion arises when the software is directly downloaded from the Internet across the border. It is unclear whether this software should be classified as goods or services and what multilateral rules would apply to them. Due to this problem of classification, in 1998, the WTO member states agreed to a two-year moratorium on tariffs on E-Commerce.
Issues regarding source and place of residence
The direct tax system in any country would normally be clear regarding who is liable for taxes and, for those who are what income is subject to tax. [30] Traditionally, source and residence are two basic concepts, which determine these questions.
Residence is thought of as “the country with which a taxpayer has the closest personal links, and source as the country with which income has its closest economic connection” [31] Direct taxes are typically levied by a country on “the domestic and foreign income of its residents and on the domestic source income of non-residents.” [32] Similarly the collection of direct taxes relies somewhat on evidence of physical connection. Similarly like the physical connection, permanent establishment is also very important to determine a particular tax jurisdiction like in which country income has been generated and is therefore taxed. According to Article 5 of the OECD Model Tax Convention, permanent establishment means “a fixed place of business through which the business of an enterprise is wholly or partly carried on.” [33] This means that places of business that are mobile are not regarded as a permanent establishment. E-Commerce poses a serious problem to tax administration with respect to this concept of permanent establishment. Since E-Commerce will not be done from a permanent in most circumstances taxation would be normally difficult.
Double taxation and tax evasion
As E-Commerce has increased the number of online suppliers who are often subjected to double taxation and tax evasion have also significantly increased, posing serious problems to national tax systems. In order to solve these problems in E-Commerce and reconcile different national positions, the OECD has developed a set of rules to set up an internationally consistent and harmonized taxation framework. As a result of this effort, the OECD has proposed the Taxation Framework Conditions in 1998. [34] In these framework conditions, five basic principles of international taxation for E-Commerce were presented to help national governments to implement internationally consistent taxation rules. Those five principles are neutrality, efficiency, certainty and simplicity, effectiveness and fairness, and flexibility.
ii. Intellectual Property Rights
The issues regarding IPR’s in E-Commerce form a behemothic set of terminology and understanding. As such, it may be analysed as a separate branch of study and hence is out of the scope of this paper.
iii. International trade
As E-Commerce has mushroomed as an important means of doing business across national borders, various policy issues relating to the international trade aspects of E-Commerce have arisen in international discussions. There are mainly three widely discussed policy issues, which affect international trade. They are:
a. Is it a trade in Goods or Trade in Services?
The answering of this issue is very crucial because E-Commerce transmissions will be subject to the different WTO rules, depending on whether such a transmission is classified as trade in goods or services. If it is considered trade in goods, the GATT rules apply. On the other hand, if it is regarded as trade in services, it is subject to the GATS rules. There are many differences between these two sets of trade rules in terms of application of National Treatment, Most Favored Nation, and Quota principles. The National Treatment principle obliges countries to treat all foreign products equal to their similar domestic products. [35] Under the GATT, this principle applies to all goods as a general obligation. However, it is not a generalobligation under the GATS, under which it only applies to sectors in which members have explicitly scheduled commitments. Moreover under GATS, member states can make conditions or limitations on their application of the National Treatment principle, which may restrict the market access of Foreign Service providers.
This issue also significant for determining custom duties or Tariffs because the GATT rules impose custom duties on all imported goods while the GATS rules do not impose custom duties on services, which is particularly critical for developing countries where custom duties account for a considerable portion of national revenues. In order to ensure that the unresolved classification issue does not hamper the development of E-Commerce, countries made the decision not to impose custom duties on E-Commerce transmission in the 1998 WTO Ministerial Conference Declaration on Global Electronic Commerce.
Similarly the principle of Most Favored Nation obliges countries to treat all foreign products alike. This principle applies to all commitments taken under the GATT, requiring any benefits given to one member country to be offered to all other members as well. [36] Under the GATS, the principle also applies to all services in general. However, members are given a one-time opportunity to exempt themselves from the obligation of MFN in service sectors of their own choosing. In addition to the principles of National Treatment and Most Favored Nation, the GATT and GATS rules differ on whether quantitative restrictions, namely Quotas, are permitted or not. The GATT prevents member governments from using Quotas to restrict market access whereas the GATS prohibits it only in sectors where a member has made a commitment to provide market access without limitations. [37] As described above, due to these differences between the GATT and GATS, the classification issue with respect to electronic transmission has important implications for international trade via E-Commerce because it will result in significantly different treatment of a product.
b. ‘Cross-Boarder Supply’ or ‘Consumption Abroad’?
The difference between a Cross-Boarder Supply and Consumption Abroad is that in former the supplier enters the jurisdiction of the consumer and in the later the consumer enters the jurisdiction of the supplier. [38] The distinction between these two methods has significant implications for market access and domestic regulations of service trade. Under the GATS, member countries may make commitments to liberalise specific service sectors and these commitments may differ depending on the modes of supply. Therefore, how E-delivery of service is classified affects the way E-Commerce is regulated in a particular member country. At the same time, unless the classification issue is clarified internationally, service providers would be left with some uncertainty about what rules apply in a jurisdiction in which they supply services.
c. Domestic regulation of E-Commerce and its impact on international trade
Generally national governments bring regulation of E-Commerce for
various public policy objectives such privacy, intellectual property rights, consumer protection and promotion of national cultural diversity. But some times these regulations create unnecessary trade barriers for conducting E-Commerce. So an appropriate balance need to be struck between the need of government to pursue these public policy objectives through domestic regulation and the need to ensure that these regulations do not constitute unnecessary trade barriers which hamper the further development of E-Commerce.
In order to ensure that domestic regulations should not constrain international trade unnecessarily, various rules governing domestic r
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