House of Commons - Trade and Industry

Select Committee on Trade and Industry Seventh Report

SEVENTH REPORT

The Trade and Industry Committee has agreed to the following Report:—

"BUILDING CONFIDENCE IN ELECTRONIC COMMERCE": THE GOVERNMENT'S PROPOSALS

I INTRODUCTION

1. Electronic commerce, and its economic, social and other implications for the UK, have been an increasing concern of Government in recent years. The Government set out its broad ideas on "how to enable people to take advantage of the new information age" in April 1998. Its coordinated strategy is intended to focus on "transforming education, widening access, promoting competition and competitiveness, fostering quality and modernising government".[1] Several strands of this strategy are being taken forward by the Department of Trade and Industry (DTI). Measures relating to electronic commerce feature prominently in the December 1998 Competitiveness White Paper. DTI and its executive agencies are working to ensure that all of its services are capable of electronic delivery by 2008.[2] DTI also announced in April 1998 its intention to legislate to promote the legal recognition of electronic signatures and to create a voluntary licensing regime for firms offering cryptographic services including electronic signatures and encryption, following consultation of interested parties.[3] This legislation was announced in the Queen's Speech in November 1998.[4]

2. We decided on 3 December 1998 to launch a wide-ranging inquiry into electronic commerce, focussing on those aspects of policy within DTI's remit, but also considering broader issues of relevance to UK consumers and firms. We heard evidence from e centre^UK, the Confederation of British Industry (CBI) and the Federation of Small Businesses on 26 January 1999; British Telecommunications plc, the Federation of the Electronics Industry, the Computing Software and Services Association and the Internet Service Providers' Association on 2 February; the National Consumer Council, Mr. Chris Reed, Head of the Information Technology Law Unit and Deputy Director of the Centre for Commercial Law Studies, Queen Mary and Westfield College, University of London, and the Association of Payment and Clearing Services (APACS) on 23 February; the National Criminal Intelligence Service (NCIS), HM Customs and Excise, the Office of Telecommunications (OFTEL), the Post Office and Dr. Ross Anderson, Leader, Computer Security Group, University of Cambridge Computer Laboratory on 2 March; the Data Protection Registrar and Cyber-Rights and Cyber-Liberties (UK) on 9 March; and from DTI on 17 March. We visited British Telecommunications plc and the National Criminal Intelligence Service and also benefited from other informal briefings. We are grateful for all of the oral and written evidence we have received and for the expert advice and assistance afforded to us by our specialist adviser for this inquiry, Mr. Peter Sommer, Research Fellow of the Computer Security Research Centre, London School of Economics.

3. This initial Report deals with those issues raised by DTI's long-awaited consultation document "Building Confidence in Electronic Commerce", published on 5 March 1999, which are expected to be central to the forthcoming Electronic Commerce Bill. Copies of the 200 and more responses to this document have been made available to the Committee. We do not deal in this Report with a number of other pertinent issues including those relating to consumer protection, taxation, intellectual property rights, electronic Government, access to electronic commerce, data protection, the role of the e-envoy and the Government's overall strategy for electronic commerce. We will report on these issues later in the year, drawing on evidence already received and on our planned visit in May to the USA.

What is Electronic Commerce?

4. DTI has defined electronic commerce as "using an electronic network to simplify and speed up all stages of the business process, from design and making to buying, selling and delivery" and we were offered a number of alternative definitions of electronic commerce by witnesses.[5] We have not considered it useful to offer our own short definition of electronic commerce or to analyse those offered to us. Instead, throughout our inquiry, we have kept the following forms of communication and transaction at the forefront of our thoughts:

business to consumer transactions carried out using a computer, mostly over the internet. These include transactions which are wholly on-line (for instance, ordering software on-line, which is then downloaded onto the purchaser's computer) or partly on-line (for instance, ordering books on-line, which are then delivered by post)
business to business transactions, carried out over an open network such as the internet, or over closed networks such as intra-company intranets or inter-firm extranets and which again may be wholly or partly on-line
citizen to Government transactions, ranging from the electronic filing of tax returns to electronic voting.

There are obvious ambiguities inherent in such an approach. It might be questioned whether the use of a bookseller's website to search for a particular title without actually making a purchase, or the downloading of free newspaper articles which also contain advertisements constitute electronic commerce. Nevertheless the tripartite framework has proved a useful means of distinguishing how different types of transactions might be affected by different issues and policy proposals. We have decided to exclude transactions made by telephone or facsimile machine (technically both electronic networks) from our consideration of electronic commerce, in order to focus on transactions which directly involve a computer and on the emerging issues which such transactions entail.[6]

5. The Government told us that the internet has become "the fastest growing market-place in the world economy".[7] It reported expert estimates that global electronic commerce was currently worth $12 billion and would grow to $350-500 billion by 2002 and to $1 trillion by 2003-05.[8] The Government believes that "this dramatic growth represents both an enormous opportunity and a very significant threat to UK competitiveness". The opportunity stems from the low cost access to global markets and productivity gains which electronic commerce can deliver firms; the threat results from "the real risk that we will see UK markets, jobs and prosperity eroded by e-commerce competition from overseas".[9] Electronic commerce offers consumers "increased competition, choice and convenience" and could be harnessed to assist in overcoming barriers to social inclusion, for instance by enabling people in remote areas to benefit from the same economic and employment opportunities as are often available to those in urban areas.[10] Electronic commerce might also enable Government to achieve "joined up working between different parts of government and [to provide] new, efficient and convenient ways for citizens and businesses to communicate with government and to receive services".[11]

6. The Government has indicated three ways in which it can help businesses and consumers gain from the benefits of electronic commerce, by encouraging:[12]

strong demand from knowledgeable users
a strong supply sector
the right legal, regulatory and institutional framework.

Central to all three objectives is trust. The Government has stated that the technology to take part in electronic commerce already exists, "but users need to be able to trust it and the companies supplying it".[13] The March 1999 consultation document which we have considered in this Report, and the bill which is expected to result from it, constitute the Government's actions to encourage trust in electronic commerce so that the UK becomes "the best environment in the world to trade electronically by 2002".[14] The proposals in relation to electronic signatures are particularly important for the widespread electronic provision of Government services, a key Government objective.[15]

7. Electronic commerce is not a new phenomenon, however. The Government told us that "since the 1970s, large companies in particular have been using technologies such as Electronic Data Interchange to increase efficiency along their supply chains; the banks and credit card companies have long been transmitting huge volumes and values of transactions over their private networks".[16] We were struck by the number of witnesses and respondents to the DTI's recent consultation exercise who stressed the importance of long-standing commercial relationships over closed networks and who, in some cases, expressed concern that such relationships might be disrupted by the Government's proposals to encourage trust in electronic commerce primarily over open networks.[17] It should not be imagined that the Government is faced with a wholly empty marketplace; it is in fact one which is growing exponentially with every passing year and which has already developed a number of key technologies and networks. The Government's proposals to facilitate trust in electronic commerce must not interfere with existing, and often long-standing, electronic commerce relationships.

8. As we will set out below, the Government's legislative proposals are particularly concerned with one form of technology — public-key cryptography. Much of the policy debate thus concerns problems associated exclusively with public-key cryptography, rather than other forms of cryptography or, indeed, entirely different types of technology. The Government has stated that "the law should, as far as it is possible, be technology neutral"; some witnesses warned, however, that its proposals might not be truly technology neutral if they were designed to deal with issues and problems arising from the use of one form of technology or one business model based on that technology and might be ill-suited to accommodate future technological developments.[18] The Government's proposals are tied, perhaps unduly, to the creation of a regulatory regime based on one particular technology — public-key cryptography — and a specific market model, which, although they could be considered attractive at present, may not be optimal bases for electronic commerce carried out over the internet in the future.

1 Our Information Age, URN 98/768 - on the internet at www.number-10.gov.uk Back

2 Our Competitive Future: Building the Knowledge Driven Economy, DTI, Dec 98, Cm 4176; and for various recent DTI electronic commerce initiatives see the following press notices - 98/854, 98/920, 98/942, 98/970, 98/1035, 99/63, 99/171, 99/174, 99/312, 99/376 Back

3 DTI Press Notice 98/320, 27 Apr 98 Back

4 HC Deb, 24 Nov 98, c4 Back

5 For Government definition see Net Benefit, DTI, URN 98/895, Oct 98, p3; also Ev, p2 section 3, p45 paragraph 2.5, p320 paragraph 1.6; and response to Building Confidence in Electronic Commerce, DTI, Mar 99, URN99/642, (hereafter response to Government) from Vodafone paragraph 4 Back

6 We note, however, that computers can be used to send facsimiles and to make telephone calls Back

7 Ev, p194 paragraph 2.2 Back

8 Ev, p194 paragraph 2.2; also Ev, pp44-5 paragraph 2.3 Back

9 Ev, p194 paragraphs 2.3, 2.5 Back

10 Ev, p195 paragraph 4.9 Back

11 Modernising Government, Cabinet Office, Mar 99, Cm 4310, (hereafter Modernising Government) paragraph 5.5 Back

12 Ev, p194 paragraph 3.1 Back