Select Committee on Trade and Industry Tenth Report


II GOVERNMENT'S RESPONSE TO ELECTRONIC COMMERCE

20. From time to time new issues arise which require a policy response from Government. Examples in recent years include environmental concerns, particularly global warming, and the increasing use of drugs in society. In each case, the Government has had to identify specific ways in which it could usefully respond, as well as those areas in which Government intervention could have proved ineffective or deleterious. A further issue to consider in such circumstances is whether or not the existing structure of Government is best suited to deal with new problems, particularly those which cut across traditional departmental boundaries. Electronic commerce is an emerging issue which raises several new policy questions — for instance in relation to encryption, with which we recently dealt — and challenges existing policies — for instance, in relation to consumer protection and taxation. As with all new policy areas, the Government may be tempted into action in relation to almost every new issue associated with electronic commerce but many witnesses, calling for a "light regulatory touch", argued that the Government should not yield to such pressure.[52] In considering how best to respond to the new challenges posed by electronic commerce, the Government must pay particular attention to those areas from which it should hold back from intervening.

Structure of Government

  21. As a public policy issue, electronic commerce pays no respect to the departmental structures created by Government. The memorandum submitted to us by DTI included contributions from HM Treasury, the Inland Revenue, HM Customs and Excise, the Cabinet Office, the Home Office, the Department of Culture, Media and Sport, and the Department for Education and Employment.[53] Even this is by no means a definitive list of all those departments which might be concerned with electronic commerce. It will become increasingly difficult to identify a Government department or agency with no interest in or responsibility for some aspect of electronic commerce as the electronic Government agenda rolls-out. Electronic commerce has the potential to change relationships within Government and between Government and society at large as well as to alter many public policy perspectives.

22. We are concerned to ensure that Government is organised in such a way as to reflect and cope with the cross-departmental nature of the issues raised by electronic commerce. At present, several parts of Government have responsibility for policy on electronic commerce, particularly:

  • DTI, which is the lead department on electronic commerce and deals specifically with a number of issues, including encryption and authentication and the take-up of electronic commerce by small and medium sized enterprises, domestically and in international fora
  • the Office of Telecommunications, which regulates prices for some telecommunication services, and oversees the development of telecommunications infrastructure
  • the Inland Revenue and HM Customs and Excise, which are responsible for developing policy on the taxation of electronic commerce and appropriate customs charges
  • the Cabinet Office, which is taking forward the electronic Government agenda
  • the Department of Culture, Media and Sport, which is responsible for policy on internet content
  • the Patent Office, which deals with intellectual property rights in the on-line environment.

23. There is, at present, no formal structure, such as a cabinet committee, to coordinate policy across these and other departments and agencies. The Prime Minister, on 10 December 1998, charged the Performance and Innovation Unit of the Cabinet Office, for which Lord Falconer of Thoroton has ministerial responsibility, with the task of establishing "how to achieve the Government's goal of making the UK the world's best environment for electronic commerce, ensuring that the UK benefits fully from the single fastest growing market place in the global economy".[54] It is expected to issue a report soon.[55] In addition, the then Secretary of State for Trade and Industry announced on 25 November 1998 the Government's intention to appoint a Special Representative on the Digital Economy for the UK (the e-Envoy) "to help to lead the United Kingdom in international discussions on electronic commerce".[56]

24. Governments abroad, faced with the same question of how best to tackle the issues thrown up by electronic commerce, have responded in a variety of ways. For instance, in:

  • Australia, the Prime Minister announced in September 1997 the appointment of a Minister for Communications, the Information Economy and the Arts and the establishment of a Ministerial Council to help devise a "national strategy for the information economy". The National Office for the Information Economy was also set up, which, after a period of consultation, published Australia's "Strategic Framework for the Information Economy" in December 1998[57] and an assessment of progress to date in July 1999[58]
  • Canada, the Government announced in September 1997 its target that Canada would be the "most connected nation in the world by 2000". A Task Force on Electronic Commerce was established within Industry Canada which formulated a wide-ranging electronic commerce strategy[59]
  • Denmark, the Government appointed a committee in January 1999 to prepare a proposal for a new strategy entitled "Digital Denmark" by the end of the year[60]
  • Japan, the Ministry of International Trade and Industry published an analysis of the policy challenges facing the Japanese Government in May 1997 and established the Electronic Commerce Promotion Council of Japan which has formed working groups covering a range of issues[61]
  • New Zealand, the Ministry of Commerce is developing a coordinated work programme on electronic commerce issues, drawing on the November 1998 strategy paper "Electronic Commerce: the Freezer Ship of the 21st Century"[62]
  • the United States, a Presidential directive and framework for electronic commerce policy were issued in July 1997. The implementation of the directive is monitored by a Presidential working group which was established in 1995 and published a first annual report on electronic commerce policy in November 1998.[63] The President has also appointed a special advisor on electronic commerce policy, Ira Magaziner. The Department of Commerce has published two significant analyses of the emerging digital economy, the most recent in June 1999.[64]

25. None of our witnesses suggested that any of the policy areas relating to electronic commerce were, at present, misallocated within Government. We heard no calls for the creation of a Digital Unit or Division within a department such as DTI to be responsible for policy areas currently scattered across Whitehall. Nor did we receive evidence advocating the appointment of a Digital Minister, or in favour of nominating a Minister within each Department responsible for electronic commerce issues.[65] Several witnesses praised the strong role DTI had played in international fora during negotiations on electronic commerce issues but the Computing Services and Software Association questioned the extent to which Government policy on electronic commerce was coordinated or prioritised, especially compared to US policy.[66] We do not think that the creation of a new unit or division within Government exclusively concerned with electronic commerce would be a useful innovation, or something welcomed by industry. Nor do we believe that it would necessarily be helpful at this stage to tinker with the division of responsibilities for electronic commerce policy between departments and agencies or to create new cross-departmental structures. Getting the policies right is more important.

REGULATORY BODIES

  26. Consumer organisations suggested to us that the convergence of communication technologies — including voice and data telecommunications and television — requires the establishment of a new communications regulator — OFCOM — replacing existing institutions, including OFTEL and the Independent Television Commission.[67] This mirrors the recent recommendation of the Culture, Media and Sport Committee that a variety of regulatory bodies be incorporated into a new Communications Regulation Commission.[68] The possibility of regulatory convergence being legislated for in order to deal more effectively with technological convergence was one option presented in the Government's July 1998 consultation paper on the regulation of communications.[69] In their follow-up to the consultation exercise, the Government confirmed that, in the short term at least, it foresaw closer collaboration between existing regulatory bodies rather than the creation of a new, consolidated agency as the way ahead.[70]

27. In practice, because connection to the internet almost invariably makes use of telecommunications networks, OFTEL has assumed regulatory responsibility for several significant aspects of electronic commerce.[71] As we will discuss later, OFTEL regulates the charges made by some telecommunications operators for local calls to enable access to the internet and also monitors charges for high-bandwidth facilities such as ISDN and leased lines and the roll-out of high-bandwidth networks.[72] The Government has also proposed that OFTEL will run the accreditation scheme proposed for providers of encryption and authentication services.[73] Although other regulatory bodies — for instance, the Office of Fair Trading — will need to, and are, adapting to respond to the issues thrown up by electronic commerce, OFTEL has most work to do.

28. OFTEL has recently established a project to "identify OFTEL's role with respect to the emerging markets in electronic commerce and its regulation" which will include:[74]

  • working with DTI on the Electronic Commerce Bill as it goes through Parliament to prepare for OFTEL's regulatory role in relation to electronic signature services
  • working with DTI to influence the EU in the formulation and negotiation of legislation relating to electronic commerce with a view to ensuring the development of a coherent framework
  • analysing the wider impact of the growth of electronic commerce and promoting recognition of key issues within OFTEL and in other Government departments.

We note the work commenced by OFTEL to tackle the electronic commerce policy agenda, including issues well beyond those relating to authentication and encryption for which the Director General of Telecommunications might soon have statutory responsibility. OFTEL's electronic commerce team must quickly establish a cooperative relationship with the e-Envoy, when appointed, in order to ensure that their respective remits are appropriately coordinated.

29. OFTEL's approach to policy issues is shaped by the duties and responsibilities placed on the Director General of Telecommunications, and the powers given to him, by the Telecommunications Act 1984. The Act was passed before the invention of the internet and before the rapid growth of electronic commerce began. Although data communications are implicitly covered by the duties, responsibilities and powers of the Director General, a more explicit recognition of the development of electronic commerce might now be desirable. An advantage of such a move might be to give issues relating to electronic commerce — such as the importance of unmetered local telephone calls and the more rapid roll-out of high-bandwidth telecommunications networks — more prominence within OFTEL and, as a result, within Government, perhaps through the appointment of a Director of Electronic Commerce, with a dedicated staff. Although we recognise that there has been some criticism of OFTEL's policies in relation to electronic commerce,[75] and a suggestion by BT that the regulation of telecommunications be reorganised,[76] we believe that there is a need for OFTEL to increase its focus on such issues. We are also concerned to ensure that work is undertaken to relate the concept of universal service, for which OFTEL is responsible in relation to telecommunications, to electronic commerce.[77] Furthermore, OFTEL's focus on competition, so that "customers...get the best possible deal in terms of quality, choice and value for money", might usefully be applied with more intensity to the host of firms now offering internet-related services.[78]

30. We are attracted by the option of a new duty on the Director General of Telecommunications in relation to electronic commerce because we judge that, at least for the short term, it reduces the need for new regulatory structures to be created to deal with electronic commerce. Although in the long term there may be a need for new structures, the Government's focus should now be on issues not institutions. Once electronic commerce policy initiatives are well underway, and future market trends have become clearer than is now the case, then attention should be turned to ensuring that the machinery of Government is designed to best reflect the needs of electronic commerce practitioners. For the time being, however, the Government's focus should be on ensuring that its electronic commerce policies fit the needs of industry and consumers.

31. DTI announced in the recent Competitiveness White Paper its intention to reform telecommunications regulation, taking account of responses to the consultation on convergence.[79] A Green Paper setting out options for reform is anticipated in November.[80] A Bill on utilities' regulation, including reform of OFTEL, is expected soon.[81] We recommend that the Director General of Telecommunications be given a specific duty to facilitate electronic commerce, at the earliest opportunity. We would expect the Director General, in response, to publish a statement of how he intends to comply with his new duty.

THE E -ENVOY

  32. DTI published a job description for the e-Envoy on 3 December 1998.[82] It stated that the post-holder will:

  • act as a public figurehead for the Government on electronic commerce issues in international discussions
  • promote the UK as a centre for electronic commerce, business and investment
  • publicly champion electronic commerce in the UK, spreading awareness and promoting up-take by businesses and consumers
  • monitor progress on implementation of the electronic commerce strategy outlined in the recent Competitiveness White Paper and keep the strategy under regular and probing review
  • review all existing Government policies and activities relating to electronic commerce, with a view to identifying gaps and areas for accelerated effort.

The e-Envoy will not be a civil servant. He will be a special adviser to the Secretary of State for Trade and Industry and, as required, to the Prime Minister. Perceptions of the independence from Government of the e-Envoy are likely to be enhanced if it is made clear that the post-holder is not a civil servant.

33. We would welcome the appointment of an e-Envoy. The e-Envoy could be an effective ambassador for electronic commerce in the UK, an international ambassador for the UK as a centre of digital excellence and an advocate within Government for the policies and initiatives required for the UK to become the world's best environment for electronic trading. The appointment of a high-calibre, dynamic individual as e-Envoy could represent a high profile commitment by Government to electronic commerce, the like of which has so far been lacking. The wide remit proposed for the e-Envoy's role, wider than the then Secretary of State indicated in his November statement, offers both opportunities and threats to the post-holder. On the one hand, with responsibility to oversee and influence policy on electronic commerce across Government and to promote that policy at home and abroad, the e-Envoy could become a key determinant of the direction electronic commerce policy takes and thereby have a significant, perhaps the most significant, influence on the success of that policy. On the other hand, if the relationships between the e-Envoy and Government Ministers and officials are not carefully defined and if the e-Envoy is denied the resources necessary for the job, then the post may become irrelevant and its holder sidelined.

34. It is vital, therefore, that the Government, in consultation with the post-holder, devises and publishes the objectives of the e-Envoy and the resources which will be available to the e-Envoy to achieve those objectives. Care must be taken to ensure that the e-Envoy's objectives are not so vague as to render impossible any assessment of their achievement. The job description used to advertise the post of e-Envoy in December 1998 might provide a useful basis upon which more specific objectives can be developed. Progress made by the e-Envoy towards the achievement of his or her objectives should be assessed by means of measurable targets, drawn up by the Government. We would expect the e-Envoy to publish regular reports to Parliament detailing progress made towards the achievement of his or her objectives, difficulties and obstacles met, and future targets set.[83]

35. It is unclear what resources, if any, the e-Envoy will have at his or her disposal. The e-Envoy will not possess statutory duties and powers nor a large staff to pursue his or her agenda, as might a regulator such as the Director General of Telecommunications. Nor is it likely that the e-Envoy will command a team of civil servants and others within DTI, akin to the e-commerce team in the Performance and Innovation Unit of the Cabinet Office, or the London Rough Sleepers Unit in the Department of the Environment, Transport and the Regions.[84] Unlike the UK Anti-Drugs Co-ordinator, it is not anticipated that the e-Envoy will have a deputy with which his or her workload can be shared.[85] It is important that the e-Envoy's objectives and targets reflect this limitation. In particular, Ministers must not seek to burden the e-Envoy with a host of unduly ambitious and unrealistic objectives and responsibilities. The role of e-Envoy will be discredited if it is seen to combine responsibility without power. Ministers must define the policy framework within which the e-Envoy will work, rather than deflect difficult decisions and thorny issues towards a prominent but unempowered official.

36. The United Kingdom Anti-Drugs Co-ordinator has brought together a strategic steering group of senior officials from Government departments and agencies to implement the Government's drugs prevention and education agenda. We would anticipate the e-Envoy wishing to bring together a similar group of officials to co-ordinate Government policy on electronic commerce. The e-Envoy will report, in the first instance, to the Secretary of State for Trade and Industry, and, as a consequence, may be less able to take a broad, cross-departmental view of the relevant issues and to avoid inter-departmental rivalries and disputes than an official attached to the Cabinet Office. In order to be effective, the e-Envoy must not be seen within Government as a DTI official, defending the department's line on issues which cut across departmental boundaries.

37. On 26 May the Government announced its acceptance of the recommendations of the joint Government-industry team formed by the Cabinet Office's Performance and Innovation Unit, including that a new industry/Government forum be established to take forward discussion on encryption matters. It will be chaired by a senior DTI official, with secretarial assistance provided by the Home Office.[86] Encryption is one the key cross-departmental policy issues relating to electronic commerce facing Government at the moment. We see merit in the appointment of the proposed Government/industry forum and believe that it is essential that the e-Envoy participate in it.

38. When DTI advertised the post of e-Envoy in December 1998, applications to fill it were requested to be submitted by 6 January 1999. Although that deadline has long since passed, the e-Envoy has not yet been appointed. The Government has responded to a succession of parliamentary questions on the subject by stating that an appointment will be made "shortly".[87] The delay in appointing the e-Envoy, as yet unexplained, has not served to demonstrate the strength of the Government's commitment to the role or to the need for urgent policy initiatives on electronic commerce. It would seem to suggest, instead, that electronic commerce was not a priority of Government. We recommend that this impression be dispelled by an appointment at the earliest opportunity, so that the successful candidate can start making up for lost time.


52   Qq98-9; Ev, p26 paragraph 2, p45 section 2.6, p50 section 8.8, p266 paragraph 9 Back

53   Ev, p193 paragraph 1.2 Back

54   HC Deb, 10 Dec 98, c278w; see HC Deb, 28 Jul 98, cc132-4w on the establishment of the Performance and Innovation Unit Back

55   Ev, p201 paragraph 7.2 Back

56   HC Deb, 25 Nov 98, c217; Ev, p202 paragraph 7.3; and see paragraph 32 Back

57   Building the Information Economy, Jun 98, on the internet at www.noie.gov.au/docs/progrep.htm; Report on the Consultation Process, Nov 98, on the internet at www.noie.gov.au/docs/strategy/report1.html; and A Strategic Framework for the Information Economy, Dec 98, on the internet at www.noie.gov.au/strategy/document.html Back

58  A Strategic Framework for the Information Economy: Overview - key priorities for action, National Office for the Information Economy, Jul 99 on the internet at www.noie.gov.au/strategy/strategic_summaries.htm Back

59   The target was announced in the Speech from the Throne, 23 Sep 97; the electronic commerce strategy can be found on the internet at www.e­com.ic.gc.ca/english/60.html Back

60   Details of the committee's remit can be found on the internet at /www.fsk.dk/cgi­bin/doc­show.cgi?doc_id=9794&doc_type=831&leftmenu=2 Back

61   See Towards the Age of the Digital Economy, MITI, May 97 and ECOM Newsletter #23, Mar 99, on the internet at www.ecom.or.jp/eng/kawara/23rd.html Back

62   Electronic Commerce: the Freezer Ship of the 21st Century, New Zealand Ministry of Commerce, Nov 98, on the internet at www.moc.govt.nz/consumer/elcom/ecommerce/ecomm.html Back

63   The Presidential framework is on the internet at www.ecommerce.gov/framewrk.htm; the Presidential directive can be found at www.ecommerce.gov/presiden.htm; the First Annual Report of the President's Working Group on Electronic Commerce can be located at www.doc.gov/ecommerce/E­comm.pdf; and see Ev, pp224-5 Back

64   The first report, The Emerging Digital Economy, was published by the US Department of Commerce in April 1998 and can be found on the internet at www.ecommerce.gov/emerging.htm; the second report, The Emerging Digital Economy II, was published in June 1999 and is on the internet at www.ecommerce.gov/ede/ Back

65   e centreUK called for a National Electronic Commerce Commission to be established to guide the e-Envoy - Ev, p5 section 11 Back

66   Qq5, 54, 176 Back

67   Q223; Ev, pp264-5 section 5 Back

68   Culture, Media and Sport Committee, Fourth Report, Session 1997/98, The Multi-Media Revolution, HC520-I, paragraph 158 Back

69   Regulating Communications: approaching convergence in the information age, DTI and DCMS, Jul 98, Cm4022, paragraphs 5.16-5.21 Back

70   Regulating Communications: the way ahead, DTI and DCMS, Jun 99, URN99/898 Back

71   Ev, p135 paragraph 1 Back

72   See paragraphs 40-65 Back

73   See paragraphs 67-70 Back

74   Management Plan for 1999/2000, OFTEL, May 1999, on the internet at/www.oftel.gov.uk/about/plan599.htm Back

75   Paragraph 69 Back

76   Ev, p61 section 8.11 Back

77   Paragraph 77 Back

78   Ev, p137 paragraph 15 Back

79   CWP, paragraph 4.23 Back

80   CWP Implementation Plan, section D8 Back

81   HC Deb, 14 Apr 99, c263-7w Back

82   UK Special Representative on the Digital Economy (the e-Envoy): Information for Candidates, DTI, Dec 98, on the internet at www.dti.gov.uk/e-Envoy/moreinfo.htm; and see HC Deb, 15 Mar 99, c476w Back

83   See First Annual Report and National Plan, United Kingdom Anti-Drugs Co-ordinator, Cabinet Office, 25 May 99 Back

84   DETR press release 162, 25 Feb 99 Back

85   Cabinet Office press notice 25/97, 14 Oct 97; First Annual Report on National Plan of the UK Anti-Drugs Co-ordinator, Cabinet Office, May 99 and see Ev, p256 paragraph 5.6 Back

86   Encryption and Law Enforcement, Performance and Innovation Unit, Cabinet Office, May 99, paragraphs 7.2-7.4 Back

87   For instance HC Deb 6 May 99 c449w, 18 May 99 c300w, 21 Jun 99 c313w Back


 
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