page 1

RESTRICTED

CEFACT/ECAWG/97N003

4 December 1997

Electronic Commerce Ad hoc Working Group (ECAWG)

ELECTRONIC COMMERCE:

NEED FOR A GLOBAL FACILITATION APPROACH

SOURCE:SITPRO

STATUS:for review

ACTION:

ELECTRONIC COMMERCE:

NEED FOR A GLOBAL FACILITATION APPROACH

1. Introduction

1.1 This paper provides a SITPRO perspective on the role of electronic

commerce in the global marketplace and makes recommendations to the CEFACT Electronic Commerce Ad Hoc Group (ECAWG) on:

  • a definition of ‘electronic commerce’; and
  • the trade facilitation issues to be addressed in international electronic commerce.

1.2 As the UK’s trade facilitation agency, SITPRO helps and encourages

traders to improve their efficiency, competitiveness and therefore profitability in international markets by using the most effective trading practices and information systems. SITPRO’s objectives are to:

  • ensure that international trade practices are, as far as possible, similar to or as simple as their domestic equivalents;
  • work towards improving the efficiency of the overall trading practice; and
  • advise businesses on how they can gain the information, knowledge and expertise to make informed decisions and trade more effectively.

SITPRO sees the growth of information technology and the application of electronic message systems as a key business tool for enabling trade facilitation.

2. The Business Backdrop

2.1 In the last ten years the international trading environment, built on a legacy of paper-based documents, has been subjected to a number of pressures, including globalisation of activities and communications, increased competition, continuing removal of trade barriers and flatter organisational structures.

2.2 These pressures have meant that many businesses have had to re-engineer their processes in order to remain competitive and successful in this rapidly changing environment. Doing business electronically and dispensing with paper documents is an important response and can transform both domestic and international trading.

2.3 Historically, electronic data interchange (EDI) led the way and continues

to underpin what has become known as electronic commerce. However, for reasons of cost and complexity, EDI has not been significantly taken up and used by small and medium sized enterprises (SME’s).

2.4 The Internet, with the possibility of sending data worldwide via Email on

the World Wide Web, is beginning to make it’s mark in areas such as finding new markets, processing orders and chasing orders. The Internet with easy and cheap access via ‘web browsers’ and its pure geographical reach has the potential, once a number of obstacles are overcome, to fill the SME ‘void’ and also bring about wholesale change by:

  • radically remodelling the conduct of business; and
  • providing new methods for the delivery of business.

2.5 In this new electronic commerce environment, conventional business

practices and institutions could largely disappear and be replaced by electronic service providers and screen-based marketplaces where traders seek out the best suppliers and prices and manage their own financial affairs via electronic payment systems.

2.6 However, it is important to recognise that electronic commerce is only another method of doing business. It does not in itself change the underlying trade processes or data elements, particularly for those enterprises trading in goods rather than services.

3. What is Electronic Commerce?

3.1 A number of organisations have provided definitions of electronic commerce:

  • UN Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce 1996. Curiously, the Model Law does not define the meaning of electronic commerce as such. In the Guide to Enactment UNCITRAL explains that in preparing the Model Law it had in mind a notion of EDI covering a wide variety of trade-related uses of EDI that might be referred to broadly under the heading of electronic commerce. Among the means of communication covered by this heading is included:
  • communication by means of EDI defined narrowly as the computer-to-computer transmission of data in a standardised format;
  • transmission of electronic messages involving the use of either publicly available standards or proprietary standards; and
  • transmission of free-formatted text by electronic means, for example via the Internet.

Although drafted with constant references to modern techniques, the Model Law is also intended to cover less advanced methods. An example is given of digitalised information being sent in the form of a standardised EDI message which might at some stage be forwarded in the form of a computer generated telex. As a matter of principle, no communication technique is excluded from the scope of the Model Law since future technical developments need to be accommodated.

UNCITRAL make the point that a characteristic of electronic commerce is that it covers programmable messages, the programming of which is the essential difference between such messages and traditional paper-based documents.

  • The UK’s Electronic Commerce Association (ECA). The ECA defines electronic commerce as:

“The conduct of business and execution of business transactions

using a combination of structured message exchange (electronic

data interchange) and unstructured message interchange (electronic

mail), binary data exchange, shared data, databases and database

access, across the entire range of networking technologies and

across both public and private sectors.”

To this definition is added:

“In practical terms, by allowing information to be shared

electronically with suppliers, customers and other business partners

electronic commerce facilitates improvements in operations

leading to substantial cost savings, as well as increasing

competitiveness and efficiency through the redesign of

traditional business and administrative processes.”

  • European Informatics Market (EURIM). EURIM is a not-for-profit organisation that links and brings together UK Commerce and Industry, Government Departments and Parliamentarians in both the UK and Brussels. In their briefing paper Electronic Commerce and the Law, EURIM state that:

“Electronic Commerce has been defined as doing business electronically. The definition therefore includes communications by telephone, telex, facsimile, e-mail or EDI; it includes use of private or public networks, including the Internet, and it includes messages which may have originated as data, sound or image. It applies to any electronic trade regardless of size or value and applies equally to messages sent one-to-one or one-to-many. The range of possibilities makes the use of electronic commerce explosive.”

3.2 Consequently, we recommend the following working definition of electronic commerce:

“The sharing of structured or unstructured business information

by any electronic means with suppliers, customers and other

partners to conduct and execute trade transactions in business-to-

business and business-to-consumer activities, without regard to

business sectors, size of the enterprises concerned or the value of

the transaction.”

4. Some Issues and Obstacles to Electronic Commerce

4.1 Whilst pure EDI, which has the advantage of authenticated messages with their routes and receipt monitored by value-added network (VAN) providers, does not suffer from many of the problems affecting the Internet, the problems set out below are generic to electronic commerce:

  • CERTAINTY:A global legal framework is required to support

electroniccommerce on a global basis to give

both buyer and seller certainty in their electronic

trade transactions regardless of jurisdiction.

Existing national and international trade laws and conventions may disadvantage electronic commerce and need to be reviewed to take full account of the new environment.

  • CAPABILITY:Tradersdoing business electronicallyneed to have

the capability to operate in the international supply chain and, in doing so, will increase their ability to create new supply chain processes.

  • SECURITY:There are concerns about hackers and a recent

report by the UK’s Centre for the Study of Financial Services reports that Internet crime is a growing problem. There is a need to ensure that encryption of messages:

  • guarantees authenticity (digital signatures) and
  • provides confidentiality (cryptography).

There is a reluctance to entrust business and financial affairs tothe Internet while it is perceived as a potentially insecure medium. Until accepted technical security solutions come forward, progress will be slow and caution will sustain the demand for traditional services.

  • CONFIDENCE:No one organisation is in charge of the Internet

and users arenaturallyapprehensive of being

swindled. Sellers are concerned that their

intellectual property rights, copyrights, patents

and trade marks will be protected and buyers want to be sure that they are buying authentic products. Privacy issues and data protection are also closely linked.

  • RELIABILITY:The lack of any definitive technical standards for

the Internet could result in difficulties in

communications which in turn could adversely

influence individual’s attitude to the use of the

Internet. The application of a definitive standard to

provide for reliable, user-friendly and trouble-free

messaging will be vital to the long term success of

international electronic commerce.

5. International Action Being Taken or Proposed

5.1 In addition to UN/ECE, there are a number of organisations involved in providing international solutions to these issues and obstacles:

  • International Chamber of Commerce (ICC). The ICC’s Electronic Commerce Project (ECP) aims to produce a number of products which will assist electronic commerce, including an electronic repository of legal terms applicable to electronic transactions, a self-regulatory framework for electronic trade payments, self-regulatory rules and practices for digital authentication and verification for secure electronic transactions and model ‘click-wrap’ international trade contracts for use on the Internet.
  • Organisation for Economic Co-operation and Development (OECD). The OECD has put forward cryptography guidelines for national encryption policies in order to provide for secure electronic messages by guaranteeing authenticity and providing confidentiality. The guidelines set out eight principles of trust in methods, choice of methods, market (rather than government) driven development, open standards, protection of privacy and personal data, lawful access by governments, liability of trusted third parties and international co-operation.
  • BOLERO Project. BOLERO is a joint venture between SWIFT and the Through Transport Club which aims to provide a ‘platform’ for users to store and exchange electronic trade documents in a secure manner. The service will be governed by a contract or ‘rulebook’ which specifies the rights and responsibilities of BOLERO and users. At it’s heart will be an electronic registry providing a database for users to store and exchange electronic documents. It is envisaged that the system will also allow for the electronic transfer of title for documents such as the bill of lading. Security will be provided by ‘trusted third party’ registration and certification authorities.
  • UNCITRAL. In addition to its recently enacted Model Law on Electronic Commerce, UNCITRAL is also developing guidelines for digital signatures which prove the source and integrity of electronic messages.

UN Conference on Trade and Development (UNCTAD). UNCTAD is engaged in a project to assist developing countries in placing their products on the World Wide Web to provide electronic trading opportunities (ETO’s).

  • G7 Information Society Project. The G7 countries (USA, Japan, Canada, France, Germany, Italy, UK) account for approximately 80% of world trade and act as powerful drivers for change. The Presidency of the G7 is currently held by the USA and will pass to the UK on 1 January 1998. There are two G7 projects which affect will international electronic commerce:
  • “A Global Marketplace for SME’s”. This project is being co

-ordinated by Japan the European Commission and the USA is looking at the needs of SME’s;

  • Standardisation and Simplification of Customs Procedures. This project was initiated at the G7 Summit at Lyon in 1996 with the Customs administrations urged to complete this work in 1998. At a working level efforts have been concentrating on agreeing a list of data elements required for normal import/export procedures and mapping these to the United Nations Trade Data Elements Directory (UNTDED) together with simplifying customs information requirements.
  • European Commission (EC). The EC recently launched an electronic commerce initiativeto promote a favourable regulatory framework to harmonise rules within the European Union in such areas as intellectual property, personal data protection, encryption and digital signatures. Full backing was given to this initiative in the European Ministerial Conference which was held in Bonn 6/8 July 1997.
  • The White House. The White House has published a report on electronic commerce entitled “A Framework for Global Electronic Commerce” which acknowledges the importance of the Internet and sets out nine areas where international agreements are required:
  • Financial Issues
  • customs and taxation
  • electronic payments
  • Legal Issues
  • a ‘uniform commercial code’ for electronic commerce
  • intellectual property protection
  • privacy
  • security

Market Access Issues

  • telecommunications infrastructure and IT
  • content
  • technical standards

The report proposes that commerce conducted on the Internet should be

free of any taxes or customs duties.

6. Conclusions and Recommended Proposals for Action by CEFACT

6.1 There appears to be universal agreement that for electronic commerce to

flourish there needs to be a global regulatory framework which maximises both opportunities and freedoms for business. The question is who will provide or facilitate such a framework?

6.2 UNCITRAL has produced a model law, but it is for individual countries to decide whether to enact it in their jurisdictions. A number of individual countries, such as Australia and the UK, are reviewing their national legislation to ensure that electronic commerce is not disadvantaged, but in the meantime business to business transactions must continue to be governed by contract law.

6.3 In developing a global strategy for an international electronic

marketplace, CEFACT, with it’s international trade facilitation policy role, is well placed to influence and assist both governments and business in smoothing the way for electronic commerce to be transacted simply and easily across international borders.

6.4 We recommend that CEFACT can do this by continuing to provide proposals for new and amended UN/ECE tradefacilitation recommendations that promote and encourage:

  • the need to make international trade and business processes similar to or as simple as their domestic equivalents;
  • the use of ‘open’ systems that are not linked to particular types of hardware, software or information systems;
  • the development and take-up of ‘open’ technical standards that are acceptable to all parties in the international trade cycle;
  • the development of ‘hybrid’ systems, such as SITPRO’s Aligned Documents and Electronic Equivalents Project (ADEEP), which seek to provide trading partners and others with the flexibility of exchanging trade documentation electronically or by traditional paper-based documents;
  • the education and training of businesses, particularly in the SME sector, in best practice for electronic trading;
  • improved liaison and co-operation with those organisations listed in paragraph 5; and

the need to review existing UN/ECE recommendations to ensure that they are compatible with the requirements of electronic commerce.