Communications of the ACM

Communications of the ACM

From Washington: the Ongoing Tug-of-War For E-Commerce Control

By Neil Munro
Communications of the ACM, October 1999, Vol. 42 No. 10, Pages 17-20
10.1145/317665.317669
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It was an unprecedented and symbolic moment: Last October, the U.S. government quietly invited 12 industry lobbyists to join the nation's negotiating team for the pan-American free trade agreement. These lobbyists, representing the Motion Picture Association of America, America Online, the Software Publishers Association, among others, joined the citizenry's diplomats largely because government officials wanted their expertise as the administration tried to rewrite trade agreements for the nation's benefit.

This development illustrates industry's growing power to influence the development of worldwide Internet-related laws. This power is giving industry a major opportunity to build the legal foundations for the information age—before any political opposition can organize itself.

The actors in this struggle are competing governments, companies, and advocacy groups. Industry's main advantage includes its ability to hire lobbyists, the prestige it has won from high returns on Wall Street, and its simple strategy—get governments out of the way. The picture is different among the argumentative and cash-strapped advocacy groups, including consumer groups, privacy supporters, unions, free-speech proponents, nationalists, and social conservatives who generally oppose industry's agenda without having a common strategy to unite them.

Between these two camps are government officials. They want what industry offers—plenty of good jobs and technical marvels for their voters. They also want what the advocacy groups claim to offer—some kind of solution to the many problems created by the international free-market. But governments themselves are racing against each other, sharply hindering their ability to work out widely accepted compromises that combine the best choices offered by industry and the advocates.

The offer made by executives such as John Chambers, chief of Cisco Systems, to government leaders around the world is amazing and simple: accept my terms, and the resulting economic gains will lead to reelection. These gains, says Chambers, will come from e-commerce, expected to top $1 trillion in the next few years.

Chambers' offer is backed by vast fortunes created on Wall Street, and the substantial economic gains now enjoyed by a broad segment of U.S. citizenry employed in the high-tech industry and its nontechnical support staff—the hot-dog vendors on the street, the cop on the beat, the night-time clean-up crew, and the day-care staff raising children for at-work parents.

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The actors in this struggle are competing governments, companies, and advocacy groups.

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In order to expand worldwide, executives say they need help from governments. Only a few countries have reliable phone lines, low-rate Internet fees, and an abundance of home computers. Moreover, each of the 190 countries (and myriad cities, oblasts, prefectures, and towns) has its own set of laws, which creates a complex patchwork of value added taxes, consumer protection laws, advertising curbs, strict libel laws, political censorship, and cultural protectionism. For example, the U.S. has a very liberal approach to free speech except when it comes to business fraud, such as lies on Wall Street.

Some may see this cacophony of rules as the natural result of democratic diversity. This view is not held by industry executives, who instead see these rules as inefficient holdovers from an obsolete age. Indeed, complying with these ever-changing rules is a headache, even for the large companies using high-powered computers to track their massive inventories, the legion of products dispatched by overnight mail, changing tastes, addresses, and debt levels of their many customers.

To avoid the cost of adjusting to the different laws, companies have simply decided to remove them, to reduce them to the lowest common denominator, or to replace them with their own self-regulation. Thus, industry persuaded the federal government in 1998 to bar states from collecting taxes on out-of-state Internet merchant sales to the state's residents. Bitter opposition from the states prompted Congress to declare the decision temporary, but as one top-level lobbyist recently said, "There's nothing as permanent in Washington as a temporary moratorium." So, for the expense of hiring lobbyists and p.r. flacks, Internet companies have gained a tax advantage of several percentage points over Main Street firms that will be worth untold billions of dollars over the next few decades.

In the U.S., high-tech companies also are lobbying against existing state consumer-protection laws and against curbs on Internet gambling, data-privacy bills, content regulation for children or encryption that will be used by both innocent citizens and guilty criminals. A better solution, say some executives, is for governments to back off, and instead rely on industry's self-regulation in the free market.

Still, industry officials urge governments to aggressively adopt blanket rules in their favor. For example, in 1997 the technology industry strongly backed the creation of the World Intellectual Property Organization (WIPO), a government-enforced, one-size-fits-all solution to copyright problems created by the Internet.

Of course, there are undeniably good aspects to industry's agenda. Consider free markets and free speech, both of which were championed by the U.S. throughout the Cold War at enormous financial and human cost. Now they're being boosted by the Internet's ability to leap across Chinese censorship.

Industry's global lobbying campaign is evident in the U.S., Japan, China, South America, and in the European Community, as well as at the multinational Organization for Economic Cooperation and Development, the World Trade Organization, and the United Nations. Industry is also pushing little-known standards bodies—ICANN, IETF, ANSI and ETSI, for example—to accept fundamental legal and technical standards favorable to industry's interests. To press its case, industry has funded an alphabet soup of pressure panels, including the GBD, TABD, IILF, GIIC, GIP, IIIC-A, INTUG and WITSA.

Industry officials don't crudely march into government offices and demand concessions. They usually ask U.S. diplomats and politicians to present their case or try to win allies among foreign companies, who then lobby their national governments. Industry also pays for conferences, seminars, and studies showing e-commerce in the best possible light, thus pulling along the media and public opinion. There is also a harder edge: promises of great wealth are usually coupled with threats. "Those who are missing this will be losers," said Mananobu Katoh, Fujitsu's chief lobbyist in Washington.

So far, industry's international campaign has been extraordinarily successful. For example, the Japanese government and the 15-nation EC have declared they will favor industry self-regulation in many areas. This is a big step toward one of industry's most ambitious goals—"choice of law" or the "country of origin" rule. But European consumer groups are fighting back, recently backing a proposal by the EU that would allow European governments to sanction out-of-country Web firms that violate local advertising, marketing, consumer-protection and other laws. Naturally, industry executives are bitterly opposed to this proposal, and are pushing a rival measure—backed by European commerce ministers—that would bar governments from applying their laws to out-of-state Web companies.

In this debate, these consumer groups may be backed by environmentalists, cultural nationalists, and labor unions, many of whom more concerned about other issues, such as pollution, pay raises, and historical animosities. Over the last two decades, these European non-governmental organizations (NGOs) have lost many fights (nuclear power and disarmament, for example), won some major fights (international investments, the environment, foreign aid), and forced some compromises (electronic privacy and biotechnology).

These groups expect a sympathetic ear from democratic governments, whose purpose is often to mediate between contending societal factions. But the Internet revolution is moving too quickly for government agencies, most of which find themselves swept along by circumstances and industry's arguments for self-regulation and personal autonomy. It remains to be seen whether governments will even try to maintain their well-established—and oft-ignored—role as fair-minded arbiter of conflict among citizens, especially as industry executives argue that the market can supplant government rule in many areas such as consumer protection, business regulation, public morality, education, and national security. Or, to put it somewhat crudely—governments are defending themselves weakly against industry's claim that citizens should direct their power at the ballot box and instead relegate themselves to the role of consumers at the cash register.

Industry's present dominance in this tri-cornered debate has led to calls for government financial support so they can act as counterweights to industry. This might allow the creation of a "Global Civil Society" scheme, in which governments, companies, and NGOs together would oversee a mixture of free-market capitalism and democratic regulation. There is some modest evidence that this may come to pass. The EC is giving a little money to a panel of consumer advocates monitoring trans-Atlantic trade while it fights the U.S. government for tougher privacy standards. (To some extent, this stance is driven by a fear that a totally free market would see a U.S. takeover of the e-commerce business.)

Of course, European support for the consumer advocates is small when compared to support in U.S. Democratic and Republican parties for the Internet industry's agenda. And this support is of little significance when compared to the Internet's real global economic benefits—although they are unevenly distributed—that are sweeping up many people in a wave of optimism and hope.

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