Electronic Commerce: Want to scare a politician? Just say `Net'

Last week, Tony Blair "chatted" online in a stunt to draw attention to electronic commerce. The previous week, James Johnson, chair of the US delegation to the G8 Electronic Commerce Committee, told a conference in Amsterdam that many national governments regard the spread of online business with fear and trepidation.

"There is this attitude that a school kid could bring the whole international banking system to its knees," he said, requesting that his audience of business people be conscious of their advocacy role for the emerging new channel. But do governments have something to be wary of after all? Apart from the arguably misplaced concerns over security, James suggested that electronic commerce, increasingly oblivious to national boundaries, might pose a real threat to the sovereignty of the nation state.

In terms of its social and cultural impact, electronic commerce is comparable in magnitude to the opening up of the spice routes in the rule of Alexander the Great. Recent research from the US government (http://www. ecommerce.gov/emerging) found that 8.2 per cent of US GDP derives from IT - up from 4.9 per cent in 1985 - and that IT companies are responsible for 35 per cent of the growth in the American economy. Hence the Government's mixed reaction to e-commerce.

But the deeper problem is that no institution is ready to tackle the prospect of national models breaking down in the face of an online world. Consider the case of the European Union. Within the European Commission there are any number of directorates general with jurisdiction that intersects with the information economy and the Internet, from DG XXIV, concerned with consumer issues, to DG X, which manages policy-making for the information and communications industries related to content, culture and audiovision.

"A lot of work has to be done simply to get all the people into the same room at the same time," James said. "The trouble with the [Commission] is that in its eagerness to get legislation right, it seeks to develop theoretically perfect models before starting."

Meanwhile, a Japanese delegation at the conference, which was sponsored by Giga Information Group and Arthur D Little, had the idea that every nation should put up an Internet gateway for sites in their country, as a kind of virtual border control. They were quickly dissuaded when given a demonstration of the way the Web works.

"Luckily, the success rate of electronic commerce is far faster than the ability of any government to construct means of control," James said. "So we find ourselves in a state of happy chaos, which is good because the market is doing most of the work."

However, some bodies do have an important role to play. The World Trade Organisation (WTO), for example, has become a favourite in the IT industry because of its action to liberalise the telecommunications markets in the 70 nations that produce more than 90 per cent of the world's telecom business. It has also adopted a declaration to eliminate all tariffs on IT products by 2000 - no small achievement for countries such as India where the rate is set at 80 per cent and represents 40 per cent of government revenues.

"It is not going too far to say that the WTO now sees its role as creating the global environment for electronic commerce," James suggested. "While decisions are made by the vote of government delegations, the deliberations are fairly transparent, and there is opportunity for private-sector interests to be advocated."

Would that the Organisation for Economic Co-operation and Development (OECD), which "has operated in a closed, restricted environment", were so open. It was formed from a post-Second World War body and is a significant player in Cold War politics, and James suggested that its attitude of suspicion has been behind certain restrictions - most recently evident in America's ban on encryption exports. However, the OECD has been successfully lobbied by the American IT sector, indicating the growing power of the industry over direct changes to public policy.

It is at this point that the challenge to national sovereignty rises like a spectre in the minds of at least some world leaders. The Malaysian Prime Minister, Mohammed Mahathir, famous for his advocacy of the now- floundering "information super-corridor", has been one head of state to give voice to this concern. He recently asked the World Bank to sponsor a conference on how to preserve sovereignty against the online onslaught, to no avail. Other countries, in rather less anomalous positions than Malaysia, may be persuaded of the need, too. Germany, for example, recently said it would not recognise the digital signatures of other countries without agreeing specific treaties with each, in a move seen by many as an act of naked protectionism.

This year is a crucial one for resolving these meta-political issues, not only because the electronic commerce market will reach critical mass but because other bodies, such as the United Nations Conference on International Trade Law, will begin rolling out its Model Law to promote paperless communication. And perhaps, by the end of it, Tony Blair will also realise that the Internet is more than just something to do with an Italian football team.