Multilateral Responses to E-Commerce

The Issues to contents list

The advent of the new economy has already produced a sizable body of literature. This paper does not attempt to discuss all the issues involved in the new economy, but aims to extract the implications for the international regulatory framework and to provide guidelines for necessary changes. It will thereby focus on the establishment of standards, on policy co-ordination and on taxation. The new economy is sometimes seen as the herald for a truly borderless world. However, since the internet requires substantial prerequisites concerning technical infrastructure and human capital, some worry that the developing countries will be left behind. The paper addresses this fear of a growing "technological apartheid" between the industrialized and the developing countries and looks at policies to overcome the digital divide.

The structure of the paper is as follows: The paper first clarifies the various catchwords of the new economy, examines the rapid growth of e-commerce and looks at the digital divide between countries. It then discusses the necessary modifications for the multilateral framework concerning the establishment of standards, the need as well as the scope for policy coordination, taxation and the overall treatment of e-commerce. Finally, the paper looks at strategies to tackle the digital gap between countries.

1.1 Catchwords and Concepts for the New Economyto contents list

Various catchwords have been coined to capture the essence of the economy- wide consequences resulting from an increased use of processed digital information and from the application of the internet for a wide array of services (software programming, webpage maintenance, ticket and hotel reservations, on-line information and support, ordering facilities, publishing, indexing or abstracting etc.) as well as transactions (delivering music, movies, documents, literature or software in digital form).(1) The following catchwords aim at different characteristics of this phenomenon but are frequently used as synonyms: "digital economy", "information economy", "knowledge-based economy", "weightless economy", "virtual economy", "internet economy", "electronic commerce", "e-commerce", "e-conomy", or maybe more capacious "new economy". Some authors have tried to assign distinguishing concepts to this variety. For example, Kling and Lamb (2000) suggest to use the term "information economy" to include all informational goods and services like publishing, research, legal and insurance services, entertaining, and teaching in all of its forms, and the term "digital economy" to address (only) the goods and services whose development, production, sale, or provision is critically dependent upon digital technologies. Furthermore, the term "new economy" is associated for them to possible consequences of the information economy and the digital economy, namely high growth, low inflation, and low unemployment.

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However, in many papers - including the present one - the concept of the "new economy" is wider and includes the characteristics of the "information economy" and of the "internet economy" as subsets. In the following, the term "new economy" describes an economy where both final output and intermediate input predominantly consist of information and where the modern (digital) information and communication technologies provide world- wide access to almost any available information. These new technologies might have the potential to enable an increase in the productivity of conventional business practices, but also facilitate the establishment of new processes and products. Consequently, the evolution of the new economy should not be considered as being restricted to the information sector, but as a far reaching process that might alter and extend the products and production processes within the whole economy.

This description of the new economy does not necessarily imply growth rates for the whole economy above the average growth rate of past decades. In fact, doubts about sustainable higher growth rates have been voiced, for example, by Gordon (2000), who critically reviews the potential for productivity gains within the new economy. Furthermore, Gundlach (2001) questions the usefulness of residual measures of total factor productivity growth to deduct the existence of higher growth paths. With the failure of several new economy enterprises ("dotcoms") during the year 2000 and the slow-down of the US economy in 2001, a more realistic assessment of the changes induced through the new economy will become more widely spread.

1.2 Growth of International E-Commerceto contents list

The various indicators for the use of telecommunication in the years 1990 to 2002 (projected data) show a steady growth of the use of personal computers and main telephone lines and, particularly, the rapid increase in the number of internet users and mobile cellular subscribers (Figure 1). Comparing the expected level of 2002 with the actual level of 1990, the amount of main telephone lines will more than double (factor 2.1) in this period and the amount of personal computers will increase by the factor 5.6, whereas the mobile phone subscribers will go up by the factor 90 and the number of internet users will explode by the factor 192.

Figure 1

This rapid development in the use of the internet is also reflected in the accelerating growth of the number of internet hosts. From mid-1994 to January 2001 world-wide internet hosts multiplied by the factor 22 from 4.8 millions to more than 105 millions (Figure 2).

Figure 2

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Linked to the increase in internet users and internet hosts is a mounting importance of the internet for business transactions. Due to limited availability of secure on-line payment devices in previous years, many users were initially reluctant to purchase goods and services via the internet. However, the standard of encoding and, consequently, the security of transaction have improved in the last years, and electronic commerce has become more popular so that it is set to gain quickly in significance relative to overall business. According to a survey conducted by the UNCTAD (2000: 7) about the various projections, the importance of on-line business for total cross-border trade flows is estimated to range between 10 and 25 per cent of world trade by the year 2003. This range of estimation exhibits