Cyberspace: Who Will Make The Rules?

Commerce's William Daley on privacy and taxes

In early February, thousands of investors were left in the cold when E*Trade Group Inc.'s online-trading system crashed on three successive days. Around the same time, questions were raised about online auction house eBay Inc. when consumers claimed they were receiving goods that didn't live up to their advertising. And over the Christmas holidays, many of the 2.1 million households that went cybershopping for the first time ran into glitches ranging from busy signals to misplaced orders.

These are the growing pains of electronic commerce. As more people take their business online, revenues from retailing could grow from $7.8 billion this year to $108 billion in 2003, and business trade could reach $1.3 trillion, according to Forrester Research Inc. But fraud, privacy violations, and bad service all pose threats to that growth.

Those are not the only threats. Misguided government policies could also block the growth of E-commerce, and the Administration recognizes that. To be sure that good business practices and smart laws prevail in cyberspace, President Clinton has instructed government agencies to devise policies on a host of knotty issues ranging from online pornography to Internet taxation. The Commerce Dept., under the leadership of Secretary William M. Daley, has been one of the key players in the development of the Administration's e-commerce policies. On Feb. 25, Washington Correspondent Catherine Yang caught up with Daley to talk about the challenges of regulating cyberspace.

Q: How safe is our private information online today, and how can people protect themselves?

A: It's generally pretty safe. But this medium is so new that you've got to be cautious. In the E-commerce world, it's easier [for others] to get information about you. So you better have a pretty good sense of who you're dealing with before you give up that information.

Q: What can industry do to help prevent online privacy abuses?

A: There have been a host of organizations set up to work on self-regulation, such as the Online Privacy Alliance. The goal is to make sure that each member of the organization acts reputably.

Q: Are you satisfied with the results of industry self-regulation?

A: Frankly, it took us a long time before we got the private sector to step up to the plate. In the world before E-commerce, you could go to the Better Business Bureau to find out what complaints had been filed against retailers. We have to see that develop in the Internet world. It's still a little slower than what we hoped. But most of the major providers do act very responsibly.

Q: What if industry fails to police itself in cyberspace?

A: If you get a growing chorus from the public--and privacy issues are the ones primarily driving the concern--you can be sure there will be government action. If you have federal action, you could also start having state actions. You could really stymie the growth of this if 50 states decide to take action because of an abuse or two.

Q: You're now focusing attention on consumer protection. Are you getting many complaints against cybershops?

A: Anecdotally, there have been quite a few consumer complaints about receiving the wrong items. If someone buys a book over the Internet and gets a tape instead, how do you go back to the seller? What sort of refunds do you get? What policies do [shops] have? You can go back to the store on the corner pretty easily, or at the mall. You don't have that luxury online.

Q: Should electronic commerce be taxed?

A: There are people who believe that taxation will hamper the growth of this new medium. Others believe that failing to tax the Internet will seriously erode traditional state and local sales-tax bases. Congress has enacted a three-year moratorium [on Internet taxes, to study the issue]. The Administration has taken the position that the Internet deserves the same tax treatment as other forms of commerce.

It's a very serious question. Take this last holiday season, where guesstimates for E-tailing [electronic retailing] were $7 billion to $13 billion, as opposed to maybe $2 billion to $4 billion in 1997. What does this mean in terms of potential revenue losses for local governments?

Q: Why is the government so worried about the so-called digital divide?

A: This Administration has pushed to make sure that this medium is brought to schools and libraries--especially in less-advantaged neighborhoods, rural areas, and Indian reservations--so that the information haves and have-nots don't face a wider divide than we've already got. You can't have a certain segment of our society totally comfortable with a medium that's going to drive the entire society and a large chunk of people just not in the loop. That could have very divisive ramifications.

Q: What is the government doing to measure the level of electronic-commerce activity in the U.S.?

A: The Census Bureau will begin in 1999 to separate out the use of the Internet vs. normal purchasing in retail. We'll have those numbers in 2000. As we get a baseline, we'll possibly get quarterly information.

Q: Because the Internet is a global medium, the U.S. cannot regulate it alone. Are our cyberpolicies clashing with those of other countries?

A: Take the privacy directive of the European Union. Their philosophy is: Unless a company meets their restrictive privacy laws, it cannot transfer data and information over the Internet. This could include the transfer of such simple things as your payroll information. [If there's a violation,] they can shut down your site. That could have a very, very chilling effect on the transfer of data between Europe and the U.S. We have done a lot of reaching out to our international partners to address these issues.

Q: How do you use the Internet?

A: To be honest, I don't buy a lot online. I use the Internet to look at news stories every day. I also use to send cards to my daughter in college.

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