The International Regulatory Environment - its Impact on Competition in Electronic Commerce

  • Robyn McDonald
Consumer Affairs

The principles underpinning consumer policy
The right to satisfaction of basic needs
The right to safety
The right to be informed
The right to choose
The right to be heard
The right to redress
The right to consumer education
The right to a healthy environment
The New Zealand Approach


Good morning ladies and gentlemen, thank you for the opportunity to speak with you this morning. The continuing development of electronic commerce is something that will benefit from conferences and seminars such as this, where ideas and discussion are shared.

In my role as the Minister of Consumer Affairs I have a strong interest in electronic commerce from two perspectives, the first is that it has the potential to provide great opportunities for consumer, the second is that it brings with it new risks for consumers.

This is nothing new of course, rarely do you get opportunities without risks. The benefit of meetings such as these, where people representing a variety of different interests in electronic commerce get together, is that shared information and discussion can lead to the best outcomes were opportunities are maximised and risks minimised.

What I will talk about this morning will provide you with an indication of how the international regulatory environment is considering this opportunity/risk balance.

I hope you find it useful. There is a full paper available for you, with appropriate references should you wish to explore any of the issues I will comment on further.

My comments will focus initially on the consumer policy/regulatory environment in New Zealand and internationally, in a fairly general sense and then highlight some of the approaches being taken internationally with respect to the regulatory environment.

I will cover:

a look at principles underpinning consumer policy in New Zealand, and internationally
information about how the New Zealand Government is thinking about regulation in electronic commerce
a review of some approaches from other significant countries (USA, China, France, Australia)
and make a few concluding comments

The principles underpinning consumer policy
It is quite widely accepted internationally that the basis of good consumer policy is set out in the UN Consumer Guidelines on World Consumer Rights. These guidelines were not developed for the electronic or global market place but nevertheless they remain relevant in many respects. They deal with things such as safety, information, choice, redress and education. Each of those things is as relevant to electronic commerce as it is to transactions in the village marketplace.

These guidelines set out the basic rights of consumers as follows:

The right to satisfaction of basic needs

To have access to basic, essential goods and services: adequate food, clothing, shelter, health care, education and sanitation.

The right to safety

To be protected against products, production processes and services which are hazardous to health or life.

The right to be informed

To be given the facts needed to make an informed choice, and to be protected against dishonest or misleading advertising and labelling.

The right to choose

To be able to select from a range of products and services, offered at competitive prices with an assurance of satisfactory quality.

The right to be heard

To have consumer interests represented in the making and execution of government policy, and in the development of products and services.

The right to redress

To receive a fair settlement of just claims, including compensation for misrepresentation, shoddy goods or unsatisfactory services.

The right to consumer education

To acquire knowledge and skills needed to make informed, confident choices about goods and services, while being aware of basic consumer rights and responsibilities and how to act on them.

The right to a healthy environment

To live and work in an environment which is non-threatening to the well-being of present and future generations.
These guidelines tend to manifest themselves through regulatory approaches, internationally.

For example New Zealand's Fair Trading Act, is focused on issues such as choice, information and safety for consumers and deals with virtually the same issues, in virtually the same way as Australia's Trade Practices Act (consumer protection provisions).

Both pieces of legislation bear similarities to law in the USA, Canada, the UK and many other countries. In countries where there is no consumer protection legislation (for example in parts of Eastern Europe, Asia and the Pacific) the introduction of such legislation is, on a widespread basis, being discussed, prepared or is before various Parliaments.

Of course the extent to which such legislation impacts on electronic commerce varies depending on the exact nature of the legislation in each jurisdiction.

The benefit of the consistency that is there, however, is that there is already a sense of global co-ordination.

This won't mean that a consumer in New Zealand has 'legal' protection if engaging in transactions with another country, but it is a beginning and in a limited way it might increase the chance that they are dealing with businesses who are used to the same sort of regulatory environment.

The purpose of making this example, is not to tell you that all is well with the international approach to regulating the electronic commerce environment (or not regulating it - which may be preferable!) but to make it clear that Governments are not starting from a zero base in thinking about how to deal with consistency and co-ordination of approaches in the increasingly global marketplace.

In addressing further what is happening internationally, perhaps the 'real issue', I would like to start by discussing New Zealand's approach to regulation of the global marketplace. The most appropriate area for me to comment on is in respect to consumer policy approaches. I should start by emphasising that you shouldn't be alarmed. There is a general recognition that undue restriction should be avoided.

The New Zealand Approach
I would like to express very clearly that the NZ Government's interest in consumer policy, protection and regulation in the context of electronic commerce is based on the following principles:

Integrated action, between government and non-government agencies, domestically and internationally is necessary.
There must be a careful balance between protectionism and progress.
There needs to be a clear focus on education and information.
It's all about building consumers' confidence in the global marketplace, not restricting its development.

From a more pragmatic perspective it is also the case that a more interventionist approach could never keep pace with the changes that are occurring

In this regard I draw your attention to a comment in the Ministry's report on electronic commerce and the New Zealand consumer Electronic Commerce and the New Zealand Consumer - available at

'Negotiation, even if appropriate for other reasons, could probably not be developed, modified or removed quickly enough to meet the needs of the marketplace.'

So, that's a quick overview of NZ's approach to the regulatory environment in the consumer policy/regulatory area.

The Government is currently preparing a statement reflecting its policies more broadly, which should be available in the coming months. This will be more in the nature of the type of statements that I am about to refer to from a few of the significant players in the international marketplace.

One of the leading players is of course the USA. The paper 'A Framework for Global Electronic Commerce' A Framework For Global Electronic Commerce - available at , which some of you may have seen, sets out the US approach to 'regulating electronic commerce'.

One quote stands out:

'Governments can have a profound effect on the growth of commerce on the Internet. By their actions, they can facilitate electronic trade or inhibit it. Knowing when to act and - at least as important - when not to act, will be crucial to the development of electronic commerce.'

This paper also sets out some principles for electronic commerce.

The private sector should lead. The Internet should develop as a market driven arena not a regulated industry. Even where collective action is necessary, governments should encourage industry self-regulation and private sector leadership where possible.

Governments should avoid undue restrictions on electronic commerce. In general, parties should be able to enter into legitimate agreements to buy and sell products and services across the Internet with minimal government involvement or intervention. Governments should refrain from imposing new and unnecessary regulations, bureaucratic procedures or new taxes and tariffs on commercial activities that take place via the Internet.

Where government involvement is needed, its aim should be to support and enforce a predictable minimalist, consistent and simple legal environment for commerce. Where government intervention is necessary, its role should be to ensure competition, protect intellectual property and privacy, prevent fraud, foster transparency and facilitate dispute resolution, not to regulate.

Governments should recognise the unique qualities of the Internet. The genius and explosive success of the Internet can be attributed in part to its decentralised nature and to its tradition of bottom-up governance. We should not assume that the regulatory frameworks established over the past sixty years for telecommunication, radio and television fit the Internet. Existing laws and regulations that may hinder electronic commerce should be reviewed and revised or eliminated to reflect the needs of the new electronic age.

Electronic commerce on the Internet should be facilitated on a global basis. The Internet is a global marketplace. The legal framework supporting commercial transactions should be consistent and predictable regardless of the jurisdiction in which a particular buyer and seller reside.

Perhaps not one of the current leading players in electronic commerce, but one of the most populous, has a slightly different approach.

In February 1996, the Chinese Government introduced the Interim Regulations Governing the Management of International Computer Networks (the 'Regulations') which have been effective since 4 February 1996 Ref 'The Internet: Identifying and Managing Legal Risks Online - ' Clifford Chance 1997 .

The Regulations were promulgated to ensure the 'healthy development of international information exchange' and to seek to control access to the Internet by individuals and companies. The government was particularly concerned to control social disturbances caused by use of the Internet and breaches of state security, as well as the spread of pornography via the Internet

The Regulations provide that State Council approval must be obtained in order to establish an interactive computer information network (i.e. a computer network with direct access to the Internet). Interactive networks may access the Internet only via the State public telecommunications networks controlled by the Ministry of Posts and Telecommunications (MPT). So-called interfacing computer information networks (i.e. networks with access to the Internet via the interactive computer networks) may be established by application to the local department in charge of the relevant interactive network. Individuals, legal persons and other organisations may only access the Internet via the interfacing networks and users of the Internet (of which there are estimated to be roughly 100,000) are required to register with the police.

Certain types of activities on the Internet including activities prejudicial to state security (such as the leakage of state secrets), and the dissemination of information prejudicial to public order (such as pornography) are prohibited. Enforcement of the Regulations is delegated to the public security organs who have the power to warn, criticise through circulates, terminate Internet access and impose fines of up to RMB 15,000 (approximately US$1,800) in response to violations of the Regulations. In addition, a high-powered information technology watchdog has been established to monitor the Internet in China. The watchdog is empowered to manage network operators and to draft future technology infrastructure plans.

In September 1996, the government acted by blocking access to over 100 Internet sites. Although some of these (for example the Playboy site) contained 'adult' material, many seem to have been banned because of political sensitivities. The sites affected include American newspapers, the Tibetan information network and the Taiwanese Government.

In yet another part of the world, the French Ministry of the Economy, Finance and Industry has commented as follows Report on electronic commerce - available at :

'...The rapid development of the Internet combined with the proliferation of multimedia opens up radically new prospects for electronic commerce. The universal nature of the Internet, the fact that it costs so little and is easy to use, and the faster technological progress that it entails, favours exponential growth in the number of both suppliers and consumers in the new electronic markets.

The growth rate of business on the Internet remains difficult to forecast as it depends at one and the same time on the progress of technology (especially as regards service quality, usability and security) and on attitudes and profitability. There are 90 million users today, but this figure could reach between 250 and 500 million by the end of the year 2000.

Retail sales, especially of services, are set to grow the fastest. Nevertheless, trade between companies should represent over 80% of the total value of electronic commerce in the year 2000...'.

The report goes on to say

'...With this in view, France must be more active both in the preparation of European positions and in bilateral relations to ensure that future rules are favourable to its companies and consumers and are compatible with its legal and cultural traditions.

The development of the Internet and electronic commerce calls into question traditional procedures of government. However, the government is not reduced to a condition of passivity or powerlessness.

In the first place it is the task of the government and especially the Ministry of the Economy, Finance and Industry, to adapt the legal rules and facilitate a growth in electronic commerce which will foster the competitiveness of French companies, respect consumers' rights, and meet the demands of national sovereignty.

A variety of trials are under way in the areas of commercial law, protection of individual and consumer rights, tax and customs regulations, and protection of the security and confidentiality of exchanges and transactions. The degree of progress varies, and the results sometimes depend on the outcome of international discussions.

At all events any attempt to constrain something as mutable as the Internet would be futile. We must agree to live with grey areas and encourage the development of self-regulation mechanisms, which are more open-ended and give companies and consumers more responsibility than laws or regulations.

However, benchmarks and safeguards, even if imperfect, must be quickly laid down to foster confidence among market players. In this respect, the priorities seem to be as follows:

conditions of proof, in particular electronic signatures;
liberal implementation of recent statutes and regulations concerning encryption methods and confidentiality of data interchange;
protection of individual data;
introduction of new protected payment systems which are fully interoperable at European and international level;
specification of which country's law is applicable, especially with regard to consumer protection.'

Finally, I should comment on Australia.

In a recent draft document prepared by the National Advisory Council on Consumer Affairs Consumer Protection in Electronic Commerce, Draft Principles and Key Issues - prepared by The National Advisory Council On Consumer Affairs - October 1997., that sets out draft principles and key issues, the following was said about Electronic Commerce Regulation:

Principle No 12
Governments should actively develop their consumer protection responsibilities.


To publicly reinforce the role of governments in protecting consumers who participate in electronic commerce.

Key Issues

Governments should:


strive to avoid developing divergent consumer protection standards relating to electronic commerce;

actively pursue disreputable entities trading in their jurisdictions;

provide an adequate law enforcement framework including mechanisms for dealing with consumer claims;

support the concept that any party may wish to exceed these principles for commercial, competitive or customer service related reasons; and

encourage sellers to develop self-regulatory schemes.
Related matters for comment

All Governments have an active role in facilitating electronic commerce including ensuring unnecessary intervention in the marketplace does not take place. Governments should also encourage the development of confidence in using new technology and online mechanisms.

Actively undertaking consumer protection responsibilities is a clear part of this role.

In conclusion, we have had a look at what some of the main or significant players are doing in the international regulatory environment. There is, of course, some variation. There is a general theme of wishing to encourage the development of electronic commerce.

I will end by quoting from the report written by the Clifford Chance, referred to above.

'The explosive growth of the Internet has meant that, as has so often been the case with technological developments, legislatures, regulators and courts have struggled to keep pace. The result is that we are left with what is, in effect, an extremely powerful new medium which is regulated in an inconsistent fashion by piecemeal laws applying to specific activities in various countries around the globe. And because, almost without exception, they could not possibly have been drafted with this new medium in mind, such laws apply in an unpredictable manner. The Internet, then, is a medium that carried with it an inherent risk to those involved with it, whether network operators, service providers, information providers or parties to electronic commerce.
A few legislatures are now beginning to address the issues raised by the Internet. But the internationality of the Internet means that, ultimately, systematic global regulation will not be achieved without a very broad multilateral treaty, to which, in theory, every country in the world should be party. Given the sensitivity of the policy issues underlying much of the content regulation, such harmonisation is not at all likely. An alternative scenario is that the application of existing laws to Internet-related activities will, in due course, have a significant impact on the development of the Internet.'