U.S. Government Working Group

on Electronic Commerce

First Annual Report

This report continues the work

initiated last year with the release in

July of 1997 of the Administration’s

A Framework for Global Electronic

Commerce. The Framework established a

set of principles and policies that together

provide a new vision for commerce in the

digital age—guidelines that strive to

protect the public interest while liberating

private enterprise from unnecessary

regulations that would stifle innovation.

New technologies are dramatically

changing the way we live, the way we

learn and the way we work. Today, more

Americans make computers than make

cars. More Americans build

semiconductors than construction

machinery. More Americans spend their

days processing data than refining

petroleum. In fact, over a third of real gross

domestic product growth in the past three

years came from information technology

industries. 

At the heart of this economic

transformation is the Internet. When the

President first asked me to oversee the

Administration’s efforts in communications

and technology, the Internet was primarily

a tool for researchers and scientists. Now

more than 140 million people around the

world use the Internet to stay in touch with

distant friends and family, research

important topics, follow the news, or

explore new places. 

Even so, the Internet’s most lasting impact

is just emerging. The information

superhighway promises to transform

commercial transactions—fundamentally

changing how we buy and sell the goods

and services that we use everyday.

Already, thousands of new businesses are

setting up shop on the Internet. Soon,

you’ll be able to buy almost anything

online. You’ll be able to search for the best

price in the world almost instantly from

your home computer. And you’ll be able to

do it in a virtual shopping mall that is open

all day, all night, across the world.

In this emerging digital marketplace,

anyone with a good idea and a little

software can set up shop, and become the

corner store for the entire planet. This

capability promises to unleash a revolution

in entrepreneurship and innovation—a

cascade of new products and services that

today we can scarcely imagine. Many now

estimate that by the beginning of the new

century, electronic commerce will grow to

account for hundreds of billions of dollars

a year in sales. And there is no end in

sight—traffic on the Internet is more than

doubling each year. 

That is why we must redouble our efforts to

remove barriers that can stifle the growth

of the Internet and of electronic commerce.

This new report lays out the progress we

have already made and the policy

challenges that lay ahead. Taken together

with the original Framework report, we are

opening up a new era of economic

possibility and progress by helping to

ensure that commerce goes digital, that

business goes global, and that innovation

goes wild.

Al Gore

U.S. Government Working Group on Electronic Commerce First Annual Report

i

Introduction

November 30, 1998

On July 1, 1997, President Clinton

issued A Framework for Global

Electronic Commerce, which

presented the U.S. Government’s strategy

to facilitate the growth of electronic

commerce. The announcement of the

strategy inspired a worldwide discussion

on policymaking suited to the information

age. This report describes the

Administration’s progress in implementing

the strategy and presents five new areas of

focus for the future.

Since the strategy’s release, the number of

Internet users has more than doubled to

over 140 million people worldwide,

information technology industries are now

directly responsible for over one-third of

the real growth of the U.S. economy, and

electronic commerce is spreading rapidly,

driving productivity improvements in

virtually every sector of the economy. 

Electronic commerce has become a major

issue on economic policy agendas around

the world and the market-driven principles

espoused by President Clinton are now

widely accepted. We have achieved the

major goals set for the first year in the

President’s electronic commerce directive

that accompanied the strategy (the

Directive).

Congress has enacted legislation that

accomplishes four of the President’s main

electronic commerce legislative objectives:

■ The Internet Tax Freedom Act places a

three-year moratorium on new and

discriminatory taxes on Internet commerce

and creates a commission to develop a

uniform system for the application of

existing taxation of remote sales.

■ The Digital Millennium Copyright Act

ratifies and implements the World

Intellectual Property Organization (WIPO)

Copyright Treaty and the WIPO

Performances and Phonograms Treaty,

protecting copyrighted material online.

■ The Government Paperwork Elimination

Act encourages prompt implementation of

electronic filing and record keeping

systems by the Federal government,

including the recognition of electronic

means for authentication.

■ The Children’s Online Privacy Protection

Act protects the privacy of young children

online.

Major international agreements have been

reached in multilateral fora that further the

President’s goals:

■ The World Trade Organization (WTO), at

its May 1998 meeting attended by

Ministers from all 132 member countries,

reached agreement for members to

continue the practice of not imposing

customs duties on electronic commerce

transmissions.

■ The Organization for Economic

Cooperation and Development (OECD) 

and industry groups issued a joint

declaration at the OECD’s October 1998

Ministerial meeting on Global Electronic

Commerce (the Ottawa Conference)

supporting the tax principles outlined in the

President’s strategy and opposing

discriminatory taxation imposed on the

Internet and electronic commerce.

■ The 29 OECD Ministers attending the

Ottawa Conference affirmed the key

principles of the U.S. proposed

U.S. Government Working Group on Electronic Commerce First Annual Report

iii

Executive Summary
International Convention on Electronic

Transactions, calling on governments to

remove paper-based obstacles to

electronic transactions and to ensure that

private parties select the technology and

business methods used for authenticating

their transactions. The Ottawa Ministerial

declaration also recognized the

importance of implementing policies that

are technology-neutral, non-discriminatory,

and based on market-driven approaches

to authentication.

■ The Basle Committee on Banking

Supervision, with the support of the 

leading central banks, issued a report in

March 1998 supporting the nonregulatory approach to electronic payment

systems presented in the Framework.

■ The Global Standards Conference, held

in Brussels in October 1997, affirmed the

U.S. position that the private sector should

lead Internet technical standards

development.

■ A number of international business

groups, including the Transatlantic 

Business Dialogue, the U.S./Japan

Business Council, the International 

Chamber of Commerce, the Global

Information Infrastructure Council, and the

World Information Technology and

Services Alliance have issued resolutions

supporting the U.S. policy approach to

electronic commerce.

In addition, we have negotiated a number

of bilateral agreements that have

accomplished important electronic

commerce goals:

■ In May 1998, President Clinton and

Prime Minister Hashimoto of Japan

committed the U.S. and Japanese

Governments to keeping electronic

commerce essentially free from regulation

and cooperating at an international level to

remove barriers to electronic commerce.

■ In June 1998, Vice President Gore and

Prime Minister Jospin of France

committed the U.S. and French

Governments to the principles of open

access to information and the free flow of

culturally and linguistically diverse

content.

■ In December 1997, President Clinton

and European Union (EU) President Santer

committed the EU and the U.S.

Governments to following principles

similar to those in the Framework and

pursuing regular discussions on electronic

commerce, including through the newly

created Transatlantic Economic

Partnership (TEP).

■ In September 1998, President Clinton

and Taioseach Ahern of Ireland made

history by signing the first intergovernmental agreement that employed

digital signatures. 

The United States has made substantial

progress on the President’s proposals for

private sector leadership and selfregulation of the Internet:

■ In July 1998, a group of companies

responsible for a large share of all

Internet communications committed to

implement online privacy protections that

meet the President’s guidelines by the first

quarter of 1999. Third-party enforcement

organizations have been established to

achieve this goal.

■ The U.S. Government has recognized a

new private, not-for-profit, stake-holder

based organization that will take over the

technical management of the Internet

Domain Name System (DNS).

■ Private sector groups have made

considerable progress in developing

filtering and rating systems to empower

parents, schools and libraries to screen

out objectionable content. There has also

been significant progress in creating

websites with high-quality content for

children.

Finally, we have gained additional

understanding about the economic

significance of the revolution in electronic

commerce and information technology

now underway:

First Annual Report U.S. Government Working Group on Electronic Commerce

iv
■ The Department of Commerce issued The

Emerging Digital Economy in April 1998, the

first comprehensive report on the economic

impact of the information technology

industries and electronic commerce on the

United States.

During the coming year, the Electronic

Commerce Working Group (the Working

Group) will continue to carry out the

President’s Directive. In addition, the

Working Group will focus on five new issues

that have emerged over the past year:

■ increasing the availability of bandwidth

and Internet access in the U.S.;

■ ensuring effective consumer protection in

the online environment;

■ expanding Internet availability and use of

electronic commerce in developing

countries;

■ understanding better the economic

impacts of the Internet and electronic

commerce; and

■ facilitating small business and

entrepreneurial use of the Internet and

electronic commerce.

It is increasingly clear that the Internet and

electronic commerce will be a major force

driving economic growth over the next few

decades. The Administration will continue to

implement market-driven policies that

encourage the development of this new

digital economy in an environment that

respects the concerns of individuals and

families.

Progress on the implementation of A

Framework for Global Electronic Commerce

has been more rapid than we initially

anticipated. Governments and private

sectors around the world now recognize the

importance of the Internet and electronic

commerce to future economic success. The

principles espoused in the Framework have

gained worldwide support. The specific

policies outlined in the Framework are being

implemented through private sector

initiatives, domestic legislation and

international agreements at a faster pace

than we expected. 

We are optimistic that the progress realized

to date will be continued during the next year

so that the benefits of the Internet and

electronic commerce can be realized around

the world.

U.S. Government Working Group on Electronic Commerce First Annual Report

v

On July 1, 1997, President Clinton

presented the U.S. Government’s

strategy to promote the growth of

electronic commerce. He charged various

Cabinet Secretaries to implement elements

of the strategy and directed the Electronic

Commerce Working Group, which had

developed the strategy, to coordinate the

overall effort, periodically reporting on its

progress. This is the first annual report of

the Working Group.

THE EMERGING DIGITAL

ECONOMY

When the U.S. Government’s Electronic

Commerce Working Group first convened

in December 1995, fewer than 10 million

people were using the Internet. Commerce

on the Internet was just beginning and its

potential was not widely recognized. 

Nineteen months later, in July 1997, the

Administration released A Framework For

Global Electronic Commerce (the

Framework), placing electronic commerce

on the global economic agenda. By that

time, over 50 million people were

connected to the Internet and many private

sources predicted that commerce on the

Internet would total tens of billions of

dollars by the turn of the century.

Today, there are over 140 million people

linked to the Internet. Its economic impact

is already significant in the United States.

Internet commerce is now commonly

projected to be hundreds of billions of

dollars by the beginning of the new

century.

In April 1998, the U.S. Department of

Commerce, in cooperation with the

Electronic Commerce Working Group,

issued the first comprehensive report on

the economic impact of information

technology (IT) industries and electronic

commerce, The Emerging Digital Economy.

Due in part to the growth of the Internet, IT

industries have accounted for over

U.S. Government Working Group on Electronic Commerce First Annual Report

1

Working Group on Electronic

Commerce

First Annual Report

Worldwide Internet Users

50

100

150

200

250

300

350

0 1995 1996 1997 1998 1999 2000

Million Users

Source: Nua Internet Surveys http://www.nua.ie * = estimate

IT Contribution to Real

Economic Growth

% of Total Growth 1995-97

Rest of

Economy

65.4%

Information

Technology

34.6%

Source: Emerging Digital Economy Average of the 3 yrs.
one-third of the real growth in U.S. gross

domestic product over the past three

years. More than 7 million people work in

IT industries and occupations and earn

wages that are almost two-thirds higher

than the average for all private sector jobs.

Price declines in information technology

reduced overall inflation by one-third, from

3.1 percent to 2.0 percent in 1997.

Investments in computers, communications

and other information processing

equipment now account for over 45

percent of total real business equipment

investment. 

During the first decade of the next century,

over a billion people will be using the Internet

worldwide. This growth in Internet usage will

further increase the importance of IT

industries to the world economy and will

create significant opportunities for the growth

of commerce using the Internet. 

Businesses of all sizes use the Internet to

create, buy, sell and distribute products and

services. Many are realizing substantial

productivity improvements as a result, and

have been increasing their Internet business

activities at dramatic rates. Four companies

alone—General Electric, Cisco, Intel, and

Dell—were responsible for about $3 billion in

Internet commerce in 1997. They plan to

exceed $35 billion in online transactions by

the year 2000. Instead of Internet commerce

totaling “tens of billions of dollars,” it now

appears that electronic commerce among

businesses alone will total well over $300

billion by early in the next decade. 

Virtually all sectors of the economy are being

affected. By 2000, nearly 7 percent of all

airline tickets purchased in the United States

are likely to be sold online. As many as 16

million households may do their banking via

the Internet, and over $1 billion of insurance

premiums are expected to be generated

online. Increasingly, consumers are using

the Internet to buy books, music, clothing,

electronic goods, and other household items.

High-priced items such as automobiles are

also being marketed and sold via the

Internet—at least 1 out of 5 people will use it

to shop for a new car or truck by the turn of

the century. 

While most successful examples of

electronic commerce are still found in the

First Annual Report U.S. Government Working Group on Electronic Commerce

2

Internet Host Count

Source: Network Wizards; http://www.nw.com

0

10,000,000

15,000,000

20,000,000

30,000,000

40,000,000

JAN 91

25,000,000

35,000,000

5,000,000

JUL 91

JAN 92

JUL 92

JAN 93

JUL 93

JAN 94

JUL 94

JAN 95

JUL 95

JAN 96

JUL 96

JAN 97

JUL 97

JAN 98

JUL 98

Estimate

Actual

IT Supports High-Paying Jobs

0

10,000

20,000

30,000

50,000

Average Private Sector

$ Earnings per Year, 1996

Source: The Emerging Digital Economy Report

40,000

28,000

46,000

IT-related sector

Information Technology Spending

as a Share of Business Equipment

Spending

0

10

20

30

50

1972 1977 1982 1987 1992 1997

Percent

Source: U.S. Department of Commerce, Bureau of Economic Analysis

40

* Inflation-adjusted investment in information processing equipment

 (office computing, and accounting machinery, communications equipment,

 instruments, and photocopying equipment) as a share of total private

 equipment investment.
United States, Internet use and electronic

commerce are spreading rapidly around

the world.

As Vice President Al Gore predicted in a

speech in 1994 before the first World

Telecommunications Development

Conference, building an international

network of networks—a Global Information

Infrastructure (GII)—is enabling us to share

information, to connect, to communicate

and to do business as a global community.

In his speech on July 1, 1997

introducing A Framework for Global

Electronic Commerce, President Clinton

likened the emergence of the new

digital economy to the Industrial

Revolution in its potential impact on the

world economy.

The events of the

past year

demonstrate the

accuracy of that

comparison.

U.S. Government Working Group on Electronic Commerce First Annual Report

3

“The invention of the

steam engine two

centuries ago and the

subsequent harnessing

of electricity for

communications ushered

in an industrial

revolution . . . Today we

are on the verge of

another revolution.

Inventions like the

integrated circuit, the

computer, fiber optic

cable, and the Internet

are changing the way

we work, learn and

communicate with each

other.”

President Clinton,

July 1997

With the creation of the Electronic

Commerce Working Group in

December 1995, President

Clinton became the first world leader to

give the Internet and electronic commerce

a central role in his policy agenda. 

The President’s Framework proposed a

series of principles to guide the

development of the new digital economy:

an emphasis on private sector leadership;

reliance on market forces instead of

government regulation; minimal

government intervention to provide a

predictable legal framework for electronic

commerce; a decentralized, technologyneutral approach to policy; and the need

for international agreements to create a

seamless global marketplace. In the

fast-paced digital economy, policies need

to be flexible, decentralized and

responsive. The Framework calls for

governments to refrain from imposing

unnecessary regulatory actions that could

stifle the growth of the Internet and

electronic commerce. Competition and

consumer choice should be the guiding

principles for the new digital economy.

The preparation and release of the

Administration’s Framework has

fundamentally changed economic

agendas around the world. Since July

1997, more than a dozen other

governments have issued electronic

commerce strategies and set up working

groups to guide their governments’

policies. Multilateral and regional

organizations including the Organization

for Economic Cooperation and

Development (OECD), the World Trade

Organization (WTO), the United Nations

(UN), particularly the UN Committee on

Trade and Development (UNCTAD), the

Transatlantic Economic Partnership (TEP),

the Asia-Pacific Economic Cooperation

forum (APEC), and the Free Trade Area of

the Americas (FTAA) have made electronic

commerce a top priority. The Transatlantic

Business Dialogue (TABD), the

International Chamber of Commerce (ICC),

the U.S. Japan Business Council (USJBC)

and the newly formed Global Business

Dialogue (GBD), among other private

sector organizations, have done so as well. 

The principles defined in the Framework

are now accepted by several governments

and private sector organizations as

appropriate for the new digital economy.

They are reflected, in whole or in part, in a

series of bilateral and multilateral

agreements on electronic commerce

issued this past year. They include: the

U.S./Korean Joint Statement on Electronic

U.S. Government Working Group on Electronic Commerce First Annual Report

5

PRINCIPLES TO GUIDE THE

DIGITAL ECONOMY

A Framework for Global

Electronic Commerce

■ The private sector should lead.

■ Electronic commerce should be a market

 driven arena not a regulated one.

■ Where governmental involvement is needed,

 it should support and enforce a predictable,

 minimalist, consistent, and simple legal

 environment for commerce.

■ Governments should recognize the unique

 qualities of the internet.

■ E-commerce should be a seamless global

 marketplace.

Electronic commerce should be a seamless

global marketplace.

Electronic commerce should be a seamless

global marketplace.

Governments should follow a decentralized,

technology neutral approach to policy.
Commerce issued in November 1998,

the U.S./Ireland Communique on

Electronic Commerce issued in

September 1998, the French-American

Background Paper on the Challenges of

the Information Society and the Digital

Economy issued in June 1998, the

U.S./Japan Joint Statement on Electronic

Commerce issued in May 1998, the

U.S./EU Statement on Electronic

Commerce issued in December 1997,

the APEC Economic Leaders’ Declaration 

and the Ninth APEC Ministerial Meeting

Joint Statement issued in November

1997, the U.S./Dutch Joint Statement 

on the Development of the Internet 

and the Promotion of Global Electronic

Commerce issued in October 1997, and

the Bonn Declaration on Electronic

Commerce issued in July 1997. 

First Annual Report U.S. Government Working Group on Electronic Commerce

6

Formation of President’s Electronic Commerce Strategy and

Major International Agreements Flowing From It

December, 1995. President Clinton announces creation of Electronic Commerce 

Working Group

December, 1996. First draft of electronic commerce strategy posted on the Internet 

for public comment; the first use of the Internet to help shape 

White House policy

December, 1996. WIPO agreement protecting copyrights online

July, 1997. President Clinton issues A Framework for Global Electronic 

Commerce and the Presidential Directive on Electronic 

Commerce

July, 1997. Global Information Networks Ministerial Conference in Bonn 

issues Declaration on Electronic Commerce

October, 1997. U.S./Netherlands sign Joint Statement on the Development of the 

Internet and Electronic Commerce

November, 1997. TABD issues Communique at Rome Meeting regarding electronic 

commerce

November, 1997. The APEC Economic Leaders issue declaration on electronic 

commerce

December, 1997. The U.S./EU Statement on Electronic Commerce is issued

March, 1998. FTAA issues Ministerial Declaration on electronic commerce

May, 1998. WTO issues Declaration on Global Electronic Commerce

May, 1998. U.S/Japan sign Joint Statement of Electronic Commerce

June, 1998. U.S./France collaborate to issue French-American Background 

Paper on the Challenges of the Information Society and the 

Digital Economy

September, 1998. U.S./Ireland sign Joint Communique on Electronic Commerce

using digital signatures

October, 1998. The OECD issues the Ministerial declaration on authentication for 

electronic commerce and on taxation

November, 1998. U.S./Korea sign Joint Statement on Electronic Commerce
This contrasts sharply with global attitudes

regarding electronic commerce as recently

as two years ago, when the first draft of the

Framework was posted on the Internet for

comment. At that time, governments were

reacting in an ad hoc fashion to the growth

of the Internet and its first commercial uses.

These governmental actions, often

provoked by fears of lost tax revenues or

possible abusive use of the Internet, were

often highly intrusive and regulatory. Since

its release, the Framework has stimulated a

major change in philosophy about

electronic commerce and the Internet. 

Two years ago, in developing its Internet

strategy, the U.S. Government used the

Internet for the first time to solicit public

comments on its proposal.

Now, governments around the world

recognize the unique qualities of the

Internet for involving the public in policy

debates.

Two years ago, a number of nations were

considering imposing customs duties on

digital information sold and delivered via

the Internet, and a number of states and

cities were looking to impose new Internet

access and electronic commerce taxes.

The idea of imposing a tax on every bit of

information transmitted electronically was

gaining momentum.

Today, there is an agreement in the WTO to

refrain from putting customs duties on

electronic transmissions, the Internet Tax

Freedom Act establishes a moratorium on

Internet access taxation and on all

discriminatory or multiple taxation of the

Internet and electronic commerce in the

U.S., and governments around the world

uniformly oppose a “bit,” or information

volume based, tax.

Two years ago, many countries were willing

to censor the Internet, either by imposing

cultural or linguistic restrictions or limiting

pornography or other objectionable

content. 

Today, while governments continue to

express concerns about illegal or harmful

content, most follow a policy that allows

individuals the freedom to choose what

lawful information they access on the

Internet. Governments are encouraging

the development and use of tools, such as

rating systems and filtering technology,

that empower individuals to select and

control the information they receive in their

homes and workplaces and provide a

means for meeting concerns about the

special needs of children.

Two years ago, many countries were

considering omnibus laws to regulate

electronic commerce, with detailed rules

governing the use of digital signatures,

government direction in the setting of

technical standards, and significant

restrictions on the issuance of electronic

money. 

Today, there is much greater willingness to

allow markets to drive the development of

authentication technologies and business

models. There is widespread agreement,

as demonstrated at the Global Standards

Conference in Brussels last fall, that

standards should be set by the market

instead of governments. The large

industrialized countries have agreed not to

implement policies that unnecessarily

hamper innovation or the development of

electronic payment technologies.

Two years ago, there was widespread

disagreement on how the Internet’s domain

name system should be coordinated, with

governments, commercial interests and the

technical community of the Internet often at

odds with each other. 

Today, there is consensus on the creation

of a private, not-for-profit corporation with

an internationally representative board of

directors to oversee the technical

management of the Internet’s domain

name system.

Although the Framework proposed that

consumer choice and competition should

drive the digital economy, it recognized

that in some instances rules would have to

be set for the effective functioning of the

new economy. The U.S. Government

U.S. Government Working Group on Electronic Commerce First Annual Report

7
First Annual Report U.S. Government Working Group on Electronic Commerce

8

proposed that, where possible, these rules

should be developed in the private sector

so that they would be less bureaucratic,

more flexible, and readily adaptable to

rapid technological and market changes.

There is growing acceptance of this

principle in the world community, though

there is still substantial debate on how

active the government role should be in

areas such as privacy.

The U.S. Government continues to believe

that governments have an important role

to play in setting the goals of

self-regulation, in working with industry to

help make self-regulation effective, and in

legislating in certain limited areas.

However, we also continue to believe that

privately enforced codes of conduct should

be a central instrument for protection of

online privacy and for other areas where

coordination is necessary.

Recently, private sector groups in the

United States including companies,

industry associations, and advocacy

groups came together to form a privacy

alliance that will develop tools to protect

consumers against invasions of their

personal privacy. The work that the

alliance began this past year, while

promising, must be fully implemented

and extended to more companies in the

coming year. 

Self-regulation in the digital age will

require the private sector to engage in

much greater collective action to set

and enforce rules than was

characteristic of the Industrial Age.

These rules should operate globally,

requiring heightened international

cooperation among companies and

between industry and advocacy groups.

The U.S. Government remains

convinced that these new forms of

international coordination represent the

most effective way to create a seamless

global marketplace and still address

problems which may arise in the digital

age.
The Presidential Directive on Electronic

Commerce (the Directive), issued

July 1, 1997, was designed to

implement the strategy laid out in the

Framework. The President assigned

thirteen specific tasks to various Cabinet

agencies, some to be achieved within a

year and some by January 1, 2000. The

progress made on each directive is

discussed below.

1. I direct the U.S. Trade Representative to

work with foreign governments to secure

agreement within the next 12 months that

all products and services delivered across

the Internet will not be subject to tariffs and

that all equipment from which the Internet

is built will also not be subject to tariffs.

In May 1998, the

World Trade

Organization’s

Ministerial

Conference adopted

a declaration

committing all 132

member governments

to refrain from

imposing customs

duties on electronic

commerce when

information and services are delivered

electronically. 

At the next Ministerial session to be held in

the United States in late 1999, Ministers

will consider extending this declaration

indefinitely. Over the next year, the United

States will urge countries to make this

declaration permanent and legally binding

by including it in the appropriate

schedules of their WTO commitments.

Under the Information Technology

Agreement (ITA), which entered into force

on July 1, 1997, 44 countries—representing

nearly 95 percent of the world trade in IT

products—will reduce tariffs on IT products

to zero, generally by the year 2000. This

agreement covers the core of IT products

that comprise the Internet’s hardware

infrastructure, such as semiconductors and

printed circuit boards, computers,

telecommunications apparatus, and

computer networking equipment.

Since January 1998, the United States has

led efforts to extend the scope of the ITA to

include products that are driven by

information technology, such as satellite

communications systems, computer-driven

navigational systems, process control

devices and manufacturing equipment for

information technology products, such as

printed circuit boards. We hope to

successfully conclude these negotiations in

1998, with implementation to begin in 1999.

2. I direct the U.S. Trade Representative to

work with foreign governments to enforce

existing agreements and secure new

agreements to make electronic commerce a

seamless global marketplace. This will

include enforcing provisions of the recently

concluded WTO Telecommunications

Services Agreement; ensuring that product

testing, certification, and approval

processes do not unnecessarily restrict

trade; ensuring that service providers have

nondiscriminatory access to customers

worldwide; and other measures that ensure

a free flow of commerce.

In February 1998, the WTO

Telecommunications Services Agreement

U.S. Government Working Group on Electronic Commerce First Annual Report

9

PROGRESS ON THE

PRESIDENTIAL DIRECTIVE

“We also declare that

Members will continue

their current practice of

not imposing customs

duties on electronic

transmissions.”

World Trade Organization

Declaration, May 1998
went into force and 70 countries began to

implement commitments to provide market

access, national treatment and a

pro-competitive regulatory environment for

basic telecommunications services. The

U.S. Government is providing technical

assistance to telecommunications

regulators to help them implement this

agreement and is monitoring compliance.

These commitments, already encouraging

private sector investment and competition

in telecommunications, will help ensure

Internet interconnection at reasonable,

cost-based, and non-discriminatory prices.

The U.S. Government has also raised

telecommunications liberalization and

competition issues in a variety of bilateral

and multilateral fora. These discussions

have focused on ensuring that incumbent

telecommunications suppliers are open to

competition and that they offer fair prices

for the use of leased lines, local loops,

interconnection, and equipment

connection. 

In June 1998, APEC economies endorsed

a Mutual Recognition Agreement (MRA)

regarding telecommunications equipment.

The countries of the Americas will begin

discussions on a similar MRA later this

year. During the OECD Ottawa

Conference, participating Ministers and

industry representatives highlighted

telecommunications liberalization as

essential to the further expansion of

electronic commerce.

The U.S. Government has also used

bilateral and regional discussions to

ensure that Internet service providers and

content producers are able to reach their

customers anywhere in the world. While

recognizing the importance of promoting

cultural diversity, the U.S. Government has

advocated open access by consumers to

content regardless of its language or

country of origin. At the bilateral level, this

goal has been achieved in agreements

reached with the Japanese Government in

May 1998 and the French Government in

June 1998.

The May 1998 WTO Ministerial meeting

established a work program, to be

concluded in 1999, to examine a wide range

of trade issues related to electronic

commerce. The U.S. Trade Representative

will work in this venue to advocate the

creation of a seamless global marketplace

for the conduct of electronic commerce with

an aim of assuring the removal of all non-tariff

trade barriers to electronic commerce. 

3. I direct the Secretary of Commerce to seek

the protection of copyright in the digital

environment by working to achieve ratification

in the United States and overseas within the

next 12 months of the World Intellectual

Property Organization (WIPO) Copyright

Treaty and the WIPO Performances and

Phonograms Treaty.

Two WIPO treaties were negotiated by the

Administration and adopted at the WIPO

Diplomatic Conference in December 1996.

The treaties are designed to ensure that

international copyright rules keep pace with

technological change by setting new

international standards for protection of

digital content, including copyrighted works,

musical performances, and sound

recordings. They also afford important

protection against piracy for U.S. rights

holders in the areas of music, film, computer,

books, software, and other information and

entertainment products. Given the central

importance of intellectual property in the

digital economy, adoption of these treaties

will contribute significantly to economic

vitality.

The President transmitted the treaties to the

Senate for advice and consent in July 1998

First Annual Report U.S. Government Working Group on Electronic Commerce

10

WTO Basic Telecommunications

Service Agreement

Signed: February 15, 1997

Entered into Force: February 5, 1998

Number of Signatories: 70 Economies

Global Telecommunications

Market: >$600 billion

Percentage of Global Market

Represented: >95%
and sent a legislative proposal to

Congress to implement the treaties.

Congress recently enacted the Digital

Millennium Copyright Act, which the

President signed into

law on October 28,

1998, modifying U.S.

copyright law to

conform to the new

WIPO treaties. The

law also includes

provisions that limit

the liability of

telecommunications

companies and

Internet service

providers. The

legislation will

promote electronic

commerce over the

Internet and other networking environments

by ensuring accountability and

enforcement of copyright law without

imposing excessive or unforeseeable

liability for intellectual property

infringement.

The United States’ implementation of the

WIPO treaties comes at a time when

countries are examining how best to

update their copyright laws to meet the

challenges of the digital age. In the

U.S./EU Statement on Electronic Commerce

of December 1997, the European Union

member states agreed to ratify these

treaties in the near future. The Japanese

government has made a similar

commitment as part of the U.S./Japan Joint

Statement on Electronic Commerce of May

1998.

4. I direct the Secretary of Commerce to

update and make more efficient our system

for protecting patentable innovations to

meet the needs of the fast-moving

electronic age and to seek agreements with

other governments to protect patentable

innovations worldwide.

In order to make the U.S. patent system

more straightforward and efficient, the U.S.

Patent and Trademark Office (USPTO) in

the Department of Commerce is

assembling a complete and

comprehensive collection of information

concerning the development of computerrelated technologies. In this way, the

USPTO will be better able to educate its

examiners and expand its efforts to classify

computer-related “prior art.” Applicants for

patents for computer-related inventions will

thereby receive a more thorough

examination.

The USPTO is also taking significant steps

to improve data access in the electronic

age, posting much of its patent search

information, which includes over 30 million

documents, onto its website. Already,

online users can access, free of charge,

the Patent Bibliographic Database and the

AIDS Patents Database from the USPTO

website. This year, the USPTO plans to

U.S. Government Working Group on Electronic Commerce First Annual Report

11

1991 - 1996 Estimated Revenues

Generated by Foreign Sales of

Selected U.S. Core Copyright

Industries

0

10

20

30

50

70

1991

est.

Billions of Dollars

40

60

1993

est.

1994

est.

1995

est.

1996

est.

Newspapers, Books, Periodicals

Computer Software

Motion Pictures, TV, Video

Recorded Music

Source: 1) International Intellectual Property Alliance

 2) Copyright Industries in the U.S.: 1998 Report

 3) www.iipa.com http://www.iipa.com

“Through enactment of

the Digital Millenium

Copyright Act, we have

done our best to protect

from digital piracy the

copyright industries that

comprise the leading

export of the United

States.”

Statement from

President Clinton,

President Clinton,

October 1998

Public Patent Searches

on the PTO Web

0

200,000

400,000

800,000

1,200,000

Source: Information Dissemination Organizations,

 U.S. Patent and Trademark Office

600,000

1,000,000

JAN

1997 MAR1997 MAY1997 JUL1997 SEP1997 NOV1997 JAN1998 MAR1998 MAY1998 JUL1998 SEP1998
add to its website the full text of all patents

issued since 1976. By March of 1999, the

related graphics will be added to the text,

creating one of the largest public online

databases in the world.

At the urging of the Administration, the

World Intellectual Property Organization

has agreed to establish a global

information network in order to expand use

of information technologies within its

member states by electronically linking

WIPO’s international bureaus. This project

will enable member nations to exchange

patent documents electronically and will

support the secure transmission of

confidential information relating to patent

applications. WIPO has already

designated funds to increase connectivity

among its offices which will facilitate a

global process of patent examination and

grants.

5. I direct the Secretary of Commerce to

support efforts to make the governance of

the domain name system private and

competitive and to create a contractually

based self-regulatory regime that deals with

potential conflicts between domain name

usage and trademark laws on a global

basis.

The Department of Commerce first issued

a Request for Comments on the

administration of the domain name system

(DNS) in July 1997. Since then it has

released two additional papers on the

subject generating more than 1,200 public

comments from around the world,

amounting to some 4,000 pages.

In June 1998, the Department of

Commerce issued a Statement of Policy

titled Management of Internet Names and

Addresses (the White Paper) inviting the

international community of private sector

Internet stakeholders to work together to

form a new, private, not-for-profit

corporation to undertake technical

management of Internet domain name

system functions.

On October 20, the Department of

Commerce signaled its intention to enter

into an agreement with a new organization

named the Internet Corporation for

Assigned Names and Numbers (ICANN),

which was formed by private sector

members of the global Internet

community. The Department raised a

number of issues including accountability

and transparency and invited ICANN to

seek greater consensus in the Internet

community on these and other important

issues.

ICANN responded, and on November 25

the Department of Commerce entered into

an agreement with this new corporation

designed to initiate an implementation plan

under which the private sector will

undertake the management of DNS

functions now performed by, or on behalf

of, the U.S. Government. To ensure the

stability of Internet functions, the U.S.

Government will transition technical

management functions to the private

sector gradually, with September, 2000 as

an outside date for completion. 

To facilitate this transition and bring

competition into domain name registration

the U.S. Government has also taken the

following actions:

■ The Department of Commerce, in

coordination with other Federal agencies,

negotiated an amendment to the

cooperative agreement with Network

Solutions, Inc. (NSI), the company that

currently manages certain aspects of the

domain name system. The amendment

secured NSI’s commitment to take specific

actions designed to permit the

development of competition in domain

name registrations and to recognize the

role of the new corporation in establishing

and implementing DNS policy. It also

requires NSI to make available all relevant

information and materials necessary for the

new corporation to carry out its functions.

■ At the Administration’s request, the World

Intellectual Property Organization (WIPO)

convened an international process to

develop recommendations for the

resolution of trademark/domain name

First Annual Report U.S. Government Working Group on Electronic Commerce

12
disputes and other issues pertaining to

trademark and domain name conflicts

according to principles laid down in the

White Paper. WIPO expects to report its

findings to the new corporation early

next year. 

■ The Administration has consulted, and

will continue to consult, with the

international community, including other

interested governments, as it makes

decisions on the transition of DNS

management functions to the private

sector.

■ The Administration has initiated a

review of the Internet root server system

to determine how to increase security.

This process now enjoys broad-based

support from Internet stakeholders and

other governments around the world and

we are optimistic about the successful

conclusion of this effort. 

6. I direct the Secretary of the Treasury

to work with State and local governments

and with foreign governments to achieve

agreements that will ensure that no new

taxes are imposed that discriminate

against Internet commerce; that existing

taxes should be applied in ways that

avoid inconsistent national tax

jurisdictions and double taxation; and

that tax systems treat economically

similar transactions equally, regardless

of whether such transactions occur

through electronic means or through

more conventional channels of

commerce.

Electronic commerce deserves the same

tax treatment as traditional commerce,

no more no less. In 1996, the

Department of the Treasury published a

paper, Selected Tax Implications of Global

Electronic Commerce, setting forth the

principle of neutrality between taxation of

traditional and electronic commerce.

Since then, to ensure that growth of this

promising medium is not stunted by

duplicative or discriminatory taxation, the

Administration has worked domestically

and internationally to ensure fair tax

treatment of transactions using the

Internet or other electronic means.

The Administration both helped shape

and supported the Internet Tax Freedom

Act, which was signed into law on

October 21, 1998. The Act places a

three-year moratorium on state and local

government taxation of Internet access

and multiple or discriminatory taxation of

electronic commerce while the complex

issues associated with state and local

taxation of remote sales are analyzed.

In addition, the Act creates a federal

commission to work toward ensuring that

no discriminatory taxes are levied on the

Internet or electronic commerce, that

existing taxation is applied in a

consistent and non-discriminatory

fashion, and to consider the taxation

issues surrounding remote sales,

however they are made. The

Departments of Treasury and

Commerce, and the USTR will be

represented on this commission along

with state and local government and

private sector representatives. This

commission is to issue a report in the

spring of 2000.

In addition to working with this newlycreated commission, Treasury

representatives will continue to meet

with representatives of state and local

government organizations, business,

and taxpayer groups to advocate a

rational tax policy with respect to the

Internet and electronic commerce.

Treasury will continue its active

participation in the National Tax

Association-sponsored Communications

and Electronic Commerce Tax Project,

which is a forum for state and local

government organizations, business,

taxpayer groups and academics to

consider state and local taxation with

respect to new technologies.

Internationally, the Administration has

worked to ensure that any taxation of the

Internet or electronic commerce should

be clear, consistent, neutral and

non-discriminatory. As part of those

efforts, the United States successfully

opposed the imposition of a “bit” tax

U.S. Government Working Group on Electronic Commerce First Annual Report

13
based on information volume, which

would have discriminated against the

Internet and electronic commerce and

hampered their development.

Treasury has also been working within the

OECD to achieve an international

consensus on taxation of global electronic

commerce. A full day of tax discussions

among OECD member countries,

non-member countries and private sector

representatives took place in conjunction

with the OECD’s Ottawa Ministerial

conference. At the conclusion of the tax

talks, participants issued a joint

government/business declaration affirming

the principle that the same general

approach to taxation of conventional

commerce should guide governments with

respect to electronic commerce taxation.

In addition, the OECD’s Committee on

Fiscal Affairs presented a report to

Ministers articulating taxation principles

consistent with those outlined in the

Framework and establishing a work plan on

electronic

commerce

taxation.

Discussions will

now proceed

within the OECD,

in conjunction with

business and

non-OECD

member countries,

on developing a

means to

implement those

principles.

Treasury has also

advocated the

Administration’s approach to the taxation of

electronic commerce with our current and

prospective tax treaty partners. At the

Ottawa conference, the OECD released a

proposed clarification for tax treaty

purposes of the treatment payments for

software that is consistent with Treasury’s

recently-released regulations regarding the

tax characterization of cross-border

software transactions.

7. I direct the Secretary of Commerce to

work with the private sector, state and local

governments, and foreign governments to

support the development, both domestically

and internationally, of a uniform commercial

legal framework that recognizes, facilitates,

and enforces electronic transactions

worldwide. I further direct the Secretary of

Commerce within the next twelve months to

seek to gain agreement with the private

sector, State and local governments and

foreign governments on common

approaches for authentication of electronic

transactions through technologies such as

digital signatures. 

The market is very much in the early stages

of experimentation with respect to the

business models for electronic commerce.

The United States believes it is not wise at

this time to attempt to identify a single

model that these transactions will use or to

develop a legal environment using a single

model. Indeed, such an approach would

prevent the market from testing different

possible approaches and prematurely

impose a particular model on all electronic

commerce, inevitably limiting its growth.

Therefore, at the current stage of

development, the legal framework should

support a variety of business models so

that the market is able to experiment and

select the models that best fit particular

types of electronic commerce. 

To facilitate necessary experimentation and

innovation, the Administration has identified

two basic legal issues that must be

addressed. First, paper-based barriers to

electronic transactions, including laws that

require paper contracts or the retention of

paper records, should be eliminated or

appropriately modified to allow the free flow

of electronic transactions. This step can be

implemented by adopting relevant

provisions of the United Nations

Commission on International Trade Law

(UNCITRAL) Model Law on Electronic

Commerce, developed in 1996. While a

number of countries and most U.S. states

are using the Model Law as a basis for

updating their commercial laws, many

countries are not yet doing so.

First Annual Report U.S. Government Working Group on Electronic Commerce

14

“We cannot allow

30,000 state and local

tax jurisdictions to stifle

the Internet, nor can we

allow the erosion of the

revenue that state and

local governments need

to fight crime and invest

in education.

Statement from

President Clinton,

President Clinton,

October 1998
Second, innovation and experimentation in

electronic authentication methods (that

would allow parties to know with certainty

the identity of a sender of an electronic

message, or to verify that an electronic

message has not been altered during its

transmission) should be promoted. A few

governments, however, are establishing

detailed rules for electronic authentication,

which the United States considers to be

premature, burdensome or unnecessary.

These legal rules may also disrupt the

market and stifle innovation by raising

questions about the validity of

authentication technologies and methods

that are not specifically sanctioned or

licensed.

The U.S. Government has asked

UNCITRAL to consider an International

Convention on Electronic Transactions that

would accomplish both goals: (1)

eliminate paper-based legal barriers to

electronic transactions by implementing

relevant provisions of the 1996 UNCITRAL

Model Law on Electronic Commerce, and

(2) provide an effective approach to

authentication, assuming that there may be

differences in private preferences and in

national laws. 

The proposed Convention’s authentication

principles are designed to accommodate a

variety of national approaches while

providing transacting parties with assurance

that their transactions will be recognized

and enforced worldwide. The proposed

Convention includes provisions that: (1)

reaffirm the rights of parties to a transaction

to determine the appropriate technological

means of authenticating their agreements;

(2) provide that parties to a transaction

should have the opportunity to prove in

court that the authentication technique used

in the transaction is valid; and (3) state that

governments should treat providers and

users of authentication services from other

countries in a non-discriminatory manner.

The OECD Ministers meeting in Ottawa

approved a Declaration on Authentication

for Electronic Commerce that affirms the key

principles of the U.S.-proposed International

Convention on Electronic Transactions. The

U.S. Government has negotiated bilateral

agreements with France and Japan that

support the development of a global

framework that will recognize, facilitate, and

enforce electronic transactions worldwide

and endorse the principles underlying the

proposed Convention.

Domestically, there is also support for these

principles. The National Association of State

Information Resource Executives, the

National Association of State Purchasing

Officers, and the National Association of

State Comptrollers have signed a joint

resolution supporting the principles

contained in the Convention. In addition, the

National Conference on Commissioners on

Uniform State Laws (NCCUSL) has several

projects under way to update the Uniform

Commercial Code to accommodate

electronic transactions and to develop new

uniform rules such as a Uniform Electronic

Transactions Act. The draft provisions are

consistent with the principles contained in

the Convention, as is the legislation passed

in a number of states.

The Congress recently enacted legislation,

supported by the Administration, intended

to remove barriers to the ability of citizens

to interact with the federal government

electronically. The Government Paperwork

Elimination Act provides for Federal

agencies to implement electronic filing

systems, to eliminate wherever practical

the need to retain paper records, and to

use electronic authentication methods to

verify the identity of the sender and the

integrity of electronic content. The Act

specifically provides that electronic

records and their related electronic

signatures are not to be denied legal

effect, validity, or enforceability merely

because they are in electronic form. 

8. I direct the Secretary of Commerce and

the Director of the Office of Management

and Budget to encourage private industry

and privacy advocacy groups to develop

and adopt within the next 12 months

effective codes of conduct, industry

developed rules, and technological

solutions to protect privacy on the Internet

consistent with the Privacy Principles

U.S. Government Working Group on Electronic Commerce First Annual Report

15
issued by the Information Infrastructure

Task Force (IITF) Privacy Working Group. I

further direct the Director of the OMB to

develop recommendations on the

appropriate role of government consistent

with A Framework For Global Electronic

Commerce. I further direct the Secretary

and the Director to ensure that means are

developed to protect the privacy of children.

According to a recent poll, 81 percent of

American Internet users have significant

concerns about threats to their personal

privacy while online. Of computer users

who say they are not likely to access the

Internet in the next year, greater privacy

protection is the factor that would most

likely convince them to do so. 

The U.S. government believes that

private sector-developed and enforced

codes of conduct are an effective way to

protect privacy online without creating a

bureaucracy which could stifle the

growth of electronic commerce.

Industry was slow to respond to the

President’s call in the Framework for the

development of effective self-regulation. A

study published in June 1998 by the

Federal Trade Commission (FTC) titled

Privacy Online: A Report to Congress, found

that only a small percentage of companies

provided any notice of their information

collection practices on the Internet and few

websites had notices of policies to limit

collection of personally identifiable data

from children who visited those sites. 

Since that time, in response to mounting

evidence that privacy concerns were

delaying the growth of electronic

commerce and government calls for

industry action, serious efforts to create

effective privacy protection via

self-regulation have begun. 

Over 50 of the largest companies doing

business on the Internet and 15 business

organizations that represent thousands of

other companies have formed an alliance

to promote privacy online. The Online

Privacy Alliance (OPA) members have

committed to implement fair information

practices described in the Framework

involving notice, choice, access, and

enforcement. The Better Business Bureau

and TRUSTe are developing independent

third party enforcement regimes that will

promote compliance with information

practice codes. These enforcement

regimes will include the display of a seal or

trust mark to notify consumers that a

website follows fair information practices.

Companies that violate their stated

information practice codes are also subject

to FTC enforcement under Section 5 of the

FTC Act.

The OPA has indicated that it will conduct

consumer and business education

campaigns and will actively recruit new

companies to subscribe to its privacy

principles and enforcement organizations.

The OPA will also seek cooperative

agreements with industry organizations

abroad to create an international system of

seals or trust marks that could be used

globally to communicate meaningful

assurances to consumers around the

world, regardless of the location of the

website.

The Internet technical community has

completed work on the specifications for a

number of technologies to empower

consumers to protect privacy online. These

technologies allow consumers to

First Annual Report U.S. Government Working Group on Electronic Commerce

16

Seriousness of Privacy Issues

to Net Users

Receiving unsolicited

commercial email

% of Respondents

Collecting email

addresses for

marketing purposes

Other people reading

email not addressed

to them

Public record

information on the Net

Tracking websites &

using information

improperly

0 10 20 30 40 50 60 70 80 90 100

Collecting personal

information about

children

Source: Privacy and American Business

 Price waterhouse Coopers LLP Price Waterhouse Coopers LLP
determine their privacy preferences and

have them automatically communicated to

web site operators. It will take additional

time to bring applications based on these

specifications to the market, but they will

assist individuals, companies and

self-regulatory organizations in the

protection of privacy.

To enforce privacy protections effectively,

a company must install systems to notify

customers of their privacy policies,

process customer privacy preferences,

protect customer data, and handle

inquiries and complaints. By committing

to follow privacy principles with third party

enforcement, a company incurs a legal

obligation to follow these policies. It

therefore must also ensure that auditing

systems are in place and that all of its

employees understand the company’s

privacy policy. For electronic commerce

to succeed, commitments to such actions

must be undertaken and implemented

expeditiously. 

The Department of Commerce will monitor

the implementation of commitments made

by the OPA and other groups which have

signed up to apply privacy principles and

will also monitor the spread of effective

self-regulation to additional companies

doing business online. While the private

sector approaches now being

implemented are promising, commitments

to efficient and effective self-regulation

must result in action. Moreover, if self

regulation is to work, these efforts must

expand over the next year. 

The Administration believes that

government does have a role in privacy

protection. Government must assure that

its own practices protect the privacy of

persons about whom the government

holds information, consistent with the

Privacy Act and other laws. Government

should work to increase public awareness

of privacy issues, and identify and

encourage the adoption of best practices

in implementing privacy programs.

Finally, government should act in certain

areas, through law or regulation, to

protect the privacy of especially sensitive

information and to prevent predatory

practices.

In light of the special concerns highlighted

by the FTC on collection of personal data

from young children (those under 13 years

of age), and the need to promote rapid,

ubiquitous adoption of standards to

protect children, the Administration

supported legislation giving the FTC

authority to promulgate enforceable rules

to prevent collection of data from children

under age 13 without prior parental

permission. The Children’s Online Privacy

Protection Act has now passed the

Congress and been signed into law by the

President.

The Administration also supports

legislation to enforce privacy protection for

medical records whether held

electronically or in paper form. Medical

records contain particularly sensitive

information. Because there are a limited

number of places— doctors’ offices,

hospitals, insurance companies—where

this information is created, collected and

stored, enforcement of a legislated

approach is possible.

The Administration also supported

legislation to prevent identity theft.

According to law enforcement officials,

the incidence of “identity theft,” the

fraudulent use of another person’s

identity to facilitate the commission of a

crime such as credit card fraud, has

been increasing rapidly. In July 1998,

Vice President Gore urged the Congress

U.S. Government Working Group on Electronic Commerce First Annual Report

17

Electronic Bill of Rights

1. The right to choose whether one’s personal

 information is disclosed

2. The right to know how, when and how much

 of that information is being used

3. The right to see that information themselves

4. The right to know if information is accurate

 and correct it if it is not

Vice President Gore,

July 1998
to pass legislation

to halt these

abuses. On

October 14, the

Congress passed

the Identity Theft

and Assumption

Deterrence Act,

which has been

signed into law by

the President.

Internationally, the

U.S. Government

has secured an

agreement with

Japan on a

private sector led

approach to

online privacy

protection which is also supported by the

U.S.-Japan Business Dialogue. The

Transatlantic Business Dialogue favors

this approach and industry groups in

Europe and Japan have expressed

interest in working with U.S. industry to

implement common approaches to

privacy self-regulation. 

The U.S. Government has also worked

actively at the OECD on formulating

privacy policy. The Department of

Commerce has helped to ensure, both in

the February 1998 Privacy Workshop and

in the Ottawa Ministerial Declaration on

Privacy, that the OECD include an

emphasis on a multiplicity of privacy

approaches, including private-sector-led

approaches, and on the continued need

for bridges between the different privacy

approaches.

The European Union takes a broad,

centralized, top-down approach to privacy

protection in its own privacy directive

issued in October 1995. This approach is

quite different from the U.S. self-regulatory

approach and could disrupt personal

information flows between the U.S. and

EU member countries. The Administration

has been meeting regularly with the EU to

bridge these differences in a way that

enhances privacy while maintaining the

free flow of information. 

We are hopeful of achieving a satisfactory

resolution of this matter. During the past

year, the European Commission

acknowledged, in part, the validity of

self-regulatory approaches to privacy

protection such as those now being

implemented in the United States. On

October 26, the EU member states

endorsed Commission efforts to reach an

understanding with the United States

concerning data transfers from the

European Union to the U.S. They also

recognized the importance of avoiding data

flow disruptions to the U.S. while those

discussions take place.

9. I direct the Secretary of Commerce to

encourage the development and adoption

within the next 12 months by industry of

easy-to-use and effective rating systems and

filtering technologies that empower parents,

teachers, and other Internet users to block

content that is inappropriate for children.

The Administration supports the broadest

possible free flow of information, both within

our nation and internationally. However,

many people have raised valid concerns

about children’s access to pornography and

other types of material that their parents

may deem undesirable. 

Over the past year, we have made progress

in three areas. First, private industry and

nonprofit organizations are developing

technology tools that make the Internet

more family-friendly by allowing parents and

guardians to protect children from material

they consider inappropriate. Second, the

Administration is working with private

industry and nonprofit organizations to

develop and make easily accessible

family-friendly content and consumer

education on the World Wide Web. Third,

the Administration is working with the

private sector and other governments to

persuade other nations of the benefits of an

approach which empowers users to control

the content to which they have access as

opposed to government attempts at

censorship.

Many new tools are now available to

parents to assist them in blocking, filtering

First Annual Report U.S. Government Working Group on Electronic Commerce

18

“Tens of thousands of

Americans have been

victims of identity theft.

This legislation will

enable the United States

Secret Service, the

Federal Bureau of

Investigation, and other

law enforcement

agencies to combat this

type of crime, which

can devastate its

victims.”

Statement from

President Clinton,

President Clinton,

October 1998
and monitoring Internet exploration. At the

Internet Online Summit: Focus On Children

in December 1997, industry groups

presented, to the

President and Vice

President, an inventory

of the digital devices

available to parents.

At the Summit, the

private sector also

announced several

public-private

partnerships with law

enforcement agencies,

including a cyber-tip

line, as well as a new

public education campaign designed to

encourage responsible and safe use of the

Internet. This campaign was launched at a

“National Teach-In” event during “Kids

Online Week” in September 1998.

While some modest progress has been

made, industry must redouble its efforts

over the next year to follow through on the

commitments made at the December

Summit. The quality of blocking, filtering

and rating software has improved

dramatically, and its use is spreading, but

it still can be difficult for some parents to

use. 

Recently, the Congress passed legislation

that restricts the commercial distribution of

material on the World Wide Web that is

“harmful to minors.” This legislation, the

Child Online Protection Act, has been

challenged in Federal court. The

Administration shares Congress’s concern

about protecting children from

inappropriate material on the Internet.

However, the Administration did not

support this legislation. When it became

clear that Congress was going to pass the

bill, the Administration sought changes that

would focus the priority of Federal law

enforcement officials on hard-core child

pornography and sexual exploitation

cases, and to increase the chances that

the legislation could be implemented and

enforced consistent with the First

Amendment. The Administration felt that

these changes were important, given that

the Supreme Court had struck down

portions of the Communications Decency

Act, an earlier attempt by the Congress to

legislate in this area. Congress did not,

however, accept all of the changes

recommended by the Administration.

New market research reveals that as of

June 1998, 53 percent of parents were

willing to pay for child-friendly online

services now being introduced that monitor

content. These services are useful but can

be improved. The Department of

Commerce will continue to work with the

private sector to monitor developments in

this area and to make parents and others

more aware of these options.

The Administration supports the availability

of high-quality children’s content, and the

Department of Commerce co-hosted a

conference in Los Angeles in June 1998

focused on the creation of quality online

content for children and teens. The

conference also addressed issues of

online marketing and advertising to

children. At the conference, private sector

participants agreed to explore

development of “greenspaces” or areas of

quality children’s content.

The U.S. has been successful in spreading

its consumer empowerment approach

internationally. Agreements with the EU

and with Japan have emphasized the

advantages of filtering technologies as

opposed to government censorship.

Bilateral agreements with Japan and

France also stressed the importance of the

free flow of information.

The Administration has worked at the

OECD to develop an inventory of policies,

laws and practices among OECD member

countries affecting Internet content. The

inventory has facilitated very productive

discussions of the different approaches

toward content self-regulation that member

countries are adopting, and provided a

better basis for international discussions

about Internet content.

Working closely with U.S. industry, the

Department of Commerce helped

organize an OECD forum on content

U.S. Government Working Group on Electronic Commerce First Annual Report

19

“The Internet will never

be a fixture in every

home until parents have

the tools they need to

make it safe for their

children’s explorations.”

Vice President Gore,

December 1997
self-regulation in March 1998. The forum

demonstrated the range and scope of

self-regulatory initiatives being undertaken

by industry representatives. 

Consensus has now been reached among

OECD countries on the practical merits

and value of self-regulation and consumer

empowerment. 

10. I direct the Secretary of Commerce to

support private sector development of

technical standards for the Internet and the

U.S. Trade Representative to oppose

efforts by foreign governments to impose

standards or to use standards for electronic

commerce as non-tariff trade barriers.

The U.S. Government recognizes that

timely and appropriate standards are

critical to the long-term commercial

success of the Internet, as they allow

products and services from different

vendors to work together, facilitate robust

competition, and reduce uncertainty in the

global marketplace. Standard setting

activities must, however, be guided by the

basic principle that the marketplace, not

governments, should set technical

standards. Governments should refrain

from issuing technical regulations and

instead should rely, to the maximum extent

possible, on standards developed by

voluntary, industry-led, consensus-based

organizations (at both the national and

international levels).

The U.S. Trade Representative has

supported this approach in bilateral,

regional, and multilateral fora. The

Department of Commerce has also actively

advanced private sector leadership in the

development of voluntary, market-driven,

consensus-based standards in bilateral

and multilateral fora. Working together,

the U.S. Government and U.S. industry

converted a proposed Government Global

Standards Conference into a private-sector

organized conference, held in Brussels in

October 1997. U.S. industry took the lead

on electronic commerce standards at this

meeting. This conference, attended by

representatives from industry, technical

organizations and governments from

around the world endorsed private sector

leadership in standards development. 

As indicated in the Framework, the

government can play a useful, supportive

role to private sector standard setting

processes. The Department of

Commerce’s National Institute of Standards

and Technology (NIST) has been active in

providing technical support for industry-led

standards development efforts. These

activities include: 1) building standards

road-maps with industry; 2) providing

technical assistance to industry in the

development and harmonization of open

standards; 3) establishing neutral

test-beds and developing trial reference

implementations with industry; 4)

developing the test methods and

infrastructures for testing; and 5)

contributing to implementation guidelines.

11. I direct the Secretary of the Treasury to

cooperate with foreign governments to

monitor newly developing experiments in

electronic payment systems; to oppose

attempts by governments to establish

inflexible and highly prescriptive regulations

and rules that might inhibit the development

of new systems for electronic payment; and

as electronic payment systems develop, to

work closely with the private sector in order

to keep apprised about policy development

and ensure that governmental activities

flexibly accommodate the needs of the

emerging marketplace.

Over the last year, an interagency task

force chaired by the Comptroller of the

Currency has worked to identify, in

partnership with industry and the public,

consumer issues raised by emerging

electronic money technologies and

possible solutions to these concerns. The

task force solicited public comment during

the summer of 1997 and issued its report

in April 1998. 

The report identifies four key areas of

consumer concern: access, privacy,

financial condition of issuers, and

consumer protection and disclosures. The

task force concluded that existing laws

and regulations and market incentives

have the potential to address consumer

First Annual Report U.S. Government Working Group on Electronic Commerce

20
concerns at this time. The task force urged

industry to address concerns through

self-regulation and innovative product

design. For example, groups of electronic

money issuers could create a best practices

collection of disclosures to consumers,

addressing such issues as applicable fees,

deposit insurance coverage, error resolution

procedures, and liability for lost or stolen

electronic money.

The Financial Management Service (FMS) at

the Department of the Treasury has

established a number of electronic

commerce pilot programs testing Federal

Government payments and collection cash

management options. Recent pilot programs

include the use of smart cards, electronic

checks, and Internet credit card

transactions featuring various security

technologies. FMS is implementing

stored-value card pilot projects across the

United States on several Air Force and Army

training installations and at selected

Veterans hospitals. FMS has also

sponsored the first fully digitized electronic

check pilot project utilizing the Financial

Services Technology Consortium’s e-check

technology to pay Department of Defense

vendors. The Treasury is also working with

its bureaus to promote government Internet

sales of savings bonds, coins, and other

currency-related collectibles using the Visa

and MasterCard Secure Electronic

Transaction (SET) standard.

The Internal Revenue Service (IRS) has also

been moving online. During the past

several years significant progress has been

made in revolutionizing how both individual

and business taxpayers interact with the

IRS. During the last filing season 1 out of

every 5 individuals filed their tax returns

electronically. In addition, a growing

number of taxpayers are getting the tax

information they need from the IRS website

where over 5,000 tax products are available

including IRS forms, instructions, and

publications.

Businesses also benefit from electronic

transactions with the IRS. In 1998 more than

$1 trillion in tax deposits were made through

the Electronic Federal Tax Payment System

(EFTPS), accounting for over 80 percent of

all tax deposits. Businesses can also file tax

returns electronically. Nearly 880,000

quarterly tax returns are expected to be filed

over the telephone by small businesses

during 1998; another one million Form 941’s

will be filed electronically by payroll service

providers on behalf of their clients. 

Treasury also has worked successfully in

international fora to encourage governments

to avoid undue regulation. The Comptroller

of the Currency worked as part of the Basle

Committee on Banking Supervision that, on

March 20, 1998, issued Risk Management for

Electronic Banking and Electronic Money

Activities. This paper forged a common

understanding among bank supervisors and

central bankers of the major industrialized

countries of the key questions posed by

emerging electronic money and banking

technologies and of the desirability of

avoiding policies that unnecessarily hamper

innovation and the development of new

markets.

In the wake of this effort and the work by a

Treasury-led G-10 Working Party on

Electronic Money, the focus of discussion

internationally on regulation of electronic

money issuers has shifted. Discussion

within the EU, for example, which initially

focused on permitting only banks to issue

electronic money, now includes a proposal

to permit non-banks to issue electronic

money without their meeting the full panoply

of banking regulations.

Treasury law enforcement authorities also

have monitored electronic money

developments and have worked with

industry and other governments to

understand the vulnerabilities of these

emerging technologies to criminal activity.

Much of this work has taken place under the

leadership of Financial Crimes Enforcement

Network (Fin-CEN) working through the

Financial Action Task Force, a 26-nation

organization created by the G-7 countries to

develop and promote policies to combat

money laundering. 

12. I direct all executive departments and

agencies to promote efforts domestically

U.S. Government Working Group on Electronic Commerce First Annual Report

21
and internationally to make the Internet a

secure environment for commerce. This

includes ensuring secure and reliable

telecommunications networks; ensuring an

effective means for protecting the

information systems attached to those

networks; ensuring an effective means for

authenticating and guaranteeing

confidentiality of electronic information to

protect data from unauthorized use; and

providing information so that Internet

users become well-trained and understand

how to protect their systems and their

data.

Assuring the safety of the Internet and the

information accessible through it is an

increasingly important global priority.

Service interruptions or corruption of data,

whether the product of natural causes,

accident, or willful mischief, are not

acceptable given the growing economic

importance of the Internet. The United

States is working to assure global Internet

security by looking first at its own critical

communications infrastructure.

On May 22, 1998, President Clinton issued

a Presidential Decision Directive 63 (PDD63), Protecting America’s Critical

Infrastructures. The Directive sets a goal

of a reliable, interconnected, and secure

information system infrastructure by 2003.

It seeks the voluntary participation of

private industry to meet common goals for

protecting our critical systems through

public-private partnerships, and requires

the Federal government to serve as a

model for how infrastructure protection is

to be attained. The private sector is

encouraged to create information sharing

and analysis centers to gather, analyze,

appropriately sanitize and disseminate

private sector information to both industry

and the government. 

At the same time, the Federal Bureau of

Investigation (FBI) has established the

National Infrastructure Protection Center

(NIPC), bringing together representatives

from the FBI, the Departments of Defense,

Treasury, Energy, and Transportation, the

intelligence community, and the private

sector in an unprecedented attempt to

facilitate information sharing among

agencies in collaboration with the private

sector. The NIPC will also coordinate the

Federal Government’s response to

information security incidents, mitigating

attacks, investigating threats and

monitoring reconstitution efforts. Finally, a

National Infrastructure Assurance Council

drawn from private sector leaders and

state/local officials will provide policy in

the guidance formulation of a national

protection plan.

Because the electronic environment of the

Internet is global and borderless, the

Directive also requires the development of

a plan to expand international cooperation

on critical infrastructure protection with

like-minded and friendly nations,

international organizations and

multinational corporations. The

Administration has already made

significant progress in this area, fostering

cooperative information exchanges. 

Equally important to security is the ability to

protect information on networks from

unauthorized access. Cryptography is an

essential tool to protect the authenticity and

confidentiality of electronic information. U.S.

businesses and individuals need encryption

to secure sensitive commercial information

and to protect the privacy of their

communications. Private sector demand for

such security will facilitate the spread of

encryption. Recognizing these needs, the

Administration continues to support the use

of strong encryption products in the United

States. 

The Administration acknowledges the risks

to public safety and national security that

unlimited access to strong encryption

products by terrorists, criminals, and other

enemies may pose, however. Therefore,

the Administration continues to promote a

balanced approach to encryption export

that fully takes into account the concerns of

the national security and law enforcement

community. 

As a result of several months of intensive

dialogue among the U. S. Government,

industry, and privacy groups, Vice President

First Annual Report U.S. Government Working Group on Electronic Commerce

22
Gore recently announced an update to the

Administration’s encryption policy, issuing

new export guidelines that allow the export

of the strongest data encryption products in

many circumstances to support electronic

commerce around the world. Strong

encryption products may now be exported

to protect sensitive financial, health,

medical, and business proprietary

information in electronic form. U.S.

companies will be able to export very strong

encryption for use between their

headquarters and their foreign subsidiaries

to protect proprietary information. Online

merchants in 45 countries will be able to

use robust U.S. encryption products to

protect their online electronic commerce

transactions with their customers over the

Internet. The new guidelines also allow

encryption hardware and software products

with encryption strength up to 56-bit DES, or

its equivalent, to be exported without an

export license. Finally, products that allow

for the recovery of plain text by a system or

network administrator and that can also

assist law enforcement access, (subject to

strict procedures), will be permitted for wide

export. Limits on exports to certain nations

will remain.

These strong encryption products will form

the basis for a robust security infrastructure

for electronic commerce information. They

will permit users from homes and

businesses to perform electronic commerce

activities securely, ranging from home

banking and managing investment

accounts to using credit cards to purchase

goods, services, and digital information over

the Internet.

The Administration welcomes a continued

dialogue with U.S. industry and intends to

review its policy in one year to determine if

additional updates are necessary to

maintain a balanced approach that ensures

privacy, enables continued technology

leadership by U.S. industry, and promotes

electronic commerce, while also protecting

the public safety and national security.

The Administration is also directing

substantial effort to solve a crucial

short-term security problem, the Year 2000

(Y2K) computer problem, which threatens to

undermine the efficacy of digital networks.

In February 1998, President Clinton formed

a Council on Year 2000 Conversion to

address the issues. In addition to focusing

on government computer systems, the

Council is working with various industry

sectors, international organizations, and

countries around the world to ensure that

Y2K problems do not threaten the vital

telecommunications and information

processing systems upon which electronic

commerce depends. 

13. I direct the Administrator of General

Services to move the Federal Government

into the age of electronic commerce by

expanding “GSA Advantage,” its online

shopping service for the Federal community

to cover four million items by 12 months

from now.

GSA is making significant progress towards

its goal of having four million items

purchased by the U.S. Government on GSA

Advantage, its online shopping service for

the Federal community. GSA is firmly

commited to using GSA Advantage and

expects the goal to be met within the next

12 months.

Under GSA’s purchasing model, vendors

electronically update key product

information (e.g., description, price,

delivery conditions) and agencies make

buying decisions based on that current

information. Unfortunately, many vendors

have been slow to update information

electronically as they are reluctant to let

their competitors see their current pricing

information.

The Federal marketplace will drive vendors

to change as more agencies make

electronic purchasing capability a

requirement for doing business with them.

GSA will also help stimulate the change by

giving vendors start-up kits that are easy to

use. GSA is also exploring a variety of other

incentives to encourage full participation.

By the dawn of the next century, Federal

agencies will be able to shop electronically

for the products and services they procure.

U.S. Government Working Group on Electronic Commerce First Annual Report

23

The Working Group will continue to

carry out the electronic commerce

strategy outlined in the President’s

Directive of July 1, 1997 in order to

complete implementation by January 1,

2000. In addition, there are several new

areas that have emerged during the past

year as deserving priority attention from

the Working Group. These will be added to

the initial work plan and pursued during

the coming year. 

Ensuring Adequate Bandwidth 

and Access

Over the last four years, the U.S., working

in conjunction with its global partners, has

established telecommunications policies

that have enabled the creation of a global

information infrastructure upon which the

Internet and electronic commerce depend.

These policies have followed the five

fundamental principles articulated by Vice

President Gore in 1994: encouraging

private investment, promoting competition,

creating a flexible regulatory framework,

providing open entry to the network, and

working to ensure universal access to the

network. Following these principles has

led to the opening of markets around the

world, the acceleration of competition, the

flourishing of innovation, and helped

provide communications access to more

people around the world.

The Telecommunications Act of 1996

established a pro-competitive,

deregulatory national policy framework for

telecommunications in the United States,

designed to open all telecommunications

markets to competition. The Act charged

the Federal Communications Commission

(FCC) with encouraging the rapid

deployment of advanced

telecommunications capabilities for all

Americans. 

The Administration believes that

deployment of the advanced broadband

networks of the future is critical for our

nation’s economic prosperity. We support

open and vigorous competition as the

principal means of developing the

infrastructure necessary for electronic

commerce utilizing all the available

telecommunications technologies –

wireline, cable, wireless terrestrial and

satellite. The Administration does not favor

any particular technology or industry

segment over others; rather, we seek to

encourage competition among various

technologies and industry segments in the

development and deployment of advanced

services. 

In the existing wireline market, the

government’s role is to ensure that all

U.S. Government Working Group on Electronic Commerce First Annual Report

25

NEW INITIATIVES

Time to Download 3.5-Minute Video

Clip Using Different Technologies

28.8 Kbps modem

128 Kbps ISDN

4 Mbps cable modem

8 Mbps ADSL

10 Mbps cable modem

46 minutes

10 minutes

20 seconds

10 seconds

8 seconds

Transfer Time

Source: FCC, CS Docket No. 96-496; 1997; ADSL from Werbach

 1997, p. 75.

 The Emerging Digital Economy Report
participants have access to the facilities

that are critical to the deployment of high

bandwidth technology to homes and

offices, and that competing networks can

interconnect with one another. Once

barriers to competition are removed, other

government regulation should be

minimized, so that the market can

determine the most successful

participants. The Administration will

advocate these principles as the FCC

implements Section 706 of the

Telecommunications Act of 1996.

In a series of studies, including Falling

Through the Net II published in July of

1998, the Department of Commerce’s

National Telecommunications and

Information Administration (NTIA) has

documented the unequal access to the

Internet faced by underserved

communities in our society. The

Administration strongly supported the

provisions of the Telecommunications Act

that ensure that low-income consumers,

and those who live in high-cost areas, have

access to telecommunications services at

affordable rates. The Administration has a

long-standing commitment to connect

every classroom, library and public rural

health care center to the Internet and

supports the provisions of the

Telecommunications Act that expand

universal service support to these entities.

By providing Internet access to every

classroom and library, we can ensure that

no community is left out of the digital

economy and that every individual has an

opportunity to gain the skills he or she

needs to participate.

On November 23,

1998, Vice President

Gore announced a

major step in this

program with $1.9

billion in E-rate

discounts that will

enable up to 40,000

public schools and

7,000 libraries to

connect to the Internet. 

The Administration is

committed to the

preservation of the

vibrant and competitive

free market that

presently exists for

Internet and other

interactive computer services. Regulation

to encourage competition and facilitate

consumer choice is most appropriately

directed to tele- communications facilities

over which services run and should not be

extended to competitive Internet-based

services. On the contrary, there should be

First Annual Report U.S. Government Working Group on Electronic Commerce

26

Percent of U.S. Households with On-line Service By Income

By U.S., Rural, Urban and Central City Areas

1997

25.0

35.0

45.0

50.0

55.0

15.0

Under

$5,000

PC Introduction

5.0

10.0

20.0

30.0

40.0

0.0

Percent of U.S. Households

5,000 -

9,999

10,000 -

14,999

15,000 -

19,999

20,000 -

24,999

25,000 -

34,999

35,000 -

49,999

50,000 -

74,999

75,000+

U.S.

Rural

Urban

Central City

Source: U.S. Department of Commerce, NTIA. Falling Through the Net II.

“This bill authorizes

an ambitious new

research program in

advanced communication

technologies that will be

critical for assuring

American prosperity,

national and economic

security, and

international

competitiveness in the

21st century.”

Statement from

President Clinton,

President Clinton,

October 1998
the strongest presumption against any

regulation of new, Internet based services.

The Administration will continue to examine

existing regulations so that new services

based on Internet technologies will not be

burdened by outdated forms of regulation.

Finally, the Administration has undertaken

initiatives intended to ensure the Internet

itself will continue to evolve. The Next

Generation Internet program, now

authorized in the Next Generation Internet

Research Act of 1998, continues positive

governmental participation in the Internet

by supporting research that will expand

the capabilities and capacity of the

Internet.

Consumer Protection

Internet consumers must have

confidence that the goods, services, and

digitized information offered online are

fairly represented, that they will get what

they pay for, and that recourse will be

available if they do not. 

The FTC has taken the offensive against

misleading and deceptive practices

online by bringing 40 enforcement

actions to date. The FTC strategy has

also promoted consumer and business

education efforts and has clarified the

application of existing regulations to

online conduct. For the most part, the

FTC has uncovered old-fashioned scams

dressed up in high-tech garb and has

generally found that it has adequate

statutory authority to investigate and

prosecute defendants engaged in illegal

practices online.

In an environment where most of the

buyers and sellers on the Internet reside

in the United States, it is a relatively

straightforward exercise to determine

what consumer protection (or other) laws

apply to a given transaction. Given the

absence of national borders on the

Internet, however, the focus of consumer

protection is necessarily shifting to the

global arena. The OECD, with the

participation of international business

representatives, is currently discussing

global guidelines related to consumer

protection online. Private sector

organizations such as the Transatlantic

Business Dialogue, the Transatlantic

Consumer Dialogue, and the U.S.-Japan

Business Council have identified

consumer protection issues for priority

attention in the coming year.

Over the next year, Federal agencies will

aggressively explore opportunities for

global cooperation to protect consumers,

and will engage in bilateral and

multilateral discussions on this issue,

involving consumer advocates and

industry as well as government

representatives. These discussions are

intended to promote truthful and accurate

advertisements as the cornerstone of

commerce on the Internet, to bolster and

extend existing advertising industry

self-regulation, and to ensure that

mechanisms are in place to protect

consumers from false, deceptive, or

fraudulent practices online.

In order to protect consumers online, the

global community must address complex

issues involving choice of law and

jurisdiction—how to decide where a

virtual transaction takes place and what

consumer protection laws apply. 

We will continue to favor industry

leadership to promote consumer

protection and international cooperation

among private sector groups to set

common global rules and enforcement

mechanisms for consumer protection.

These private sector efforts can be

backed up by appropriate, and in most

cases, existing legal protections for

consumers. In seeking to protect

consumers online, we will keep in mind

the distinctions between business-tobusiness and business-to-consumer

transactions in discussions at both

domestic and international levels.

By placing an emphasis on consumer

protection for the coming year, the U.S.

hopes to promote global understanding

U.S. Government Working Group on Electronic Commerce First Annual Report

27
of the issues at stake and develop a

thoughtful, pro-active approach to pave

the way for Internet retailing to reach its

full potential.

The Internet and 

Developing Countries

The Internet can be a great force for

economic development, the spread of

democracy and for promoting international

communication and understanding. Yet

large populations of the developing world

are at risk of being bypassed by the

information revolution. 

In the developing world, as in the United

States, a vigorous private sector has the

talent and resources to bring the benefits

of the information revolution to consumers.

However, experience shows that in many

developing countries, private sector action

alone may not achieve widespread access

to these benefits without policy reform and

some initial public investment. 

In his October 12 address to the

International Telecommunication Union

Plenipotentiary Conference in Minneapolis,

Vice President Gore issued five great

challenges to industry, government and

non-governmental organizations to help

bring the benefits of the Information

Revolution to all parts of the world. Among

the challenges he issued were placing

voice and data communication services

within reach of every person on the planet.

He also challenged the group to

dramatically increase the number of

people on the planet who can participate

in the digital economy, tripling by the year

2010, the number of people who are able

to support themselves and their families

because they are able to reach world

markets through the Internet.

In his address, Vice President Gore

announced a new commitment by the

Peace Corps to use information technology

and communications as important tools to

help communities in developing countries

improve education and enhance economic

development. He also announced a

strategic effort, “The Internet Economic

Development Initiative,” led by the State

Department and the Agency for

International Development (USAID) that

will work toward increasing the availability

and use of emerging information

technologies by people throughout the

developing world. Other agencies

including the Department of Commerce,

the Office of the U.S. Trade

Representative, the Federal

Communications Commission, the

Overseas Private Investment Corporation,

and the National Science Foundation will

participate in this initiative.

In order to make electronic commerce

truly global, the initiative will seek to create

incentives for public-private sector

partnerships that serve as a catalyst to

spur successful and sustainable

investments from the private sector, host

countries, and other donors. Although

activities are likely to vary with the unique

needs of specific countries or regions,

seed efforts could include such activities

as extending the reach of Internet service

providers to rural areas, promoting the use

of electronic commerce between

businesses and between businesses and

consumers, linking universities in

participating countries to the Internet, and

providing the training necessary for the

adoption of new digital technologies. 

This initiative will seek to assist in policy

reform in host countries aimed at

liberalization, open competition, and

universal access. A liberalized regulatory

regime which encourages private

investment and competition, together with

an independent regulator using fair and

transparent processes, are critical for

sustaining long- term economic and social

benefits from telecommunications and

information technologies. Experience with

the USAID Leland Initiative, the five-year

$20 million program for connecting

selected African countries to the Internet,

has shown that financing modest

infrastructure investments can promote

pro-competitive policy reforms and pave

the way for extensive private investment.

First Annual Report U.S. Government Working Group on Electronic Commerce

28
Initially, the initiative will seek to

demonstrate successful models for

development in a small number of

countries or clusters of countries in Africa,

Asia, and the Americas, and then to apply

those successful models to other

countries. The Internet Economic

Development Initiative will be further

defined over the next four months and

implementation will begin in 1999.

Funding options under consideration

include use of already programmed

resources, cooperation with international

development banks and bilateral donors,

and public-private partnerships. 

Understanding the 

Digital Economy

We have begun to assemble a coherent

picture of the economic impact of the

Internet and electronic commerce in the

United States today. In April 1998, the

Department of Commerce issued a

groundbreaking report, The Emerging

Digital Economy. In June 1998, the

National Science Foundation included a

section on the Economic and Social

Significance of Information Technologies as

part of its Science And Engineering

Indicators 1998. The OECD, at its Ottawa

Conference, released a preliminary

assessment of the social and economic

effects of electronic commerce drawn, in

part, from observations of electronic

commerce in the U.S. market.

The economic and social influence of

electronic commerce and information

technology is complex, broad, and likely

to expand in the future. But the full

economic and social implications are

presently not well understood.

Government data in this area tend to be

incomplete, and analytical tools suitable

for earlier times need to be updated for a

useful analysis of the impact of the new

digital economy.

The Working Group has initiated an

interagency Digital Economy Working

Group led by the National Economic

Council and consisting of representatives

from the Department of Commerce, the

Department of Treasury, the Department

of Labor, the National Science

Foundation, the White House Office of

Science and Technology Policy and the

Council of Economic Advisers to

coordinate economic analysis of the new

digital economy within the government.

The working group will consult with

experts in industry, academia, research

firms, associations, and non-profit

organizations to stimulate research and

encourage the development of better

data and analysis to track how

information technology and electronic

commerce are affecting particular

industries and the economy as a whole.

The interagency group will emphasize

analysis to better determine:

■ the shape and size of the evolving digital

economy, both overall and at aggregated

industry levels;

■ the processes through which firms

develop and apply the new technologies;

■ the processes through which the new

technologies are transforming markets;

■ the social and economic factors

influencing the economic returns to

electronic commerce, such as the effects

of investment in IT capital on

productivity;

■ demographic characteristics of user

populations; 

■ the implications of electronic commerce

for international trade and

competitiveness; and

■ the influence of electronic commerce

on labor markets and the workplace and

how these may differ at the sectoral and

firm level.

To this end, the interagency group will

sponsor a conference that engages a

broad range of experts from the public

and private sectors. The conference will

U.S. Government Working Group on Electronic Commerce First Annual Report

29
review new research on the impact of

investments in information technology and

the influence of electronic commerce on the

economy and assess the need for additional

data and analytic tools. The results of the

conference will help develop

recommendations on new indicators for the

information economy, new types of data

collection, and new research that could be

undertaken by organizations in the public

and private sectors. In addition the

Commerce Department will be issuing a

follow-up document to The Emerging Digital

Economy.

Small Business and the Internet

Many small businesses today are using the

Internet to attract new customers, build

relationships with suppliers, and cut the costs

of serving established clients. With the

Internet, small businesses have an efficient

means to match the global reach of larger

firms.

Nevertheless, many small businesses do not

take advantage of the opportunities that the

Internet presents. They lack an

understanding of its potential benefits, of how

to develop electronic commerce profitably or

how to cope with the complexity of rules

affecting electronic commerce. In addition,

many lack the technical personnel that could

assist them in implementing a business

model for electronic commerce.

Many of these small companies currently

receive assistance from governmentsponsored programs in the Department of

Commerce and the Small Business

Administration (SBA). In order to make

government assistance more effective and

relevant to the emerging digital economy,

and to help small businesses overcome

these barriers, the Secretary of Commerce

and the SBA Administrator will develop an

electronic commerce small business

strategy. The initiative will cover six areas:

■ training of government employees who

have contact with small businesses on the

use of the Internet and electronic commerce;

■ continuing to move commonly used

government products and forms to the

Internet, so that small business will be able to

use the Internet to interact with the

government as much as possible;

■ working with the Digital Economy Working

Group to develop better measures of the

economic impact of the Internet on the small

business;

■ developing an outreach plan that includes

partnering with the private sector to inform

small businesses on how to profitably use the

Internet and electronic commerce;

■ highlighting successful small business use

of electronic commerce and the Internet; and 

■ establishing an Internet-based program to

match exporters with export finance

providers, and to allow instant exchanges of

information and access to export financing

for small business.

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30

CONCLUSION

The Internet and electronic commerce

have the potential to drive world

economic growth for many decades.

The U.S. Government will continue to

pursue the creation of a market-driven

policy architecture for this new digital

economy that will allow it to flourish

while at the same time protecting

citizens from potential negative side

effects.

Progress on the implementation of A

Framework for Global Electronic Commerce

has been significant. Governments and

private sectors around the world now

recognize the importance of these new

activities to future economic success. We

are optimistic that the progress realized to

date will be continued during the next year

so that the benefit of electronic commerce

can be realized around the world.