te * COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 16.04.1997 
COM(97) 157 final 
COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL, THE EUROPEAN PARLIAMENT, 
THE ECONOMIC AND SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 
A European Initiative in Electronic Commerce 

Table of Contents 
Executive Summary 
Introduction 
1. The Electronic Commerce Revolution 
Electronic Commerce: the Internet revolution 
The next generation markets 
The opportunities for Europe 
Electronic Commerce: international comparisons 
Marshalling Europe's strengths 
The need for global consensus 
2. Ensuring Access to the Global Marketplace: Infrastructure, Technology and 
Services 8 
Maximising the effects of telecommunications liberalisation 8 
Maximising the benefits of the liberalisation of IT markets 9 
Removing capacity bottlenecks 9 
Ensuring interoperability in a competitive environment 10 
Making user-friendly electronic commerce services available: European R&D 11 
International industrial cooperation in infrastructure, technologies and services 12 
3. Creating a Favourable Regulatory Framework 
Building trust and confidence 
Ensuring full access to the single market 
The principles of an electronic commerce regulatory framework 
The essential features of a regulatory approach 
A regulatory approach that develops appropriate horizontal pol 
Working towards a consistent global regulatory framework icies 12 
12 
13 
14 
15 
17 
19 
4. Promoting a Favourable Business Environment 
Consumers: creating awareness and confidence 
Business: creating awareness and encouraging bsst practice 
Public administrations: promoting a more pro-active public sector 
Putting electronic commerce at the service of the citizen 20 
20 
21 
22 
23 
Conclusions 24 
Asu 
PREFACE 
This Communication and related initiatives as well as coming legislation can be accessed 
electronically on http://www.ispo.cec.be/Ecommerce. 
EXECUTIVE SUMMARY 
The aim of this European Initiative is to encourage the vigorous growth of electronic 
commerce in Europe. A fast moving sector, electronic commerce will have a 
considerable impact on Europe's competitiveness in global markets. Building upon 
Commission's work to date, it provides a coherent policy framework for future 
Community action, and aims at establishing a common European position to achieve 
global consensus through international negotiations. 
I. THE ELECTRONIC COMMERCE REVOLUTION: CHALLENGES AND OPPORTUNITIES 
"Born global", electronic commerce encompasses a wide spectrum of activities, some 
well established, most of them very new. Driven by the Internet revolution, electronic 
commerce is dramatically expanding and undergoing radical changes. It includes 
indirect electronic commerce (electronic ordering of tangible goods), as well as direct 
electronic commerce (online delivery of intangibles ). A fast moving environment, 
electronic commerce is engendering a wide array of innovative businesses, markets 
and trading communities - creating new functions and new revenue streams. 
Electronic commerce presents enormous potential opportunities for consumers and for 
businesses in Europe, particularly for SMEs. Its rapid implementation is an urgent 
challenge for commerce, industry and governments in Europe. Electronic commerce 
makes it possible to trade at low cost across regions and national frontiers. To reap its 
full benefits, the development of efficient distribution channels and trans-European 
network is necessary for the physical delivery of goods ordered electronically, 
including efficient, modern postal services. 
Stimulating competition in the Single Market, electronic commerce is already 
bringing profound structural changes. New skills will be needed to create and 
maintain newr jobs in Europe. Europe's main competitors have already resolutely 
seized opportunities offered by electronic commerce - with the US building a 
substantial lead. However, Internet commerce is catching up in a number of Member 
States. In this respect, Europe can marshal a number of specific strengths in the fields 
of technologies, content creation and linguistic and cultural diversity. Similarly, the 
use of a single currency in the world's largest Single Market will represent a strong 
incentive for the take up of electronic commerce in Europe whereas, conversely, 
electronic commerce can contribute to the acceptability of the Euro. 
Thus there is an urgent need to engage in an early political debate with the aim to 
provide a stimulus to electronic commerce and to avoid a fragmentation of this 
promising market. 
AL 
IL ACCESS TO THE GLOBAL MARKETPLACE: INFRASTRUCTURES, TECHNOLOGIES & 
SERVICES 
High telecommunication tariffs have long been a major stumbling block for electronic 
commerce in Europe. However, the implementation of the package of 
telecommunication liberalisation measures is already leading to lower prices and to 
more flexible pricing schemes. The take up of electronic commerce is significantly 
higher in the most competitive markets. The WTO Agreement on Basic 
Telecommunication will contribute directly to the emergence of a global marketplace 
in electronic commerce. Similarly, recent international agreements to eliminate tariff 
(ITA) and non tariff barriers (MRA) should rapidly bring down the cost of key 
Information Technology products, encourage the take up of electronic commerce and 
reinforce European competitiveness. Removing capacity bottlenecks, and providing 
high bandwidth infrastructure is another challenge for Europe - a challenge actively 
addressed both by the private sector and by the Community. 
Ensuring interoperability in a competitive environment is another powerful incentive. 
The Commission is actively promoting global interoperability in such key areas as 
secure technologies and payment systems and giving special importance in a number 
of R&D programmes to electronic commerce to ensure wide availability and ease of 
use of key technologies and systems. 
III. CREATING A FAVOURABLE REGULATORY FRAMEWORK 
The Single Market framework has proved its worth for traditional forms of businesses. 
It must be now made to work for electronic commerce. Building trust and confidence 
among businesses and consumers implies the deployment of secure technologies (such 
as digital signatures, digital certificates and secure electronic payment mechanisms) 
and of a predictable legal and institutional framework to support these technologies. In 
order to allow for electronic commerce operators to reap the frill benefits of the Single 
Market, it is essential to avoid regulatory inconsistencies and to ensure a coherent 
legal and regulatory framework for electronic commerce at EU level. This should be 
based on the application of key Internal Market principles. 
Regulatory responses, where appropriate, need to be addressed at every step of the 
business activity, from the establishment of business, to the promotion and provision 
of electronic commerce activities, through ccnclusion of contracts, to the making of 
electronic payments. In parallel, a number of key '"horizontal" issues affecting the 
entire electronic commerce activity, need to be addressed. These include data security, 
protection of intellectual property rights and conditional access services, privacy, as 
well as a clear and neutral tax environment. 
Considering the essentially transnational nature of electronic commerce, global 
consensus needs to be achieved. The Commission will actively pursue international 
dialogue, involving government and industry, in the appropriate multilateral fora, as 
well as bilaterally with its main trading partners. This includes international 
cooperation to fight against organised transnational crime on new communication 
networks (e.g. P8). 
At 
IV. PROMOTING A FAVOURABLE BUSINESS ENVIRONMENT 
Promoting a favourable business environment will involve reinforcing awareness and 
confidence in electronic commerce for customers, as well as encouraging best practice 
among European businesses (particularly through SME programmes, support actions, 
and R&D and G7 pilot schemes). In parallel, public administrations will have a key 
role to play through their procurement power and their early implementation of key 
electronic commerce technologies. In the future, strong synergies between "electronic 
commerce" and "electronic administration" should be actively encouraged to develop, 
for the benefit of all involved. 
In summary, the present Initiative proposes a comprehensive set of actions in the 
specific field of electronic commerce - a field crucial for Europe's competitiveness on 
world's markets. These specific actions must be considered in the wider framework of 
Information Society initiatives- and, in particular, will be integrated into the Rolling 
Action Plan for the Information Society. 
The political objective of the Commission is to implement this coherent framework of 
technological, regulatory and support actions, as a matter of urgency, by the year 
2000. 
INTRODUCTION 
1. The aim of this Initiative is to encourage the vigorous growth of electronic 
commerce in Europe. In the Communication "Putting Services to Work"1 the 
fundamental importance of electronic commerce was emphasised, as was the 
Commission's commitment to make Europe the heartland of electronic commerce. 
2. This Communication builds on the Commission's work on the Information Society 
to date2 and in particular upon the Rolling Action Plan3. It provides a coherent policy 
framework for future Commission actions in the field of electronic commerce, and 
seeks to raise awareness and stimulate dialogue between all parties at all levels. 
3. The expansion of electronic commerce will be market-driven. Europe is well placed 
to capitalise on the global business opportunities now opening up. The completion of 
the Single Market, the development of Europe's know-how and skills, and the 
introduction of the Euro create the strengths for the European economy and European 
businesses to be at the forefront of the emerging global electronic marketplace. The 
challenge is to promote widespread adoption of electronic commerce as an integral 
part of the European way of doing business. 
4. This Initiative builds on the particular characteristics of European business and the 
diversity of its social and cultural fabric to present a distinctive and coherent European 
approach to the development of electronic commerce in the global market place. The 
key elements of the Initiative are the following: 
• Promote the technology and infrastructure needed to ensure the competitiveness of 
the European electronic commerce industry, and put in place structures that will 
provide efficient access systems for existing and potential users. This will be 
pursued by ensuring the effective implementation of a fully competitive 
telecommunications market and by harnessing and refocusing R&D efforts so that 
Europe's high level of scientific and technological capability can be translated 
more successfully into marketable products and services. It will also be ensured by 
encouraging a broad consensus on standards and on the interoperability of 
electronic market systems; 
• Capitalise on the Single Market by ensuring a coherent regulatory framework for 
electronic commerce in Europe and in wider global markets. This framework needs 
to boost the trust and confidence of businesses for investments and consumers to 
make use of electronic commerce by dismantling remaining legal and regulatory 
barriers and preventing the creation of new obstacles. 
CSE(96)6final of 27 Nov 96 
2 In particular: the Communications "Standardisation and the Global Information Socicty"(COM(96)359final of 24 July 96); 
"Learning in the Information Society - Action Plan for a European education initiative (COM(96)471 of 2 October 1996); 
"Illegal and Harmful Content on the Internet" (COM(96)487 of 16 Oct 96);; "Cohesion and the Information Society" 
(COM(97)7 of 22 Jan 97; and the Green Papers "Living and Working in the Information Society" (COM(96)389 of 24 July 96); 
"The Protection of Minors and Human Dignity in Audiovisiual and Information Services"(COM(96)483 of 16 Oct 96). 
^"Europe at the Forefront of the Global Information Society: Rolling Action Plan" (COM(96)607of 27 Nov 96); 
a Foster a favourable business environment for electronic commerce by promoting 
adequate skills, and by making consumers and industry aware of the opportunities 
offered by electronic commerce. This will be realised through training, information 
and demonstration projects; by exploiting synergies between government and 
industries; and by leveraging specific European strengths, in terms of technologies, 
markets, linguistic and cultural diversity. 
G Work towards global consensus from a common European position to ensure 
effective participation in current international cooperation and negotiation. Europe 
should identify its own strengths and interests and argue accordingly in the 
international forums and groups best suited for mis purpose. 
This Initiative provides a coherent framework for these mutually re-eriforcing 
technological, regulatory and support actions to facilitate the development of the 
electronic commerce market whilst adequately safeguarding public interest objectives. 
The political objective of the Commission is to implement mis coherent framework, 
as a matter of urgency, by the yes»- 2000. 
CHAPTER 1: THE ELECTRONIC COMMERCE REVOLUTION 
5. Electronic commerce is about doing business electronically. It is based on the 
electronic processing and transmission of data, including text, sound and video. It 
encompasses many diverse activities including electronic trading of goods and 
services, on-line delivery of digital content, electronic fund transfers, electronic share 
trading, electronic bills of lading, commercial auctions, collaborative design and 
engineering, on-line sourcing, public procurement, direct consumer marketing and 
after-sales service. It involves both products (e.g. consumer goods, specialised 
medical equipment) and services (e.g. information services, financial end legal 
services); traditional activities (e.g. healthcare, education) and new activities (e.g. 
virtual malls). 
ELECTRONIC COMMERCE: THE INTERNET REVOLUTION 
6. Electronic commerce is not a new phenomenon. For many years companies have 
exchanged business data over a variety of communication networks. But mere is now 
accelerated expansion and radical changes, driven by the exponential growth of the 
Internet. Until recently no more than a business-to-business activity on closed 
proprietary networks, electronic commerce is now rapidly expanding into a complex 
web of commercial activities transacted on a global scale between an ever increasing 
number of participants, corporate and individual, known and unknown, on global open 
networks such as the Internet. 
Table 1: For traditional electronic commerce the'network is a means to move data: 
for Internet electronic commerce, the network is the market. 
TRADITIONAL E-COMMERCE I INTERNET E-CQMMERCE 
business-to-business only business-to-consumers 
business-to-business 
business-to-public administration 
user-to-user 
closed "clubs ", often industry specific open marketplace, global scale 
limited number of corporate partners unlimited number of partners 
closed proprietary networks open, unprotected networks 
known and trusted partners known and unknown partners 
security part of network design security and authentication needed 
THE MARKET IS A CLUB j THE NETWORK IS THE MARKET 
7. Electronic commerce covers mainly two types of activities: indirect electronic 
commerce - the electronic ordering of tangible goods, which still must be physically 
delivered using traditional channels such as postal services or commercial couriers; 
and direct electronic commerce - the on-line ordering, payment and delivery of 
intangible goods and services such as computer software, entertainment content, or 
information services on a global scale. Both direct and indirect electronic commerce 
offer specific opportunities. Both are often undertaken by the same companies -who, 
for example, sell software on-line as well as off the shelf. Indirect electronic 
commerce is, however, dependent on a number of external factors, such as the 
efficiency of the transportation system. Direct electronic commerce - which enables 
seamless, end-to-end electronic transactions across geographical boundaries - exploits 
the full potential of global electronic markets4. 
THE NEXT GENERATION MARKETS 
8. Electronic commerce, of course, is not limited to the Internet. It includes a wide 
number of applications in the narrowband (videotex), broadcast (teleshopping), and 
off-line environment (catalogue sales on CD-ROM), as well as proprietary corporate 
networks (banking). However the Internet, with its robust and network-independent 
protocols, is rapidly federating different forms of electronic commerce. Corporate 
networks are becoming Intranets. At the same time, the Internet is generating many 
innovative hybrid forms of electronic commerce - combining, for example, digital 
television infomercials with Internet response mechanisms (for immediate ordering), 
CD-ROM catalogues with Internet connections (for content or price updates), and 
commercial Web sites with local CD-ROM extensions (for memory-intensive 
multimedia demonstrations). 
9. Electronic commerce is an emerging market. In this fast moving and highly fluid 
environment, we are seeing the development of a wide array of innovative virtual 
businesses, markets and trading communities. Companies are now routinely 
outsourcing over the Internet functions such as order fulfilment and shipping to 
distributors which specialise in such services. Distributors themselves are "going 
virtual", outsourcing the physical warehousing and movement of goods to logistics 
* The Minitel experience in France shows that "intangible" goods and services companies initially stand as the main 
beneficiaries of online commerce development. 
specialists such as commercial courier companies5. Buyers, sellers and intermediaries 
are forming industry-specific Internet markets in such diverse fields as real estate, 
automobile parts and construction equipment. Similarly, global manufacturing 
industries, such as automobile, computers and aerospace, are actively integrating their 
supply chains through the Internet. 
10. New functions are now being created. Innovative virtual middlemen are providing 
value-added services - such as brokering, search and referral - to businesses and 
consumers. Catalogue aggregators offer buyers "one-stop shops" to select products at 
the best price from many niche merchants. Classified advertising supersites present 
single points of access to scores of other sites carrying advertisements. Government-
sponsored gateways, such as the United Kingdom's Department of Trade and 
Industry's Trade UK website6, provide a single path to large numbers of selected 
companies trading on the Internet. Network operators, barks and computer companies 
are generating new revenues in their "hosting business" - offering turnkey virtual 
store-fronts and virtual malls. 
11. The era of the Web as a gift economy is ending. New forms of individual to 
individual commerce are appearing, as users themselves can charge small sums for 
content they publish on the Web. Similarly, commercial publishers can now sell 
information on the Web " by the sip, rather than by the gulp", page by page, article by 
article, photograph by photograph. The very small payments for such services 
generate new revenue streams, maximise the use of archives, and encourage 
widespread content development. 
THE OPPORTUNITIES FOR EUROPE 
12. Electronic commerce offers enormous opportunities for Europe. It is estimated 
that electronic commerce revenues on the Internet may increase to 200 billion ECU 
world-wide by the year 20007. This revolutionary growth will lead to profound 
structural changes. Sectors such as retail and distribution with 20 million employed 
and tourism with 6 million employed, will need to adapt to exploit these opportunities, 
expand existing businesses and launch new ones. Some existing services will be 
substituted by new ones. Significant efficiency gains will be realised. 
13. As a result, electronic commerce will have considerable impact on the structure 
and operations of the labour market. Further analysis is needed to fully assess these 
changes. Already at this stage it is apparent that new employment potential will 
principally be in information-based, high-value services. Training and education for 
these new skills will be needed. Faced with intense, global competition in a borderless 
digital environment, we must ensure that these new jobs are created and maintained in 
the European Single Market. 
5 The most successful Internet bookstores and music stores in Europe and in the US are thus truly "virtual companies": orders 
and shipments are made directly from publishers' warehouses, and providers' databases are fully integrated with transportation 
companies'. 
6 See http://www.trackuk.com. 
1 Source ActivMedia, Romtec, in European Information Technology Observatory 97. 
14. In Europe electronic commerce already offers considerable incentives for both 
established and new players. SMEs are capitalising on the unprecedented 
opportunities to access global markets which the World Wide Web offers. Similarly, 
large economic sectors, such as the distance selling industry in Europe, are actively 
integrating the Internet into their marketing and order-fulfilment strategies. Electronic 
commerce offers improved transaction management and enhances business efficiency. 
It brings increased responsiveness and accountability - as well as cost reductions. It 
lowers barriers to entry, enlarges existing markets and creates whole new business 
areas for knowledge-based intangible products - potentially one of Europe's greatest 
strengths. 
15. Consumers also stand to gain significantly. Electronic commerce revolutionises 
the relationship between consumer and provider. The consumer benefits from 
increased choice by being able to compare and choose instantly from a wide range of 
offers. Specialised products are increasingly available. Lower prices are possible as 
overheads and "bricks and mortar" costs fall and efficiency improves. A personalised, 
one-to-one relationship is replacing traditional mass-marketing and mass-distribution 
techniques, bringing more responsive service. 
16. By its very nature, electronic commerce is transnational and encourages cross-
border ordering and delivery of goods and services. It directly stimulates competition 
in the Single Market. The Single Market, in turn, offers electronic commerce the 
prospect of a critical mass of businesses and customers across national borders. In 
addition, electronic commerce gives peripheral regions new opportunities for 
accessing main markets . Electronic commerce represents, therefore, a potentially vital 
factor for cohesion and integration in Europe. 
ELECTRONIC COMMERCE: INTERNATIONAL COMPARISONS 
17. The opportunities electronic commerce offers have all too frequently been seized 
most energetically by Europe's main competitors. In the US, the Internet is fostering a 
thriving Internet core economy, creating new businesses, new revenue streams, and, 
more importantly, new jobs. Traditional economic sectors, such as the travel industry 
or catalogue business are migrating substantial parts of their commercial activities on­
line. 
Table 2: New business in the Internet: initiatives and innovations. 
Internet commerce in the US is building on a specific structural strength: innovative micro-enterprises. The 
US is already boasting more than 250.000 "cyber companies " using the Internet commercially in a variety of 
ways. 
In the US, travel services and flower distribution are particular success stories. Travel services currently 
amount to more than half of electronic commerce. The current market leade, launched in October 1996, is 
already claiming 250.000 users. There are nearly a thousand Internet flower distributors on the Web, with the 
market leader boasting $ 30 millions in sales in 1996. 
In Europe, the direct marketing industry, which represented revenues of ECU 37 billion in 1995, is vigorously 
embracing the Internet. For example, one of the largest mail order companies in Europe, claimed electronic 
commerce sales of DM 400 million in 1996. Similarly the largest supermarket chain in the Netherlands offers 
an innovative "Internet teleshopper " service. 
Similarly, new businesses are emerging in Europe in such strategic areas as electronic commerce tools and 
technologies. Success stories include, for example, the world leader in smart card technology, a secure 
electronic payment pioneer, and a market leader in the Internet secure "virtual storefront " business. 
18. This is a crucial area for future growth and competitiveness. Driven by corporate 
players, Internet commerce in the US is also drawing strength from a dense network 
of micro-companies. Ideally suited to the Internet environment, and enjoying 
essentially the same access to world markets as multinational corporations, some of 
these start-ups claim impressive growth rates and profitability8. At this stage, the US 
has built a substantial lead over Europe. A similar lead is opening up in the strategic 
sector of electronic commerce tools- products and technologies which underpin the 
future development of electronic commerce. Similarly, Japan and the Asia/Pacific 
region also are rapidly catching up. Spurred by industry and government, these 
countries are enjoying huge growth in Internet connectivity sud electronic commerce. 
Based on today's growth rate and investments, they could rive! Europe in terms of 
electronic commerce revenues by the year 20009. 
MARSHALLING EUROPE'S STRENGTHS 
19. Recent figures indicate that in some Member States Internet commerce usage has 
caught up with, and sometimes overtaken, the US. Finland and the Netherlands are 
now among the most dynamic on-line markets in the world10. In this highly 
competitive environment, Europe can and must marshal its specific strengths. 
Europe has a strong base in technology and infrastructure. It has powerful 
telecommunication operators (incumbents as well as new players), highly reliable 
basic infrastructure, and early deployment of advanced digital networks, Commitment 
to standardization, exemplified by the success of industry-driven standards such as the 
GSM and the DVB. is another crucial asset. So is Europe's commercial advances in 
key electronic commerce technologies such as smart cards and intelligent agents. 
Content development is another of Europe's greatest strengths. Content ~ computer 
software, business information, video entertainment - is the very essence of 
immaterial electronic commerce. European companies, in particular publishing and 
multimedia industries, are harnessing their considerable resources and know-how in 
the global electronic information markets. Similarly, highly innovative SMEs are 
positioning themselves successfully in specialised markets such as multimedia 
production and multilingual content localisation. Europe also has a competitive retail 
sector, with adapted product ranges and an in-depth knowledge of the various 
consumer tastes around the continent, a strength which can be leveraged too. 
Furthermore, the ability to trade electronically in a single currency - the Euro - across 
the world's largest single market will give European businesses considerable 
competitive advantages. Cross-border price transparency resulting from the Euro will 
8 A recent market survey of 1.100 Web based firms suggested that over 30% were profitable after a year, and that 30% more 
expected to be profitable within two years. Reported profit margins of twenty per cent and above are common (Figures from 
ActivMedia, reported in Business Week, 23/9/1996). 
" Source: Gartner Group 
'" The Netherlands is now one of the most developed electronic commerce markets in the world, with high PC penetration 
(38% of households), high use of Internet (22% of PC users have access to Internet, against 16% in the US, and 12% in 
Germany), and high use of electronic commerce (33% of Internet users use it to buy online, against 22% in the US). Source: 
International Data Corporation/Link 
6 
stimulate the use of electronic commerce; conversely, electronic commerce will 
facilitate the transition to the euro. 
20. Europe must tap the tremendous power of the entrepreneurial process and the 
force of the market. The ability of the Community and its Member States to steer 
developments is particularly important: if our companies are to succeed in today's 
competitive global electronic commerce market, they need an optimal environment to 
operate in. 
This means competitive telecommunications, the availability of standards and 
interoperable solutions, and focused R&D. A sound and flexible regulatory 
framework which generates confidence for both business and consumers and ensures 
full and unlimited access to the Single Market is an essential key to Europe's success. 
Such a regulatory framework will be a major competitive advantage in itself. Steps 
must also be taken to improve the business environment: to exchange best-practice, 
facilitate access to venture capital and stimulate training. Ultimately, global solutions 
must be found. The Community should be in the lead in exploring and offering 
solutions at international level. The changes described and the actions to be taken are 
developed in the next chapter. They are ambitious. And they will take effort and 
political will to carry through. But if they succeed, Europe will be well placed to 
become the heartland of electronic commerce. 
THE NEED FOR GLOBAL CONSENSUS 
21. Electronic commerce is inherently a global activity. Improved access to global 
markets is accompanied by the challenge from other parts of the world. Multilateral 
dialogue, involving governments and industry, is currently being pursued in many 
forums. The private sector has been playing a pioneering role, for example, in the 
process leading to landmark global agreements such as the Information Technology 
Agreement (ITA) and the Mutual Recognition Agreements on conformity assessment 
(MRAs). With the successful conclusion of the World Trade Organisation (WTO) 
negotiations on services (1993) and telecommunications (1997), the Community has 
committed itself, together with Member States, to the opening of most electronic 
commerce activities. Any European action on electronic commerce therefore has to be 
compatible with those WTO commitments. 
At the same time, the Community will continue to fight trade barriers, in order to 
secure access to infrastructure and services in other countries. This will be achieved 
by enforcing multilateral commitments made by the European Union's partners in 
WTO. Many trade issues specific to electronic commerce will also need to be pursued 
at a bilateral level, in particular with the US. In this perspective, the New Trans-
Atlantic Agenda, the Information Society Dialogue and the Trans-Atlantic Business 
Dialogue will continue to play a major role. 
22. An issue of growing concern is the challenge posed by the emergence of cyber­
crime, such as electronic money laundering, illegal money gambling, malicious 
hacking, or copyright infringement. International co-operation is already well 
4 advanced in a number of key areas, such as the fight against organised transnational 
crime on new communication networks. Faced with new forms of high technology 
and computer crime on global networks11 (reported criminal hacking cases are 
doubling every year), governments have responded vigorously. 
In Europe (Europol), as well as in the wider international environment (P8), 
specialised task forces have been set up, and transborder operational co-operation 
reinforced in such key areas as the real-time "trap and trace" of on-line criminals and 
"search and seize" of digital evidence. Efforts are similarly being mads to harmonise 
the criminalisation of computer offences and avoid digital havens. A high level 
Group, set up following the Dublin Council, is finalising an Action Plan to fight 
cybercrime. These efforts are crucial to reinforce trust and confidence in transnational 
electronic commerce. 
CHAPTER 2: ENSURING ACCESS TO THE GLOBAL MARKETPLACE: 
INFRASTRUCTURE, TECHNOLOGY AND SERVICES 
j| The widespread adoption of electronic commerce requires efficient, affordable and 
widely available telecommunications infrastructures, technologies and services. 
Europe must match the cost, capacity, access, choice, security and user-friendliness of 
such facilities throughout the world. 
MAXIMISING THE EFFECTS OF TELECOMMUNICATIONS LIBERALISATION 
23. A fully competitive European telecommunications market, implemented through 
effective telecommunications liberalisation will lower telecommunications tariffs and 
act as a major incentive to the development of electronic commerce in Europe. 
Comprehensive legislation is now being implemented by Member States to ensure full 
competition in all business sectors from 1 January 1998. By fostering greater 
competition between established operators and new players alike, telecommunication 
liberalisation is already leading to lower telecommunication prices and to the 
introduction of more flexible tariff schemes for businesses and private on-line users. 
As a result, Internet use is already significantly higher in the most competitive 
markets, and so is the take-up of electronic commerce. 
24. In the wider international context, the recently concluded WTO Agreement on 
Basic Telecommunications represents a major landmark. This Agreement contributes 
significantly to the emergence of a global marketplace, since it contains commitments 
from 69 countries on market access and national treatment. It covers all 
telecommunications services, regardless of the technological means used for delivery 
of those services. Most countries have also underpinned such commitments by 
regulatory measures. The Commission will work with the EU Member States, as well 
as with its trading partners, towards the full and timely implementation of this 
Agreement which will enter into force by 1 January 1998. 
The US Federal Trade Commission and the Gendarmerie Royale du Canada each maintain Web sites to inform users of 
various types of illegal schemes and abuses on the Internet. See http://www.ftc.gov and http://www.rcmp-
grc. gc. ca/html/scams-f.htm 
25. Regional disparities in the cost, quality and accessibility of electronic commerce 
infrastructure and services must be reduced to allow full access for remote areas to 
global markets and to overcome regional isolation. Electronic commerce provides an 
important impulse to revitalising regions and to renewing and sustaining local 
services. The widespread availability of electronic commerce infrastructure at an 
attractive price is required if SMEs are to fully exploit the opportunities. However, 
significant regional disparities may remain across Europe. Market forces alone may 
not close these gaps. This situation will have to be monitored closely in the evolving 
context of the Information Society. The Commission has addressed this issue in its 
Communication on "Cohesion and the Information Society"12 and will continue to 
seek to ensure that the enterprise sector is consulted to find effective solutions. 
MAXIMISING THE BENEFITS OF THE LIBERALISATION OF INFORMATION 
TECHNOLOGY MARKETS 
26. Recent international agreements to eliminate tariff and non-tariff barriers on 
products in the area of information and communication technologies should rapidly 
bring down costs in particular of the basic tools (computers, software, networking, CD 
Roms) and directly stimulate the take up of electronic commerce. 
The Ministerial Declaration on Trade in Information Technology Products agreed in 
December 1996 provides for the expansion of world trade in information technology. 
As a result, the recently adopted Information Technology Agreement (ITA), which 
covers more than 90% of world trade in IT products, provides for the gradual 
élimination of tariffs on these key products for electronic commerce by thz year 2000. 
Similarly, the Mutual Recognition Agreements of conformity assessment (MRA) will 
contribute significantly to the elimination of non-tariff barriers on IT products. 
Extending the Single Market principle of mutual recognition into the global 
environment, the MRA guarantees the recognition of certification procedures carried 
out in the exporting country - which, in turn, should substantially reduce costs. 
Welcomed by European IT and ITC industries, both agreements will strengthen the 
entire electronic commerce sector, directly benefiting European businesses and 
consumers. The Commission will work towards the full implementation of these 
agreements, and ensure that respective commitments, concerning in particular tariff 
schedules, will be met. 
REMOVING CAPACITY BOTTLENECKS 
27. Europe must take steps to ensure that a high bandwidth infrastructure is put in 
place in order to ensure that consumers and businesses take full benefit of the ongoing 
technological developments which, inevitably, lead to ever increasing needs for more 
transmission capacity. The private sector is already working at removing capacity 
12 COM(97)7 of of 22 Jan 97. 
bottlenecks in some Member States13. Telecammumcf^tioii operators are heavily 
investing in Internet infrastructure and services. 
The Commission will pursue a co-ordinated European approach to tackling capacity 
bottlenecks through the European Union R&D programmes in information and 
communication technologies, including actions in the Fifth Framework Programme 
and in the Trans-European Networks. This will involve setting-up an operational high­
speed network for researchers, complemented by facilities to test technologies and 
applications. The Commission will also facilitate'the active involvement of Europe's 
industry and public bodies in global decision-making on the evolution of the Internet. 
In parallel, to promote the rapid use of the new broadband services, education and 
training initiatives will be developed for SMEs, schools and local authorities. 
28. The future competitiveness of European industry depends on the sustained 
development of high-performance information and telecommunications 
infrastructures. Immediate action for the early development and implementation of an 
advanced, high capacity Internet infrastructure based on terrestrial and satellite 
networks14 is essential15. 
ENSURING INTEROPERABILITY IN A COMPETITIVE ENVIRONMENT 
29. Should the present trend of developing incompatible standards16 continue, both 
businesses and consumers will be severely disadvantaged17. There is a risk that users 
become "locked in" specific solutions. Similarly, it may be difficult to carry 
transactions between mutually incompatible systems. Without interoperability, critical 
mass may be difficult to achieve. Furthermore secure technologies aie also necessary 
to create trust in information security. These technologies are for the most part 
available, but important issues of commercial or technical interoperability remain to 
be solved, while ensuring full competition. To facilitate interoperability between 
various electronic commerce services, the Commission will launch a specific actions 
on standardization projects for electronic commerce in June 1997. 
30. New forms of industry collaboration in standardization in electronic commerce 
have emerged. Efforts are already underway at industry level (e.g. Financial Services 
Technology Consortium; World Wide Web Consortium18) to secure de facto 
interoperability in the global environment for a wide range cf key electronic 
commerce technologies such as electronic payment systems'9. Similarly, the 
'•* An example is Finland, where massive investments in Internet infrastructure by telecom operators (in particular a dense 
network of ATM networks) have virtually eliminated bottlenecks. 
14 C0M(97)..., EU Action Plan on Satellite Communications in the Information Society. 
^ The US government has allocated $100 million to the "Next Generation Internet Initiative" designed for high-bandwidth 
applications. 
'" The term 'standard' is used as meaning any formally or informally accepted technical specification and not necessarily only 
documents adopted by a recognised standards body. 
' ' For example, in Europe there arc more thnii 20 mutually incompatible standurds for 'stored value' cards (cards storing 
money similar in concept to telephone cards) 
18 The World Wide Web (WWW) was invented at CERN, the European Laboratory for Particle Physics. 
'9 A consortium of 160 computer, telecommunications and content companies, half of them European, the WWW Consortium 
is currently working on a series of initiatives to ensure de facto interoperability between existing technologies in the field of 
electronic payment systems (Joint Electronic Payment Initiative), digital signatures (Digital Signature Project). It is also 
working on innovative solutions in the field of content filtering (Platform for Internet Content Selection, or PICS), and of 
personal data protection (Privacy and Demographics Project). See http://www.w3.org. 
10 
Commission has been encouraging consensus through the Memorandum of 
Understanding on Open Access to Electronic Commerce for European SMEs.20 The 
involvement of European industry and users in standardization and specification work 
will be facilitated through a system of flexible, ad hoc, open workshops at European 
level, preferably within or in collaboration with the European standards bodies CEN, 
CENELEC and ETSI. This will enable participants to anticipate and react quickly to 
fast-moving global developments. Furthermore steps will be taken to better address 
user needs, in particular of SMEs, in standardization. 
31. The Commission will present a Communication on a European standardization 
initiative for electronic commerce. This Communication will identify technical 
barriers for the take-up of electronic commerce and propose concrete steps to remove 
these with the active involvement of European companies. Furthermore, the 
Commission is examining regulatory proposals in order to establish a procedure to 
identify and select publicly available specifications for the support of Community 
policies. 
32. The benefits of electronic commerce will only be achieved if interoperability is 
ensured at global level. The European Community and its Member States have 
consistently been committed to international standards, and expect its major trading 
partners to act likewise. 
In order to further promote international standardization, the Commission will host the 
global standardization conference "Building the Global Information Society for the 
21st Century", to be held in October 1997 which will focus on interoperability and 
standardization for the Information Society. Particular emphasis will be put on 
electronic commerce. 
MAKING USER-FRIENDLY ELECTRONIC COMMERCE SERVICES AVAILABLE: 
EUROPEAN'R&D 
33. To improve user-friendliness and create opportunities for business innovation, 
further work is required based on strong user involvement. The aim is to offer simple, 
user-friendly solutions to handling each stags in the transaction chain electronically. 
This will facilitate the widespread take-up of electronic commerce, especially by 
SMEs and allow them to get started, using and staying up-to-date with electronic 
commerce technologies. The Commission contributes to overcoming technological 
barriers by giving special importance in its relevant R&D programmes to electronic 
commerce and bringing related work together21. The first steps have already been 
taken through the launch of an electronic commerce call for proposals in the Esprit 
(Information Technologies) programme. The approach is to pursue a complementary 
mix of research, technology development and take-up measures so that the business 
innovation process is comprehensively supported. The opportunities offered by R&D 
in socio-economic issues need to be exploited too. 
20 Sec http://www.eto.org.uk/ltrade/mou/on the World-Wide Web. 
21 An inventory of electronic commerce related work in the Esprit (information technologies) ind ACTS (communications 
technologies) programmes can be found on (he World-Wide Web at http://www.cordis.lu/esprit/src/ecomproj.htm. 
13 
Electronic commerce appears as a key action in fee "Creating a User-Friendly 
Information Society" programme, proposed as part ci the forthcoming. Fifth 
Framework Programme22. Technological developments £.id take-up promotion 
projects in European Union R&D programmes should concentrate on providing a 
wide range of interoperable, compatible electronic commerce building-blocks. These 
could be for services such as payments, IPR management etc., to support the steps in 
the transaction chain. They could equally address integrated solutions — for example, 
to integrate better smart-card technology, mobile communications and information 
appliances. They should favour technologies which minimise the need for personal 
data and thus enhance the protection of the right to privacy of consumers (privacy 
enhancing technologies). User-friendly access to information must also be ensured (in 
particular to deal with information overload). Multilingualism, including on-line 
translation, must be supported. Full use must also be made of multimedia and 
knowledge-based systems to simplify the interface to the user and better support users 
with different characteristics. As indicated in the Innovation Action Plan23, other 
factors besides R&D will also have to be addressed to create an environment which 
fully favours the exploitation of innovation. 
INTERNATIONAL INDUSTRIAL COOPERATION m INFRASTRUCTURE, TECHNOLOGIES 
AND SERVICES 
34. The global infrastructure needs to be harnessed by international industrial and 
technological co-operation, in particular in areas such as secure electronic commerce, 
international electronic payments, multilingual support, etc. The European 
Commission has already undertaken several international industrial cooperation 
actions. Projects will be launched during 1997 as pari of the Prague Action Plan 
involving Central and Eastern European countries, and in cooperation with non-Union 
Mediterranean countries. Particularly, such projects help Central and Eastern 
European countries in their preparation for accession tc the EU. International 
industrial cooperation in electronic commerce with major trading partners such as the 
USA, Canada, Australia, the European Economic Area, Israel and Japan is part of 
bilateral dialogue and Science and Technology Agreements. The Commission will 
also strengthen its ongoing international cooperation in the field of electronic 
commerce by promoting global pilot projects in the G7 Global Marketplace for SMEs 
collaboration. 
CHAPTER 3: CREATING A FAVOURABLE REGULATORY FRAMEWORK 
The pace and the extent to which Europe will benefit from electronic commerce 
greatly depends on having up-to-date legislation that fully meets the needs of business 
and consumers. The objective of the Commission is to implement the appropriate 
regulatory framework by the year 2000. The existing Single Market regulatory 
framework has proved its worth for traditional forms of business. It must now be 
made to work for electronic commerce by achieving two complementary objectives: 
building trust and confidence and ensuring full access to the Single Market. 
22COM(97)142 
23 Innovation Action Plan COM(96)589 of 20 November 1996. 
12 
BUILDING TRUST AND CONFIDENCE 
35. The first objective is to build trust and confidence. For electronic commerce to 
develop, both consumers and businesses must be confident that their transaction will 
not be intercepted or modified, that the seller and the buyer are who they say they are, 
and that transaction mechanisms are available, legal and secure. Building such trust 
and confidence is the prerequisite to win over businesses and consumers to electronic 
commerce. Yet many remain concerned about the identity and solvency of suppliers, 
their actual physical location, the integrity of information, the protection of privacy 
and personal data24, the enforcement of contracts at a distance, the reliability of 
payments, the recourse for errors or fraud, the possible abuses of dominant positions-
considerations which are heightened in cross-border trading. 
36. Secure technologies - such as digital signatures and digital certificates - go some 
way to meeting these challenges. Digital signatures enable the unambiguous 
confirmation of the identity of the sender and the authenticity and integrity of 
electronic documents. Unique to the sender and unique to the message sent, digital 
signatures are verifiable and non-repudiable. Similarly, the exchange of digital 
certificates ("Internet ID cards") through an automatic "digital handshake" between 
computers provides assurance that the parties are who they say they are, and helps to 
assess whether the service provided and the goods or services delivered are genuine. 
Copyright protection mechanisms, also based on secure technologies such as 
encryption and smart cards, ensure the protection of digital material and are a crucial 
factor in the emergence of a mass-market in electronic content. Also based on 
cryptographic methods, secure electronic payment mechanisms provide the final 
element of trust: the ability to pay and to be paid. Such secure technologies are for the 
most part fully operational and commercially available. However, the necessary 
regulatory and institutional framework supporting such technologies is not yet 
complete, particularly in areas such as interoperability and mutual recognition across 
borders. 
ENSURING FULL ACCESS TO THE SINGLE MARKET 
37. The second objective is to ensure full access for electronic commerce to the Single 
Market. Given its size, the Single Market potentially offers businesses a "critical 
mass" of customers before addressing further global markets. However, faced with the 
new challenges posed by electronic commerce, Member States are responding in 
different ways. The development of divergent legislative approaches is not only 
ineffective given the transfrontier nature of electronic commerce but also risks 
fragmenting the Single Market and thus inhibiting the development of electronic 
24 Privacy is a particular concern of consumers. According to the survey "Information Technology and Data Protection", 
Eurobarometer 46.1, January 1997, two thirds of respondents are worried about trails of personal data that are left behind when 
using digital information networks. 
"• Additionally, virtual shopping malls which operate across borders could become very dominant once they achieve a 
substantial size. Some adaptation of retail legislation may be required. 
13 
commerce in Europe. The proposed Transparency Mechanism Directive26 is precisely 
targeted at reducing the risk that new measures, by being different from one Member 
State to another, could restrict the free movement of Information Society services. 
38. However important it is to avoid regulatory inconsistency by discouraging 
divergent actions at national level, the Union must also ensure that a coherent 
regulatory framework for electronic commerce is created at European level. Such a 
regulatory framework will inevitably be built on existing Single Market legislation 
which already largely creates the right conditions for on-line businesses. As part of 
that framework, specific measures have already been taken to respond to new 
developments. They include the recently adopted directives on data protection27, on 
the legal protection of data bases28 and on contracts negotiated at a distance29; and the 
proposed revision of the "Television without Frontiers" Directive30. In addition, a 
number of consultation or policy documents have been issued to stimulate debate on 
various policy areas including the legal protection of encrypted services31, copyright 
and related rights32, industrial property33, commercial communications34, public 
procurement35 and the protection of minors and human dignity in audiovisual and 
information services36. 
THE PRINCIPLES OF AN ELECTRONIC COMMERCE REGULATORY FRAMEWORK 
39. The application of four principles will provide the Union with an adaptable and 
appropriate framework of legislation. 
No regulation for regulation's sake: in many cases, the free movement of electronic 
commerce services can be effectively achieved by mutual recognition of national rules 
and of appropriate self-regulatory codes. This means that companies engaged in cross-
border business operate under the law of the country of origin ("home country 
control"). Only where mutual recognition does not suffice to remove obstacles in the 
market or to protect general interest objectives, will there be a need for Community 
action . Any legislative action should impose the fewest possible burdens on the 
market and keep pace with market developments. 
26 Proposal for an European Parliament and Council Directive amending for the third time Directive 83/189/1-10 laying down 
a procedure for the provision of information in the field of technical standards and regulations, COM (96) 392 final, 
30.08.19%. 
- Directive 95/46/1 •'(' of the European Parliament and the Council on the protection of individuals with rejwrtls lo the 
moecssiug of personal data and the free movement of such data. ()J 1.281 23.11.1995 p.31 
"X Directive 96/9/1 •'(' of the European Parliament and of the Council on the legal protection of databases OJ 1.77 27 0VI996 
* Directive 97/7 ol the European Parliament and the Council ol 17 February 1997 on the protection ol consumers in respect of 
distance contracts (to be published in the Official Journal). 
- Proposal for a European Parliament and Council Directive amending Council Directive 89/552/EEC on the coordination of 
certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television 
broadcasting activities. 
COM(95) 86 Final of 31.05.1995, O.J. C 185 of 19.07.95, p. 4. 
- ' Commission Green Paper "Legal Protection of Encrypted Services in the Internal Market", COM (96) 76 final. 06.03.96. 
32 Communication from the Commission "Follow-Up to the Green Paper on Copyright and Related Rights in the Information 
Society", COM(96)568 final, 20.11.1996. 
3- Questionnaire on "Industrial Property Rights in the Information Society". Version 5.0. September 1996. DG XV/E/3. 
_ Green Paper on "Commercial Communications in the Internal Market", COM (96) 192 final. 08.05.1996. 
•* Green Paper on "Public Procurement in the EU: exploring the way forward", COM(96) 583 final - 27/11/96 
(keen Paper on the "Protection of Minors and Human Dignity in Audiovisual and Information Services". COM (96) 483 
final 16.10.1996. 
14 
Any regulation must be based on all Single Market freedoms: electronic commerce 
cuts across a wide range of cross-borders activities. Whether companies engaged in 
electronic commerce are providing one or several goods and/or services, freedom to 
do so -easily and effectively- must be at the heart of future policies. Equal weight 
must be given to all the freedoms offered by the Single Market: the realisation of the 
free movement of goods, persons, services and capital together with the freedom of 
establishment. Only in this way can the crucial objectives of coherence, predictability 
and operational simplicity be achieved. 
Any regulation must take account of business realities: in any electronic commerce 
operation, a trader needs to set up business, to promote its products or services and to 
sell, deliver and finance them. This is part of the normal process of trading - a 
commercial chain. In many cases, legislation will not be necessary to tackle actual or 
potential problems. Where it does, it must seek to facilitate operations throughout the 
commercial chain, for it makes no sense to remove barriers in only one part of that 
chain whilst leaving others untouched. 
Any regulation must meet general interest objectives effectively and efficiently: a 
Single Market for electronic commerce will not develop without the effective 
safeguarding of recognised general interest objectives such as privacy or consumer 
protection and other public interests such as wide accessibility to the networks. 
Without such protection there is a real risk that national regulatory borders will remain 
in place as individual Member States seek to safeguard the legitimate concerns of their 
citizens. 
THE ESSENTIAL FEATURES OF A REGULATORY APPROACH 
Based on these four principles, an appropriate regulatory response must be developed 
where necessary. In some cases, responses have already been identified; in other 
cases, responses need to be found urgently. To ensure that electronic commerce freely 
flows across national frontiers, different legal issues need to be addressed at each step 
of business activity. 
From the establishment of the business .... 
40. A wide range of regulations at national level could inhibit the establishment of 
service providers across frontiers. These include differing professional requirements, 
differing prudential and supervisory systems, and notification or licensing 
requirements (for example for regulated professions or financial services). The 
Commission is therefore examining how best such obstacles can be tackled while 
respecting general interest objectives and will come forward with policy proposals. 
41. The new virtual environment also makes it more difficult to determine who are the 
contracting parties, where an electronic commerce operator is established and whether 
that operator is complying with all relevant legal conditions. This can create legal 
uncertainty about which Member State will be competent and about the applicable law 
in disputed cases. It also complicates the application of Single Market principles, in 
15 
r particular the principle of country of origin control. The Commission will examine 
these and related issues to clarify any areas of doubt or inconsistency - including the 
application of the Rome Convention37 and the Brussels Convention38 in the new 
electronic context -and will work to improve consumers access to justice, in particular 
the possibilities for redress. 
To the promotion and provision of electronic commerce activities ... 
42. Any on line service provider or company establishing a Web site is subject to 
divergent national regulations including those on commercial communications 
(covering advertising, direct marketing, self-promoticns, sponsorship and pufcHc 
relations). This hampers the use of efficient and creative cross border commercial 
communications strategies and creates legal uncertainty. As a foilow-up to the Grten 
Paper on Commercial Communications, the Commission will come forward with 
detailed proposals to remedy actual or potential difficulties. 
43. At present Member States apply certain restrictions to the marketing of particular 
financial services to protect the public interest. The effect of such restrictions is that 
the Single Market for financial services, including financial services provided 
electronically, is fragmented. Before the end of the year, the Commission will put 
forward a proposal for a directive on financial services contracts negotiated at a 
distance which will seek to remove obstacles to cross-border provision whilst 
safeguarding consumer protection. 
Through negotiation and conclusion of contracts ... 
44. A Directive on contracts negotiated at a distance which covers electronic 
transactions and a certain number of horizontal directives (on unfair contract terms in 
consumer contracts, on misleading advertising) and sectorial directives (on consumer 
credit, travel packages, timeshare) have been adopted. Furthermore a proposal en the 
sale of consumer goods and associated guarantees is in the pipeline. These directives 
are establishing a minimum level of protection for consumers which is also applicable 
to electronic commerce transactions within the EU. 
45. A number of Member States' rules governing the formation and the performance 
of contracts are not appropriate for an electronic commerce environment and are 
generating uncertainties relating to the validity and enforceability of electronic 
contracts (for example the requirements for written documents, for hand written 
signatures, or the rules of evidence that do not take into account electronic 
documents). The Commission will take concrete steps to address the problem of how 
to eliminate barriers for the legal recognition of electronic contracts within the Single 
Market. Furthermore, as regards consumer protection in the field of electronic 
commerce, this point shall be dealt with in the Communication on the Consumer 
Dimension of the Information Society. 
J Convention on the law applicable to contractual obligations. Rome 1980. OJ L266,9.10.80 p.l. 
38 Convention on jurisdiction and enforcement of judgements in civil and commercial matters. Brussels 1968. OJ C97, of 11 
April 1983. 
16 
46. Bookkeeping, accounting and audit rules will also have to be adapted to electronic 
commerce and will have to allow, for example, for electronic verifications without any 
paper copies or for electronic invoices. National rules could develop in a divergent 
way and threaten the Single market. The Commission will initiate discussions with the 
Member States in order to prepare appropriate action. 
... To the making and receipt of electronic payments. 
47. Electronic commerce will not develop without sound, user-friendly, efficient and 
secure electronic payment systems. The Commission, the EMI and the Member States 
are currently considering the appropriate supervisory framework for the issuance of 
electronic money. In the light of this discussion the Commission intends to present by 
the end of 1997 (i.e. the target date for completion of the work) a proposal for a 
Directive on the issuance of electronic money, so as to ensure the stability and 
soundness of issuers of such payment products. This will contribute to boosting 
consumer confidence. Meanwhile, the Commission envisages modernising and up­
dating the Recommendation of 1988 concerning payment systems39 before the middle 
of 1997 in order to provide guidance for the relationship between issuers and users of 
all new means of payment (e.g. on liability, transparency and redress procedures). 
48. Compatibility between electronic payment systems, which is in the interest of both 
consumers and business, will mainly rely on agreements among operators. Such 
agreements must be in conformity with the Community's competition rules. To 
provide guidance, the Commission will in the course of 1998 issue a competition 
notice which will clarify the application of competition rules to new means of 
payments . 
49. Fraudulent use and counterfeiting, which is a serious concern for means of 
electronic payments, is only punishable in a minority of Member States. The financial 
industry and users have requested the Commission to take initiatives covering all non­
cash means of payment to improve the security of new payment systems. 
A REGULATORY APPROACH THAT DEVELOPS APPROPRIATE HORIZONTAL POLICIES 
Ensuring Data Security and Privacy 
50. The use of strong encryption which ensures the confidentiality of both sensitive 
commercial and of personal data is one of the foundation stones of electronic 
commerce. Widely divergent national laws restricting the use, exportation importation 
and offering of encryption technologies and products are adding substantial barriers to 
the development of electronic commerce in Europe. The removal of such cross border 
barriers is crucial for the implementation of the Single Market in electronic 
commerce. The Commission will seek to develop a policy which will aim to guarantee 
the free movement of encryption technologies and products while safeguarding public 
security concerns. The Community shall work at international level towards the 
Commission Recommendation of 17 November 1998 concerning payment systems, and in particular the relationship 
between card-holder and card issuer. OJ 1.317 ol"24 November 1988. p.55. 
17 
removal of trade barriers for encryption products. The recently adopted OECD 
Cryptography Guidelines constitute a first attempt to achieve international consensus 
on this matter. 
51. A more specific issue is that of digital signatures which will be the subject of a 
Commission initiative. This initiative will aim at ensuring a common legal framework 
encompassing the legal recognition of digital signatures in the Single Market and the 
setting up of minimum criteria for certification authorities. World wide agreements on 
digital signatures will also be needed. 
52. Key amongst confidence-building measures is the need to safeguard the 
individual's and a company's right to privacy while avoiding obstacles to the cross-
border provision of electronic commerce services. The EU Framework Directive on 
the protection of personal data meets these two objectives. It remains to be seen 
whether further regulatory measures may be needed to address specific issues 
emerging from the developments of electronic commerce. In particular, privacy 
principles need to be safeguarded in the area of electronic payment systems, taxation 
and copyright management systems. The Commission will pursue a WTO initiative 
aiming at a multilateral agreement on trade related aspects of global information flows 
whilst protecting the right to privacy and personal data. 
Establishing Appropriate Protection for intellectual Property Eights and 
Conditional Access Services 
53. The protection of copyright and related rights is essential for the development of 
electronic trade. The Commission will take a legislative initiative to deal with certain 
aspects of copyright and related rights40. It will focus on on-line communications, 
reproduction and distribution of protected material. This will be flanked by adequate 
legal protection against the circumvention of anti-copy devices and electronic 
management systems. The two international Treaties adopted in December I99641 
under the auspices of the World Intellectual Property Organisation (WIPO) are 
essential to stimulate and facilitate electronic commerce internationally. The 
Community shall aim for their early entry into force. Moreover, a successful outcome 
of the present WIPO negotiations on the legal protection of the substantial investment 
made in databases will constitute a further milestone in facilitating electronic 
commerce world-wide. The work on this issue will continue in the framework of 
WIPO, during the second half of 1997 and the Commission considers it of importance 
to adopt an international convention in the near future on this topic. 
54. Trademarks are major commercial instruments that will play an important role in 
the electronic market place. However in an open network environment the trademark 
owner is faced by severe difficulties in controlling the legitimate use of his trademark. 
The Commission is now consulting interested circles about this and related issues and 
will take appropriate steps to resolve conflicts between the allocation of Internet 
domain names and trademarks. The Commission will seek to ensure that European 
4(' For further details see Communication from the Commission "Follow-Up tc the Green Paper on Copyright and Related 
Rights in the Information Society", COM(96)568 final, 20.11.1996. 
41 The "WIPO Copyright Treaty" and the "WIPO Performances and Phonograms Treaty". 
18 
interests are duly taken into account in the reorganization of the Internet Domain 
Name System (DNS). In the context of the WIPO Consultative Group on trademarks 
and Internet domain names, the Commission is actively contributing to the definition 
of internationally acceptable solutions, such as on-line arbitration, mediation and 
challenge panels. 
55. A secure distribution of services will require adequate legal protection of 
conditional access services across the Single Market. Many services will use some 
form of encryption or other conditional access system to ensure proper remuneration. 
Service providers will .need to be protected against the piracy of their services by 
illicit decoders, smart cards or other piracy devices. The Commission will propose a 
directive to establish an equivalent level of protection for service providers across 
Europe. 
Ensuring a clear and neutral tax environment 
56. To allow electronic commerce to develop, it is vital for tax systems to provide 
legal certainty (so that tax obligations are clear, transparent and predictable), and tax 
neutrality (so there is no extra burden on these new activities as compared to more 
traditional commerce).The potential speed, untraceability and anonymity of electronic 
transactions may also create new possibilities for tax avoidance and evasion. These 
need to be addressed in order to safeguard the revenue interests of governments and to 
prevent market distortions. 
57. Indirect taxation, and particularly VAT, is the area in which the Community rules 
are most harmonised. Electronic trade in goods and services clearly falls within the 
scope of VAT, in the same way as more traditional forms of trade do. However, 
thorough analysis is needed to evaluate the possible impact of electronic commerce on 
present VAT legislation (on issues such as definition, control and enforceability) and 
to judge if, and to what extent, present legislation needs to be adapted, while ensuring 
tax neutrality. Adaptations should avoid putting excessive burdens on small 
companies. While some commentators have suggested that there might be a need to 
look at alternative taxes such as "bit tax"42, the Commission is of the opinion that this 
is not appropriate since VAT already applies to these transactions. 
58. The territorial concepts which underlie direct taxation systems ("residence" and 
the "source" of income) also need to be examined in the light of commercial and 
technological developments. As with indirect taxation, the goal is threefold: to 
provide legal certainty, to avoid undue revenue losses, and to ensure neutrality. 
59. The Commission and the Member States have recently decided to start an analysis 
of the impact and consequences of electronic commerce on Customs and Indirect 
Taxation. The Commission will use the Taxation Policy Group to explore these issues 
at EU level with Member States. Further work at an international level will be done in 
the OECD Committee on Fiscal Affairs. 
42 "Interim Report of the High Level Group of Experts on the Social Aspects of the Information Society", 
hitp://www. ispo. cec. be/hleg/hleg. html. 
19 
WORKING TOWARDS A CONSISTENT GLOBAL REGULATORY FRAMEWORK 
60. At present, the pioneers of electronic commerce are operating in a fragmented 
regulatory environment despite the fact that a number of aspects of electronic 
commerce are already covered by international agreements such as WTO/GATS 
(General Agreement on Trade in Services) and WIPO. As in the case of the Single 
Market existing and new national legislation in diverse areas (for example encryption, 
digital signatures, data protection and privacy, contract law, new electronic means of 
payments) can create trade barriers which will hamper the development of electronic 
commerce at a global level. Solutions need to be found to provide for a consistent 
international regulatory framework for electronic commerce. 
Important steps have already been taken in a variety of different international fora 
such as WIPO, WTO, OECD (Organisation for Economic Cooperation and 
Development), the World Customs Organisation, UNCTAD (United Nations 
Conference on Trade and Development), UNCITRAL (United Nations Commission 
on International Trade Law) the Exports Credits Arrangement and the Council of 
Europe. 
Building on this, the Community should further work through appropriate 
international fora and bilaterally with its major trading partners to establish a coherent 
global regulatory framework. 
61. An International Ministerial Conference on "Global Information Networks: 
Realising the Potential" will be organized by the Commission and German 
Government in Bonn on 6-8 July 1997 which will address international policy-making 
amongst others for electronic commerce with a view to adopting a Ministerial 
Declaration. 
CHAPTER 4: PROMOTING A FAVOURABLE BUSINESS ENVIRONMENT 
A further challenge facing the European Union lies in achieving the widespread 
adoption of electronic commerce by consumers, businesses, and public 
administrations. The awareness and confidence of consumers and businesses needs to 
be enhanced, and support is needed for the development of relevant skills and 
widespread network literacy. SMEs, in particular, need to be encouraged to adopt new 
business methods, techniques and innovations. Public administrations have an 
important role to play by adopting a favourable attitude to electronic commerce. 
CONSUMERS: CREATING AWARENESS AND CONFIDENCE 
62. Consumers have much to gain from electronic commerce when they buy goods 
and services from their own homes: a wider choice, easier and more comprehensive 
pre-purchase information, and potentially lower prices. The Commission has already 
indicated in its three year action plan on priorities for consumer policy (1996-1998) 
the potential benefits which the development of the Information Society will bring to 
consumers. 
20 
The Commission will prepare a Communication on the consumer dimension of the 
Information Society which will aim to promote consumer access to the Information 
Society, including new consumer skills which will require special education and 
training. 
63. Consumers need to have confidence in the electronic commerce process itself. 
"Hard trust" in electronic commerce, through the use of secure technologies, needs to 
be complemented by "psychological trust". Industry, trade and consumer 
organizations need to work together to boost this by the use, for example, of quality 
labels; by issuing comparative reports43; or by the endorsement of new services by 
trusted commercial brand names such as banks, credit card companies, or network 
operators44. 
Trust can also be encouraged by increasing the transparency of transactions (for 
example, concerning the identity, origin and liability of the supplier), keeping to a 
minimum the personal data required from the consumer, and by making clear the legal 
status of any information provided. Industry can also increase the level of trust by 
adopting and abiding by codes of conduct. Ideally, labelling and codes of conduct 
would need to be applied at a European or global level to win mass acceptance 
amongst consumers and businesses and avoid the creation of new barriers. The 
Commission encourages the creation of widely accepted quality labels and codes of 
conduct to increase trust and confidence in electronic commerce. 
64. For consumers, the use of the Euro and electronic commerce should simplify and 
lower the cost of transactions. The Commission will therefore encourage pilot work 
on quality labels for electronic payments in the future. This could guarantee that the 
electronic payment service meets a set of minimum quality criteria (e.g. dual display 
of prices pi as automatic conversion between Euro and national currencies without 
surcharge). The financial industry, consumer representatives and public authorities 
would together define these criteria. Quality labels could also be applied to electronic 
purses and other existing payment instruments, such as debit and credit cards. 
BUSINESS: CREATING AWARENESS AND ENCOURAGING BEST PRACTICE 
65. Small businesses need to understand the potential benefits of electronic commerce 
in terms of cost savings, opening up of new markets and opportunities for new 
products and services. Awareness actions will build on the insights gained through the 
Commission's Commerce 2000 pilot programme, the consultation process on the 
Green Paper on Commerce and in the G7 context, and will take into account the 
limited resources available to SMEs for staff training. They will aim to encourage 
industrial organizations and associations to publicise case studies, disseminate training 
materials and use electronic commerce themselves. This could involve Chambers of 
4^ The European ConsumerNet project, launched recently, is an example of such a service. Sec 
http://www.ispo.cec.be/ispo/call/quacii.him «n the World-Wide Web. 
44 Trade associations and Better Business Bureaus already grant "labels" and "accreditations", which can be certified 
electronically, to «ew cyber-firms. 
21 
Commerce, industry groupings at local, national and European level technology 
promotion associations, and groups of SMEs, as well as partnership programmes 
(such as Europartnertariat and Interprise). 
The Euro-Info Centres network will undertake, in the context, of the Multi-annual 
Programme for SMEs45 specific initiatives to increase the exposure of companies, ::i 
particular SMEs, to electronic commerce techniques. Following the completion of the 
consultation on the Green Paper on Commerce and Distribution,46 a work programme 
will be launched by the end of 1997, including electronic commerce actions for the 
retail and distribution sector to respond to user requirements. Awareness promotion 
will furthermore be pursued through the G7 project Global Marketplace for SMEs 
building amongst others upon the first annual conference of this project in April 1997 
which addressed many of the issues that directly concern SMEs and policy-makers in 
global electronic commerce. The use and development of standards to facilitate 
international product sourcing will also be promoted. 
66. Best practice pilot projects play an important role in raising awareness. Pilot 
projects can be designed, for example, to test business innovations and examine their 
compatibility with existing legal and fiscal environments. They can also contribute to 
the analysis of structural changes in and across sectors and of the impact on 
employment. SMEs often lack the resources to try out new applications individually. 
Pilot projects typically develop business models that take full account of Europe's 
multilingual and multicultural character and the particular preferences of European 
consumers and businesses. 
The Commission will increase support for best practice pilots and will extend large-
scale awareness and take-up actions to promote business innovation across a wide 
range of market sectors, such as retail, food and agribusiness, electro-mechanical 
engineering, shoes, textiles, publishing, and tourism. Relevant programmes for these 
actions such as R&D programmes in information technologies snd structural funds 
will be exploited to the full. Where appropriate, European coordination structures will 
be set up. The Commission encourages private sector initiatives to stimulate just-in-
time business-to-business markets for accounting, invoicing, and settlement flows, to 
facilitate the adoption of integrated financial management software and tc reduce 
cross-border payment periods in commercial transactions47. 
PUBLIC ADMINISTRATIONS: PROMOTING A MORE PRC-ACTIVE PUBLIC SECTOR 
67. The public sector has an important role tc play in the promotion of electronic 
commerce. Administrative formalities and requirements, as well as the services 
provided by the public sector, form part of day-to-day business. 70% of the data 
handled by administrations originates in industry. Areas where electronic support 
could be applied include customs and taxes, social security, employment services, 
public registries and public procurement. Organizational (and possibly regulatory 
45 COM(96)98 final 
46 COM(96)5 final 
47 The estimated cost savings achievable by introducing integrated 'just in time' financial management is estimated to be 2-3% 
of of a company's turnover. It should also be possible to reduce cross-border payment periods significantly from the current 
average of two weeks. 
22 
changes) may be required for the effective introduction of electronic commerce in 
business-public administration relationships. The Commission will launch 
benchmarking initiatives (studies, pilot projects) to learn from practical experience of 
public administrations and to identify specific European needs, including 
requirements for interoperability at European level. 
68. Under the present IDA programme, trans-European networks for administrations 
are being introduced. They will involve commercially available technical solutions 
whilst interoperability issues will need to be considered by both public 
administrations and the private sector. The Commission will issue guidelines to 
identify projects of common interest and implement measures to ensure the 
interoperability of networks. 
69. The Member States themselves should confirm their confidence in electronic 
commerce by using it at the various levels of public administration. This would act as 
a catalyst on the market as a whole. The most exemplary action will be for public 
administrations to use electronic commerce for their own purchases. Public 
procurement represents a large part of the economy (some 12% of EU GDP). 
Administrations could not only realise considerable potential savings for their tax 
payers but their actions would also speak louder than words48. 
Bringing together the experiences of the SIMAP public procurement project, the 
results of related projects funded under research and development programmes, and 
responses to the Green Paper on Public Procurement, the Commission will present a 
strategy paper later this year, together with an action plan to stimulate the 
development of electronic procurement. The paper will identify any measures that 
need to be taken to ensure that electronic commerce improves transparency, ensures 
non-discrimination and does not create new barriers to openness in public 
procurement markets. The Commission will examine to what extent existing public 
procurement directives need review in order to facilitate the use of electronic 
commerce and simplify or reduce any administrative requirement or procedure that is 
unnecessary in the new electronic environment. 
70. The Commission will step up its own efforts to be a major user of electronic 
commerce. The Commission has already piloted the electronic submission of 
proposals in the ACTS and Esprit R&D programmes, and has made use of an Internet 
forum to encourage interactive response and comment to the Public Procurement 
Green Paper. The Commission will make more extensive use of "virtual" discussions 
to stimulate public debate on Community policy49. Links with its agencies and 
Member State administrations and the general public will also be developed further. 
The Commission will present an Action Plan for its use of electronic commerce by the 
end of 1997. 
48 The Swedish Association of Local Authorities has estimated that savings of 3% of the procurement budget could be 
achieved through the use of electronic commerce. 
49 Recently a successful public debate was held with Commissioner Oreja via the Internet on the Intergovernmental 
Conference. 
23 
PUTTING ELECTRONIC COMMERCE AT THE SERVICE OF THE CITIZEN 
71. Electronic commerce is the Information Society in practice. However, as the 
Information Society Forum has pointed out in their first annual report50 "neither our 
people nor our institutions nor most of our companies are really prepared for the new 
technologies". The Forum emphasised the need for better education in the use of the 
new technologies, next to other key issues such as awareness creation and readiness 
by governments and public authorities to assume their responsibilities. Electronic 
commerce requires new skills for network literacy. Consumers will need to become 
familiar with information technology for communicating and ordering goods and 
services electronically. The basis for such skills should already be laid in primary and 
secondary schools. Employees and managers, especially in SMEs, may have to get 
used to doing business internationally instead of in a national or regional market place 
and will require retraining to this end. As the Forum expressed clearly, the 
Information Society will be a Lifelong Learning Society. 
The Commission will supplement policies at regional and national levels to improve 
skills. Regarding consumers, the above mentioned Communication on the consumer 
dimension of the Information Society will address this. Regarding employee skills 
vocational (re-)training to help adapt to industrial change is foreseen, e.g. in the 
context of the Socrates and Leonardo programmes, and the Action Plan "Learning in 
the Information Society" with a view to training for the knowledge society, as well as 
pursued by the ADAPT-BIS programme and the activities of the European Social 
Fund's "Objective 4". Furthermore a Euromanagement Programme will be initiated to 
promote greater understanding of electronic commerce amongst management in 
SMEs. 
72. Finally, the Information Society Forum as well as the High Level Expert Group on 
the Social Aspects in the Information Society have stressed the need for public and 
widespread participation in the evolving Information Society, to avoid the risk of 
creating classes of information 'have-nots' and 'want-nots'. While the Commission 
expects that electronic commerce will have a profound impact on businesses, 
institutions and upon our lives as consumers and employees, it is not self-evident how 
exactly electronic commerce will and should develop in Europe. A broad and 
continued societal dialogue about these questions is essential to overcome the hurdles 
and reap the benefits. In this context, the Commission particularly welcomes 
collaboration at European level between industry and consumer groupings and their 
members to stimulate the necessary private-public dialogue and to support the 
implementation of the actions of this Initiative. As part of this Initiative, the 
Commission will actively stimulate the public debate on electronic commerce in 
I'Aimpc. 
CONCLUSIONS 
I. This Communication presents the European Initiative in Electronic Commerce as a 
set of action-oriented proposals for advancing electronic commerce in Europe. These 
^ First Annual Report to the European Commission from the Information Society Forum, 'Networks for People and their 
Communities', June 1996 
24 
proposals address access to the global marketplace, legal and regulatory issues, and 
promoting a favourable business environment. Some of them are already included in 
the Rolling Action Plan for the Information Society, others are new and require an 
update. Their implementation will involve close consultation with the relevant 
industry sectors and involve all relevant policy domains. Coherence between 
technological, regulatory and support actions is an essential element of the approach 
advocated by this Initiative. With this Initiative the Commission also issues an 
invitation to all parties involved to engage in a public dialogue about the development 
and take-up of electronic commerce in Europe. 
II. To implement this European Initiative in Electronic Commerce the Commission 
plans to undertake the following key actions which should be completed by the year 
2000 with a mid-term review (new actions which are not yet included in the current 
Information Society Action Plan are marked with an asterisk): 
25 
ENSURING ACCESS TO THE GLOBAL MARKETPLACE: INFRASTRUCTURE, TECHNOLOGY 
AND SERVICES _ __ 
by 1.1.98 Ensure full implementation of the telecommunications liberalisation 
package by Member States 
. Pursue full implementation of WTO basic telecommunications 
agreement by its signatories bv 1.1.98 
1 Implement the ITA and MRA Agreements for the removal of tariff 
and non-tariff barriers on !T products ongoing' 
Promote active involvement of Europe's industry and public bodies 
in the evolution of the Internet and the provision of high bandwidth 
infrastructure through the R&D and TEN-TELECOM programme. 97* 
4-Implement thematic call on electronic commerce in the ESPRIT j 15 March 
R&D programme; further focus appropriate R&D programmes [ 97- QPA 98* 
Launch Fifth Framework Programme with electronic commerce as 
a priority for technology development and take-up ongoing 
Adopt Communication on a European standardization initiative for 
electronic commerce (with action plan) July 97 
Launch of a specific action on standardization projects for 
electronic commerce June 97* 
Organize global standardization conference, Brussels, 1 -3 October 
97 October 97 
Launch of specific actions for international cooperation in CEEC, ! 97' 
MED, G7 Global Marketplace for SMEs within the EU R&D j 
programmes 
CREATING A FAVOURABLE REGULATORY FRAMEWORK 
Identify Single Market barriers and legal uncertainties affecting 
electronic commerce 
Launch regulatory initiatives in the area of electronic payments*, 
contracts negotiated at a distance for financial services*, copyright 
and neighbouring rights, legal protection of conditional access 
services and digital signatures 
Assess the need for further initiatives covering Single Market 
horizontal questions, regulated professions, commercial 
communications, contract law, accountancy, fraudulent use of 
electronic payments, data security, data protection, industrial 
properly, direct and indirect taxation and public procurement 
Reinforce international dialogue in the appropriate multilateral and 
bilateral fora to achieve an adequate global regulatory framework 
for electronic commerce, in particular in data security, data 
protection, intellectual property rights, and taxation 
Organize with the German Government the Ministerial Conference 
on Global Information Networks, Bonn, 6-8 July 97 ongoing 
end 1997* 
ongoing* 
ongoing 
July 97* 
26 
PROMOTING A FAVOURABLE BUSINESS ENVIRONMENT 
Adopt Communication on consumer dimension of Information 
Society, including promotion of consumer access to electronic 
commerce June 97 
Promote electronic commerce awareness and best practice actions, 
by implementing a specific Euro-Info-Centres initiative, launching 
a Euromanagement programme and setting up a European co­
ordination structure for electronic commerce use in the tourism 
sector, as well as through promotion of the Euro for SMEs. End 97* 
Intensify support for and launch new best-practice pilots, large-
scale awareness activities, take-up actions using ICT R&D, 
innovation and standardization programmes and Structural Funds Sept 97* 
Present an action plan on stimulating the development of electronic 
procurement end 97* 
Present Guidelines and measures addressing interoperability issues 
related to public administrations in IDA Sept 97* 
Present Action Plan for Commission to become leading user of 
electronic commerce end 97* 
Learning and training initiatives for electronic commerce in 
programmes such as Leonardo and Socrates 1997 
Stimulate the public dialogue on electronic commerce in Europe, 
including establishment of dedicated Website April 1997* 
III. The Commission invites the European Parliament, the Council, 
the Economic and Social Committee and the Committee of the 
Regions to discuss the issues involved and to give their political 
support to this European Initiative in Electronic Commerce. 
This document is accessible at the following Internet address: 
http://www.ispo.cec.be/Ecommerce 
27 17/04/27 
ISSN 0254-1475 
COM(97) 157 final 
DOCUMENTS 
EN 10 15 16 
Catalogue number : CB-CO-97-I55-EN-C 
ISBN 92-78-18682-1 
Office for Official Publications of the European Communities 
L-2985 Luxembourg