EU Roadblocks on the Digital Highway

I write the column EU Roadblocks on the Digital Highway in TCS Daily on 8 January 2004.

Contradictory regulations do not build strong markets

As the New Year starts so does the European Network and Information Security Agency (ENISA). EU leaders may have failed at their December 2003 summit to produce a European Constitution, but they did manage to agree that ENISA should be located in Greece. To put such an agency in an IT backwater will probably not help it operate smoothly, but such is the effect of politicking when distributing new EU agencies.

On the basis of an evaluation of its working practices and impact it will eventually be decided whether ENISA should exist beyond 2008. The agency, with a relatively modest budget of 24 million euro over this period, is intended to help the European Commission and member states cooperate more effectively in their responses to network and information security problems such as computer crashes, IT network failures, viruses and unauthorized interception of communications. The agency will also provide assistance in the application of Community measures.

Most of the debate about ENISA prior to its founding has been about its role for issues relating to information and network security, but the agency will also have an effect on e-trade. One could hope that ENISA could provide an overview and a review of the legislation, but new government agencies seldom do this, rather they add their own rules and regulations on top of existing ones, often with contradictory results. Given the broad ranging nature of the agency's work this is a valid preoccupation.

It is often said that the future of commerce will be on the digital highways. The EU has pronounced itself in favor of this, but why is e-commerce in Europe still way behind the US' levels? Is the EU working to promote e-commerce? After all, the eEurope initiative, launched in 1999, is said to aim to get everyone in Europe - every citizen, every school, and every company - online as quickly as possible. The EU's Lisbon Process tells us that the goal is to become the most competitive and dynamic knowledge-based economy in the world.

But the answer is no if we look to the amount of legislation the EU has produced over the past few years, a forest of new regulations and directives regarding the Internet, e-trade, electronic signatures, electronic communication and other areas. Upon close examination one is often struck by its low quality. The body of regulation is too unclear, too general and it introduces some inappropriate rules on an area that has not been clearly defined by the Union.

The argument for this legislation is to avowedly create consumer confidence in e-commerce, by regulating it and demonstrating its safety. But what if the result is actually the opposite -- if in imposing detailed regulations the lawmaker creates insecurity for consumer by giving the impression that the online markets are not trustworthy? The regulations also increase costs for European e-businesses, which makes them less appealing to consumers.

These laws also aim to create a common framework for the internal market. This is a good ambition, but it still remains just an ambition. European companies still have to apply a lot of different rules and regulations, since the EU's directives are implemented according to different principles in the member countries. Just check the variations among the various interpretations of explicit consent as a requirement for the gathering of sensitive personal information, or the questions regarding electronic signatures. Another good example of the problems of this common framework is the harmonization of value added taxes on software, videos, games and music downloaded from the Internet, even from non-member countries. A Dutch e-company has to collect Dutch sales taxes on its online products, regardless of where its customers live, and to do the paperwork of behalf of the tax collector. This certainly entails a loss of rationality because in all other cases you pay the VAT to your own country, not to another.

This difficult situation has arisen because the EU has wanted to put the carriage in front of the horse. Many politicians have understood that the Internet won't go away, and that Europe will see a growth in its e-business. A political career can be built on the sheer numbers of regulations, rather than their efficiency and utility, which is less easy to measure. By creating laws and regulations in advance, it is possible to credit the regulations for the growth of e-trade, as the EU does in its status report on the eEurope programme. This post hoc ergo prompter hoc argument works since rather few understand the full body of regulations on e-trade that are decided in Brussels and combine it with a high level of technical expertise.

It might then seem logical that the EU has advanced e-trade in some manner. The reasons and incitements for technological innovation are rather difficult to comprehend because of their complexity and cross-dependence on factors in the societal area, thus for many the notion that someone is controlling the developments of e-trade gives safety and reassurance, even if those claims of control are empty.

That would be a grave danger to European e-business. Contradictory regulations do not build strong markets, and delegitimize those laws that in fact help them function.