Announcing a T-5 Policy Statement
"Governance Issues in the Digital Economy: Preparing for the Next Wave"
April 26, 2002
Nomura Research Institute, Ltd.
Nomura Research Institute, Ltd. (NRI: Tokyo, Akihisa Fujinuma, President, CEO & COO) has released a policy statement, "Governance Issues in the Digital Economy: Preparing for the Next Wave" prepared jointly by five research organizations from Europe, Japan, and the United States.
The organizations comprise the T-5 (Think Tank 5) network, which conducts research on the world economy under a different theme each year, supported by the Tokyo Club Foundation for Global Studies (President: Shozo Hashimoto). The T-5 member institutions are the Brookings Institution (United States), IFO (Germany), IFRI (France), the Royal Institute of International Affairs (United Kingdom) and NRI.
Although the Internet revolution seemed to stop with the bursting of the IT bubble, it is still a milestone of technological innovation in the long term. The T-5 finds this moment, prior to the oncoming wave of digital convergence and ubiquitous networks, a timely one to examine the policy challenges that have arisen with the growing use of the Internet and to draw policy recommendations for these governance issues.
The T-5 policy statement presents general guidelines which might usefully guide future policy in seven major areas: (1) governance of the Internet, (2) competition policy, (3) intellectual property rights, (4) taxation of e-commerce, (5) consumer protection, (6) privacy, and (7) broadband and digital convergence.
In addition to examining a range of specific policy issues, the T-5 emphasized three broad principles:
NRI's Chief Counselor Teruyasu Murakami, a researcher who participated in the statement preparation, commented: "The overall impression within the T-5 group's discussions was a strong stress on the third point, which is to incorporate the Internet within the existing institutional framework".
A summary of the group's recommendations on the seven specific policy areas follows:
(1) Governance of the Internet
T-5 believes that the private sector should continue to have the primary role in the development of technical standards. Ideally, governmental involvement would be limited to ensuring competition and the security of the network. Should governments become involved in these matters, they should do so cooperatively through existing international institutions. It is important to maintain the global character of the Internet. In addition, government should not limit content aimed at promoting the wide expression of ideas.
(2) Promotion of Competition
First, in markets that may be subject to de facto monopoly, whether through economies of scale or demand-driven network effects, competition authorities should ensure that firms do not use illegitimate means to entrench their positions. Examples include exclusive dealing (forcing consumers to buy only from the dominant vendor) or the tying of a monopoly product to a separate product.
Second, the fact that rapid technological change can make it difficult to undo monopolies indicates the increased importance of effective review of mergers between firms that threaten competition in a market. The defendant should continue to carry the burden of proof to show that competition would not be reduced. In this regard, the efforts by antitrust authorities--to coordinate their activities and to develop common procedures for reviewing cross-border mergers--are urged to continue.
Third, the development of various on-line exchanges owned or operated by competitors could facilitate price collusion, therefore the separation of exchange ownership and participation is suggested.
Finally, it is particularly important for government to improve the access of competing telecommunications providers to the monopoly "local loop" and to promote effective competition in local access.
(3) Intellectual Property Rights
The threat of the Internet as a "giant copying machine" has led to an effort to reinforce existing IPRs and expand them globally. Recently, concerns have been expressed that the process has gone too far and the creation of monopolies is unduly restricting synergetic processes of innovation. T-5 believes that government patent offices must upgrade their capability to deal with the new technologies, such as databases and software, in order to assess the significance of innovations and avoid the granting of excess rights. Second, the holders of IPRs should not be allowed to forbid access totally. Finally, it is believed that IP policy more broadly, including both patent and copyright protection for software and related products suited for the Internet, should be developed only after broad consultations among stakeholders, including scientists, users, firms and governments.
(4) Taxation of E-commerce
It is becoming increasingly evident that e-commerce can be treated on a par with other forms of commerce. Significant problems do arise, however, for cross-border trade in services that involve electronic delivery. Thus governments will need to establish a system of cross-jurisdictional cooperation to assist one another in requiring registration by outside suppliers; but that cooperation is also likely to require a greater uniformity of tax rates and administrative rules than presently exists. Thresholds would also need to be established for the minimum levels of total sales into various jurisdictions. The growth of the Internet has increased the importance of international consultation to adapt existing tax rules to the needs of an Internet-based economy.
(5) Consumer Protection
Consumer protection issues raise the crucial question of whose law is applicable due to the significant differences in laws among countries. A serious problem arises, when the defendant has no establishment in the country where the legal challenge arises. The question of applicable jurisdiction has been addressed in several ways and it may still require considerable time to establish minimum basic standards. Therefore, T-5 proposes international enforcement warranties, clear, transparent and standardized settlement procedures, possibly supported by a Cyber "Ombudsman" (independent referee) system and specialized national courts for international settlements.
Privacy is a significant issue for the Internet because of the ease with which large amounts of individual information can be collected and shared. Accordingly, all governments shall be urged to do their best to ensure that websites under their jurisdiction:
(7) Broadband and Digital Convergence
While the broadband market will evolve in different ways from country to country, strong competition among providers will be crucial to reducing costs and expanding the consumer market for broadband services. For this reason, until sufficient competition exists in broadband between all modes of delivery, T-5 believes that in countries where at least one of those modes is already subject to an equal access requirement, such regulation should continue. This situation will be temporary, a transition stage before the age of ubiquitous networks. But with the spread of ubiquitous networks, the governance issue will become more complicated. For example, with the convergence of telecommunications and broadcasting media, the existing vertical structure of the regulatory framework may have to be transformed into a horizontal structure, where content and infrastructure are regulated separately and where competition policy played a central role. Moreover, information and communication technologies will converge with other fields, such as finance, transportation, medicine, healthcare, and education. The regulatory and governance systems will have to adapt in order to address the needs of the activities which will emerge from this convergence.
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