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Legal infrastructure required for e-commerce growth

By Eugene Clark: 0 Comment(s)Print E-mail China.org.cn, December 26, 2012

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Ancient Greek philosopher Aristotle said, "At his best, man is the noblest of all animals; separated from law and justice he is the worst."

No society can operate without a system of rules or law. No new level of commercial activity, such as e-commerce, can operate effectively and efficiently unless there is a basic legal infrastructure that provides guideposts about how parties should proceed, outlines the rights and responsibilities of all key stakeholders and provides a level of predictability and certainty that will encourage adopters to risk venturing into the new sphere of activity.

What type of legal infrastructure is required to support China's e-commerce economy? Here is a list of some of the necessities:

1. Online formation and enforcement of contracts

In order for e-commerce to flourish, parties must be able to engage in transactions online. This requires legal clarity about the ability to form contracts via electronic means, free of legal restrictions which would require paper records or hand-written signatures. Shrink-wrap, browse-wrap and click-wrap contracts must be enforceable. Most jurisdictions have based their electronic transactions laws on the UNCITRAL Model Law on Electronic Commerce of 1996.

2. Consumer protections

Consumers will not be comfortable shopping online unless they receive the same level of protection afforded to them in traditional off-line contracting. More than that, traders should be proactive in educating consumers on how best to protect themselves. Building and maintaining trust is a must for long-term sustainable e-commerce growth.

3. Jurisdiction

Parties engaged in e-commerce need the ability to determine the jurisdiction of any e-commerce transaction, including determining the applicable laws and appropriate forums for resolving disputes.

4. Authentication

Parties engaged in e-commerce require the ability to reliably authenticate both the parties in an online transaction as well as the content of any messages exchanged in the transaction. This requires laws which concern the validity of digital signatures and availability of public key infrastructure. UNCITRAL's Electronic Signatures (2001) model legislation has been highly influential on this issue.

5. Electronic payment

A sale is not a sale until it is paid for. Parties engaged in e-commerce need the ability to complete an online transaction through a secure and reliable electronic transfer payment. Payment solutions such as Alipay are popular with large online retailers. COD is also used, but less frequently. The more expensive the goods, the greater the security precautions required.

6. Privacy

Consumers and traders both want to know that their data will be protected. They also need to be aware of privacy laws of other regions, such as the EU, when it comes to cross-border data flow.

7. Intellectual property/Domain Names

In a knowledge economy, protecting intellectual property is a must. In large part this will mean being a signatory to major conventions governing copyright, trademarks, patents and other IP. It also means enforcing IP rights.

8. Competition Law

Maximum efficiency and innovation is achieved through a competitive landscape where clicks compete against clicks & bricks, m-commerce and other models. Competition should also be open to and encourage the involvement of international business. Consumers will benefit from competitive forces driving lower prices, increased quality and greater variety of options.

9. Cyber crime and Torts

Cyber crime laws must be available to cover the worst forms of behavior, whether that be cyber-bullying, criminal fraud or other serious misconduct. Countries should also be signatories to conventions which lead to cooperative law enforcement across national borders. In addition to criminal prosecution, individual citizens should also have recourse to compensation through a tort law that is adaptable to new forms of civil wrong occurring in cyberspace. Examples include trespass to chattels, conversion, cyber-stalking/harassment, and cyber-defamation.

10. Government leading by example

In most countries, government itself should lead by example in developing regulations and protocols facilitating e-commerce in relation to its purchases. This is especially important given that governments in almost every country are major economic players.

11. Internet service providers and other intermediaries

An e-commerce framework requires the involvement of various intermediaries, such as ISPs who require clarity regarding their potential liability for copyright, trademark defamation and other violations in relation to content which they might host or be engaged with.

12. Dispute resolution

With a large number of transactions occurring online and between people at great distances, we need to develop ways to also resolve those disputes online. An example is the procedure which has evolved to resolve disputes regarding domain names.

13. E-tax

Businesses and consumers require clear guidance in relation to e-tax.

14. International agreements

Countries which seek to promote e-commerce must be proactive in the promotion of laws that facilitate paperless international trade as measures which bring down the compliance and bureaucratic costs imposed by regulations.

In future columns I will discuss and assess how China is progressing in establishing this new legal infrastructure to support rapidly growing e-commerce.

The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/eugeneclark.htm

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