Volume 6, Number 22, Page 1
Experts Meet on Legal Obstacles to E-Commerce
By Scott Weeks
Electronic commerce: to regulate or not to regulate. Governments in Latin America are increasingly grappling with this question as e-commerce grows in importance to local economies. Beyond online retail spending, issues include recognition of digital signatures and electronic documents, protection of intellectual property, financing electronic commerce, and taxes, tariffs and other regulatory barriers.
These topics and others were debated by delegates at a conference organized by the National Law Center for Inter-American Free Trade (NLCIFT), the Organization of American States (OAS) and the Business Software Alliance (BSA) last September 30 through October 1. The conference, “Responding to the Legal Obstacles to Electronic Commerce in Latin America,” brought together legal experts, government officials, legislators and business leaders to identify existing legal barriers to e-commerce in the region and ways to remove them.
“Electronic commerce is a vibrant and growing sector in Latin America,” said Cesar Gaviria, President of the Organization of American States. “This conference is an unprecedented opportunity to ensure that e-commerce will continue to grow and that regulations will enhance rather than hinder its growth. It is imperative that we continue to disseminate the adoption of best practices for the regulation of e-commerce throughout the hemisphere.”
Though all participants agreed that governments should enact the least amount of regulation possible, it was also clear that in certain areas, legislation is needed to remove uncertainties that inhibit the willingness of companies to engage in e-commerce. For example, Latin America’s legal tradition of requiring paper-based documents and signatures, as well as notarization of key documents, is an issue that might make companies unable or unwilling to use electronic contracts in certain business dealings. Therefore, new legislation is necessary such as Colombia’s Electronic Commerce Law (Lei 527), passed in August 1999.
Colombia’s e-commerce law explicitly accords electronic documents and signatures the same legal recognition as paper documents and provides a framework for their use in addition to setting up regulatory structures for the issuance of digital certificates that link users to their signatures.
Colombia’s law follows the Model Law on Electronic Commerce (formulated by the United Nations Commission on International Trade Law) with few modifications, according to Francisco Reyes, the Director of the Department of Commercial Law at Los Andes School of Law in Bogotá. He notes that the role of the law is to provide guidance and remove uncertainty surrounding the use of new technologies.
“In Latin America, for a judge to recognize certain economic realities, it is necessary to have some written statutes that provide them with information on how to proceed,” said Reyes. The statutes “should be flexible, but should provide guidance—judges must know that a data message has the same weight as a written document.”
Boris Kozolchyk, Founder and Director of the NLCIFT, noted the primary consensus that emerged during the proceedings was that the enabling provisions of the Uncitral Model Law be adopted and promoted in as many countries in the region as possible. His proposed resolution to create a formal recommendation to that effect was unanimously supported by the participants. In addition to the resolution, four working groups were formed to generate a set of guiding principles that the NLCIFT, OAS and BSA could promulgate in order to aid governments in the region in understanding the issues and providing appropriate legislation.
The Need for Harmonization
A major benefit of using the Uncitral Model Law, provided it is adopted without significant modifications, is that it will serve to create harmonization between the different countries in the region. The need for legislation and regulation at the country level that is consistent with other countries and the international market was recognized as necessary in order for the region to derive the full benefits of e-commerce. Another key issue was the need for legislation to be technology neutral, so that the market is free to decide the best technologies to use and is not legally bound to a system or process that might later become obsolete.
However, harmonization in and of itself is not a panacea. Harold Burman, a senior attorney in the US State Department’s Office of Private International Law and Executive Director of the US Secretary of State’s Advisory Committee on Private International Law, urged legal experts and legislators to “look at the developing practices (in the private sector) that are commercially solid and that make sense,” and to formulate model laws and rules that fit those best developing practices.
He reported sensing an increase in disharmony in international and national regulatory structures—even within the US, and said that there is a split of opinion, theory and philosophy. “However, there is much less disagreement within the business community in the hemisphere, and hopefully regulations will begin to follow suit,” he added.
According to Juan Avellan, a member of the International Chamber of Commerce’s delegation to the Uncitral Working Group on Electronic Commerce, the fundamental principle promoted by the ICC is “for government to have a hands-off approach and let the private sector lead.” Avellan, who is also the Coordinator of the Legal Work Group of the Venezuelan Chamber of Electronic Commerce, noted that “Party autonomy and self regulating mechanisms are the best means of currently achieving legal certainty in many areas.”
Adding to the voices calling for moderation was Stewart Baker, a member of the Uncitral Group of Experts on Digital Signatures who currently practices law at Steptoe & Johnson LLP. He urged conference participants to take a cautious approach that looks at modifying real barriers to e-commerce in the region, rather than making sweeping regulatory changes based on perceived barriers. For instance, he notes that technology-neutral means for validation of electronic signatures is essential, in order to let the parties to a transaction choose the appropriate mechanisms of authentication based on their needs.
Some conference participants also called for self-regulation as a means to avoid having onerous regulations imposed by less informed, although potentially well intentioned, legislators. Burgess Raby, a lawyer who is also an adjunct professor at the University of Arizona College of Law who teaches multinational tax law, pointed out that the role of the government is at the very heart of the issues being discussed. “There are going to be taxes,” he warned, “and a realistic goal is to try to develop reasonable rules that achieve the goals of both the government and private sector, and try to get them enacted.
“We must impose rational rules on ourselves, or run the risk of having them imposed on us,” he concluded.
Legislation Begins to Emerge
In recent months, a number of Latin American countries have either enacted legislation or presented draft legislation or guidelines to begin the process of addressing a number of issues concerning e-commerce. Colombia became one of the first countries internationally to enact significant e-commerce legislation with its Law 527, after the United States and the European Union.
Colombia’s legislation establishes e-commerce as a legal form of trading, and gives electronic documents the same legal recognition as paper documents, as well as allowing them to be used as evidence in legal proceedings. The law authorizes digital signatures, regulates transport on merchandise ordered online, and establishes the regulating bodies.
The law affirms that electronic documents and digital signatures satisfy the legal requirements for written documents provided the identity and authenticity of the signatures can be verified by technical means. Electronic documents also satisfy the requirements for original documents if their integrity and authenticity can be verified by digital means.
Legal recognition of electronic contracts may not be denied solely because they are in electronic format, according to the law, which also sets guidelines for the sending and receipt of electronic messages, including time guidelines and verification of receipt and author. The law also sets up procedures for the issuance of certificates for digital signatures and their approval and administration.
In Argentina, Congress presented draft legislation for a Digital Signatures Law in August 1999. In that legislation, Congress recognized that it is essential the country adopt technical and legal standards for digital signatures that correspond to those issued internationally, since it stated that homogeneity of standards was required to facilitate international commerce and data interchange. It also noted that the lack of legislation regarding digital signatures was an impediment to the adoption of new and modern information applications that would increase efficiency and reduce costs.
The document also stated that it was important to recognize that the law does not obligate the use of digital signatures, it only facilities their use for those parties that wish to do so voluntarily. This is an important issue, since participants in the conference noted that freedom of contract and the ability for the parties to a contract to enact methodologies that are best suited to their individual needs is essential in any legislation.
Baker of Steptoe & Johnson LLP noted that it is important for governments to become model users, in order to spur the development of e-commerce in the region. Argentina is a good example of this. In April 1998, President Carlos Menem issued a decree authorizing the use of digital signatures in the internal business of the national public sector, based on a set of procedures to guarantee the authenticity of documents and signatures. The main regulatory focus of the decree was on the procedures and regulations surrounding the issuance and administration of public key certificates that connect physical users with their digital signatures.
In Brazil, the São Paulo division of the Brazilian Legal Association has presented an e-commerce law proposal to the Federal Chamber, the aim of which is to protect consumers by requiring online merchants to authenticate their businesses with digital signatures. It also calls for online transactions to be made legally binding for both the merchant and the consumer. The document suggests that both the Uncitral Model Law and the directives set forth by the European Union present appropriate guidelines for the development of similar laws in Brazil.
Mexico has proposed modifications to its commercial code in order to enhance the security and effectiveness of electronic commerce, also using the Unicitral Model Law as a guide. The stated purpose of the modifications is to remove existing obstacles to e-commerce and to take into consideration new technological advances that change the nature of commercial relationships.
In Peru, draft laws are pending on electronic commerce and digital signatures that also closely follow the Uncitral model, while similar draft legislation has been introduced in Ecuador and Paraguay.
It is clear that the Uncitral Model Laws are providing important guidance for countries in the region. This is based mostly on the fact that they are not a strict set of rules that each country should adopt unilaterally without modification, but instead represent a set of general principles, with an attached document that serves as a guide to their enactment.
In addition to the guidance that the Model Law provides, Octavio Rivera, adviser to the NLCIFT and former Chairman of the Information Technology committee of the Mexican Notarial Association, noted that it is important that countries coordinate their efforts.
“Given the vocation innate in e-commerce, it is almost indispensable to coordinate efforts, not to rush to be the first ones, but to cooperate and develop together,” he said.
Working Groups Formed
To achieve that coordination and to create tangible results from the conference, four working groups were formed to begin to formulate general principles that can be used to guide the adoption of e-commerce legislation in the region. The working groups are: Electronic Contracting (issues of certification, authenticity, signatures, etc.); Intellectual Property Law; Financing and Payment of E-Commerce Transactions; and Regulatory Issues (taxes, customs, antitrust, etc.).
Burman from the US State Department urged the working groups, and legislators in general, to consider that actions should seek to provide enabling rules and to remove obstacles. He noted that over-regulation should be avoided at all costs, in order not to suppress the enormous growth in e-commerce that has occurred in the absence of significant regulation.
He also stressed the importance of party autonomy, and that private contractual mechanisms and private enterprise need to be considered and consulted before governments act, and finally that real attention should be paid to technology-neutral laws, rules or guidelines.
Scott Weeks is Director of Market Research at Visualcom, Inc. (www.visualcom.com), a Latin American I-Business provider based in Miami, Florida, with offices in Mexico, Brazil and New York. Visualcom provides a complete range of Internet solutions to multinational and Latin American companies seeking to do business online in the region.
