In December 1998, the FTC issued a call for comments from interested parties to help inform the FTC's examination of the US perspective on consumer protection in the global electronic marketplace. I submitted a comment with Carl Ellison of Intel regarding managing the risks on electronic authentication procedures which is posted on the FTC website at http://www.ftc.gov/bcp/icpw/comments/revwin~1.htm. This is an additional comment from me individually suggesting a strategy for maintaining vigorous national consumer protection laws while still removing obstacles to the development of global electronic commerce. Thinking of the challenge facing online merchants confronted with a bewildering array of national consumer protection laws as a knowledge management problem may make that challenge easier to address.
This is an outline of my proposal:
1. Maintaining the high levels of consumer protection currently enjoyed in some countries may not be as incompatible with the development of global electronic commerce as it often appears
Consumers in the US and other developed countries currently enjoy high levels of consumer protection guaranteed by law. The costs of compliance with consumer protection law may be significant, but the challenge facing merchants in learning what laws apply to their transactions with consumers are no greater than the challenges facing merchants in other areas such as compliance with tax laws, employment law, health and safety laws, etc.
The Internet seems to offer the promise of electronic commerce conducted with transaction costs that approach zero. If an online merchant offers for sale over the Internet content in digital form, each additional sale of the content seems to have a marginal cost to that merchant of zero. Because that content could be sold to someone anywhere in the world, and the merchant has few reliable methods of determining the actual geographical location of counterparties to transactions, the merchant seems to face an insurmountable burden if asked to guarantee that the sale of the content complies with consumer protection laws in the counterparty's jurisdiction. This is tantamount to requiring the online merchant to determine that sale of the content complies with all consumer protection laws now in force everywhere in the world. The most compelling solution to this problem from the online merchant's perspective is to permit the merchant to designate which law will apply to the transaction, and to require prospective customers to submit to the law chosen by the merchant or forgo the transaction.
From the perspective of the consumer, however, the problem is nearly as intractable. A consumer wishing to make a purchase on the Internet has few reliable methods for determining the actual geographical location of an online merchant. If the consumer wishes to enter into a transaction online, the consumer may be obliged to review the terms of the merchant's form contract in detail and to know enough about the consumer protection regimes of every nation in the world to know whether a particular choice of law provision is so unfavorable to the consumer as to be a basis for declining a transaction. In business to business transactions, it may not be unreasonable to presume that both parties are capable of evaluating the risks of a particular transaction and acting accordingly. Consumer transactions often take place under conditions of pervasive, persistent market failures, however. Those market failures may prevent an economically rational outcome from being reached through pure market forces. The factors creating these market failures include information asymmetries that disfavor one-shot players such as consumers in dealing with repeat players such as merchants, unequal bargaining power as the consumer normally unable to modify the merchant's form contract terms, and collective action problems that prevent consumers from banding together to bargain as a group for fairer terms from merchants. Consumer protection law is designed to counteract these well documented market failures and help consumers do business on roughly the same terms they would if competitive market conditions actually prevailed.
The research problems facing either merchants or consumers might be minimized if global harmonization of consumer protection regimes could be achieved. This may be the ultimate long-term resolution of this problem. It is not likely to happen quickly enough to solve many problems for online merchants, however. In the short term, there may be political pressures to eviscerate existing national consumer protection laws in the search for a rapid solution. Such a diminution of consumer protection law may not be necessary if private parties can be given incentives to act as intermediaries between online merchants and consumers pending transnational harmonization of the law. In the current language of e-commerce, the solution to this problem is to find someone to play the role of "infomediary."
Merchants as repeat players are in a position to purchase from intermediaries compliance services if the provision of such intermediary services can be run as a profitable business. Some online merchants today have found the resources to do their own compliance work, indicating that the problem is not absolutely intractable but rather one of the current high cost of establishing compliance. Effective consumer protections can be reconciled with the needs of small and medium sized online merchants if a way can be found to lower the cost of compliance services. For example, today the Dell Computer Corporation maintains a web site that offers computers for sale to different national markets around the world. Different pages are produced in different languages targeting different markets, and Dell has taken steps to insure that each individual web page complies with the different consumer protection regimes in the markets it is designed to target. An online merchant such as Dell that has developed an expertise in national advertising, fair trade and consumer protection laws could build a portal site that hosted other retail merchants who purchased global consumer protection compliance services from the portal host together with other e-commerce fulfillment services. A short-term solution to resolving the current incompatible interests of online merchants and consumers may lie in finding ways to motivate private parties to engage in global management of knowledge of the relevant provisions of national laws.
2. Establish an authoritative database of national consumer protection laws in order to help create a in which market intermediaries sell compliance services to online merchants
The task of learning which consumer protection laws might apply to a given online transaction is a challenging one because:
Countries that wish to encourage the development of electronic commerce might be persuaded to participate in a project that would require each participant nation to identify and publish in multiple languages its own laws that apply to transactions with its own consumers in return for other countries doing the same. Once an authoritative database of the relevant consumer protection law has been established and published on the Internet, it becomes more feasible for intermediaries to profit from analyzing the information, preparing products to assist merchants in determining their own compliance with the law, and selling accreditation services vouching for the merchant's effort to comply. Such a data base could also be constructed by private parties on a proprietary basis in the absence of multilateral cooperation in this area.
A convention on mutual observance of national consumer protection laws might require signatories to research and identify all their own national laws that would apply to online transactions. If a national law had not been identified and published to the Internet database of protection laws, a national of that country could not maintain a cause of action against an online merchant based on it. If after evaluating the risks involved in possible noncompliance with a country's trade laws, a merchant might decide that it is only willing to trade online with the nationals of certain countries. Any counterparty who misrepresented his or her country of origin as being one the merchant was willing to deal with would be estopped to later deny that representation if a dispute later arose with the online merchant. Without a multilateral agreement in this area, the problems of assuring all the relevant issues had been identified would be more difficult, and the estoppel argument would be less certain to prevail, but the substance of the compliance work would remain the same.
Each participating nation could provide translations into a select number of languages, such as the six official languages of the United Nations, thereby reducing the difficulty of disseminating information about applicable law in the global marketplace. For example, if the US published a translation of applicable US trade laws in Arabic to the Internet, the transaction costs for Islamic organizations located outside the United States wishing to distribute goods and services to US consumers in Arabic would be reduced. If Egypt published a translation of applicable Egyptian trade laws in English to the Internet, transaction costs for US merchants wishing to distribute goods and services to Egyptian consumers in English would be reduced. Merchants in countries such as South Korea or Thailand might also enjoy lower transaction costs in marketing goods and services to Egypt because instead of translating Egyptian trade laws from Arabic into Thai or Korean, they would face the easier task of translating them from English.
If the research costs of identifying and translating the applicable law could be kept to manageable levels, a wide range of professional firms or businesses might find it profitable to develop products or offer services to assist prospective online merchants in complying with various national trade law regimes. The global reach of the Internet might create a large enough market for compliance products and services to make the commercial development of standardized automated systems similar to TurboTax or Quicken Family Lawyer feasible. Intermediaries selling compliance products or services might include:
Trade associations or national trade boards of countries seeking to promote global e-commerce among local merchants could offer similar services on a not-for-profit basis.
Merchants could be provided with incentives to seek accreditation by offering binding online alternative dispute resolution services and limitations on damages recoverable by consumers in disputes with accredited merchants.
3. Promote international harmonization and cooperation on consumer protection standards through improved understanding of existing regimes
Even though transnational cooperation to disseminate widely relevant information about national consumer protection regimes would lower the transaction costs of compliance for online merchants, the costs of such a system are still higher than operating in a system of laws that have been harmonized globally. Publication on the Internet of information about national laws could facilitate progress toward substantive harmonization in the longer term.