Senate Holds Hearing on Standards in E-Commerce

(October 29, 1999) The Senate Science Subcommittee held a hearing on Thursday, October 28 on the role of standards in the growth of global electronic commerce. Witnesses and Senators agreed that interoperability is essential, but that governments should not set standards.

The hearing was conducted by the Senate Commerce Committee's Subcommittee on Science, Technology and Space, which is chaired by Sen. William Frist (R-TN). Sen. Conrad Burns (R-MT) and Sen. John Breaux (D-LA) also participated.

	Sen. John  Breaux

"I take it the marketplace, not governments, should set standards," Sen. Breaux said to a panel of witnesses. "We should just butt out -- get out of the way."

Sen. Burns quipped that e-commerce "continues to grow because the government hasn't figured out how to tax it, or how to regulate it."

"If we define e-commerce as the electronic transactions involved in the purchase of goods and services, then for e-commerce to reach its full potential, these transactions must be able to be completed seamlessly, regardless of geographical or regulatory borders," said Sen. Frist. "Thus, an important enabler for global electronic commerce is the ability of different systems to communicate and exchange data, commonly referred to as 'system interoperability.' "

"Traditional standards organizations such as the International Standards Organization are often slow," said Sen. Frist. "Moreover, the perceived permanence and monopolistic nature of formal standards often results in fierce competition between companies struggling to protect their intellectual property assets and investments."

"In response to this situation, a proliferation of industry consortia has been formed, usually by groups of companies who are collaborating to develop interoperable systems that can quickly address market needs. Both types of organizations -- the formal standards organizations and the new industry consortia -- have roles to play in establishing interoperability of e-commerce systems."

Sen. Frist concluded that, "to be effective, these industry-led standards should eliminate barriers to trade and competition while stimulating innovation. They must also be flexible, responsive, and directed toward non-proprietary solutions."

The lead off witness was Andrew Pincus, General Counsel at the Department of Commerce. He stated that "the key to e-commerce is interoperability," and that "standardization to promote e-commerce should focus on making technologies work together -- through so-called standard "interfaces" -- and not try to specify the technologies themselves, which could severely hamper innovation."

He continued in his opening statement that "the best results are achieved when the market -- not governments -- determine how best to achieve the goal of different systems working together on a global basis."

"Unfortunately, not all other governments share this view. Indeed, many of the most important nations and regions of the world articulate a view of global electronic commerce that has government intervening more aggressively in setting standards."

He cited as a example the European Union's plans to set electronic signature standards. "The United States is taking a market-driven approach to ensuring that parties may determine the appropriate technologies and rules for assuring the confidence and validity of an electronic transaction. The role of government, in this example, is to promote a technology-neutral legal framework, and remove paper-based obstacles that are found in our laws and which impede engaging in commerce electronically. By contrast, our colleagues in Europe are in the final stages of adopting their Directive on Electronic Signatures. One of the main concerns that we and US industry have is that the proposal calls for adopting specific technical standards for digital signatures -- and having those determinations ultimately made entirely by a committee of government representatives."

Andrew Whinston, Director of the Center for Research in Electronic Commerce, and Professor of MSIS, Economics and Computer Science, at the The University of Texas at Austin, testified at length about the economic benefits of interoperability. He said that "an interoperable global electronic commerce system is necessary if we are to maximize potential benefits of digital networking and computing technologies."

Randy Whiting, the President and CEO of CommerceNet, a non-profit organization, said that the government should "allow industry to lead in the continued evolution of interoperable eCommerce and be ready and able to step in in the event of a clear and sustained market failure. The marketplace is moving and evolving too quickly to make hasty judgements about the need to regulate."