"Free trade zone" proposed

The White House is recommending an electronic "free trade zone" to prevent new taxes or import duties on Internet transactions, according to a major policy report on electronic commerce obtained by CNET today.

The 23-page report, which has not yet been released to the public, also calls for minimal regulation of content, support for industry self-regulation, rating systems, and technical approaches to resolve controversial issues involving pornography, children's access, and violence.

But the document breaks no new ground in the volatile area of encryption, instead simply reporting the existing administration policy. Software companies were hoping for some relaxation of the White House's stand on encryption software exports, which are limited under Cold War-era national security laws.

Nevertheless, the policy appeared to leave little doubt that the administration was squarely in favor of creating a favorable environment in which electronic commerce could thrive--mainly, by staying out of the way.

The draft report, which focuses largely on international issues, calls for the private sector to take the lead on electronic commerce while governments avoid undue restrictions. "Where government involvement is needed, its aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment for commerce," it states.

The White House policy has been anxiously awaited as a sign of President Clinton's approach toward Internet commerce as he enters his second term. Clinton has gotten mixed reviews from the high-tech industry, which support his election but found itself at odds with the administration on several key issues in recent years.

The White House declined to comment on the substance of the report but confirmed that it will be posted on the White House's Web site "imminently," perhaps as soon as this week. Public comment on the draft policy will be accepted through January 17, with a final version due early next year.

The draft report obtained by CNET addresses a broad range of official positions on issues related to the future of electronic commerce:

--Internet taxation should be simple and transparent, following existing tax concepts and principles whenever possible.

--It would be premature for governments to regulate electronic payment systems; instead, case-by-case supervision of experiments in electronic payments is preferred, though some government role may be needed.

--A "uniform commercial code" for Internet commerce should be put in place, and work on this front by the American Law Institute and state officials should be expedited and adopted at state and national levels.

--A model statute created by the United Nations Commission on International Trade Law should be supported and enhanced within two years to encourage government recognition of electronic contracts, digital signatures, electronic registries, and other matters.

--To assure privacy protections, data collectors should inform consumers of what they are gathering, describe how they will use it, and let consumers limit use and reuse of personal data. At the same time, the report raised concerns that privacy measures adopted by the European Union might disrupt the flow of information to nations with weaker privacy rules.

--The United States should pursue international agreements to produce more competition in the telecommunications industry, aiming for fairness for Internet service providers seeking adequate access.

--Technical standards should be set by the marketplace, not the government, because technology is moving too fast for governments to keep up.

On content, the report listed foreign content quotas, regulation of advertising and other material online, fraud prevention, and differing definitions of "seditious" material as areas of concern. The policy recommended that the federal government pursue informal discussions with trading partners to reach common positions.

The report also said standards are needed for electronic payment, various aspects of security, certification authorities, electronic copyright management systems, electronic catalogs, videoconferencing, high-speed network technologies, and digital object and data exchange.

The policies outlined in the report were roundly praised by the technology sector.

"As a message to our international trading partners, some of which are less educated about the Internet and more inclined to regulate and tax the Internet, it's an extremely positive statement," said Harris Miller, president of the Information Technology Association of America, a 11,000-member Washington lobby.

Although the White House document addresses global commerce, Miller hopes that state and local officials who might be inclined to tax Internet companies will heed its message. "What would hurt the Internet internationally would also hurt the Net if it is imposed locally," he said.

But Miller took exception to the administration's encryption policy. On intellectual property issues, he noted that key discussions on international copyright treaties were under way this month in Geneva, Switzerland, where representatives of various nation's are debating changes to the Berne convention.

"The administration is coming out very solidly in this report for a free market approach to the Internet and a hands off approach for e-commerce," said Jeffrey Eisenach, president of the Progress and Freedom Foundation think tank in Washington.

"The government should, where involvement is necessary, support the predictable consistent legal environment for commerce and nothing more," he said. "And that is exactly the right approach for the administration to be taking."

The White House e-commerce document came out of a task force chaired by Ira Magaziner, who led the Clinton administration's unsuccessful effort to revamp the nation's health care system. It includes representatives of the Treasury, Commerce, and State departments, as well as the National Security Council, the National Economic Council, the Office of the U.S. Trade Representative, and the Federal Communications Commission.

The report states that the interagency task force will continue to monitor progress and update the strategy as needed.

"There is a great opportunity for commercial activity on the Internet," the report concludes. "If governments act appropriately, this opportunity can be realized for the benefit of all people."