Part One
INTRODUCTION
E-commerce policy for a high growth South Africa
Policy and legislation
At the outset we wish to make the crucial distinction between government policy and legislation. To date the South African government has been following a very forward-looking policy on e-commerce and particularly the Internet. There has been no attempt to do the impossible by trying to predict what new technology will develop to overtake or replace existing technology. Over-hasty legislation has also not been put in place. The result is that e-commerce developments have not been hampered by inappropriate new legislation. Policymakers have obviously been aware that e-commerce entrepreneurs need freedom to innovate and that inappropriate regulation can be most damaging. E-commerce has therefore developed faster in South Africa than in any comparable developing country and does not lag far behind the highly developed countries. Some South African innovations have been at the forefront of technological development.
South Africas legal system
Naturally the rapid technological developments could not have occurred in a vacuum. Fortunately, South Africa has a very sound legal system that is capable of dealing with the most intricate legal problems. It is consequently almost impossible to find a commercial transaction that would not be adequately catered for in our common law. In this, South Africa is indeed fortunate, as it gives us an advantage over countries with less adaptable legal systems. Tried and tested legal principles are available to handle new commercial developments and innovation can proceed without costly delays.
In order to test whether the legal system was indeed capable of handling the various aspects of e-commerce, including issues arising from the use of the Internet to conclude contracts, we asked attorneys Homeyr for an opinion on the matter. Their comments are contained in Addendum One to this submission and the attorneys confirm that our law can comfortably deal with the various aspects of e-commerce raised in the Green Paper without the addition of special e-commerce legislation. However, they pointed out that some government departments may need to change existing legislation dealing with specific matters such as taxation and tariffs to adapt it to the changed circumstances. Given the success achieved to date in the enabling environment created by our exceptionally good legal system, special e-commerce legislation would therefore probably have undesirable consequences.
Objectives of E-commerce policy
South Africas objective is to create a high growth economy that will raise the standard of living and the quality of life of all its citizens as rapidly as possible. Every policy decision that government makes has an effect on the countrys growth potential and the policy that is followed in regard to e-commerce is of particular importance. Policy should be aimed at clearing the way for development and investment to occur. This means the development of an enabling environment that is certain, not subject to discretion, does not favour one investor above another and does not keep changing because of changes in government policy.
Other countries have shown that very high growth can be achieved. They have certain common characteristics even though the emphasis may differ from one country to another. One of the main characteristics of high growth economies is that they have engaged in some form of economic liberalisation, a policy that is included in the current government economic programme. We have provided information in Addendum Two regarding the benefits that many countries have gained from greater economic freedom. To gain the greatest effect it is important that every department of government should establish its own programme of liberalisation. Communications forms part of the commanding heights of the economy and continued and accelerating liberalisation of this sector is therefore vital.
Brief description of Part Two of the Submission
Part two of this submission examines the various chapters of the Green Paper using economic principles to evaluate the policy options available to government. In making the evaluation we have assumed that governments objective is to create a dynamic environment for the development of e-commerce in South Africa. Some of the major comments and proposals are:
Chapter 1 – Introduction
Government should adopt a consumer-orientated policy that increases consumer choices and sweeps away all unnecessary costs (such as the high costs of telephone calls) currently imposed on services providers and consumers. Government should also remove all regulatory barriers to entry that prevent competitors, including foreign firms, from entering any part of the telecommunications sector.
The government has stated that it favours market-orientated policies as the best means of increasing the economic growth rate, uplifting the poor and dealing effectively with globalisation. Government policy is therefore consistent with the worldwide trend towards more open markets. The most valuable contribution this submission can make to the debate on e-commerce is therefore to illustrate how a consistent market economy approach can be applied to the various factors mentioned in the Green Paper. (See Addendum 2 The benefits of a market economy.)
Chapters 2 & 3 Legal Framework & Contracting and Trade Laws
E-commerce has developed very rapidly in South Africa without being regulated by any special form of legislation. We consequently assumed that South Africas existing legislation must be capable of dealing with any new issues arising from e-commerce developments. In order to test this assumption we requested an opinion on the matter from attorneys Hofmeyr. Their opinion is contained in Addendum 1 to this submission.
The conclusion is that South Africa should rely on its already sound legal system, except for minor adaptations of existing legislation, to deal with commercial transactions entered into electronically and that it should refrain from introducing special e-commerce legislation.
Chapter 4 Electronic Commerce and South African Taxation
Difficulties that may arise as a result of the growth of e-commerce should be dealt with in the various tax acts and not in legislation dealing with communications.
Chapter 5 The Multilateral Trading System and E-Commerce
Governments should concentrate on the development of a friendly commercial environment in South Africa and increased e-commerce with foreign firms will follow. South African exchange controls constitute one of the greatest deterrents to foreign trade.
Chapter 6 Intellectual Property Rights and E-Commerce
The establishment and protection of intellectual property rights in patents, trademarks and copyrights played a substantial role in the economic development of the western nations. Whereas in earlier years wealth was concentrated in tangible forms of property it now increasingly consists of intangible property such as copyrights, trademarks, broadcast frequencies and software programmes. Government has as great a duty to protect intangible and intellectual property as it has to protect physical property. South Africa will not keep and attract e-commerce innovators and entrepreneurs unless our police and courts protect their intellectual property.
Chapter 7 Building Trust in the Electronic Economy
For e-commerce to develop and become a major part of the South African trading environment free and open use of cryptography is critical. Governments can use the courts and the process of warrants to gain access to documents that may assist law enforcement agencies. Any restriction on encryption will serve to undermine the confidence of parties to transactions.
Trust will not be best addressed by creating a government-insured set of licensed certification authorities. The market is already supplying these intermediaries and trust has been built by these institutions in the tried and tested commercial manner good faith and records of performance.
Chapter 8 Consumer Protection
The introduction to the chapter on consumer protection describes an ideal world in which consumers can enter into exchanges without taking due care. Unfortunately such a world does not exist. The electronic market place cannot be made safer for reckless consumers than the physical market place. Policymakers should therefore take care that they do not attempt to legislate an ideal world as this will hamper the development of e-commerce rather than aid its development. The adage of buyer beware that has been true for centuries will continue to apply.
There are existing laws to protect consumers from invasion of their rights and privacy in the conduct of their non-Internet businesses. These same laws will also protect them in doing business on the Internet. Abuse of information supplied to firms can just as well occur when a customer fills in a paper-based credit application as it may when the information is supplied over the Internet. If specific existing laws do not cover any aspect of Internet-based transactions changes can be made to those laws to remedy deficiencies.
Chapter 9 Infrastructure, Access and Convergence
The South African practise of restricting competition by means of licences that grant network or service providers exclusive rights is detrimental to the country and its citizens. There should be no artificial limitation on market entry. The issue should not be whether there should be one or more operators, but how the government should disengage from steering the market and what the process should be for opening up the market to total, unrestricted competition.
Governments have traditionally licensed operators and other spectrum users. In doing so they have also managed the use of radio frequency (RF) spectrum and co-ordinated its use amongst the various users in order to minimise harmful interference. This function needs to be reviewed, not only in South Africa, but also in the rest of the world.
For those who require RF spectrum the most economically efficient method of allocation would be to adopt the concept of private property rights in the RF spectrum. The advantages of ownership would be infinitely greater than the licensing that is currently accepted as the norm. A register for spectrum ownership should be established and maintained and should be recognised by the courts as the means of establishing current ownership.
Government could establish property rights in the spectrum by legislating that, on a specified date, the existing licensees become the owners of the spectrum they are currently licensed to use. Alternatively, government could sell spectrum by auction, tender, or some other equitable means, giving the existing licensees the right of first refusal. Public interest requirements for defence, police and other purposes, could be catered for by retention of some parts of the spectrum in much the same way as government holds public land.
Property rights in RF spectrum must be tradable if they are to gravitate towards their optimum uses. Tradability if fundamental to the optimal exploitation of this resource, unlike a system of licensing which does not allow for trading.
Selling the frequency spectrum as an asset could raise a good amount of revenue. The government has been following a reasonably competitive policy for the mobile cellular phone industry but it could go very much further. Granting property rights to the current incumbents and auctioning all other uses of the radio spectrum would raise substantially more funds.
South Africa should rely on the competitive market rather than compulsion to extend services most rapidly, at lowest cost, to the greatest number of people.
Chapter 10 Domain Naming
Historically domain naming has been done by private, non-profit organisations with little or no government intervention. The Internet has been served well by its domain registrars with turnaround times as fast as 24 hours after application. Non-profit organisations have therefore performed well in managing the naming process.
Domain name registration is only part of a process for gaining intellectual property rights to a particular name or phrase, for use on the Internet. To date, the courts have ruled that where corporations can claim prior use in terms of trademarks, then domain names also fall to them. Therefore, the process of first-come-first-served should continue to apply, with applicants applying for names only when they feel justified in doing so.
