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News Release

Effective E-Commerce Policies can Boost US Economy by $400 Billion

July 17, 2000

Contact:    Catherine L. Mann    (202) 328-9000

Washington, DC—Effective policies toward the Internet and electronic commerce can produce a long-run increase of $400 billion in the level of US GDP, according to Global Electronic Commerce: A Policy Primer, a new Institute for International Economics study by Catherine L. Mann, Sue E. Eckert, and Sarah Cleeland Knight. For the industrial world as a whole, the level of GDP could rise by about 5 percent. Significant changes in the policy and economic environment could yield GDP increases of $100 billion for developing countries in Asia, $45 billion in Latin America and similar amounts for Africa. Government policies will have a profound and pervasive effect on the evolution of the e-commerce environment, and on whether people and businesses will realize the potential gains or not.

There is no single "right" set of policies, but the imperatives of the technologies and marketplace yield the following conclusions:

  • Policymakers must harness their sense of urgency about electronic commerce and privatize, deregulate, and allow international participation in service-sector infrastructures long protected from innovation and competition. Poorer countries can leap-frog stages of development with efficient and world-class communications, finance, and logistical systems. Appointments of national "ministers-without-portfolio" to address these issues can maintain forward momentum, cut across vested interests, keep policies internally consistent, and embody international vision.
  • Government intervention to protect privacy and consumers must preserve and maximize the private incentives to innovate, and find superior and diverse approaches that can work across borders. Policymakers should therefore demand effective self-regulating regimes, educate citizens on their rights and responsibilities, and pursue vigorous enforcement. But policymakers should not mandate specific technological solutions nor demand common outcomes.
  • As costs of tax administration fall, so too does the ease of tax arbitrage and the waste it entails. Tax regimes will therefore need to focus on larger targets (earners of income rather than specific transactions) and on core value-added (as generated though labor rather than business). International coordination of tax regimes, though not necessary harmonization of tax rates, thus becomes essential.
  • The World Trade Organization members should continue the moratorium on customs duties on electronic transactions. Rather than debating whether electronic commerce should be classified as a good or a service, they should treat electronic transactions with the most liberal classification.
  • The uptake of the Internet and electronic commerce remains uneven across countries of different income as well as within countries. The private sector should play the major role in creating access, and small countries and businesses should "draft in" behind the global technology leaders. However, the full benefits of the Internet come only when the global technologies are applied locally to meet the interests of specific groups and communities. Policymakers thus have their greatest responsibility toward developing human skills, flexibility, and a spirit of entrepreneurship so that the unenfranchised can become leaders, teachers and entrepreneurs, and who will help their communities thrive in the Internet environment and marketplace.

The Internet and electronic commerce change the environment in which policymakers operate. They change how policymakers interact with each other, with consumers, and with businesses, both within and across jurisdictional boundaries. In order to maximize the benefits of the global, information-rich network, policymakers need to align their policies to take advantage of the new environment. Yet nations and individuals are different. Policies must be interoperable but reflect that heterogeneity.

This new book is for both policymakers and businesses. It will help policymakers understand the new aspects of economic interactions in the Internet marketplace, how the Internet and electronic commerce influence and are influenced by government policy, and whether the methods and approaches taken by other policymakers might be appropriate for them. It will help businesses be aware of the problems policymakers face, the different approaches they choose, and the market opportunities that arise as more economies around the world embrace electronic commerce.