THE HONORABLE ANDREW J. PINCUS

GENERAL COUNSEL

DEPARTMENT OF COMMERCE

COMMITTEE ON COMMERCE, SCIENCE AND TECHNOLOGY

SUBCOMMITTEE ON SCIENCE, TECHNOLOGY AND SPACE

UNITED STATES SENATE

THE ROLE OF STANDARDS IN GROWTH OF THE GLOBAL ELECTRONIC COMMERCE

October 28, 1999

Mr. Chairman and members of the Subcommittee, it is a pleasure to appear before you today to discuss the importance of standards in the growth of global Electronic Commerce.

Principles of Electronic Commerce

In the Framework for Global Electronic Commerce, President Clinton outlined the key principles that the U.S. Government should apply in this area to promote use of the Internet and to enhance global electronic commerce:

· First, the U.S. Government recognizes that timely and appropriate standards are critical to the long-term commercial success of the Internet, as they allow products and services from different vendors -- and different regions -- to work together, facilitate robust competition, and reduce uncertainty in the global marketplace.

· Second, the needs and dynamics of the marketplace, and not governments, must guide standard development and implementation activities. Governments should refrain from issuing technical regulations and instead should rely, to the maximum extent possible, on the private sector to self-regulate, using standards developed by voluntary, industry-led, open, consensus-based organizations at both the national and international levels. Because interoperability and reliability of the Internet are crucial for the success of e-commerce, the private sector has a strong incentive to develop needed standards and to self-regulate.

· Third, the U.S. Government should advance private sector leadership in the development of such standards in bilateral, regional, and multilateral fora, and should strive to reduce the abuse of standards by governments to create technical barriers to global electronic trade.

· Fourth, as indicated in the Framework, the Government can play a useful, supportive role -- working in partnership with the private sector -- to enhance the standard-setting processes and achieve commercial and public policy goals.

In outlining these principles which are fundamental to our policy to promote electronic commerce, it is important to realize that "standards" can mean many things in today's fast-paced, dynamic information technology-driven economy. For example, there are technical standards that are the products of traditional standard-setting organizations, both at national and international levels. Similar to these kinds of standards are the protocols and techniques developed by groups like the Internet Engineering Task Force which form the technical foundation for running this new global medium for electronic commerce. There are also standards and related issues of telecommunications networks where treaty-based organizations like the International Telecommunications Union predominate.

But, more often than not, the standards we take for granted today are in fact products and services that are broadly used and implemented on a global and national basis. These so-called "de facto" standards are driving the growth and use of applications of the Internet, and are moving faster than both traditional and non-traditional standards- setting organizations can keep pace with.

How to Encourage and Facilitate Standards?

Our challenge, then, is to recognize that no one forum or single solution to standards can be achieved. In fact, the multitude and diversity of ways in which standards are developed and implemented by different regions and different commercial sectors makes it imperative that the U.S. Government promote our principles outlined above aggressively. But how best to do it?

Clearly, both businesses and users can participate more effectively when systems work together, and the standardization process can contribute mightily to achieving this success. Business-to-business e-commerce demands the integration of many complex business and technical interfaces across entire supply chains. And the participation by small and medium-sized enterprises is enhanced when supply chains utilize robust standards that interoperate properly and deliver on their potential. Similarly, individual consumers will feel more confident when systems operate seamlessly, efficiently, securely and effectively through common approaches.

In October 1997, leaders of industry, along with repressentatives of technical organizations and governments, met at the Global Standards Conference on "Building the Global Information Society for the 21st Century". The challenge to those attending was how to shape a coherent approach to this important issue of standards. Industry leaders recognized the essential role of private sector leadership in the areas of standards, and highlighted the most important areas where industry standards efforts needed to be placed:

· The key to e-commerce is interoperability. However, interoperability need not mean single, uniform solutions to e-commerce applications. Different implementations will likely be needed to accommodate local requirements. The greater degree to which these different approaches can interoperate, the more likely e-commerce will be successful.

· 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.

In the view of the U.S. Government, it is the private sector that should lead in this area. It is incumbent on the private sector to take up the mantle of this issue. And, in our view, 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. Businesses have a strong incentive, and the necessary technical expertise, to achieve this goal. Governments should, however, make clear their needs so that standards support government responsibilities to provide services and meet society's needs. We are able to do this through participating directly in standards-development activities in the United States and internationally. We all share the goal of having electronic commerce be fast, inexpensive and easy to use. It is in the interest of business and of consumers. Our experience tells us that this vision will be accomplished more readily in a competitive, market-driven environment.

This view is shared by industry in all corners of the world. I call to the attention of the Committee the similar recommendations of business groups such as the Global Business Dialogue, the US-Japan Business Council, and the TransAtlantic Business Dialogue (which is meeting tomorrow and Saturday).

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. One example that I am personally involved in is the area of electronic signatures. 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.

U.S. Government Policy in Action

The U.S. Government is taking steps consistent with the principles of the President's Framework and as directed by the President to carry out our vision for standards in global electronic commerce.

Our Technology Administration's National Institute of Standards and Technology (NIST) is working closely with U.S. industry to support market-driven, voluntary e-commerce standards and deployment. As one of the witnesses here today, Mr. Randall Whiting, recently wrote regarding the role of NIST in e-commerce: "It is essential that there be a close partnership between industry and government to effectively address the many infrastructure, technology and process issues that will face e-commerce in the near future. Having an agency such as NIST in that role will ensure industry has a partner that 1) understands the demands of technology and business innovation, 2) is experienced in key infrastructure standards, 3) is independent of political motivations, and 4) has adequate resources to help keep the U.S. in the forefront of e-commerce."

An example of how NIST is currently working with industry to improve interoperability at the interface level is the National Wireless Electronic Systems Testbed (N-WEST) project that is working to develop and define technical standards for broadband wireless access technology. NIST's efforts are accelerating private sector-led standardization, which is critical to making this alternative access network affordable and widely available (potentially for high-speed wireless Internet access). NIST involvement has also made the difference in ensuring broad industry participation in the standardization effort by serving as a neutral forum and facilitator of industry dialogue.

NIST is also working with industry to create the new Advanced Encryption Standard. This open, transparent and international collaboration is unique, and the results will benefit not only U.S. industry and users, but global participants in the Internet as well. The global cryptographic community has been actively participating in the process managed by NIST, and the process is on track to meet its goal of having the standard completed by the summer of 2001.

The U.S. Government is also advocating for U.S.-developed standards on a global basis as a partner with industry in international standards organizations such as the ISO/IEC Joint Technical Committee which is engaged in cutting-edge technology and communications standards with applicability to global electronic commerce. The U.S. Government is also supporting US industry by stationing standards experts in leading capitals to monitor and track potential barriers, as well as ensuring opportunities for US businesses to participate and benefit from standards activities world-wide.

And, finally, the U.S. Government is determined to prevent other governments from using the standardization process to impose either technical barriers to trade or special-use requirements that would interfere with the unique nature of the Internet as a global enterprise. As US-developed standards move into the global arena, we are also concerned with assuring that the process for setting international standards, however defined, is fair and open to all interested parties.  It must be market driven; technical and commercial considerations, not political ones, should drive standards promulgation in these bodies. In bilateral, regional, and multilateral forums, the US Trade Representative and the Department of Commerce are working aggressively to have our principles of the Framework for Global Electronic Commerce adopted internationally.

Thank you again for the opportunity to testify and at this time I would be happy to answer any questions that the Subcommittee might have.