Remarks To The Advisory Commission on Electronic Commerce


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To the Advisory Commission on Electronic Commerce

Panel on International Taxes, Tariffs & Duties

Associated with Electronic Commerce

By Fred L. Smith, Jr.





This Commission has heard repeatedly that the Internet is one of the most promising developments in the world economy – this is true and indeed understated.  Electronic commerce, by eliminating space and time has the potential to drastically reduce transaction costs, that is, the costs incurred in bringing buyer and seller into agreement.  By advancing trade, expanding individual privacy, disciplining irresponsible governmental action and offering more protection to basic human rights, this technology offers great hope to all mankind.  That hope is perhaps greatest for the citizenry of the developing world because informational technologies do not require the massive capital investments necessary for earlier technological advances.  And the anonymity offered by this technology offers special hope to those pariah groups throughout the world who are today most threatened by loss of civil and economic liberties.


Some, however, focus on the downside of e-commerce; they note that it may – by expanding the range of choices open to more consumers – increase the difficulty of collecting sales and use taxes.  On those grounds, they would abandon America’s traditional policy of No Taxation Without Representation. I think this is wrong and so argue in my comments.


This panel is to discuss the specific issues related to the international aspects of that question.  I find the issues raised by this increased tax threat similar at both the domestic and international level –merely that the world has even more to lose if we take the wrong path in this matter.


Relative to the world, U.S. markets are consumer-friendly  Walmarts are rarely blocked from entering closed local markets; hours of service and prices are left to the buyer and seller.  Few Americans view “discounting” as unfair, nor are we opposed to convenience stores operating at “convenient” hours.  Firms are free in America to compare themselves with competitors – to lure business away from higher priced or lower quality suppliers.


Today, in much of the world, such pro-consumer policies are illegal.  But the globalization competitive forces created by the Internet are making it increasingly difficult to maintain these anti-competitive policies. The Internet leaps over national boundaries allowing firms anywhere to reach consumer everywhere. For the first time a small business, a family business, run by only one or two people, has access to the entire world.  The Washington Post mentions a $10,000 per month orchid retailer in Bangkok.  “Ads in flower magazines were costly; the Internet is cheap.” Today, anyone anywhere can open a global store! Not surprisingly, the protected economies of Europe are upset over this and would love to see this new technology constrained by taxes and regulation.


In a prime example of how regulation of commerce helps competitors rather than customers, Lands’ End’s policy of unlimited returns on merchandise was challenged in Germany.   The German Supreme Court agreed that the policy constituted “unfair competition”  — many companies, the court ruled, would find it difficult to provide such guarantees.  But, of course, the purpose of an economy is not to protect Main Street companies but rather to protect consumers.  Politicians find it attractive to defend powerful local economic interests – the costs are born by trapped consumers.


Such policies are unfair – especially to those consumer who lack the mobility to travel elsewhere to purchase goods and services.  The Internet brings the world to everyone’s front door – if the governments do not erect barriers.  The Internet forces governments to be more accountable to their citizenry – it provides consumers greater power against special economic interests. .  Federal Express which transports tons of electronically ordered goods to foreign nations has spoken out against moves to block such trade.  “If they put of barriers to stop it, they’re going to pay the price in their economy,” said Frederick W. Smith of FDX Corp., the parent of Federal Express, in the Washington Post.


The Internet is a truly democratizing technology.  Or that is it may be. Internet tariffs and taxes would threaten the advantages the Internet offers for Trade, Privacy and (a value too often ignored) Human Rights. Knowledge about the wealth and holdings of minorities should not be made available to dictators or to oppressive governments.  Certainly, the U.S. should not become a tax collector for such groups.