E-COMMERCE IN LATIN AMERICA
“Everybody agrees that electronic commerce has started to revolutionise spending habits and will change the way everyone does business. The reasons for this are many and varied; globalisation and the dismantling of trade barriers, the deployment of smart cards, the Internet, and the de facto emergence of English as the global language.”[1]
Overview
What is electronic commerce or e-commerce? Professor William F. Fox, Jr. of the Columbus School of Law, Catholic University in Washington, D.C., understands e-commerce to be the “ordinary commercial dealings based on a new form of communication – the Internet.”[2] E-commerce is also defined as a broad term describing business activities with associated technical data that are conducted electronically.[3] Moreover, the General Council of the World Trade Organization decided that for the purposes of its work program on e-commerce, the term means “the production, distribution, marketing, sale or delivery of goods and services by electronic means”.[4] Accordingly, although many commentators would agree that there is no universal definition of electronic commerce,[5] e-commerce can generally be defined as business assisted by technology.
E-commerce has evolved and increased dramatically. The global e-commerce market is expected to reach $1.2 trillion this year.[6] The expansion is due primarily to the growth of the Internet.[7] Furthermore, the very nature of e-commerce implies borderless operations. For example, regardless of his/her location, anyone can log onto www.amazon.com to buy a book and have it sent anywhere in the world within days.[8] This new means of communication in the business environment gives rise to many serious international legal issues that are currently being addressed by multilateral organizations such as the World Trade Organization, the Organization for Economic Cooperation and Development, and the United Nations. These legal issues include, among others, intellectual property rights, taxation, consumer protection, trade barriers, choice of law and enforcement of contracts.
Latin America
Given the developing status of Latin American countries, e-commerce is starting to gain a significant role in them. On October 13, 2000, the Boston Consulting Group predicted that online retailing in Latin America would be worth U.S.$580 million in 2000, an increase of 400 percent from 1999;[9] with e-commerce expected to be worth U.S.$8.3 billion in 2005.[10] In addition, IDC predicts that by 2003 e-commerce in Latin America will reach U.S.$8 billion dollars,[11] with 24.3 million Internet users.[12] This number is predicted to increase to 75 million people by 2005.[13]
At present, e-commerce has been primarily focused on the needs of businesses and consumers, although governments have also been increasingly participating.[14] Four different types of e-commerce have been created. The largest form, or the one that represents the largest volume of trading activity and the most money, is business-to-business commerce (B2B). The B2B commerce form primarily involves large firms setting up online exchanges to buy industrial inputs. The second largest form is business-to-consumer commerce (B2C) that comprises retail transactions made over the Internet. The third form of e-commerce is the consumer-to-consumer commerce (C2C) segment. This segment involves direct operations between consumers such as auctions sites. Finally, a fourth form of e-commerce is consumer-to-business commerce (C2B). C2B transactions involve reverse auctions where service providers lower their prices depending on the consumers needs. Accordingly, this takes full advantage of the power the Internet has given to consumers to drive transactions.[15]
Experts widely recognize that business relationships rely on confidence between the parties involved. The problem underlying e-commerce is that it is usually carried out between people that have never met, often not even over the telephone.[16] This creates reluctance among parties to engage in e-commerce transactions, particularly in Latin America, where reliance on personal interaction and trust is key to most business transactions.
B2C e-commerce is usually conducted through standard agreements already posted by retailers on the Internet. Aside from typing her/his relevant information, the consumer only “clicks” to accept (or not) the terms and conditions of the purchase contract posted by the merchant. Therefore, no business terms or conditions other than products and quantities are usually negotiated. Thus, it is very likely that a consumer will enter into business with an Internet retailer only to the extent she has heard about the trade reputation of such merchant. Accordingly, there is some risk that a consumer will try to repudiate a transaction by alleging third-party fraud, although most e-commerce traders find this risk sufficiently small so that nothing more is needed to ensure the legal effectiveness of the transaction.[17]
On the other hand, B2B e-commerce operations usually involve significant amounts of money as well as the negotiation of business terms and conditions. Accordingly, the parties involved need to be certain that they are negotiating with the correct persons, that the correct business terms are being used, and that their information is in the right hands.
In this article, we intend to discuss the various mechanisms that have developed in order to protect and confirm the identity of the persons carrying out business behind the computer in B2B e-commerce operations. This discussion will address the implementation of the so-called electronic signature, vis a vis the ordinary signatures printed on conventional written agreements, and also the enforceability of contracts whose terms and conditions have been agreed upon through the exchange of electronic messages or documents. Particularly, we will address the implementation of electronic signatures in Latin America.
Electronic Signatures
Black’s Law Dictionary defines a signature as:
“the act of putting one’s name at the end of an instrument to attest its validity; the name thus written… The name or mark of a person at his or her direction. In commercial law, any name, word, or mark used with the intention to authenticate a writing constitutes a signature”.
Accordingly, there are basically two main reasons why documents are signed: 1) to acknowledge or validate the contents of the signed document; and 2) to identify or authenticate that the person that is signing a document is effectively the one that is supposed to sign it.[18]
Until recently, it was quite common for business people to meet at least once during the course of a business operation. Thus, business parties usually knew with whom they were doing business. However, as mentioned above, e-commerce is starting to remove personal interaction from commercial dealings. Nevertheless, all the parties involved in a business operation need to assure themselves that every other party involved is actually the party that it claims to be. This is where the term “electronic signature” becomes useful. In general terms, an “electronic signature” would mean that in an electronic medium a person wants to: 1) authenticate or identify herself/himself; and 2) validate what she/he has written in the document or message.
The problem of identity, as well as the validation of the contents, remains an issue for Internet transactions. Other parties may still be skeptical about the identity behind the sender’s message, particularly if that message contains business terms and conditions. Therefore, B2B transactions commonly agree in advance what records the parties will keep, and whether particular categories of messages are to be acknowledged by the receiving party, including provisions on what form that acknowledgment should take.[19]
Aside from the aforementioned commercial practice, there have been many valuable efforts to provide security to agreements entered into through electronic means. These efforts include those offered by the American Bar Association[20] and other private organizations[21]. However, the most important effort is probably that made by the United Nations Commission on International Trade Law (“UNCITRAL”) through its 1996 Model Law on Electronic Commerce (hereinafter the “Model Law”).
In an attempt to facilitate rather than regulate e-commerce, the Model Law offers national legislators a set of internationally acceptable rules that detail how a number of legal obstacles to the development of electronic commerce may be removed, and how a more secure legal environment may be created by electronic commerce.[22]
Among other principles governing e-commerce, the Model Law addresses the signature issue. Article 7 of the Model Law provides that when pursuant to a statute a signature is needed, an electronic signature shall be sufficient to the extent a reliable method is used to identify the person providing that electronic signature. Furthermore, Article 8 of the Model Law provides that an electronic signature shall be considered as an original, to the extent the integrity of the information from the date of its creation is guaranteed and such information may be presented to the person that lawfully requests it.[23]
In light of the expected increase in e-commerce transactions, some Latin American countries have taken steps to ensure that their domestic legislation has some provisions addressing business issues related to e-commerce.[24] Such actions basically consist on the adoption of the Model Law.[25] As in the case of any model law, Latin American counties, and even the United States, have adopted the Model Law either as an independent statute, such as Colombia, Peru, the United States and Venezuela, or by amending other statutes to incorporate many of the concepts contained in the Model Law, such as Mexico. The adoption of the Model Law in Latin American countries will provide an internationally accepted set of rules and principles that will provide e-commerce entrepreneurs the basic legal protection needed in order to do business.
Along with the adoption of the Model Law, Latin American countries have also foreseen the creation of what could be called “National Certification Authorities”. These National Certification Authorities will either grant authority to other companies to certify electronic signatures, or will certify electronic signatures themselves. The downside of these National Certification Authorities is probably that, like any and every other government entity, they need funding to perform their functions. Accordingly, the implementation of these National Certification Authorities will likely depend on how much money the individual country is willing to invest in them.
The aforementioned situation should not be considered as a problem if it is kept in mind that private parties may also certify electronic signatures. The only difficulty may be whether or not the parties will actually trust these private individuals to certify the electronic signatures involved in a business operation. Nevertheless, these private certification authorities have apparently been flourishing throughout Latin America. This private sector development seems normal considering that the governmental authorities have not yet implemented the “official” certification authorities.
Conclusion
In a considerable effort to provide legal security to the operations conducted through electronic means, the adoption of the United Nations Commission on International Trade Law’s Model Law on Electronic Commerce provides e-commerce participants with certain minimum legal standards to protect their rights and obligations. These standards enhance the use of electronic means in conducting business. However, even though the legal standards provided by the Model Law have been or are in the process of being implemented in Latin American countries, we will still have to wait on, among other things, the outcome of the electronic signatures certification authorities, whether governmental or private sector, in order to determine how reliable such authorities are for persons involved in e-commerce.
Thus, if the e-commerce community finds that all these certification authorities are trustworthy, then the projected dramatic increase in e-commerce earnings will very like become true. However, if businessmen involved in the e-commerce community do not trust the developed certification authorities, e-commerce in Latin America may not expand as expected.
[1]MICHAEL CHISSICK & ALISTAIR KELMAN, ELECTRONIC COMMERCE. LAW AND PRACTICE 1 (Sweet & Maxwell 2000) (1998).
[2]William F. Fox, Jr., The International Chamber of Commerce’s GUIDEC Principles: Private-Sectors Rules for Digital Signatures, 35 INT’L LAW 71, 73 (2001).
[3]CHISSICK, supra note 1, at xxxiv.
[4]World Trade Organization, Work programme on electronic
commerce, September 25, 1998, available at http://ww.wto.org/english/tratop_e/ecom_e/wkprog_e.htm
[5]CATHERINE L. MANN, et al, Global Electronic Commerce. A Policy Primer 9 (Institute for International Economics) (2000).
[7]Long before the Internet became known worldwide, in what we may call “incipient e-commerce”, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) concentrated on the creation of a shared worldwide data processing and communications link and a common language for international financial transactions. www.swift.com. However, according to the International Telecommunications Union, in 1990 only 22 countries were connected to the Internet, ten years later, in 2000, 214 countries were online, bringing the total number of users to an estimated 315 million (around 5% of the world). ITU Telecommunication indicators update, available at http://www.itu.int/journal/200102/E/html/indicat.htm.
[8] See www.amazon.com
[11]Id.
[13]http://196.30.226.221/sections/internet/2001/0104020852.asp?A=%25&O=F According to Excite news, the number of Internet users is going to be 77 million by 2005, http://www.nua.ie/surveys/index.cgi?f=VS&art_id=905356561&rel=true accordingly, we believe Reuters numbers are accurate.
[14]For a detailed analysis of government participation in e-commerce see JOHN SACHER, Electronic Commerce Opportunities and Challenges for Government (The "Sacher Report"), available at http://www.oecd.org/dsti/sti/it/ec/prod/sacher_e.pdf
[15]ANDREA GOLDSTEIN & DAVID O’CONNOR, e-commerce for development: Prospects and Policy issues 14 (OECD Development Centre 2000), available at www.oecd.org/dev/PUBLICATION/tp/TP164.pdf
[16]For example, a paperclip manufacturer in Sri Lanka may need high quality material for its production. While “surfing” the Internet, it finds a company in Chile that claims to have “the best quality product in the market” and the only contact information is an e-mail address. Thus, the producer in Sri Lanka e-mails the company in Chile requesting further information on the product. The Chilean company sends a sample. The Sri Lanka company likes the sample and e-mails the Chilean company making a request to purchase the product. After e-mails back and forth from both companies, they finally agree on the terms and conditions of the purchase. Thus, the purchase is made. The people behind the computers (presumably a sales manager and an acquisitions manager) never met.
[17]CHRISTOPHER REED, Legally Binding Electronic Documents: Digital Signatures and Authentication, 35 INT’L LAW 89, 89 (2001).
[18]Mr. Reed states that the primary function of a physical signature is to provide evidence of three maters: i) the identity of the signatory; ii) that the signatory intended the signature to be his signature; and iii) that the signatory approves of and adopts the contents of the document. Reed, supra note 12, at 93. However, we believe that identity implies that a signatory intends to prove that a determined signature is the signatory’s signature.
[19]Id. at 90.
[20]Id. at 91
[21]i.e. The International Chamber of Commerce
[22]RENAUD SORIEUL, ET AL., Establishing a Legal Framework for Electronic Commerce: The Work of the United Nations Commission on International Trade Law (UNCITRAL), 35 INT’L LAW 107, 109 (2001).
[23]In order to provide assurance on a person issuing an electronic signature and on the content of a determined data message, identification certificates and encryption methods have been developed sometimes by government agencies and other times by private parties. Those parties that intend to enter into business operations may use these certificates or encryption methods.
[24]Argentina, Colombia, Mexico, Peru, Venezuela, et al.
[25]However, in Peru even a “cyber crime” law is under discussion by the local Congress.