U.N. and EU gearing up to regulate the Internet

By Dave Kopel & Jennifer Holder. Dave Kopel is the author of Antitrust After Microsoft and is director of the Center on the Digital Economy at the Heartland Institute.

National Review Online, August 24, 2001 10:45 a.m. More by Kopel on the United Nations and the European Union

Anyone who uses the Internet is likely to have read e-mail hoaxes about Internet taxation, with scenarios ranging from the Federal Communications Commission imposing a per-minute Internet access charge, to some sort of tax levied by the United Nations to finance a global army. These forwarded messages are specious, but they are grounded in plausibility.

In Europe, because of how phone bills are structured, many Internet users do in fact pay by the minute. With a few commendable exceptions, such as Governor Bill Owens of Colorado, most American governors have announced that they want to "streamline" their sales-tax structures, in order to be able to levy taxes on the Internet. Fortunately, with just over two months remaining on the current federal moratorium on new Internet taxes, there is no consensus in sight — so the governors may not get their hands on the Internet anytime soon.

But, on the international front, taxation and regulation of the Internet are another story altogether. The U.N. really has proposed levying an international tax on e-mail and e-commerce for the purposes of redistributing wealth.

The 1999 United Nations Report on the Human Condition bemoaned the growing divide between the "haves" and the "have nots." This was a politically-correct euphemism for the fact that free people are growing more prosperous, while victims of tyranny are becoming poorer. The U.N.'s solution, of course was not more freedom, but more government:

new funds must be raised to ensure that the information revolution leads to human development. A 'BIT' tax and a patent tax could raise funds from those who already have access to technology, with the proceeds used to extend the benefits to all.

The report goes on to present a detailed scenario of potential revenue from e-mail taxation: "There is an urgent need to find the resources to fund the global communications revolution — to ensure that it is truly global." One proposal is a BIT tax, described on page 66 of the U.N.'s report as:

a very small tax on the amount of data sent through the Internet. The costs for users would be negligible: sending 100 emails a day, each containing a 10-kilobyte document (a very long one), would raise a tax of just 1 cent. Yet with e-mail booming worldwide, the total would be substantial. In Belgium in 1998, such a tax would have yielded $10 billion.

Such a tax would also reward countries that have stifled economic freedom, at the expense of countries that have fostered entrepreneurship and innovation. But the U.N. is not alone — other international bodies have floated the idea too, in quest of a piece of the e-commerce pie.

In May, the incoming director general of the World Trade Organization and Thailand's former deputy prime minister, Supachai Panitchpakdi, said, "E-Commerce is such a growing activity that there is a need for a clear-cut framework of rules." This of course reflects the United Nations mentality: Anything important must need government regulation. The idea that e-commerce might regulate itself is unthinkable.

Just because a commercial activity is extremely important does not mean that it needs coercive government control. In The Enterprise of Law: Justice Without the State, Bruce L. Benson, Distinguished Research Professor of Economics at Florida State University, details how complex commercial networks (such as medieval Europe's merchant courts or the Hanseatic League) flourished by creating and enforcing their own legal standards of fair dealing — notwithstanding the absence of state regulation. Governmental imposition of governmental commercial law, Benson explains, had less to do with the needs of commerce than with the need of government itself to tax and control.

Merchant traders and e-commerce traders alike made their worlds more prosperous by expanding their networks. And then, as now, governments rushed in to "help" (themselves) by imposing controls ostensibly for the benefit of commerce.

According to director general Supachai, a WTO working group has been examining the implications of Web commerce and reviewing what elements of the 1992 Uruguay round trade pact would need to be revised to address e-commerce. The group also had been charged with investigating Internet-linked issues not currently covered in the WTO system — including taxation. Although no official reports or agendas have been released, WTO members met last month to discuss the possibility of launching a new trade round at a Qatar ministerial meeting in November.

Even the European Union has joined the fray. On June 5, 2001, the EU's finance ministers Introduced a value-added tax on e-commerce and digital products sold over the Internet. At that time, all EU members (with the exception of the United Kingdom) were in favor of applying a value-added tax to e-commerce operations. Observers expect Prime Minister Tony Blair to support the value-added tax, now that his reelection has been secured.

Two days later after the VAT concept was raised, the European Commission adopted a draft directive to create "a level playing field" for the taxation of digital commerce. Currently, companies based outside the EU do not have to pay a value-added tax. Under the proposal, corporations would have to register themselves in one of the EU member states. Thus, the "level playing field" is to be created by raising taxes on non-European companies — and thus, on non-EU consumers. All indications suggest that as e-commerce continues to grow across Europe, a value-added tax is increasingly likely.

International and American politicians are chasing the Internet the way the farmer wielded his hatchet over the golden goose. Already, the persecution of Microsoft by the U.S. Department of Justice and 19 state attorneys general has destroyed hundreds of billions of dollars of wealth — not just in Microsoft stock, but in the stock of Internet companies. All of these became much less valuable when people saw that government intended to treat the industry as it has historically treated transportation and energy: by picking favorites based on politics, and stomping on the companies that refuse to pay political blackmail. And now the European Union is preparing to compound the problem, by assaulting Microsoft under European fair trade "standards" which are — amazingly — even vaguer and more easily manipulated than U.S. antitrust laws.

At home, the U.S. Department of Commerce reports that the technology sector was responsible for one-third of U.S. economic growth in the past five years, accounting for $1.1 trillion in trade. With the United States driving over 60 percent of Internet traffic — and serving as home to 80 of the world's top 100 technology companies — U.S. citizens can only stand to lose by these proposals.

If we remain passive while foreign governments impose constricting rules on global e-commerce, we risk localizing Internet users and potential consumers in specific regions, which would both reduce competition and stifle growth opportunities. The world's poor aren't shut out of e-commerce because the U.N. and EU don't have enough tax revenue; they're shut out because the kleptocracies ruling much of the globe are already stealing so much.

Want to broaden the beneficent global network of e-commerce, and enable billions more people to join the digital revolution? Want to protect American prosperity? Then ensure that the United Nations — and the rest of the international parasite class — are kept as far from the Internet as possible.

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