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E-commerce in Germany builds legal framework

While Germany may be stuck like the rest of the world with certain roadblocks in the creation of e-commerce, in the development of legal and policy issues, it might be ahead of the game--particularly in the digital signature arena. Passed in 1997, the German Signature Law--the first of its kind in the world--basically sets up encryption procedures that makes a digital signature as legally binding as a handwritten one.

And combined with current legislative initiatives, the German e-commerce locomotive is gaining momentum. Latest conservative estimates by the well-known market research company, GfK Consulting, based in Nuernberg, Germany, reports that 8.4 million Germans, or about 10% of the population, have Internet access. (This compares to 10.6 million in the U.K., representing 18% of the total population.) This figure marks an increase of over one million since fall 1998. And according to research by the German monthly magazine for business managers, Impulse, 61% of German businesses have their own web pages.

In a recent large-scale survey of almost 1,000 German companies called Electronic Commerce Enquete, approximately 70% of the respondents replied that the greatest barriers to e-commerce were "the absence of generally accepted business practices" and "regulatory deficiencies, for example, for electronically signed contracts." Lack of security and organizational/legal issues also ranked high on the list of impediments. Overall, firms perceived a tradeoff. While they saw the benefits of additional revenue from online transactions, they also expressed concern about financial losses that could result from the risk that comes from a lack of formal and informal institutions. This is important to help both buyer and seller prove an online transaction took place, for example. These issues--property rights and enforcement of contracts--are necessary to guarantee that a marketplace can work.

Another German survey, the "Internet Shopping Report '98-99," bolsters the findings from the consumer point of view. More than half (54%) of the interviewed 13,200 German online-shoppers complained about the lack of security in payment transactions. In addition, they expressed severe doubts regarding the confidential use of personal data. Also the distinctness of the online-shopping sites played a decisive role in their participation in online activities. More than a third of the questioned consumers (39%) uttered their discontent about bad user-guidance and poor interaction with the shopping web sites.

While U.S. federal and state governments have basically taken a hand-offs attitude with regard to any type of regulation, in Germany the government has shown an inclination to respond quickly to the needs of the electronic commerce world. Furthermore, Germany has chosen to take a proactive role by looking at problems that occur in the traditional business world and trying to anticipate how they will move to the web.

When the German Digital Signature Act came into effect on August 1, 1997, the foundation was laid to adjust all existing traditional German laws in order to cope with the requirements of the online world. Of course, its reach is restricted to the Federal Republic of Germany. On the European level the "Directive for a common framework for electronic signatures" will be adopted in the European Community this year. It's possible that current national regulations for digital signatures are likely to co-exist or even compete with the schemes regulated by the Directive from the EU.

In addition, the German government has initiated even more legislation to govern e-commerce, including consumers' rights, and disclosure policies. The federal cabinet will most likely pass the legislation this fall. This proposed legislation will address the issue of the online sales contract, increasing the onus on businesses and merchants to provide comprehensive product information to consumers purchasing at their site. The legislation will also provide increased protection for consumers wishing to cancel or withdraw from a purchase. The issue of unsolicited advertising and credit card indemnification will also be addressed.

Detlef Schoder, Ph.D., ( is currently a visiting scholar at the University of Calif., Berkeley. He is also assistant professor at the University of Freiburg, Germany, where he received his Ph.D. Also holding an MBA, his teaching and research focuses on electronic commerce with particular attention to implications for organizations. Mr. Schoder conducted the German Electronic Commerce Enquete, one of the largest surveys on the business value of electronic commerce.

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