E-environment Trademark The implications of globalization

Potentially, online shopping through transactional e-commerce can also have environment benefits. Imagine a situation where we no longer travelled to the shops, and 100 of items were efficiently delivered to us at home or at work. This would reduce traffic considerably Although this situation is inconceivable since most of us enjoy shopping in the real world too much, online shopping is growing considerably and it may be having an impact. Research by the Internet Media in Retail Group www.imrg.org shows the growing impor- tance of e-commerce in the UK where over 10 of retail sales are now online. In 2007 IMRG launched a Go Green, Go Online campaign where it identified six reasons why it believes e-commerce is green. They are: 1 Less vehicle-miles. Shopping is the most frequent reason for car travel in the UK, accounting for 20 of all trips, and for 12 of mileage. A study by the Swiss online grocer LeShop.ch calculated that each time a customer decides to buy online rather than go shop- ping by car, 3.5 kg of CO 2 emissions are saved. 228 Box 4.6 HSBC customers plant virtual forest HSBC has committed to improving the environment since it became a climate-neutral company globally in November 2005. Through the use of green technologies and emission-offset trading, HSBC counteracts all CO 2 emissions generated by its building operations and corporate travel. In 2006, 35 of operations in North America were offset by investments in Renewable Energy Certificates from wind power alone. Another aspect of HSBC green policy is its online banking service, where it encour- ages paperless billing. For example, in the UK in 2007, over 400,000 customers switched from paper statements to online delivery, creating a virtual tree each time Figure 4.10, and for every 20 virtual trees, HSBC promised to plant a real one. Figure 4.10 HSBC virtual forest Source: www.hsbc.co.uk Part 1 Introduction 2 Lower inventory requirements. The trend towards pre-selling online – i.e. taking orders for products before they are built, as implemented by Dell – avoids the production of obso- lete goods that have to be disposed of if they don’t sell, with associated wastage in energy and natural resources. 3 Fewer printed materials. Online e-newsletters and brochures replace their physical equiva- lent so saving paper and distribution costs. Data from the Direct Mail Information Service www.dmis.co.uk shows that direct mail volumes have fallen slightly in the last 2 years, at the time of publication reversing an upward trend in the previous 10 years. This must be partly due to marketing e-mails which the DMA e-mail benchmarks www.dma.org.uk show number in their billions in the UK alone. 4 Less packaging. Although theoretically there is less need for fancy packaging if an item is sold online this argument is less convincing, since most items like software or electronic items still come in packaging to help convince us we have bought the right thing – to reduce post-purchase dissonance. At least those billions of music tracks downloaded from iTunes and Napster don’t require any packaging or plastic. 5 Less waste. Across the whole supply chain of procurement, manufacturing and distribution the Internet can help reduce product and distribution cycles. Some even claim that auction services like eBay and Amazon Marketplace which enable redistribution of second-hand items can promote recycling. 6 Dematerialization. Better known as ‘digitization’, this is the availability of products like software, music and video in digital form. If companies trading online, can explain these benefits to their customers effectively, as HSBC has done, then this can benefit these online channels. But what does the research show about how much could e-shopping reduce greenhouse gas emissions? A study by Finnish researchers Siikavirta et al. 2003, limited to e-grocery shopping, has suggested that, depending on the home delivery model used, it is theoretically possible to reduce the greenhouse gas emissions generated by grocery shopping by 18 to 87 compared with the situation in which household members go to the store. Some of the constraints that were used in the simulation model include: maximum of 60 orders per route, maximum of 3,000 litres per route, working time maximum 11 h per van, working time maximum 5 h per route, loading time per route 20 min, drop-off time per customer 2 min. The researchers estimated that this would lead to a reduction of all Finland’s greenhouse gas emissions of as much as 1, but in reality the figure is much lower since only 10 of grocery shopping trips are online. Cairns 2005 has completed a study for the UK which shows the importance of grocery shopping – she estimates that car travel for food and other household items represents about 40 of all UK shopping trips by car, and about 5 of all car use. She considers that a direct substitution of car trips by van trips could reduce vehicle-km by 70 or more. A broader study by Ahmed and Sharma 2006 used value chain analysis to assess the role of the Internet in changing the amount of energy and materials consumed by busi- nesses for each part of the supply chain. However, no estimates of savings are made. How to change tax laws to reflect globalization through the Internet is a problem that many governments have grappled with. The fear is that the Internet may cause significant reduc- tions in tax revenues to national or local governments if existing laws do not cover changes in purchasing patterns. Basu 2007 notes that around a third of government taxation rev- enue is from domestic consumption tax with revenue from import taxation around 17. Governments are clearly keen that this revenue is protected when purchases are made over- seas outside their jurisdiction. Taxation 229

Chapter 4 E-environment

Government revenue is normally protected since, taking the UK as an example, when goods are imported from a non-EU territory, an excise duty is charged at the same rate as VAT. While this can be levied for physical goods imported by air and sea it is less easy to administer for services. Here agreements have to be reached with individual suppliers. In Europe, the use of online betting in lower-tax areas such as Gibraltar has resulted in lower revenues to governments in the countries where consumers would have formerly paid gaming tax to the government via a betting shop. Large UK bookmakers such as William Hill and Victor Chandler are offering Internet-based betting from ‘offshore’ locations such as Gibraltar. Retailers such as Amazon, Play.com and Tesco.com have set up retail operations on Jersey to sell items such as DVDs and CDs which cost less than an £18 Low Value Con- signment Relief threshold, so no VAT or excise duty needs to be paid. This trend has been dubbed LOCI or ‘location-optimized commerce on the Internet’ by Mougayer 1998. Since the Internet supports the global marketplace it could be argued that it makes little sense to introduce tariffs on goods and services delivered over the Internet. Such instru- ments would, in any case, be impossible to apply to products delivered electronically. This position is currently that of the USA. In the document ‘A Framework for Global Electronic Commerce’, President Clinton stated that: The United States will advocate in the World Trade Organization WTO and other appro- priate international fora that the Internet be declared a tariff-free zone. Tax jurisdiction Tax jurisdiction determines which country gets tax income from a transaction. Under the pre-electronic commerce system of international tax treaties, the right to tax was divided between the country where the enterprise that receives the income is resident ‘residence country’ and that from which the enterprise derives that income ‘source country’. In 2002, the EU enacted two laws Council Directive 200238EC and Council Regulation EC 7922002 on how Value Added Tax VAT was to be charged and collected for electronic services. These were in accordance with the principles agreed within the framework of the Organization for Economic Co-operation and Development OECD at a 1998 conference in Ottawa. These principles establish that the rules for consumption taxes such as VAT should result in taxation in the jurisdiction where consumption takes place the country of origin principle referred to above. These laws helped to make European countries more competitive in e-commerce. An announcement from the EU explained: Under the new rules, EU suppliers will no longer be obliged to levy VAT when selling prod- ucts on markets outside the EU, thereby removing a significant competitive handicap. Previous EU rules, drawn up before e-commerce existed, oblige EU suppliers to levy VAT when supplying digital products even in countries outside the EU. The proposals are designed to eliminate an existing competitive distortion by subjecting non-EU suppliers to the same VAT rules as EU suppliers when they are providing electronic services to EU customers, something which EU businesses have been actively seeking. The VAT rules for non-EU suppliers selling to business customers in the Union at least 90 of the market, will remain unchanged, with the VAT paid by the importing company under self-assessment arrangements. The OECD also agreed that a simplified online registration scheme, as now adopted by the European Council, is the only viable option today for applying taxes to e-commerce sales by non-resident traders. The tax principles are as follows in the UK interpretation of this law implemented in 2003 for these electronic services: supply of web sites or web-hosting services downloaded software including updates of software 230 Part 1 Introduction