Big Disconnect Between America, Europe on Net Issues

HEN Denis Lambot welcomes an American visitor, the Siemens-Nixdorf software engineer says, "Thank you."

He is grateful that the United States government gave his German-based computer company a chance to break into the Internet business.

"The US bans the export of encryption products," he explains. "So we created our own, called Raptor."

In the past year, a debate over the future of the Internet has heated up transatlantic e-mail and telephone calls. American diplomats in Brussels meet regularly with their counterparts at the European Commission to discuss how to regulate the Internet. More often than not, they disagree.

Consider taxes: The Europeans are worried about seeing large amounts of revenue diverted by wireless sales of goods. But the US is frightened that levies could curb Internet growth. President Clinton has called for "no new taxes" on the Net.

"Everyone agrees that we need to develop technical means to ensure that commerce on the Internet is taxed - just like mail order and other phone commerce is taxed," says an American diplomat involved in the negotiations in Brussels. "But the Europeans should not see this as a great new revenue source."

An even move vexing problem concerns encryption software, designed to scramble electronic messages so only intended recipients can decode them. If the Internet is to gain wide commercial acceptance, customers must have confidence their credit card numbers and passwords won't be intercepted. So Europeans demand free trade in Internet coding devices.

But the US fears giving away the "keys" to the Net, which could allow terrorists, child pornographers, or drug dealers communicating online to avoid detection and arrest. So the two most popular Web browsers, Netscape Navigator and Microsoft's Internet Explorer, come without encryption safeguards when sold from the US.

European Commission officials say they don't oppose access by law enforcement. But they question the effectiveness of the US "key escrow" system. This requires users to store a copy of the decoding keys with "trusted third parties" - presumably government agencies.

"Privacy is the big crunch issue," says the American diplomat. "If the Commission doesn't think we're doing enough, we could have a real battle - and that could hurt the Internet."

Most manufacturers, even those of US software and hardware, say the US government position on privacy and encryption is bad for business. Since nobody trusts the security of American products, the Europeans have built up a big encryption software business. In addition to Siemens, a Swiss company has put out a Browcat encryption program for bank software.

Israeli, Finnish, and Russian companies also are racing to produce encryption products.

"The American policy will simply collapse," predicts Mr. Lambot. "The export ban has stimulated Europeans to produce better and better encryption software."

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