As one of the thirteen private sector members of the U.S. Working Group on FTAA Electronic Commerce, I was pleased to actively participate in the formulation and submission of the recommendations contained in this report.

U.S. Secretary of Commerce William M. Daley Welcomes FTAA Report by Electronic Commerce Experts

Washington - U.S. Commerce Secretary William M. Daley welcomed an e-commerce report by the Free Trade Area of the Americas' Joint Committee of Experts on Electronic Commerce. "Report with Recommendations to Ministers," is the culmination of 18-months of discussion within the Free Trade Area of the Americas. Government and private sector experts from throughout the Western Hemisphere made over 40 recommendations to FTAA Ministers on how to increase and broaden the benefits of electronic commerce. 

"The report by the FTAA's Joint Committee of Experts on Electronic Commerce gives a major boost to our efforts to create a seamless global marketplace for electronic commerce," Daley said. "Its recommendations will serve as a valuable guide for FTAA governments as they put in place the legal and policy frameworks that will permit ecommerce to benefit their citizens and communities," continued Secretary Daley, who thanked the 13 U.S. private sector experts who contributed to the Joint Committee's work, in a public-private sector collaboration.

The report notes that global electronic commerce could climb to $2-3 trillion by 2005, when negotiations to create a Free Trade Area of the Americas are scheduled to conclude. By then, Latin America is expected to double its participation rate to 10 percent of the world's Internet users.

According to the report, ecommerce can help the FTAA countries expand their trade, increase their global competitiveness and hasten their integration into a unified, regional market. The dividends could be especially high for the region's smaller companies and smaller economies which traditionally have been hampered by limited information, high market entry costs and distance from major markets. The Joint Committee concludes that electronic commerce "can make an important contribution to future sustainable economic growth in the Western Hemisphere." 

To obtain these benefits, the Joint Committee warns that international cooperation will be necessary to avoid having national approaches fragment regional and global markets. Sounding themes that are in accord with the Administration's "Framework for Global Electronic Commerce" (July 1997), the Joint Committee calls for governments to create a public policy environment for electronic commerce that is flexible, stimulates innovation and competition, and does not favor any particular technology. 

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The report acknowledges the private sector's leading role in stimulating the growth of electronic commerce, through investment, innovation and commercial practices that build confidence and trust.

Among the recommendations, the Joint Committee's experts urge FTAA governments to:

• update their regulatory frameworks to provide for greater private sector competition in telecommunication services.

• encourage participation in standards setting bodies that are international, voluntary and consensus-based.

• explore ways, such as virtual trade shows, to better support SME's penetration of foreign markets through the use of electronic commerce.

• remove legal barriers that hinder the recognition of electronic records and transactions and adopt laws that will enable them to be recognized, taking into consideration the enabling provisions of the UNCITRAL's Model Law.

• promote technology-neutral approaches for the legal recognition of electronic signatures. 

• recognize a variety of national approaches to protect privacy, using the OECD privacy principles as a reference, and avoid the creation of barriers to transborder data flows.

• encourage effective self-regulation based on internationally-accepted principles of fair information practice.

• provide online consumers with effective protection no less than that afforded to consumers engaging in traditional commercial transactions.

• work with business and consumer organizations to develop consumer protection principles and mechanisms, including easy to use online consumer complaint resolution mechanisms.

The full report is available in English and Spanish on the FTAA's website (www.ftaa-alca.org). The U.S. Department of Commerce heads the U.S. delegation to the Joint Committee, which will provide further recommendations to FTAA Ministers at their next meeting in Argentina in Spring 2001.

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FTAA-Joint Government-Private Sector Committee of Experts on Electronic Commerce

Report with Recommendations to Ministers

Submitted by

Chair: Dale Marshall, Barbados
Vice-Chair: Ruben Morales, Guatemala

FTAA Joint Government-Private Sector Committee of Experts on Electronic Commerce



Report with Recommendations to Ministers



September 1, 1999

FTAA JOINT GOVERNMENT-PRIVATE SECTOR COMMITTEE OF EXPERTS ON ELECTRONIC COMMERCE


REPORT TO MINISTERS

PART I : INTRODUCTION AND OVERVIEW

Composition, Scope and Function of the Committee 

Establishment of the FTAA Joint Government-Private Sector Committee of Experts on Electronic Commerce was set out in the San Jose Ministerial Declaration of March 1998 (paragraph 19), and subsequently endorsed by Heads of State in the Santiago Summit Declaration of April 1998. The status of the Committee is that of a non-negotiating body, with its composition drawn from both public officials and private sector experts in the area of electronic commerce. Membership in the Committee is open to all FTAA governments. Private-sector experts in the Committee are identified by government representatives on the basis of their expertise in the issues considered, and with a view toward establishing balanced geographic representation. 

The Joint Government-Private Sector Committee of Experts on Electronic Commerce was requested by Vice Ministers to:

". . . .make recommendations to ministers on how to increase and 
broaden the benefits of electronic commerce and, in particular, how 
electronic commerce should be dealt with in the context of the FTAA 
negotiations."

The Joint Committee held five meetings over the past year with broad participation averaging 20 countries. Private sector experts attended all of the meetings. The Committee was chaired by Senator Dale Marshall of Barbados, with Ruben Morales from Guatemala elected as Vice Chair. A detailed summary of the deliberations of the Joint Committee was prepared by the Chair.

Overview of Electronic Commerce in the Western Hemisphere

Electronic commerce will be one of the principal means for conducting trade in 2005 when the Free Trade Area of the Americas is concluded. Already global electronic commerce stands at an estimated US$100 billion and is expected to grow exponentially to about US$2-3 trillion by 2005*. During the same period, the number of Internet users worldwide is forecast to jump from today's 171 million to 345 million.

Within the Western Hemisphere, a significant disparity currently exists among the countries of the region with respect to Internet use and electronic commerce. For example, some 35 percent of U.S. and 25 percent of Canadian citizens use the Internet, whereas most Latin American countries have less than 3 percent of their citizens on-line. A similar disparity exists in regional expenditures on electronic commerce.

At the same time, the recent growth of Internet use in Latin America has been among the most rapid in the world. Latin America at present accounts for only about 8 million Internet users, but by the year 2003 it is estimated that there could be as many as 34 million users in the region. Under this scenario, Latin America would double its participation rate from 5 percent to approximately10 percent of the world's Internet users. Moreover, experts expect over half of all Internet users in the year 2005 to speak a language other than English, with comparable gains made in the posting of non-English content, thereby broadening usage and eroding language barriers. 

These developments suggest that while electronic commerce holds tremendous potential for expanding trade throughout the Western Hemisphere and for increasing the region's competitiveness in international markets, the challenge lies in ensuring that electronic commerce contributes to the integration and development of the whole Hemisphere. Attention will need to be paid to address the opportunities and create an enabling environment in order to avoid the deepening of inequalities in the access and use of information technologies that could widen the social and economic gap between and within countries of the Western Hemisphere.

Electronic commerce can help overcome the comparative disadvantages created by long distances and geographic barriers, and make it possible to access each other's markets at substantially lower costs. The dividends could be especially high for the region's smaller companies and smaller economies which traditionally have been hampered by limited information, high market entry costs and distance from markets. While the most immediate gains are likely to be in business-to-business electronic commerce, especially in the banking and financial services, online purchases by consumers will continue to grow. Both are expected to be drivers of electronic commerce.

Throughout the Hemisphere, companies should enjoy higher growth and improved economic efficiency and profitability, while purchasers/consumers benefit from broader product choice and lower prices. For governments, information technologies facilitate the means to reach citizens and offer new opportunities for information exchange and transparency, training, learning, and development. At the same time, governments can cut the costs of their activities, whether operating, procurement or contracting. The resulting productivity gains should propel the economies of FTAA members, lead to a higher standard of living for FTAA citizens, and generate new opportunities for the well-being and development of our communities. 

The Joint Committee concludes that electronic commerce can make an important contribution to future sustainable economic growth in the Western Hemisphere. 

However, there are challenges that must be overcome in order to take full advantage of the potential economic and social benefits offered by electronic commerce.

With respect to infrastructure, the growth of electronic commerce in the Western Hemisphere is slowed by barriers in the form of low quality of telecommunications infrastructure, narrow bandwidth, and high connection costs in some countries. The reliability and costs associated with delivery of goods present additional barriers. 

Increasing participation and expanding Internet use in all countries of the Hemisphere will depend upon raising awareness among individuals and companies, especially small and medium enterprises, and building a skilled human resource base able to use and create with digital technologies. 

Legal, commercial and financial frameworks were created to deal with physical transactions and may currently be insufficient to secure the enforcement of contracts, ensure the validity of electronic signatures, and effectively protect intellectual property rights to support the growth of electronic transactions. Low credit card use in the region is also a problem.

The electronic medium does not initially create the trust characteristic in "face-to-face" transactions. Uncertainty currently exists among consumers, both individuals and businesses, that they may not be afforded similar protections in the online world as they are in the physical world with regard to privacy, security, authentication, and consumer protection.


Whether or not the region successfully meets these challenges will depend in large part on the approach that FTAA governments and private sectors adopt toward this innovative medium.

Electronic commerce is inherently global and transcends borders. Electronic commerce policies and activities (national, regional, public or private sector) will be most effective if they are compatible with a global approach. International cooperation is necessary to avoid having national approaches fragment regional and global markets, and unduly restrict trade. Governments, business, consumers and academia must work collaboratively to create an environment in which electronic commerce can grow to maximize the social and economic benefits for all.

Governments should act to meet the public interest and create a policy and regulatory environment for electronic commerce which is flexible, stimulates innovation and competition, and does not favor any particular technology. The private sector should play a leading role in stimulating the growth of electronic commerce through investment and innovation. It also has a key role to play in partnership with governments and consumers to ensure that commercial practices build trust and confidence in electronic commerce, including through effective self-regulation where appropriate.

The Joint Committee urges FTAA Trade Ministers to consider the growth of electronic commerce a priority for the region and to act expeditiously to realize its potential.

With a view toward increasing and broadening the benefits of electronic commerce in the Hemisphere, the Joint Committee makes the following recommendations.

PART II. RECOMMENDATIONS

BROADENING THE BENEFITS OF ELECTRONIC COMMERCE

A) Strengthening the Information Infrastructure

Network Access/Competition

Taking advantage of global electronic commerce depends upon access to efficient and reliable telecommunications networks. In many FTAA countries, this will require significant investment in developing infrastructure, which in turn will rely heavily on attracting private capital. Regulation, directed at encouraging competition and ensuring that providers can reach end-users and each other under reasonable and non-discriminatory terms and conditions, will tend to promote investment and infrastructure development and enable e-commerce services and applications to be accessed easily. 

Recommendations:

• To promote the deployment of the bandwidth necessary to guarantee access to basic telecommunication services, FTAA Governments should update their regulatory frameworks to provide for greater private sector competition in telecommunication services. Policies that encourage competition, facilitate interconnection under reasonable conditions and allow private investment will help to reduce the cost of Internet access and use and promote telecommunications infrastructure development.

• To provide Internet users in FTAA countries with the broadest range of information and services, FTAA Governments should promote access to public telecommunications networks on a non-discriminatory basis.

• To promote the creation of local Network Access Providers (NAPs), which are local interconnection systems for transmitting data among different Internet Service Providers (ISPs).

• To provide for the widest participation of their citizens and to increase their electronic commerce awareness and skills, FTAA Governments should promote Internet access points open to the public, such as in schools, libraries, community centers or public phone centers.

• The topic of public statistics on electronic commerce and traffic could be considered for future work of the Committee.

Standards

The continued growth of electronic commerce requires global interoperability. The private sector, through voluntary associations and through contributions to intergovernmental organizations, has developed standards around which telecommunications networks are currently built. These market-driven standards serve to ensure interoperability, allow interconnection, broaden market acceptance, reduce costs and allow large systems, such as the Internet, to be built from equipment and software provided by a large number of manufacturers. Organizations with broad membership, transparent practices, and which are responsive to the market are more likely to develop widely acceptable standards.

Recommendations:

• In order to facilitate the interoperability of telecommunications networks and services, FTAA Governments should, when appropriate, support standards setting within international, voluntary and consensus-based bodies. 

• FTAA Governments should encourage their academic and business communities to participate in these standards setting bodies, all of which are open to participation by the region's citizens. 

B) Increasing Participation

Governments as Model Users

FTAA Governments and their citizens can benefit significantly from providing services online and using new technologies to meet citizens? needs. Governments can reduce costs with resulting fiscal savings, be more efficient and productive, provide new and improved services, make available greater amounts of useful information, increase transparency, increase citizen involvement, and ensure their economies participate in the emerging digital economy by utilizing the tools of electronic commerce. Because of their unique role and greater resources, governments can serve as catalysts for the development of electronic commerce within their countries. The benefits so generated will have a positive impact on the expectations of the private sector.

Recommendations:

• FTAA Member countries should promote and use electronic commerce in government-to-government, government-to-business and government-to-individual transactions, thus performing faster transactions at lower costs and with wider coverage. For example:

  • the tender and procurement of goods and services; 

  • the delivery of governmental services; 

  • making available government information; 

  • the presentment of bills, taxes and benefits electronically;

  • online completion of governmental forms; 

  • access to national intellectual property offices; and

  • linking all governmental organizations and personnel electronically.

Smaller Economies

Electronic Commerce has the potential to provide smaller economies with improved access to information, improved means and ease of communications to business contacts, lower priced products, reduction of barriers to entry to world markets, reduced transactions costs and improved potential for delivery of services. Thus, electronic commerce can enhance innovation and economic efficiency for the region as a whole. 

Recommendations:

• FTAA Governments, especially smaller economies, should encourage greater participation in electronic commerce in order to realize the benefits and avoid possible disadvantages. 

• FTAA Governments should continue to share information and experience on best practices with respect to policies that will encourage development, attract investment and promote the widest use of electronic commerce.

• FTAA Governments, jointly with the private-sector, should consider the development and implementation of national strategies for electronic commerce.

Engaging Small/Medium Enterprises (SMEs) in Electronic Commerce

As one of the most dynamic features of a growing economy, SMEs play a critical role in creating employment and enhancing GDP in the Western Hemisphere. The use of electronic commerce by the SME community could reduce traditional barriers to entry such as distance and size and enable them to be more competitive in the international economy. 

Recommendations:

• FTAA Governments should actively promote awareness among SMEs of the opportunities and benefits of electronic commerce and encourage its use as an efficient way for accessing international markets.

• FTAA Governments and the private-sector should seek to undertake SME education and information campaigns, and make use of resources offered by local business organizations and local chambers of commerce. 

• To increase the participation of SMEs in international trade, FTAA Governments should explore ways to tailor their existing trade promotion programs to better support SMEs' penetration of foreign markets through the use of electronic commerce, such as virtual trade shows.

Business-to-Business

Currently, business-to-business electronic commerce comprises the largest share of electronic commerce activity, accounting for approximately 70 percent of its estimated total value. For the immediate future, it is likely that the volume of business-to-business electronic commerce will preserve its dominance over business-to-consumer transactions.

Recommendations:

• FTAA Governments should foster the development of an environment in which business-to-business electronic commerce can continue to flourish.

Raising Skills and Awareness

Education and lifelong learning will be essential if electronic commerce is to realize its full potential. At the same time, electronic commerce offers new opportunities for training and education such as through distance learning.

Recommendations:

• FTAA Governments, in cooperation with the private-sector, should foster training in the new tools of electronic commerce; promote development of professionals in information technologies; and encourage greater dissemination of the medium among the population.

• FTAA Governments and private sectors should make use of cooperation and assistance programs to exchange best practices, to promote understanding and to build skills and awareness in order to foster electronic commerce in the region. Such initiatives should take into account different levels of development, different needs and different levels of expertise.

C) Clarifying the Rules of the Market

WTO Agreements

The WTO agreements provide a global framework of rules governing trade in goods, services and intellectual property. In recognition of the increasing use of electronic means of contracting and delivering goods and services, in May 1998, WTO Ministers agreed to establish a work programme to examine how existing agreements apply to electronic transmissions, to identify any new issues and to analyze the effects of electronic commerce on trade and development. At the same time they agreed to continue for one year their existing practice of not applying customs duties to electronic transmissions. Some of the issues being examined in the work programme are:

(1) The classification of products transmitted electronically as goods or services.
(2) The application of various modes of service delivery.
(3) The application to electronic commerce of WTO agreements related to telecom services.

The results of the work programme and the agreement with respect to customs duties will be considered by Ministers at the Third WTO Ministerial in Seattle.

Recommendations:

• FTAA Member countries should follow closely and actively participate in the ongoing work and any future negotiations in the WTO related to electronic commerce.

Intellectual Property Protection

On-line distribution of literary or artistic works offers FTAA citizens the enormous possibility of accessing goods and services related to commerce, education, culture, science and training. Ecommerce also enables creators to acquaint the public throughout the world with their works and interpretations, or to disseminate research and studies to the world academic community. The ability to perfectly copy electronic data, to distribute it instantly on a global basis, and the growth of ecommerce raise a number of issues for holders of intellectual property and governments related to the effective protection of intellectual property. 

Recently, several FTAA governments participated in the negotiation of two new WIPO Treaties. The WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty address important issues of copyright in a digital environment.

Recommendations:

• FTAA Governments should participate actively and promote cooperation in the further work of the WTO and the WIPO to develop and enhance international consensus on the intellectual property issues raised by electronic commerce. Key issues include effective protection of trademarks online, the issue of Domain Names on the Internet, and effective protection of copyright.

Internet Governance/ ICANN and ccTLDs


The Internet Corporation for Assigned Names and Numbers (ICANN) is a new, non-profit international corporation formed to oversee the Internet's core technical management functions. By September 2000, ICANN is expected to take over responsibility for coordinating the management of the Domain Names system, the allocation of IP address spaces, the coordination of the adoption of new Internet protocol parameters and the management of the Internet's route server system. These functions are crucial to the Internet and electronic commerce.

Recommendations:

• FTAA Governments and other interested stakeholders in the Hemisphere should participate in the ongoing development of the Internet core technical management functions including the work of ICANN and of registries for Country Code Top Level Domain Names (ccTLD).

Taxation and Electronic Payments

With the advent and recent growth of electronic transactions complementing and in some cases replacing the traditional ways of delivering or exchanging goods and services, governments are faced with a new challenge to their tax administrations. The changing business environment is raising new issues for governments with respect to tax collection and for businesses with respect to their tax liabilities. Many countries have recognized that electronic commerce will not reach its full potential if it is subject to discriminatory tax treatment. Electronic commerce depends upon swift, secure and effective payment systems. This requires an appropriate policy framework.

Recommendations:

• FTAA Governments should continue to work to examine the tax implications of electronic commerce and seek to use technologies in a way that facilitates electronic commerce.

• To maximize the benefits of electronic commerce and enhance its growth, FTAA Governments should foster an environment for effective electronic payment systems that are readily available to the business community and consumers. 

Contract Law

Electronic commerce depends on the ability of the parties to a transaction to enter into a binding and legally enforceable agreement. Further analysis is required to determine whether electronic commerce issues are adequately covered by existing laws and regulations or whether there is a need to introduce any changes. 

Recommendations:

• FTAA Governments should foster a framework suitable for electronic commerce in the legal system of each country. FTAA Governments should identify and remove legal barriers that hinder the recognition of electronic records and transactions and adopt laws that enable them to be recognized, taking into consideration primarily the enabling provisions of the UNCITRAL Model Law on Electronic Commerce.

D) Increase Consumer Confidence/Build Market Confidence


Security and Reliability:

Widespread use of strong encryption is essential for electronic commerce to flourish in the Western Hemisphere.

Recommendations:

• FTAA Governments should permit businesses and consumers access to cryptographic equipment and software suitable for their needs; and balance their needs for security and reliability for their electronic transmissions with the needs of law enforcement and national security.

• FTAA countries should identify and implement the necessary elements to provide security and build confidence around electronic commerce operations throughout the region; and recognize the critical importance of continuing reduction the of restrictions on the export of cryptographic software and hardware for electronic commerce, in order to avoid creating, inter alia, unfair competitive conditions in the region.

• FTAA Governments should create an environment which fosters private-sector led technological solutions that enhance network security.

Authentication, Electronic Signatures, and Records

The development and use of authentication technologies play an important role in building user confidence in electronic commerce. Parties to electronic transactions must be able to identify each other with certainty and verify that the content of their messages has not been altered during transmission. Thus, electronic authentication technologies and methods are critical enablers of electronic commerce. 

Recommendations:

• In order to foster the development of electronic commerce in the hemisphere, FTAA Governments should promote appropriate approaches for legal recognition of electronic signatures in a technologically neutral manner.

• The countries of the FTAA should give favorable consideration to Articles 5 through 11 of the UNCITRAL Model Law.

• FTAA Governments should consider the benefits of allowing parties to a transaction to determine their methods of authentication while taking into account the requirements of the legal system.

• Regarding electronic authentication, policies that enhance competition and favor the principle of technological neutrality would enhance the continued technological development of electronic means of authentication.

• FTAA Governments should recognize the importance of interoperable and flexible private-sector solutions to authentication and certification. 

Privacy

The facilitation of global electronic commerce is based upon transborder access to information and requires consumer confidence that personal data will not be misused. Guaranteeing the effective protection of data will require cooperation among governments, consumers and the private-sector. Differing approaches may be used, including laws, private sector self-regulation, and/or privacy enhancing technologies. Any approach should ensure that privacy protection regimes are not applied in a discriminatory manner nor impede competition and would be enhanced by international cooperation.

Recommendations:

• FTAA Governments should foster cooperative approaches among governments and businesses to promote adequate levels of protection of privacy. 

• Approaches to privacy protection in the Americas should recognize a variety of national approaches while encouraging effective self-regulation based on internationally-accepted principles of fair information practices. For example, the OECD Privacy Guidelines may be considered a valuable reference. 

• The private sector in FTAA countries should be encouraged to continue to develop, through self-regulation, technological solutions, codes of conduct, and other means, to effectively protect individual privacy consistent with legal requirements. 

• Governmental and self-regulatory approaches to privacy protection should be transparent and non-discriminatory. Action by FTAA Governments with respect to privacy protection should avoid creation of barriers to transborder data flows.

Consumer Protection

Electronic commerce holds the potential to increase consumer choice, stimulate price, quality and service competition, and better inform consumer decision-making. At the same time, electronic commerce could facilitate schemes to defraud consumers, and creates new challenges both for consumers seeking to evaluate risks and for businesses seeking to provide traditional consumer protections in the online environment. 

Recommendations:

• FTAA countries should continue to apply existing consumer protection, modified as necessary to reflect the nature of the medium, so that online consumers receive effective protection no less than that afforded to consumers engaging in traditional commercial transactions.

• FTAA Governments should promote the education of businesses and consumers about the risks and benefits of conducting transactions online.

• FTAA Governments, business organizations and consumers should work together to develop consumer protection principles and mechanisms, including easy to use online consumer complaint resolution mechanisms.

• International cooperation among governments, businesses and consumer representatives will be necessary to establish the confidence and trust that is essential for FTAA businesses and consumers to fully realize the benefits of electronic commerce.

• Electronic commerce is subject to the existing legal framework in FTAA countries respecting choice of law and jurisdiction. FTAA Governments should examine existing national frameworks regarding choice of law and jurisdiction, and the subject of jurisdiction and choice of law regarding electronic commerce and consumer protection could be considered for the future work of the Committee.

E) Dealing with Electronic Commerce in the FTAA Negotiations

Electronic commerce has enjoyed a robust growth up to now largely because it has been unencumbered by the kind of trade barriers which have often restrained more conventional economic activities. The continuation of such an environment can continue to provide a major stimulus for the sustained growth of electronic commerce and its attendant benefits.

Recommendations:

• Previous Ministerial Declarations have reaffirmed that the FTAA will be WTO-consistent. The FTAA should benefit from the WTO Work Program on the trade-related aspects of electronic commerce and incorporate the WTO's consensus work.

• Taking into consideration that electronic commerce is of a global nature, one Delegation is of the opinion that this issue should be dealt with in the multilateral arena, such as the WTO and WIPO, among others; the Joint Committee did not reach consensus at this moment on the recommendation of how electronic commerce should be dealt with in the context of the FTAA negotiations.

• The activities of the Joint Committee over the last year have increased FTAA members' understanding of the potential benefits of electronic commerce and the challenges FTAA members face in ensuring that these benefits are broadly realized throughout the Hemisphere. As the Joint Committee continues its broad educational function, we recommend that it deepen its examination of a few selected areas under its ongoing work program. Interest exists in the Committee to share national experiences and examine best practices in areas to be determined, as well as to explore ways to broaden the participation of FTAA citizens in electronic commerce. This is not a negotiating group.