On top of the world and wired: a critique of Nepal's e-commerce law.

• Author: Blythe, Stephen E.
• Position: Report

I. Objectives of the Article

The objectives of this article are to: (1) describe the economic and political problems currently facing Nepal; (2) explain the positive role that e-commerce could have in the economic development of the country; (3) explain the role of electronic signatures, cryptology, public key infrastructure, and certification authorities; (4) describe the three generations of electronic signature law and how Nepal fits into that categorization; (5) analyze and critique Nepal's Electronic Transactions Ordinance ("ETO"); and (6) make recommendations for improvement of the ETO. The author's commentaries and recommendations pertinent to the ETO are in bold type.

II. Welcome to the Kingdom of Nepal

1. A Tourist Mecca

   If anyone wants to become a certified world traveler, the Kingdom of Nepal is a "Must See" destination. This hiker's paradise, perched on top of the world and sandwiched between the two most populous nations on Earth is blessed with beautiful scenery and breathtaking mountains. Each year Nepal attracts hordes of tourists making tourism one of Nepal's most important industries. (1)

2. Economic Underdevelopment

   However, despite its natural splendor, Nepal continues to be one of the poorest nations in the world. (2) The economic statistics paint a grim picture. Gross Domestic Product ("GDP") per capita in 2006 was estimated to be only U.S. $1500. (3) Thirty-one percent of the people have annual incomes below the poverty line. (4) The annual per capita income in Nepal is U.S. $290. (5) Forty-two percent of the Nepalese are unemployed. (6) Seventy-six percent of the employed population works in agriculture' (7) which accounts for 38 percent of the nation's GDP. (8) Nationwide, only 31 percent of the citizens of Nepal have electricity (9), in spite of the fact that Nepal has large potential for the exportation of hydropower. (10) The life expectancy of a Nepalese is just over 60 years and 51 percent of the people aged 15 and above cannot read or write. (11) The country is very dependent on foreign aid for its survival, with the international community providing substantial economic aid. (12) Furthermore, Nepal's economic prospects remain dim because of the "small size of the economy, its technological backwardness, its remoteness, its landlocked geographic location, its civil strife, and its susceptibility to natural disaster." (13)

3. Political Instability

   Adding to Nepal's economic woes is the ever-growing problem of political instability. Nepal's government is a parliamentary democracy and a constitutional monarchy, but this government is being threatened. (14) A Maoist insurgency has been trying to overthrow the government since 1996, and the insurgency has recently been growing stronger. (15) Negotiations achieved a cease-fire between the Maoists and the government in August 2003, but subsequently broke down, and the insurgency reactivated. (16)

   On June 1, 2001, the monarchy was further shaken from within by a tragic and unexpected event. (17) The Crown Prince of Nepal inexplicably shot and killed his father, the King of Nepal, and several other members of the royal family before turning the weapon on himself. (18) Before he died, however, the Crown Prince lay in a coma for three days, during which he became King. (19) Upon his death on June 4, 2001, the crown passed to the Crown Prince's uncle, the current monarch, King Gyanendra. (20)

   In October 2002, King Gyanendra dismissed the Prime Minister and his cabinet for "incompetence" after they had dissolved the parliament and was subsequently unable to hold elections due to the growing insurgency. (21) In June 2004, the King reinstated the most recently elected former Prime Minister who formed a four-party coalition government, but he did not reconvene the parliament. (22) The King however grew dissatisfied with the Prime Minister's inability to deal with the Maoist insurgency and with its alleged corruption. (23) In February 2005, the King declared a state of emergency. He dissolved the Prime Minister's government, imprisoned the leaders of the four political parties, and assumed total power. (24)

   In May 2005, the King declared an end to the state of emergency and released the political party leaders. (25) However, the King retained absolute power over the country. (26) In early 2006, the Maoists and seven opposing political parties instigated three weeks of widespread protests to voice their dissatisfaction with the King's stranglehold on power. (27) At first, the King attempted to control the protestors with strong-arm tactics, using his police force who killed a number of Nepalese citizens. (28) Eventually, however, the King relented allowing the parliament to reconvene on April 28, 2006. (29) These events set the stage for a political deal in December of 2007 between Nepal's government and the Maoist former rebels which will end the Nepalese monarchy in 2008. (30)

4. Room For Hope

   Notwithstanding these dramatic economic and political difficulties, there is room for hope in Nepal. Two significant sources of foreign exchange triggered the interests of foreign investors. (31) After facing some difficulties the past few years, tourism seems to be on the rebound and is expected to grow. (32) Furthermore, Nepal is committed to the development of its hydroelectric power industry. (33)

   There is another point of light, which may offer potential improvement for Nepal's future, e-commerce. (34) In 2000, seeing this potential Nepal's Ministry of Science & Technology coordinated with the United Nations Conference on Trade and Development (UNCTAD) (35) sponsoring a conference held in Kathmandu. (36) The topic under consideration was "Electronic Commerce & Development for the Least Developed Countries (LDCs)." Representatives from forty other LDC nations attended the conference to learn how to thrive in the world of e-commerce. (37)

   Since 2000, a number of websites have emerged in Nepal for the purpose of marketing Nepalese goods on an global scale. (38) However, an important piece of the e-commerce roadmap was missing--a comprehensive e-commerce law. That missing piece was added in 2004, providing the centerpiece of this article's analysis. (39)

   One of the most important parts of Nepal's e-commerce law concerns one type of electronic signature--the digital signature. In order to lay the foundation for a discussion of the pertinent legal issues, it is appropriate at this point to consider the basic aspects of electronic signatures in general and of digital signatures in particular.

   II. Electronic Signatures

   Contract law worldwide traditionally required the parties to affix their signatures to a document. (40) With the onset of the electronic age, the electronic signature made its appearance. It has been defined as "any letters, characters, or symbols manifested by electronic or similar means and executed or adopted by a party with the intent to authenticate a writing," (41) or as "data in electronic form which are attached to or logically associated with other electronic data and which serve as a method of authentication." (42) An electronic signature may take a number of forms: a digital signature, a digitized fingerprint, a retinal scan, a personal identification number, a digitized image of a handwritten signature that is attached to an electronic message, or merely a name typed at the end of an e-mail message. (43)

   A well-known U.S. consumer group has stated: "[G]iven the current state of authentication technology, it's much easier to forge or steal an e-signature than a written one." (44) This statement seems to assume that all e-signatures offer an equal degree of security. However, some electronic signatures offer more security than others. (45) It is prudent for e-commerce participants to use the more secure types of electronic signatures, notwithstanding their greater degree of complexity and expense.

1. Online Contracts: Four Levels of Security

   When entering into a online contract, four levels of security are possible.

   1. The first level is achieved when a party accepts an offer by merely clicking an "I Agree" button on a computer screen. (46)

   2. The second level of security is achieved when confidential information is shared between the two contracting parties. For example, the use of a password or the entry of a credit card number to verify a customer's intention to purchase goods or services. (47)

   3. The third level is achieved with biometrics. Biometric methods involve a unique physical attribute of the contracting party, and are extremely difficult for a would-be cyber thief to replicate. (48) Examples include a voice pattern, face recognition, a scan of an individual's retina or iris, a digital reproduction of a fingerprint (49), or a digitized image of a handwritten signature that is attached to an electronic message. In all of these examples, a sample would be taken from the person in advance and stored for later comparison with a person purporting to have the same identity. (50) For example, if a person's handwriting was being used as the biometric identifier, the "shape, speed, stroke order, off-tablet motion, pen pressure and timing information" during signing would be recorded, and this information is almost impossible to duplicate by an imposter. (51) Biometrics, despite its potential utility as a form of electronic signature, has at least two drawbacks in comparison with the more secure digital signature: (1) the attachment of a person's biological traits to a document does not ensure that the document has not been altered, i.e., it "does not freeze the contents of the document;" (52) and (2) the recipient of the document must have a database of biological traits of all signatories dealt with in order to verify that a particular person sent the document. (53) The digital signature does not have these two weaknesses and most seem to view the digital signature as preferable to biometric identifiers. (54) Many also...