eCommerce: A market without borders?

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Although eCommerce in Europe doubles every three years, sales remain primarily at national level due to low consumer trust in cross-border purchases. The European Commission and the European Parliament are carrying out legislative reviews of the EU's eCommerce Directive to address shortfalls.

Background

The most relevant piece of European legislation on eCommerce is the Electronic Commerce Directive adopted in June 2000. To guarantee legal certainty across the EU, the directive states that the applicable law is that of the member state in which a service provider is established. At the same time, it excludes prior authorisation for foreign online companies wishing to operate in other member states. 

The directive also deals with commercial communication (including unsolicited adverts, for example), contracts concluded by electronic means, the information service that providers must make available to users (various contact details) and the liability of intermediary services, like Internet Service Providers, in transmitting, 'caching' and storing information.

The basic EU rules for online services were laid down by the Transparency Directive adopted in June 1998, which clearly distinguishes information society services from broadcasting and telecommunication ones. The new definition covers online professional services (e.g. estate agents, insurance, travel agents), interactive entertainment (e.g. video on demand, online video games), online information (e.g. electronic newspapers, financial information), virtual shopping malls and distance-learning services.

In addition to these directives, eCommerce is also regulated at European level by rules on consumer rights which are divided into eight separate directives. Among these, rules on 'distance selling', adopted in 1997, are the most relevant to eCommerce.

In late 2008, the Commission made a proposal for a Consumer Rights Directive (CRD) which merges four existing EU consumer directives into one set of rules. For several reasons, the CRD has been heavily criticised by stakeholders and is currently in legislative limbo in the European Parliament.

Issues

The European Commission says it considers the development of eCommerce to be a key factor in completing the Single Market and allowing consumers to make purchases regardless of national borders.

But the EU is currently reconsidering many provisions in the eCommerce Directive that have proven too costly and cumbersome for businesses to implement.

According to a lawyer, Patrick Van Eecke from DLA Piper, who was tasked by the Commission to review the EU's eCommerce laws, repetitive security requirements for eInvoicing and poor definitions of new online payment schemes –eMoney – have prevented eCommerce from really taking off in the EU (EURACTIV 29/01/10).

An EU survey in late 2009 on the consumption and sale of online goods across borders also concluded that Europeans are turned off by online shopping, mainly as a result of payment difficulties and a lack of trust in online consumption (EURACTIV 23/10/09). 

60% of online purchases failed in the EU-backed test of 11,000 separate orders on cameras, CDs, books and clothes, the consumer survey showed. 

In order to boost online commerce, the Commission carried out a review of the so-called consumer acquis, the EU's existing body of legislation on consumer policy. The result would be a Consumer Rights Directive that merges existing rules on unfair contract termssales and guaranteesdistance selling and doorstep selling.

To address consumers' poor knowledge of their Internet rights, the EU launched an initiative called the Dolceta project ('Development of Online Consumer Education Tool for Adults').

What rules to apply?

EU Commissioner for Justice, Fundamental Rights and Citizenship Viviane Reding said she would push ahead with the contested 'Consumer Rights Directive' (CRD) despite her own recent admission that "full harmonisation of all consumer contracts would not fly".

In particular, Reding said she wanted to abolish charges of up to €2,000 ($2,700) facing companies if they want to have legal judgements in one EU country recognised in another.

A majority of stakeholders are in favour of increased legal harmonisation and a horizontal legislative instrument on eCommerce, according to the results of a public consultation launched by the Commission. 

In disputes over cross-border online contracts, the question of which national rules should apply arises. The Commission review seems to favour the 'country of origin' principle, whereby the legislation of the member state in which the company is based applies. Consumers are not happy with this, and usually prefer the 'country of destination' principle, whereby the legislation applicable is that of the member state in which the consumer resides.

According to the Commission, the CRD would strengthen consumer protection against late delivery and non-delivery, as well as setting out tough EU-wide consumer rights on issues ranging from cooling off periods, returns, refunds, repairs and guarantees and unfair contract terms. It would also free up business compliance costs by 97%, it says.

Consumer groups have been highly critical of the proposal, saying that it would dilute better standards already guaranteed under certain national laws.

Meanwhile, small businesses have expressed fear that introducing harmonised EU rules on the choice of jurisdiction in cross-border disputes (the so-called 'Rome 1' regulation) will hinder growth and jobs as compliance with 27 consumer laws would be too costly (EURACTIV 22/11/07). 

The European Parliament is currently drafting amendments to the CRD and is due to cast its vote on the final text in May 2010.

Security of online transactions

In order to boost online commerce, it is essential to guarantee a high level of security for all transactions. Credit cards and new payment methods, such as Bill-Me-Later and PayPal, have a crucial role in strengthening perceived and actual online security. 

Czech MEP Zuzana Roithova, in her report on consumer confidence in the digital environment, proposed introducing an external audit for "certain specific types of electronic services where there is a greater need to ensure that they are fully secure," such as Internet banking. To combat fraudulent behaviour, the MEP also suggests creating a European early-warning system which would allow consumers to report deceptive activities using an online form.

In October 2009, EU Information Society Commissioner Viviane Reding said the EU would be reviewing its data protection guidelines in 2010 (EURACTIV 27/10/09). Since then, EU officials have started studying ways to notify users of data privacy breaches (EURACTIV 28/01/10).

Trustmarks

Consumer trust may be also increased by the use of trustmarks, with a European logo for certified websites. The subject is currently being debated in Brussels.

A number of countries have already adopted so-called trustmarks for online-shopping sites. The Eurolabel is an initiative that has been adopted by Germany, Austria, Poland, Italy, France and Spain.

Internet Service Providers take centre stage

Recent debate on the eCommerce directive has focused on the role Internet Service Providers (ISPs) play on the Internet and whether they should be held liable for criminal, offensive or pirated content.

The EU has been under fire for its involvement in global trade talks - held under the banner of the 'Anti-Counterfeiting Trade Agreement' (ACTA) - which are reportedly considering holding ISPs more liable for content than current laws allow.

The EU recently denied this charge in a public hearing, saying that no decision had been taken and that existing rules on ISPs' unaccountability for content they did not create would remain in place (EURACTIV 22/03/10).

Critics argue that as a result of new copyright infringement laws being discussed under ACTA, ISPs have a reason to introduce draconian measures, hidden in the fine print of consumer contracts, to prevent piracy.

In addition, a controversial lawsuit against Google in Italy triggered a row on whether websites like YouTube should also be liable for offensive videos uploaded onto their site.

An Italian judge found three Google executives guilty in February 2010 of allowing a video showing schoolchildren humiliating a boy with Down's Syndrome to stay on the site for two months before it was removed (EURACTIV 26/02/10).

Positions

"A horizontal cross-sector legislative instrument should be based on full targeted harmonisation," said former Consumer Commissioner Meglena Kuneva

"Full harmonisation means that the member states would not be able to go beyond the proposed level of protection by introducing stricter consumer rules in the harmonised field," Kuneva added.

However, at a conference in Madrid in March 2010, the EU's new Commissioner for Justice, Fundamental Rights and Citizenship Viviane Reding admitted that full harmonisation of consumer rights, both on- and offline, "would not fly".

"The Internet has the potential to be the key driver of shopping without boundaries," said Susanne Czech, secretary-general of EMOTA, which represents the mail order and eCommerce sectors.

"We support targeted full harmonisation. Its scope must be clearly defined," said Carlos Almaraz of BusinessEurope, the Confederation of European Business.

Europe could pioneer new laws on eCommerce but EU legislators have been getting cold feet on making bolder steps, specialist lawyer Patrick Van Eecke argues. The Internet's usefulness could be extended to more businesses such as electronic contracts on real estate and family law, he added. 

But MEPs should focus on data protection, not the user's perceived entitlements, before drafting new laws on ecommerce, said UK Conservative MEP Malcolm Harbour, who chairs the European Parliament's committee on the internal market and consumer protection, in response to Van Eecke's analysis. 

Harbour believes that more harmonised rules on eCommerce would arrive "by the backdoor" once businesses feel the competitive pressure from a pending Consumer Rights Directive. The awaited directive would merge four existing proposals and is due to be adopted by the European Council before the end of 2009.

On ACTA:

"ETNO is concerned that disproportionate and wide-ranging measures such as filtering or the possibility of disconnecting internet users could be introduced through the Anti-Counterfeiting Trade Agreement currently negotiated by the EU and the US among others. Such a move would fully contradict users' rights as currently enshrined in EU law and reinforced by the recently adopted EU Telecoms Package," said Michael Bartholomew, director of EU telecomms federation ETNO.

"By creating legal uncertainty for the Internet operators, ACTA will force them to bend under the pressure of entertainment industries. ACTA will compel internet service providers to filter and remove content and services, turning them into private police and justice auxiliaries. We cannot tolerate that restrictions to fundamental rights and freedoms be imposed by private actors. Such a modification of criminal law by governments themselves, in total opacity, shows how much the people behind ACTA hate democracy," according to Jérémie Zimmermann, spokesperson for citizens' advocacy group La Quadrature du Net.

Timeline

  • May 2000: EU adopts eCommerce Directive.
  • 6 Dec. 2007: EU adopts Regulation on the law applicable to contractual obligations (Rome 1).
  • 8 Oct. 2008: Commission proposes a directive on consumer rights (CRD) to merge four existing directives.
  • Oct 2009: Commission survey shows eCommerce unpopular with consumers.
  • Spring 2011: European Parliament to vote on Consumer Rights Directive.

Further Reading

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