Electronic commerce – Regulation with a light touch (28 March 2001)

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Summary : The case for regulating the new eEurope in the interest of consumers

A recent report from the European Commission’s DG Enterprise described the business to consumer sector (B2C) as the poor relation or, more hopefully, the Cinderella of e-commerce and we are indeed a long way from the kind of mass electronic market that some commentators envisaged some years ago.

There are a number of reasons why this is so. The first perhaps is that there are many things that consumers will not want to buy at a distance, online or offline, even in their own country. Buying cross border in the single market raises the additional problem of eleven different languages (and more to come). Add to that the fifteen sets of national laws. (In this context it is irrelevant whether the laws are those of the country of origin or the host country – in either case the situation is not very transparent to one or other party to the transaction.) Taking all these factors into account, consumers have little incentive to buy on-line cross-border. They may engage in some transactions of low value, and low risk, but here too the potential gains may be low.

Small and medium enterprises (SMEs) are often seen as the pivot of many public policies and as potential winners in the e-market. In fact, consumers have little reason to buy from an unknown SME and even less reason to do so cross border in the context of the single market. The e-market and single market combined will tend to benefit large well-known and trusted brand names, as against relatively unknown small and medium enterprises.

What are the factors that might inspire consumer confidence in e-commerce? As I said, a well known, trusted and established brand name is one. Incumbents also have a big advantage against new entrants. Another way to inspire confidence is through trusted third parties. These may be public authorities, consumer organisations, or commercial entities with the advantage, in Europe at least, going to the first two – public authorities or consumer organisations.

Privacy and reliability

There are other problems of consumer confidence. Studies by consumer organisations and others have cast doubt on the reliability and standard of service of many online enterprises. It seems that many reputable and efficient companies offline have difficulties in meeting the same standards online. Problems arise mostly with delivery and fulfilment requirements, even among efficient companies, not to mention the inefficient or the rogues.

Fears about privacy are another deterrent to consumer confidence. Think for a moment of an ordinary department store with a TV camera that can identify you, follow you around, record which departments you visit and for how long, together with the products that attracted your interest, and which can then cross-process this information with your credit card details, family details, salary and leisure interests. This is not a real possibility in the offline market but it possible to do something like this in the online world – perhaps under a nice-sounding name such as “customer relations management”.

Indeed there is an inherent tension between here between the business and consumer perspective on e-commerce. For business one of the attractions of the e-market is precisely the ability to gather and process customer data; for consumers this new ability may not be welcome. How many e-commerce business plans would have to be scrapped if all consumers were to buy anonymously on the web?

Winning over consumers

To resolve or avoid these problems various solutions are proposed including different forms of self-regulation, “co-regulation”, binding laws etc. However, any system of regulation, in the widest sense of that word, has to meet certain criteria of efficacy, legitimacy and cons umer confidence. In the single market context, coherence and consistency are also needed. The system must have broadly similar effects in all Member States – it should act as a lubricant and not as an obstacle to free movement.

It is difficult to see how industry self-regulation alone could meet the requirements of efficacy, legitimacy, consumer confidence and coherence. Some additional ingredient is needed. A partnership with trusted consumer organisations would certainly be helpful but in Europe at least it seems to me that the involvement of public authorities is essential. This is not to argue for public authorities to write the detailed rules; their role should be a more sophisticated one. Their endorsement, express or implied, is essential for any scheme to meet the requirements of legitimacy, efficacy, consumer confidence and coherence. They would also be needed as a “backup” or enforcer of last resort in relation to market operators who do not choose to abide by the provisions of a code of conduct or other non-binding set of rules.

A central principle for consumer organisations would be the primacy of public authorities as the ultimate guardians or guarantors of public policy and the public interest and as the “back-up enforcer” in any regulatory system. So long as that principle is observed there may be many different regulatory models and different roles for public authorities. They would not necessarily have to be involved directly in every aspect of the market place. If this central principle is granted, I believe we would have a framework for a flexible and adaptable regulatory system in which there would be a role for self-regulation, co-regulation, dialogue between stake-holders etc. The relative roles to be played by these different models or approaches need not be set in stone; they may vary between different sectors and between different Member States for example, and may change over time.

Government must provide the necessary framework and back-up if self-regulatory or co-regulatory schemes are to work. This can only be done by an appropriate piece of framework legislation.

Legislation is essential

Self-regulation, co-regulation, codes of practice and alternative dispute regulation systems all have an essential role to play in the development of e-commerce, but only within a framework defined by legislation. Without such a framework there will be no basis for consumer confidence in alternative regulatory models and no coherence, because every regulatory model will have different consequences and different legal effects in different Member States.

Traditional forms of regulation are facing new challenges in keeping pace with the rate of change, technological progress and new societal expectations. Against this background it is more and more difficult to legislate in detail. We need a new legislative strategy dealing in frameworks and principles, and including a process for applying these principles to concrete cases. We also need to consider how to evaluate alternative regulatory models and how to promote the best of them.

DG SANCO are currently working on a possible initiative on (un)fair commercial practices. This initiative has already been painted as merely another piece of (over)regulation but I believe it can be something different and better. Properly devised, a framework directive on unfair commercial practices could support codes of conduct and other voluntary efforts to improve trading practices.

Jim Murray is director of the European consumers’ organisation – BEUC, Brussels.

For an in-depth analysis, see The European Policy Centre Challenge Europe:

Making a Reality of e-Europe.  

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