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Francisco Pinto Balsemão
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Tel: +322 231 1299
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Heidi Lambert Communications
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Electronic commerce - A shopper's paradise or a regulatory nightmare?


With the adoption by the Commission of their long-awaited draft directive on Electronic Commerce on 18 November, the European Parliament will shortly become the focus of the massed ranks of Europe's business and consumer representatives as the Parliament launches its first reading of these latest proposals. Members of the European Parliament are going to have a lively time! So why is this draft legislation so important and the centre of so much interest amongst business and consumers alike?

The electronic marketplace is a shopper's paradise. Via the Internet and the World Wide Web, consumers from all over the world can visit an infinite number of on-line shops and businesses in a world-wide market place - to window shop, dream or buy. They can compare prices, terms and conditions, quality and choice and obtain diverse information about goods and services. If consumers decide to buy, they can make their transactions in simple and convenient ways all at very low time and cost to themselves.

The electronic marketplace is a boost for business as companies all over the world develop new ways of reaching consumers across frontiers. The structure which underpins what we now call “electronic commerce” is vast yet intricate, spanning industrial and commercial sectors and international frontiers. Electronic transactions involve a galaxy of intermediaries from telecom networks, software specialists, service providers, on-line shops, travel agents, newspapers, banks, credit card companies, postal and delivery services, most of whom never see the other! A veritable free market, vibrant, exciting, challenging, exciting. So what's the problem?

The global nature of electronic commerce has forced governments to look at ways to meet the challenge of a frontier-free market – to provide a regulatory framework which allows businesses to thrive and compete, yet which continues to offer consumers the standards of protection they have come to expect in their day to day lives. Given that the electronic commerce market place is global the ideal, argue some, would be to have a set of rules, or at least principles, which are applied across the electronic universe. Others fear that globalisation of regulation would lead to loss of high standards of existing regulatory protection and instead argue for national control. The European Commission has plumped for a middle, but sensible course; one which offers tremendous opportunities for European businesses to provide goods and services within the Community whilst maintaining a high level of consumer protection. In short, the Electronic Commerce Directive will bring tried and tested internal market principles to the on-line electronic world as well as to the off-line world. This regulatory framework will be reinforced by industry self-regulation at national, European and global levels. The International Chamber of Commerce (ICC) has recently adopted a code for marketing and advertising on the Internet which will be implemented through the national self-regulatory bodies. The Commission's approach is now possible for a number of reasons.

Over the years, a body of law has been developed in Europe which regulates business, prevents unfair competition and provides consumers with protection in a number of areas which are directly pertinent to electronic commerce, including Directives on Misleading Advertising, Consumer Credit, Product Liability, Distance Selling and Data Protection. Backed up by many instances of industry self-regulation these rules are enforced throughout the European Union at national and local level whether by national courts or local trading standards officers and they will continue to be so regulated whether for on-line or traditional commercial transactions. With the development of an Internal Market in Europe we have seen a high degree of legal and economic integration which offers consumers similar opportunities and levels of protection wherever they may live in the European Union. The draft directive brings these internal market principles alive in the electronic world offering European consumers the opportunity to take advantage of the whole of the internal market from their home country.

The draft directive is based on Community principles of mutual recognition and country of origin control. This means that so long as the supplier complies with the laws in his own country, including the range of European directives already transposed into national law, his services and goods can be made available to consumers throughout the European Union without fear of interference from national authorities outside his home country, except for a few, limited instances (see below).

Take the publishing industry as an example. If electronic newspapers had to comply with all the different rules in every country of the Community with regard to editorial as well as advertising content, the administrative burden would be disproportionately high and consumers would be denied access to media in its original form. The fact that national rules on certain forms of advertising, direct marketing and sales promotion vary across the internal market must not be allowed to become an impediment to electronic commerce, particularly as advertising will be supporting many of the services on-line.

If there is going to be a problem, this is where it lies. The directive as currently drafted, allows the Member States the possibility to censor content emanating from outside their jurisdiction for reasons of public policy, in particular the protection of minors, or the fight against any incitement to hatred on grounds of race, sex, religion or nationality; the protection of public health, public security and consumer protection. These possibilities for derogation from true internal market principles must not become a charter for protectionism and censorship. The directive does, in fact, include some important safeguards against indiscriminate censorship and protectionism but industry is not convinced that these are adequate. It will be important, therefore, for Members of the European Parliament to make sure that there is a balance between a Member State's right to take measures in extremis and the rights of business and consumers to do business with each other across frontiers without undue interference from Government. The directive does ensure that consumers are absolutely clear about what type of messages they are receiving so that there can be no confusion between editorial information and paid-for advertising messages, as is the case already for the press and on TV.

Some Member States have already tried to censor websites from other countries on the grounds that the content conflicted with their own national restrictions on advertising. In fact the UK Financial Services Authority has pursued two Portuguese companies through the Courts, arguing that the financial services offered by these non-UK companies contained “advertising” which did not comply with the highly restrictive UK rules. The result of this is that European consumers now spend their money on financial services from the United States. The European Commission recently carried out some research on companies actively involved in developing web sites which carry advertising and found that legal costs were one of the highest development costs when producing on-line services and that companies were often put off from proceeding at all by cost of ensuring that their content was EU-wide legally compliant. This new draft directive will solve that problem together with industry systems put in place to deal with complaints about advertising. The media and advertising industry funds European-wide self-regulation to deal with consumer complaints about advertising in the country of origin. This means that a consumer in the UK, complaining to the UK Advertising Standards Authority about an advertisement in an on-line or traditional print magazine published in France can have his complaint dealt with by the self-regulatory authority in France which has jurisdiction over the French magazine.

An important aspect of this draft legislation is that it aims to bring electronic transactions within a transparent framework that will engender consumer confidence. Just because suppliers will be invisible to their consumers doesn't mean they will be unreachable. The directive requires all on-line operators to be clearly identifiable by their consumers so that they can be contacted easily in the event of a dispute or non-fulfilment of an electronic contract. The procedure for concluding contracts by electronic means is clearly set out, again to provide complete transparency for both suppliers and consumers as to the terms and conditions of the contract. Member States will be required to recognise the validity of electronic contracts and to make changes in their legislation where necessary to facilitate this method of doing business in the future. Contract law itself is not harmonised, of course, so consumers will still be able to invoke their mandatory rights in their home country.

The directive also deals with the question of liability for illegal content. It establishes a hierarchy of responsibility of who is liable for what, when. This means that when there is a problem over for example the piracy of copyright-protected material, the rights holders will be able to call on the various intermediaries to co-operate in getting the illegal material off-line as quickly as possible and to sue for damages. The same is true for defamatory or obscene material and the principle that what is illegal off-line is also illegal on-line will be vigorously enforced by the industry in co-operation with the authorities. Already a number of self-regulatory “hot lines” have been established in most Member States so that sightings of illegal or harmful content can be reported and removed swiftly.

It is unlikely that consumers would actually receive any additional protection from the alternative to control of on-line services in the country of origin, i.e. in the country of reception of the services, because the forthcoming directive on electronic commerce will ensure that commercial operators involved in on-line transactions are brought clearly within existing statutory and self-regulatory regimes which are effectively enforced at national and EU level.

It is important for Members of the European Parliament to remember that this directive is not designed to deal with every single intricate aspect of electronic commerce. It is a means whereby the Treaty's internal market principles can be applied in good faith to one of the most exciting developments in the building of a European market.


Angela Mills
Executive Director, The European Publishers Council


European Publishers Council

Chairman: Sir Frank Rogers
Executive Director: Angela C Mills
Telephone: +44 (0)1865 310 732
Facsimile: +44 (0)1865 310 739
Press Enquiries: Heidi Lambert
Telephone/facsimile: +44 (0)1245 476 265


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