25 Business-to-business electronic markets
| (25848)
11615/04
COM(04) 479
+ ADD 1
| Commission Communication: "Enhancing Trust and Confidence in Business-to-Business Electronic Markets"
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| Legal base | — |
| Document originated | 14 July 2004
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| Deposited in Parliament | 22 July 2004
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| Department | Trade and Industry
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| Basis of consideration | EM of 31 August 2004
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate on the future of eEurope[48]
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Background
25.1 Business-to-business electronic markets (B2B e-markets) are
internet-based trading platforms where enterprises exchange goods
and services and can be grouped into the following categories:
- Pin-boards or message boards: the simplest, offering only
the opportunity to announce a specific desire to buy or sell something.
- Exchanges: an extension of pin-boards, typically
offering mechanisms to match buyers and sellers, control their
interactions and enable them to negotiate via the platform.
- Catalogue-based e-markets: a compilation of the
catalogues of various sellers.
- Auction services: formal price-finding procedures
supported on an internet trading platform where sales auctions
are initiated by a seller with the aim of selling products or
services at the highest possible price, or the buyer with the
aim of obtaining products and services for the lowest possible
price.
25.2 The number of active e-markets is estimated
at about 1000 worldwide, about 20% fewer than two years ago. The
number in Europe, however, has remained relatively stable. E-markets
are mostly used for IT products and services, logistics, and building
and construction. Enterprises use e-markets to increase the efficiency
of internal business processes as well as to improve and streamline
customer relationships. E-markets seem to be more popular in
the Nordic member states; are used more for purchasing than for
selling; and are used much more intensively by enterprises with
more than 250 employees than by smaller and medium-sized enterprises
(SMEs).
25.3 Their establishment is subject to the E-Commerce
Directive,[49] which
has been implemented by all members of the European Economic Area.
But there remain a number of market imperfections, stemming not
only from national legal differences but also from the nature
of market relationships between different buyers and sellers.
Earlier Commission study has shown that barriers hindering the
participation of SMEs in particular are a lack of awareness, a
lack of information and a lack of trust in relation to electronic
transactions.
The Commission Communication
25.4 The objective of the Communication is therefore
"to enhance trust and confidence in B2B e-markets by pre-empting
existing concerns and facilitating the participation of enterprises
in these new trading forms". As well as improving understanding
of the applicable legal framework and addressing potential barriers
to the internal market which may arise from different national
rules on unfair trade practices in B2B e-markets, the Communication
aims to facilitate the further implementation of the recommendations
of an Expert Group drawn from industry and e-market operators
on the development of codes of conduct, in order to increase trust
and fairness and to facilitate broader participation of enterprises
in B2B e-markets. Although predominantly the responsibility of
the private sector, "the Commission is willing to support
consensus building in this area and to further promote self-regulation
by appropriate means".
25.5 Looking at the economic benefits of this
emerging market, the Communication notes that:
"These new trading forms may not necessarily
result in a balanced distribution of costs and benefits. This
applies notably to online reverse auctions…. Reverse auctions
are initiated by the buyer with the aim of buying products and
services for the lowest possible price. Some reverse auctions
explicitly aim at short-term cost reductions instead of long-term
business relations.
"However, it has been argued that potential
cost savings through reverse auctions, resulting from increased
competitive pressure, may be more than outweighed by higher costs
related to frequent changes of suppliers and therefore less integrated
business chains. At present, the empirical and economic evidence
available on the direct and indirect costs and benefits of different
electronic trading forms, including reverse auctions, does not
allow for definite conclusions on the effects on their participants.
Therefore, the Commission will initiate an economic study in order
to analyse the impact of B2B e-markets on competitiveness and
productivity of the EU industry."
25.6 On awareness-raising, the Communication
says:
"B2B e-markets are subject to a number of legal
rules, which cover different stages of their activities, ranging
from their establishment to their operation and the conclusion
of contracts by electronic means. These rules aim, in particular,
at removing obstacles to the provision of information society
services across the European Union and at ensuring fair and undistorted
competition. Better awareness of the applicable law will certainly
help to raise trust and confidence in the new forms of electronic
trading. The Commission will therefore continue seeking support
for the European e-Business Legal Portal, an online information
service on the legal framework for e-business, notably for SMEs,
provided by a European network of Euro Info Centres (ELEAS network)."
25.7 Trust and confidence, the Communication
says, "is increasingly an issue for electronic transactions
between enterprises". An open consultation of enterprises
on legal barriers to e-business revealed that many enterprises
are apparently unaware of the legal rules applicable to online
auctions, and thus "perceive it as difficult to distinguish
between a shift of market power that has to be accepted for economic
reasons, and unfair practices which do not comply with legal provisions
or codes of conduct. One reason for this is that, contrary to
traditional auctions, electronic auctions are a relatively new
phenomenon which has not yet had time to evolve and to develop
trade practices which would address the potential conflicts inherent
to auction tools in general".
25.8 In looking more closely at the relatively
low use of B2B e-markets in particular by SMEs, the Communication
highlights SMEs' perceptions — often being suppliers to
large businesses — that online auctions are used by big
purchasers to drive prices down. The Communication points to
perceptions of a lack of transparency in the way the electronic
transactions are conducted and to specific business practices
which are perceived as unfair by enterprises:
"Examples of such postulated unfair practices
refer to the lack of a clear reference to the participation terms
and conditions, uncertainties regarding the exact moment a contract
is concluded, the possibility to withdraw bids, the uncertainties
as to the acceptance of the best bid in online auctions, and to
practices which are considered as a distortion of the price setting
mechanism in online auctions (e.g. the submission of bids by the
initiator of an auction)."
25.9 The Communication goes on to say that:
"Such practices are generally covered by national
contract law and legislation against unfair competition, which
apply to both offline and online auctions. However, these rules
may differ from one country to another, thus resulting in perceived
uncertainties as to the applicable rules for cross-border electronic
transactions. In some cases, the existing national rules clearly
state that specific practices constitute a breach of contract,
e.g. the sale of defective goods, late or non-delivery of ordered
products, late or non-payment of goods, wrong quantity or bad
quality of delivered goods. In other cases, the legal situation
is less clear, e.g. as regards the hidden setting of reserve prices
in auctions, the right of the initiator of the auction to submit
bids or the obligation of the initiator to accept the best bid.
In particular, some national legal provisions may leave different
options to the parties to agree on what extent such practices
are allowed or not. It may also remain unclear how existing national
rules for auctions apply to the online environment (e.g. definition
of the exact moment a contract is concluded in an online auction)."
25.10 Against this uncertain background, the Commission
intends to study in greater depth the extent to which existing
national differences may constitute an obstacle to the internal
market for B2B electronic transactions. It will also, in cooperation
with business and legal experts from Member States, analyse specific
complaints reported by enterprises, further assess existing safeguards
against unfair commercial practices in B2B e-markets and prepare
a report on the need for further European harmonisation
in the field of contract law.
25.11 The Communication concludes by stressing its
support for self-regulation in building trust in B2B e-markets.
The Commission will facilitate the process by bringing together
all the relevant stakeholders, i.e. e-market operators and buyers
and sellers, with a view to their compiling what it describes
as "more inclusive and complete codes of conduct" that
"in particular, address the users' needs for information
on the e-market in question (e.g. participants, transaction process
models, price setting mechanisms, technical security, privacy
and confidentiality, applicable law and dispute resolution schemes)".
It also encourages business organisations to publicise the terms
of existing codes of conduct and to provide their members with
information, guidance and training on effective participation
in B2B e-markets in general (while remaining strictly neutral
on the use of specific B2B e-markets).
The Government's view
25.12 In his 31 August Explanatory Memorandum, the
Minister for Energy, e-Commerce and Postal Services at the Department
of Trade and Industry (Mr Stephen Timms) says that:
"The UK welcomes the Commission's document on
B2B e-markets. It is important that all businesses have the necessary
trust and confidence to be active in these markets. The particular
issue of reverse auctions and their tendency to favour buyers
rather than sellers is also worthy of further examination. The
UK therefore welcomes the actions proposed by the Commission.
"The UK agrees that the present legal framework
including contract and competition law is sufficient to deal with
any potential issues and welcomes the study of existing national
legislation applying to unfair commercial practices in B2B e-markets.
This will require full consideration however before any discussion
is taken forward regarding possible harmonisation."
Conclusion
25.13 With the growth of broadband and mobile
technology, business to business (B2B) e-markets are likely to
become an increasingly important area of economic activity. Unsurprisingly,
they contain all the imperfections and challenges, as well as
benefits and opportunities, of conventional market places. These
are well-illustrated in the Commission's Communication. The Commission's
approach to the improvement and expansion of B2B e-markets is
well-judged, with its emphasis on further study, on its role as
facilitator in involving all the relevant stakeholders and, especially,
on self-regulation. We agree with the Minister on the need for
full consideration before further legislation is contemplated.
25.14 In clearing the Communication, we draw
it to the attention of the House. We consider it relevant to
the debate we have already recommended on the future of eEurope.
48 (25683) 9675/04; see HC 42-xxv (2003-04), para 1
(30 June 2004). Back
49
Directive 2000/31/EC of the European Parliament and of the Council
of 8 June 2000 on certain legal aspects of information society
services, in particular electronic commerce, in the Internal Market
(Directive on electronic commerce). Back
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