Documents considered by the Committee on 10 February 2016 - European Scrutiny Contents

5 Digital Single Market: Consumer contract rights for the online sale of goods

Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested; drawn to the attention of the Business, Innovation and Skills Committee, Culture, Media and Sport Committee and Justice Committee
Document detailsProposal for a Directive on certain aspects concerning contracts for the online and other distance sale of goods
Legal baseArticle 114 TFEU; ordinary legislative procedure; QMV
DepartmentBusiness, Innovation and Skills
Document Numbers(37390), 15252/15 + ADDs 1-2, COM(15) 635

Summary and Committee's conclusions

5.1 On 9 December 2015, the Commission published its first tranche of legislative proposals aimed at delivering the Commission's Digital Single Market Strategy,[16] including two Directives on the supply of digital content (for example, streaming music) and the online sale of goods (for example, buying books online). These were accompanied by a Commission Communication: Digital contracts for Europe — Unleashing the potential of e-commerce (the "Digital Contracts Communication").

5.2 This Report chapter focuses on the draft Directive on the online sales of goods. The draft Directive on the supply of digital content and the Digital Contracts Communication (considered together in one Explanatory Memorandum) is the subject of a separate Memorandum and chapter.

5.3 The draft Directive proposes 'maximum' harmonisation in respect of certain contractual rights and remedies for (business to consumer) distance or online sales of tangible goods. This means that if the Directive is adopted, no Member State could give greater or lesser protection than set out in the Directive, such that certain aspects of consumer contract law would be fully harmonised across the EU. The Commission considers maximum harmonisation necessary in order to increase consumer trust in entering into transactions cross-border by providing uniform rules with clear consumer rights, and to reduce business costs resulting from the complexity and uncertainty arising from legal fragmentation in cross-border e-commerce rules.

5.4 The provisions of the draft Directive on online content are set out in detail below. Key provisions and areas of divergence from the recently implemented Consumer Rights Act 2015 (CRA) in the UK include:

·  Conformity criteria of the goods: quality standards may need to be reformulated to reflect the wording in the proposed Directive;

·  Remedies available to consumers: UK consumers would lose their short-term right to reject faulty goods (as afforded under the CRA). Instead consumers would first have to request a repair or replacement and could only reject goods if these remedies failed. The proposed Directive does not specify how many times the supplier can offer a repair or replacement before a consumer can access a partial or full refund (as opposed to a maximum of once under CRA). However, consumers would have a statutory right to withhold payment of any outstanding amounts until the defects were fixed. Furthermore, if the consumer rejected the goods after repair or replacement had not resolved the defect, the trader could only deduct from its refund a sum to reflect use in excess of 'regular use';

·  Time limit for reverse burden of proof: the period within which a defect emerging is presumed to have been present on delivery would be extended from six months to two years; and

·  Liability: (the period in which a fault has to appear before a consumer can make a claim) and limitation periods (the period is the period of time within which a party to a contract must bring a claim) for remedies: currently aligned at six years in England, Wales and Northern Ireland and five years in Scotland. The proposed Directive would lead to a reduction in the UK's liability period to two years.

5.5 The Minister for Skills at the Department for Business, Innovation and Skills (Nick Bowles) appears to support this draft Directive as part of a package of measures intended to stimulate cross-border e-commerce and create a Digital Single Market. However, he raises various concerns, which can broadly be broken down into:

a)  the potential 'mismatch' of consumer contract rights that may arise between online and 'offline' (in store) sales; and

b)  whether changes to the level of consumer protection offered in certain areas may negatively impact on consumer confidence or impose disproportionate costs on businesses.

5.6 He acknowledges that further work is necessary to assess such impacts, and is seeking views from stakeholders.

5.7 The Committee welcomes the Minister's Explanatory Memorandum on this technically complex but legally and politically important proposal, which is likely to have far-reaching impacts on UK consumers and businesses. We note that the Minister welcomes "ambitious proposals on consumer protection that will deliver real benefits" as part of an overall package of Digital Single Market Strategy measures aimed at increasing cross-border e-commerce, but does not at any point explicitly endorse this proposal (in contrast to the proposal on the supply of digital content).

5.8 We share many of the concerns outlined by the Minister. We note that, as currently drafted, the proposal would result in a diminution of certain key UK consumer protections, including the loss of the short-term right to reject faulty goods (which UK consumers can currently exercise rather than accepting repair or replacement of the faulty good) and would require many existing provisions of UK consumer law to be changed. While consumer protection may increase in other areas (for example, through the proposed extension of the reversal of the burden of proof from six months to two years), it is not clear what the overall impact on UK consumer protection would be.

5.9 We consider that a specific set of rules for the online sale of goods online could create a conflict or discrepancy between online and offline regimes governing exactly the same product, which may have perverse or unintended consequences. While the Commission acknowledges that this potential 'mismatch' is an issue, it considers that any problems can be resolved through its 'REFIT' examination of EU consumer contract law (which also concerns the 'offline' sphere). However, as the process is expected to take 18 months and the outcomes are unclear, this leaves a great deal of uncertainty in the interim.

5.10 We also note that the Minister considers that: negotiations on this draft Directive may progress more slowly than the draft Directive on digital content; the two proposed Directives are not "intrinsically linked"; and trade-offs between the two are not expected. However, we consider that interactions between the two Directives may need to be considered further. For example, the draft Directive on the online sale of (tangible) goods does not apply to goods incorporating digital content in such a way that the goods function only as a carrier of the digital content (such as DVDs and CDs). The goods will be regulated by the draft Directive on digital content. We ask the Minister whether he supports this distinction (noting that DVDs and CDs are treated as goods under the Consumer Rights Act) and whether he has considered how 'offline' sales of items such as DVDs and CDs would be treated (noting the potential 'mismatch' issues identified above).

5.11 The Committee also agrees with the Minister that more work is needed to assess the specific impacts of the proposal on the level of consumer protection for UK consumers and the cost implications for businesses.

5.12 The Committee also considers that policies that complement and support these proposed maximum harmonisation measures, for example by boosting businesses' and consumers' understanding of their contract law rights and obligations and means of cross-border redress or by improving enforcement action by national authorities, are important to ensuring the effectiveness of the proposed Directive.

5.13 In order for the Committee to be able to make a more informed assessment of the likely impacts of the Directive and the progress of negotiations, we ask the Minister to:

·  explain how adoption of the draft Directive in its current form would deviate from the recently implemented Consumer Rights Act (on an article by article basis) and what impacts this would have on a) consumers and b) businesses;

·  expand on the potential interactions between the 'offline' and 'online' frameworks (for example, does he envisage ultimate convergence of the offline rules with the online rules, once the online rules have been agreed; prefer that offline and online rights and remedies proceed in parallel; or that a more holistic approach integrating goods, digital content and services, as taken under the CRA, is adopted?);

·  provide an assessment of the effectiveness of the maximum harmonisation Consumer Rights Directive that fully harmonises certain rules for the online and other distance sales of goods (mainly pre-contractual information and the right of withdrawal) and whether there are any lessons which the Government and Commission could draw on in relation to progressing this draft Directive;

·  set out stakeholders' (including, but not limited to, consumer and business groups, law societies and Member States) reactions to the draft Directive and their key areas of concern or support;

·  provide an assessment of what, if any, 'flanking' measures may impact on the success of this draft Directive (for example, measures to improve price transparency and regulatory oversight on parcel delivery or enhanced consumer protection cooperation between national enforcement authorities);

·  clarify what work the Government considers necessary to assess the practical implications for consumers and businesses, and whether it intends to persuade the Commission to expand its own cost/benefits assessment in this respect; and

·  specify what changes he hopes to secure during the negotiations (both in respect of this Directive and any 'flanking' or complementary measures), whether it has any red lines, and what the Government intends to do to marshal the support of other Member States in its efforts.

5.14 We ask for this response by 8 April, so that it can take account of the stakeholder conference the Department intends to commence this February.

5.15 Pending the information requested and progress updates from the Minister on developments, we retain this draft Directive under scrutiny. Given its political importance and its potentially significant impacts on UK businesses and consumers, we draw it to the attention of the Business, Innovation and Skills Committee, Justice Committee and Culture, Media and Sport Committee.

Full details of the documents: Proposal for a Directive on certain aspects concerning contracts for the online and other distance sale of goods: (37390), 15252/15 + ADDs 1-2, COM(15) 635.


The Digital Single Market Strategy

5.16 The Digital Single Market Strategy set out an ambitious work programme of EU action in three 'pillars': reducing barriers to e-commerce; setting the rules and frameworks in which digital networks and services can thrive; and maximising the growth potential of the EU digital economy.

5.17 Actions envisaged under the first pillar included legislative proposals for simple and effective cross-border contract rules for online and digital purchases, alongside reforms to EU copyright law. A draft Regulation on the cross-border portability of online content services in the internal market — the first legislative proposal of the Commission's action plan to modernise EU copyright rules — was published on the same day as the proposed Directives on contract rights and is the subject of a separate Report chapter.

5.18 The Commission considers that actions intended to help create a genuine Digital Single Market, such as the recent proposal on cross-border portability of online content, price transparency and regulatory oversight on parcel delivery and enhanced consumer protection cooperation between national enforcement authorities, should be considered as an overall package to break down cross-border barriers to e-commerce and therefore complement the proposed Directives on contract rights:

    "The Digital Single Market Strategy intends to deal with all major obstacles to the development of cross-border e-commerce in the Digital Single Market in a holistic manner. The proposal should be seen in the context of this holistic approach. This covers among others the initiatives related to the role of platforms, the European Cloud initiative, VAT related burden and parcel delivery. It also covers initiatives related to enforcement/redress, i.e. the entry into operation of the Online Dispute Resolution platform and the review of the Regulation (EC) No. 2006/2004 of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws. In particular, fully harmonised contract law rules in the EU will also facilitate coordinated enforcement actions undertaken by the Consumer Protection Co-operation authorities."


Overview of existing EU consumer law

5.19 National differences arise from national mandatory rules going beyond EU minimum harmonisation Directives. For example, the Consumer Sales and Guarantees Directive provides minimum harmonisation rules on conformity requirements and remedies for non-conforming goods (which some Member States have chosen to extend to digital content). The Unfair Contract Terms Directive sets minimum requirements on unfair standard contract terms for both goods and digital content.

5.20 The Commission is currently conducting a review of existing EU consumer legislation, in the context of its Regulatory Fitness and Performance Programme (REFIT), which includes the Unfair Contract Terms Directive, the Consumer Sales and Guarantees Directive, the Unfair Commercial Practices Directive, the Price Indication Directive the Injunction Directive and the Misleading and Comparative Advertising Directive.

5.21 The proposed Directive's approach of 'maximum harmonisation' is similar to the approach taken under the Consumer Rights Directive, which has fully harmonised certain rules for the online sales of goods and supply of digital (mainly with regard to pre-contractual information and the right of withdrawal or cancellation).

5.22 The Commission also sets out its plans within the context of broader changes to EU consumer legislation resulting from its 'Regulatory Fitness and Performance Programme' (REFIT), including the Consumer Sales and Guarantees Directive and stresses the need for ensuring consistency between 'online' and 'offline' rules. It states that "these [REFIT] conclusions could feed into progress made by the co-legislators on the proposal for online sales of goods, for example by expanding its scope … it is the Commission's objective to ensure a legal framework of coherent rules applied throughout the EU for both online and offline sales".

Previous attempts at harmonisation

5.23 This is not the first time that the Commission has attempted to harmonise contractual rights and obligations across the EU. There have been a series of attempts to achieve this in a more comprehensive way for more than ten years, the most recent being a Common European Sales Law (CESL). CESL — a draft Regulation — provided an 'optional instrument', which would neither replace nor harmonise national laws, but could be chosen as an alternative regime from those offered under national laws. It was opposed by several Member States, including the UK, and eventually abandoned for a number of reasons, including objections to the proposed legal base and concerns that an optional system would increase, not diminish, legal uncertainty. The House of Commons issued a Reasoned Opinion on 23 November 2011, objecting to the draft Regulation on the grounds that it did not met the requirements of a) being necessary, or b) producing clear benefits by reason of its scale and effect.[17]

5.24 The Commission stresses that it has consulted a wide range of stakeholders on the draft Directives and "taken into account the lessons learnt from previous attempts to approximate contract laws", by proposing a Directive (which allows Member States "the freedom to adapt the implementation to their national law") on "targeted full harmonisation of mandatory consumer rights which remedy cross-border trade and address the urgency of acting on the online sphere".


5.25 The CRA came into force on 1 October 2015. One of its main purposes was to simplify UK consumer protection law. It covers goods, services and digital content and all modes of supply (online and offline).

The Draft Directive

Objectives and rationale for action

5.26 The proposed Directive intends to "fully harmonise in a targeted way the key mandatory rights and obligations of parties to a contract for ... the online sale of goods", as the Commission believes that this "will contribute to the faster growth of the Digital Single Market".[18]

5.27 The Commission asserts that legal fragmentation in certain areas of contract law covering the sale of goods online are confusing for both businesses and consumers and inhibit cross-border trade. It points to the following survey evidence in this regard:

·  55% of EU consumers have purchased goods online from a domestic trader, but only 18% have purchased a good online from another EU trader; and

·  39% of businesses selling online in their home Member State, but not cross-border, quote different national contract laws as one of the main obstacles to cross-border sales.

5.28 The Commission considers that a fully harmonised set of rules would encourage:

·  businesses (including SMEs) to sell more cross-border, by reducing the costs and legal uncertainty arising from current differences in contract law; and

·  consumers to shop more cross-border, by providing a high uniform level of consumer protection across the EU (although the level may change in certain Member States), regardless of where purchases are made.

5.29 The Commission expects targeted harmonisation to increase competition, benefitting consumers in the form of lower prices, better quality and more choice. Commission research estimates that if the same rules for e-commerce were applied in all EU Member States, 57% of companies would either start or increase their online sales to other EU countries and that EU consumers could gain up to €154 billion (£118 billion) per year through access to greater choice, lower prices and increased competition. The Commission also considers that harmonised contract laws would facilitate coordinated enforcement actions across EU Member States.


5.30 The proposed Directive proposes maximum (or full) harmonisation of certain aspect of consumer law, including rights relating to conformity criteria of the goods purchased, remedies and the means of exercising these remedies (hierarchy of remedies), and the periods of the reverse burden of proof. It would replace certain aspects of the Consumer Goods and Guarantees Directive, which is a minimum harmonisation Directive. A summary of the main provisions is set out below:

Article 1 — Scope:

·  Applies to business to consumer (B2C) transactions only.

·  Does not apply to goods like DVDs and CDs incorporating digital content in such a way that the goods function only as a carrier of the digital content or to distance contracts for provision of services.

·  Where a sale contract provides both for the sale of goods and the provision of services the Directive applies only to the part relating to the sale of goods.

Article 3 — Maximum (or full) harmonisation:

5.31 Member States are not able to adopt or maintain provisions that diverge from those set out in the Directive.

Articles 4-7 — Conformity criteria:

5.32 The goods must primarily conform to what was promised in the contract. In the absence of explicit contractual terms specifying conformity criteria, the goods must conform to objective criteria.

Article 8(3) — Burden of proof for lack of conformity:

5.33 Reverse burden (i.e. lies with the seller) for a period of two years.

Articles 9-13 — Remedies:

5.34 Article 9 specifies the 'hierarchy' of remedies. As a first step, the consumer is entitled to have the goods repaired or replaced within a reasonable time and without any significant inconvenience. Article 11 allows the consumer to choose between repair and replacement unless the option would be disproportionate compared to the other option, impossible or unlawful. A consumer is only entitled to a price reduction (as set out in Article 12) or to terminate the contract (as set out in Article 13) where the lack of conformity cannot be remedied through repair or replacement. The consumer has the right to withhold payment until the goods are brought in conformity.

Article 14 — Time limit:

5.35 The time limit for the availability of the remedies is set at two years (and a Member State's limitation period cannot expire earlier).

Article 19 — Amendments to other Directives:

5.36 Amends Directive 1999/44/EC in order to avoid overlaps between the two instruments and adds a reference to the Directive in the Annex of Regulation (EC) No 2006/2004 to facilitate cross-border cooperation on enforcement of this Directive. Like Directive 1999/44/EC the proposal provides that consumers can seek compensation (damages) arising from lack of conformity using their national laws. The proposal will not fully harmonise unfair terms and so will not impact Council Directive 93/13/EEC. The proposal supplements the maximum harmonisation Directive 2011/83/EU that fully harmonises certain rules for the online and other distance sales of goods (mainly pre-contractual information and the right of withdrawal). The proposal does not require any changes to the framework of EU private international law, including to Regulation (EC) No. 593/2008 (Rome 1).

The Minister's Explanatory Memorandum of 5 January 2016

Policy Implications

5.37 The Minister broadly welcomes the proposed Directive as part of a package of measures intended to help realise the benefits of a Digital Single Market, by increasing consumer and business confidence in engaging in cross-border e-commerce:

    "The Government has asked the EU to take bold steps to create a Digital Single Market that delivers for consumers and entrepreneurs trying to break into new markets. We therefore welcome the ambitious proposals on consumer protection that will deliver real benefits, and contribute to a Digital Single Market.

    "The Government supports policies that will boost consumer and business confidence in cross border sales and believes that e-commerce should bring the reality of the single market closer to consumers and business.

    "If the Digital Single Market reaches its full potential it will allow UK consumers to access more choice and lower prices for goods bought online across Europe and allow UK business to benefit from its position as a global ecommerce leader."

5.38 However, he raised concerns in a number of areas. One of the Government's key concerns is over the potential mismatch between consumer rights for consumers who purchase the same tangible good online as opposed to offline. The Government therefore supports the same rules for all sales, whatever the distribution channel, except where differences are justified, notes that the Commission's REFIT assessment of consumer protection rules for 'offline' sales may propose alignment with the proposed regime for 'online' sales, and that further work is therefore need to assess divergences, options and impacts:

    "Offline and online differences

    "The Government is concerned that proposals could see two sets of rules existing for online and other distance sales of goods and for offline, or face-to-face, purchases. We think that this is confusing for both businesses and consumers and it would be better if the same rules applied whatever the sales route, except where differences are justified by the nature of the sales process (the existing withdrawal right under 2011/83/EU, for example, which gives consumers a 14-day right to return goods bought at a distance because they have not the opportunity to inspect them before purchase).

    "We understand the desire to act fast for online sales routes, in the context of delivering the Digital Single Market, a political commitment of the Commission. We also note that the proposal and the Communication set out that the Commission intends to take steps to avoid differences emerging so that consumers and business will be able to rely on a coherent legal framework. The proposal and Communication suggests that if the Fitness Check exercise on the Consumer Sales and Guarantees Directive (1999/44/EC) for offline sales concludes that the consumer protection rules should be aligned, the co-legislators could expand the scope of the Directive to also cover offline sales. The analysis of this Directive therefore needs to consider the impacts to offline sales as well as online."

5.39 The Minister's other concerns can be grouped around the impacts on the level of protection that will be afforded to UK consumers in certain areas (i.e. where an extension of maximum harmonisation measures may lead to a reduction of rights, for instance in the immediate right of rejection) and on the financial costs to UK businesses where consumer protections increase (i.e. whether increases in protections would impose disproportionate costs on businesses):

    "Lack of flexibility in the future

    "The UK has introduced or retained provisions that go beyond the existing minimum standards in EU law, and the Government would, in principle, be free to de-regulate further provided that new rules did not fall below the European standard. If this proposal is adopted, then that flexibility would be lost and it would be impossible to either introduce more or less generous provisions.

    "Loss of key UK consumer protections

    "The Government supports the proposal to introduce a full harmonisation measure where there is evidence that minimum harmonisation and the resulting divergence in laws create barriers to e-commerce. However, the introduction of a full harmonisation Directive will have a significant impact on Member States who have chosen to go beyond the minimum requirements of the existing Directives in certain areas.

    "We recognise that traders can offer consumers additional protections as part of their offering to customers and have noted, for example, that the British Retail Consortium's (BRC) response to the proposal indicated that many UK retailers intend to continue offering consumer rights that go beyond the proposed standards. However, we are concerned that the baseline has to be set at an appropriate level in order to support consumer confidence and avoid a bias towards established players who are better able to signal additional protections to an established customer base, at the expense of new entrants, SMEs and more unfamiliar cross-border traders.

    "Several Member States will have concerns that full harmonisation will result in a reduction of consumer protection for their citizens. In the UK the proposals, if finally agreed in their current form, will mean that certain key rights would need to be repealed for online and other distance sales.

    "i. Loss of the short term right to reject

    "The UK has had a short term right to reject faulty goods since 1894. This right was recently clarified in the Consumer Rights Act 2015 where the right to reject faulty goods and obtain a full refund was set at 30 days. This right sits outside of the hierarchy of remedies contained in the Consumer Sales and Guarantees Directive (1999/44/EC) which are also available to UK consumers.

    "As this legislative proposal is based on maximum harmonisation the proposal would require the UK to repeal the short term right to reject faulty goods. Repealing this right would mean that consumers would not be able to obtain a refund until they had first pursued other remedies unless the retailer decides to provide more generous conditions.

    "The Government has shared an economic analysis with the Commission where we set out the rationale for this key UK consumer right. Law Commission (2009) research found that 94% of UK consumers said the right to a refund was important to them, and 89% thought it should be retained even though other remedies (repair and replacement) are available. This is not to say that UK consumers exercise the right in every circumstance: consumers consider that a refund is the appropriate remedy in 20% of faulty goods cases but nevertheless see having this right as an important backstop in situations where they have lost confidence in a good, or a supplier.

    "Building confidence in new suppliers is particularly important for the Digital Single Market where consumers will need confidence to try new, unfamiliar suppliers rather than sticking to tried and tested favourites.

    "ii. Loss of a one repair or replacement limit

    "In the UK a supplier may make one attempt to repair or replace faulty items before the consumer can access a refund (should they desire one). This protection was reviewed and clarified in the Consumer Rights Act 2015 where a limit of one repair or one replacement was introduced. The UK would need to repeal the one repair or one replacement limit under the proposal.

    "The Government is concerned that the proposal does not contain a strict limit on the amount of repairs and replacements a supplier can offer before a consumer can access a partial or full refund. The Government sees a limit on the amount of repairs and replacements offered to consumers as key to consumer confidence, whilst balancing the interests of business who welcome the legal certainty that a (a non-time based) limit provides.

    "The proposal does put a number of subjective limits on offering a repair or replacement. The Government would argue, however, that these are ambiguous and could lead to further disputes as consumers and traders argue about how these terms are defined. Setting a clear limit on the repair/replacement process provides consumers with legal certainty that they will not be locked into an endless cycle of failed repairs or replacements, with the inconvenience this involves, or find themselves in dispute with a supplier over whether another repair is 'possible' or 'significantly inconvenient' to either party, or if a full refund does apply.

    "In addition business has clarity on their obligations to the consumer when things go wrong which reduces the likelihood of disputes arising between traders and consumers and are prevented from dragging matters out when goods are faulty. They are therefore incentivised not to sell poor quality goods in the first place (i.e. because they will lose all monies from the sale).

    "iii. Liability period:

    "At present the liability and limitation periods for remedies are aligned at six years in England, Wales and Northern Ireland and five years in Scotland. The proposal will see a reduction in the UK's liability period (the period in which a fault has to appear before a consumer can make a claim) to 2 years. The Government sees limited scope for consumer detriment as most goods would not last this long but will fully consider the impact of this change, in particular for goods that may be expected to last this long.

    "Reversal of the burden of proof

    "The proposal includes an extension to the reversal of the burden of proof so that in the event of goods having a fault, the consumer will have the benefit of a presumption for a period of 2 years that the goods were faulty when delivered. Under current law this period is 6 months. During this period it is for the supplier, not the consumer, to prove that the goods were satisfactory at the time of sale. We agree with the Commission that this has the potential to lead to a significant increase in consumer protection.

    "We will want to ensure that this extension to the reversal of the burden of proof does not impose a disproportionate burden on business and is justified by a robust cost/benefit analysis. We will consider this in more detail as the proposal progresses."


5.40 The Minister lists the stakeholders his Department has consulted, but does not provide any information on their reactions to the proposed Directive:

    "BIS officials have met and corresponded with key stakeholders including Which?, the Federation of Small Business, the British Retail Consortium, the Law Society of England and Wales and the Competition and Markets Authority and will continue to do so throughout the negotiation process."

5.41 He also notes that:

    "As part of our ongoing engagement, BIS plans to hold a stakeholder conference in February to provide the Commission with a chance to explain its approach and to provide stakeholders with the opportunity to discuss this and the proposal on digital content."


5.42 The Minister refers to, but does not provide any detailed commentary on, the Commission's Impact Assessment. The Government's Impact Assessment Checklist, which covers both this proposed Directive and the one of the online sale of goods is available online.[19]

5.43 The Government's Impact Assessment Checklist notes that more work is needed to understand the quantified benefits and costs to UK consumers and businesses arising from the proposed measures:

5.44 Under the section Costs and Benefits of proposals of tangible goods — Impact on businesses:

    "The Commission Impact Assessment estimates that if the same rules for e-commerce were applied in all EU Member States, 57% of companies would either start or increase their online sales to other EU countries and this additional choice would cause EU consumers to gain up to €154bn per year through increased competition and lower prices. The exact UK share of this is currently unclear, and we will do further work to understand the quantified benefits and costs to the UK arising from these proposals."

5.45 Under the section Costs and Benefits of proposals of tangible goods — Impact on consumers:

    "there is clear evidence that harmonising consumer rights across the EU will remove a key barrier to consumers shopping more cross-border and so will allow UK consumers to benefit from increased access to choice, lower prices and competition between firms. However, to realise these full benefits it is important that the statutory protections are set at a level that supports confidence and allows new entrants to compete on a level playing field.

    "We are not currently in a position to quantify these impacts, and the Commission's Impact Assessment does not seek to justify the level of consumer protection based on a robust analysis of the costs and benefits."


5.46 The Ministers states that there "are no clear financial implications for Government spending".


5.47 The Minister notes that the proposed Directive proposes maximum harmonisation in certain aspects of consumer protection law for the online or distance sales of goods, which will impact on UK law. In particular, the recently adopted and implemented Consumer Rights Act 2015 would need to be amended to implement the Directive:

    "The Directive which certain provisions of the proposal repeal and replace is Directive 1999/44/EC (the Sale of Consumer Goods and Associated Guarantees Directive) implemented in the UK by certain provisions of the Consumer Rights Act 2015.

    "The proposal is intended as a maximum harmonisation measure. The UK would not be able to maintain more or less stringent requirements in relation to matters falling within the scope of the proposed Directive than those set out in the proposal. It will be necessary to review legislation in the UK which covers matters falling within the scope of the proposed Directive, primarily the Consumer Rights Act 2015, to determine the extent to which they impose more or less stringent requirements.

    "We envisage being able to implement this Directive by means of secondary legislation under the section 2(2) powers of the European Communities Act 1972.

    "Member States will be able to adopt or maintain their own national provisions covering aspects of business to consumer contracts outside the scope of the Directive."


5.48 The Minister notes that certain fundamental rights under the European Charter of Fundamental Rights will be engaged, in particular Article 16 (the freedom to conduct a business), Article 38 (consumer protection) and Article 47 (the right to an effective remedy and fair trial), but that the interference would appear to be justified in order to fulfil legitimate policy objectives to ensure free cross-border movement of goods:

    "A recital to the Directive respects the freedom to conduct a business (Article 16), consumer protection (Article 38) and the right to an effective remedy and to a fair trial (Article 47), and the current proposal makes no further references to the Charter.

    "A thriving cross-border e-commerce sector can bring benefits to businesses and consumers, supporting the rights in Article 16 and 38.

    "The Government agrees with the Commission that a set of fully harmonised rules for online sales of goods will contribute to the freedom to conduct a business by facilitating the sale of goods cross-border. The Government also agrees that fully harmonised consumer protection would support consumer protection if it is set at a sufficiently high level."


5.49 The Minister agrees with the Commission's assessment that only action at an EU level on cross-border contractual rights in relation to online sales can effectively overcome fragmentation in the internal market, and in this content the proposed Directive is therefore justified in accordance with the principle of subsidiarity set out in Article 5 of the Treaty of the Functioning of the European Union:

    "The Commission's objective in introducing this proposal is to create a single set of consumer rules relating to conformity of goods, time limits relating to burden of proof and guarantee periods, and remedies for non-conformity across the EU in order to fully harmonise all consumer protection aspects which are relevant to online cross-border trade. This will contribute to the completion of the Digital Single Market (Internal Market) by removing the fragmentation caused by the differing implementation of the existing minimum harmonisation Directive 1999/44/EC. The Commission states that this fragmentation creates barriers to online cross-border trade. Such fragmentation cannot be addressed through uncoordinated actions by Member States.

    "The Government accepts that the establishment of a clear and harmonised framework for consumer rules within the EU will require action at EU level and cannot be achieved by Member States on their own."


5.50 The Minister states that discussions at Working Group level were scheduled to begin at the end of January, with a view to making "rapid progress" in the first six months, and that "the proposal will be presented to an informal Justice and Home Affairs Council on 25-26 January 2016 for initial views of Ministers, and for likely discussion in the May Competitiveness Council". He considers agreement before mid-2017 unlikely:

    "Nevertheless we expect that the negotiations will carry over to the Slovakian Presidency. It is possible that the file could still be under consideration during the UK Presidency in 2017."

5.51 The Minister is not able to provide any information on the European Parliament's expected timetable for consideration of the proposal, but expects it "is likely to become clear in early 2016".

5.52 It is worth highlighting that in his Explanatory Memorandum of 5 January on the proposed Directive on harmonising certain consumer contract rights for the supply of digital content, the Minister states:

    "Although this proposal [on the supply of digital content] was published at the same time as the proposal for Directive on the online and other distance sales of tangible goods (15252/15), they are not intrinsically linked and seem unlikely to run to the same timetable. … In any case we would not expect trade-offs between the two."

Previous Committee Reports


16   See Fifth Report HC 342-v (2015-16) Chapter 4 (14 October 2015) and Tenth Report HC 342-x (2015-16) Chapter 7 (25 November 2015) for further information. Back

17   Reasoned Opinion of the House of Commons concerning a draft Regulation on a Common European Sales Law for the European Union (23 November 2011). Back

18   The Commission considers that the full potential of online sales is not yet fully exploited in the EU: in 2014, the share of e-commerce in the total retail sector in Europe was 7.2%, while in the USA it reached 11.6%. Back

19   Impact Assessment Checklist Back

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Prepared 18 February 2016