Documents considered by the Committee on 23 November 2016 Contents

2Digital Single Market: Tackling unjustified geo-blocking

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; conditional scrutiny waiver granted for the Council meeting on 28 November; drawn to the attention of the Business, Energy and Industrial Strategy Committee

Document details

Proposal for a Regulation on addressing geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market

Legal base

Article 114 TFEU; ordinary legislative procedure; QMV

Department

Business, Energy and Industrial Strategy

Document Numbers

(37818), 9611/16 + ADDs 1–2, COM(16) 289

Summary and Committee’s conclusions

2.1Geo-blocking—a practice enabling online sellers to deny consumers based in another EU country access to their websites and content, re-route traffic to a country-specific or local website or apply different pricing or other practices according the consumer’s nationality or residence—can be detrimental to consumers seeking to get a ‘better deal’ on a product sold online in another country.

2.2In May, as part of its wider e-commerce package aimed at breaking down barriers to cross-border online trade, the Commission proposed legislation to address unjustified geo-blocking and discrimination based on nationality or place of residence. The draft Regulation imposes an obligation on companies to ‘sell like at home’ and not discriminate against non-home EU Member State consumers in terms of access to prices, sales or payment conditions, unless justified for certain ‘objective’ legal reasons (such as VAT or certain public interest legal provisions).

2.3At its meeting on 6 July, the Committee noted that the Government was generally supportive of ending unjustified geo-blocking, and asked for clarification on the Government’s negotiating position and the wider Brexit implications of this proposal.

2.4The Minister for Energy and Intellectual Property at the Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) has responded to these questions (set out in detail below) and also requests a scrutiny waiver to allow her to agree to a General Approach at the Competitiveness Council on 28 November. She provides the Committee with a copy of the revised (compromise) text3 to be discussed at Council and sets out the Government’s negotiating objectives and red lines.

2.5We thank the Minister for her responses to the Brexit-related questions previously raised by the Committee. She notes that:

2.6We ask the Minister to expand further on the Brexit implications of this proposal in due course. In particular:

2.7We summarise the Government’s negotiating objectives and red lines on outstanding issues (with a view to agreeing a General Approach) as follows:

2.8We are prepared to grant the Minister a scrutiny waiver to allow her to support a General Approach at the Competitiveness Council on 28 November, subject to the final text not deviating substantially from the Government’s negotiating aims or crossing any of the red lines set out by the Minister. We therefore ask the Minister to:

2.9The scrutiny reserve will continue to apply after this Council meeting, and we ask the Minister to keep the Committee updated on further progress made (for example, during trilogue negotiations and whether any subsequent revisions to the text undermine or further UK negotiating objectives).

2.10We draw the Minister’s letters and our conclusions to the attention of the Business, Energy and Industrial Skills Committee in light of its predecessor Committee’s inquiry on the UK Digital Economy.

Full details of the documents

Proposal for a Regulation on addressing geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market: (37818), 9611/16 + ADDs 1–2, COM(16) 289.

Background

2.11The detail of the draft Regulation, its interaction with other EU policies (including consumer protection, competition law and copyright law reform) and previous correspondence between the Government and Committee on the proposal are set out in the Report chapter listed at the end of this chapter.

The Minister’s letters of 13 October and 8 November 2016

2.12The Minister responds to each of the Committee’s questions raised on 6 July in relation to Brexit and the substance of the proposal, which are set out below for ease of reference.

The Government’s position on the Brexit implications of this proposal

2.13In response to the Committee’s question on the timescale envisaged for the draft legislation to take effect, the Minister states:

“Negotiations on the proposal are moving quickly. The Slovak Presidency plans to reach a general approach in Council by the end of November. The timescale for when the draft legislation will come into effect is still to be agreed.”

2.14In response to the Committee’s question on how active a role the Government intends to play during negotiations on this proposal within the Council, the Minister states:

“The Government intends to engage constructively and positively on this proposal. We remain a full member of the European Union. In addition, the proposal, as drafted, would apply to all traders selling goods or services to the EU. This means that this Regulation would have an impact on British businesses trading with the rest of Europe regardless of the nature of our future relationship with the EU.”

2.15In response to the Committee’s question on whether the Government intends to vote in the EU Council on this proposal pending Brexit or whether it will abstain or approach each vote on a case-by-case basis, the Minister states:

“While the UK remains a full member of the European Union all the rights and obligations of EU membership, including the ability to vote on legislative proposals, remain in force. The Government therefore intends to vote on this proposal in the Council.”

2.16In response to the Committee’s question on whether the UK will want to retain the adopted proposal as domestic law regardless of Brexit proposal, particularly in view of the fact that it is a key component of implementation of the wider Digital Single Market strategy, the Minister states:

“As set out above, the proposal as currently drafted would apply to traders outside as well as inside the EU, if they are selling goods or services to the EU. This means that, regardless of the nature of our future relationship with the EU, this Regulation would have an impact on British businesses. The nature of domestic law post Brexit has still to be decided.

“The envisaged transposition period is fairly short (six months). If the Slovak Presidency can achieve a general approach by the end of November it is likely that the Regulation will come into force before the UK leaves the European Union.”

2.17In response to the Committee’s question on how actively the Government will consult the Devolved Administrations on the UK’s post-Brexit position on this proposal, the Minister states:

“The Government has been actively engaging with the Devolved Administrations on this proposal and will continue to do so.”

The Government’s position on the substance of the proposal

2.18In response to the Committee’s question on whether the draft Regulation provides sufficient certainty to consumers and businesses as to their rights and obligations on geo-blocking practices when purchasing or selling goods and services online cross-border, given that certain services—notably audio-visual and copyrighted media (such as music and e-books)—are excluded from the proposal, either in whole or in part (at least for the time being), the Minister states:

“The proposed geoblocking Regulation places a ban on the denial of access to websites or automatic rerouting (Article 3); stipulates three specific situations under which it is never justified for a trader to discriminate against a customer based on nationality/residence (Article 4); and prohibits discrimination based on payment means (Article 5 e.g. the country where a credit or debit card is issued). These provisions all go further than the anti-discrimination provisions of the Services Directive. We therefore believe that the Regulation as currently drafted will provide consumers and businesses with greater legal certainty when selling or purchasing goods and services online and across borders.

“Copyright licensing and the use of geoblocking to enforce copyright agreements is complex and may be done for a variety of reasons. Hence we believe that it is sensible to exclude copyright protected digital content from the provisions on electronically provided services (Article 4.1(b)). Furthermore, it is worth noting that whilst copyright protected digital content is excluded from the provisions under Article 4.1(b), it is not excluded from the proposal as a whole. The provisions set out under Article 3 (blocking of access/re-routing) and Article 5 (payments) would apply to non-audiovisual copyright protected material.”

2.19In response to the Committee’s question on whether the Government considers that the proposal goes far enough in improving the transparency of restrictions applied by traders (for example, the draft Regulation notes that traders can still discriminate with ‘targeted offers’, but it is unclear what this means exactly and leaves room for interpretation and confusion) and whether the Government would support a voluntary transparency mechanism for businesses, where they explain (upfront or on request) why they charge a different price or apply different conditions, the Minister states:

“As set out in our response to the Commission’s public consultation on geoblocking, we do not believe that forcing businesses to explain their pricing policies to customers is necessary and may lead to significant burdens for the smallest businesses. We believe that with consumers able to see the prices on offer across different Member States, pressure from consumer groups (particularly on the big brands) will put pressure on companies to be more transparent about their pricing policies and end unjustified price differences across borders.

“The Regulation also mandates traders to provide a ‘clear justification’ if they block or limit access to their online interfaces for legal reasons. The Government’s view is therefore that the proposal, as drafted, goes far enough in terms of improved transparency of the restrictions applied by traders. However, in line with our consultation response, we would be open to suggestions to introduce a voluntary transparency mechanism for businesses.

“An earlier leaked draft of the Regulation envisaged an extended transitional period for sellers providing access to copyright protected works (such as e-books and music streaming). Why does the Commission now consider it necessary to review whether to apply the general non-discrimination obligations to copyrighted media? Was this aspect not sufficiently addressed in the consultation on the geo-blocking and its consultations on copyright modernisation?

“The Commission specifically excluded copyright protected content from its consultation on geoblocking, making it clear that the cross-border use of copyright protected content was going to be considered separately to the geoblocking consultation. In our consultation response we supported this decision, noting that copyright content has its own particular characteristics and that there is a significant volume of work on copyright taking place elsewhere as part of the Digital Single Market strategy which is important to the creative industries and others.

“The Government recognises the sensitivities around the inclusion of copyright protected digital content, which is important to the creative industries and others. We therefore believe that it would be difficult to include copyright protected material in the Regulation. Copyright licensing and the use of geoblocking to enforce copyright agreements is complex and may be implemented for a variety of reasons. Hence the Government believes that it is sensible to exclude copyright protected content from the provisions on electronically provided. We stand ready to discuss with EU colleagues at a later time whether or not there is a need to further review this decision.”

2.20The Minister responds as follows to the Committee’s question on the relationship between this draft Regulation and ex-post EU competition law (what if any, are the outcomes of the Commission’s e-commerce inquiry expected to have on the implementation of this draft regulation and related copyright reform proposals addressing geo-blocking?; what are the reasons for including an explicit provision on passive sales (which is addressed by competition law) in this draft regulation?):

“The Commission’s inquiry into geoblocking on e-commerce platforms found that geoblocking is a widespread practice used by traders throughout the single market. The inquiry details the extent of geoblocking within different sectors, and the variety of different practices used by traders selling abroad. We therefore believe that the results of the inquiry help reinforce the need for an effective regulation on geoblocking, to better protect consumers from unfair practices.

“As the Committee has pointed out, agreements that restrict passive sales (sales in response to unsolicited requests from individual customers) are generally prohibited by EU competition law. This is however subject to the following exceptions:

“Where a distributor commits substantial investment to start or develop a market where there was no previous demand for the product (in general or from that producer), restrictions on passive sales by other distributors can be agreed for two years;

“Restrictions on passive sales by wholesalers intended to keep the retail and wholesale level of trade separate;

“Restrictions on passive sales by authorised dealers to unauthorised dealers;

“Restrictions on passive sales imposed by a supplier that restrict a buyer of components, to whom the components are supplied for incorporation into finished goods, from reselling them to competitors of the supplier.

“The provision in Article 6 stipulates that agreements on passive sales requiring a trader to violate the Regulation shall be void. This provision will not stop passive sales agreements that are allowed under competition law unless the agreement requires or is carried out using geoblocking or in any other way that breaches the Regulation.

“The Government supports the inclusion of Article 6 in the geoblocking Regulation as it protects traders from being subject to competing regulatory and contractual requirements on passive sales and is likely to be pro-competitive overall.”

2.21The Minister responds as follows to the Committee’s question on the draft Regulation’s interactions with the linked proposals on consumer protection cooperation and parcel delivery:

“To ensure effective enforcement of the geoblocking Regulation, the Commission has decided that the mechanisms for cross-border cooperation between competent authorities set out in the Consumer Protection Cooperation (CPC) Regulation should also be available for the purposes of the geoblocking Regulation. However, as the enforcement mechanisms of the CPC Regulation apply only to consumers these measures will only be available to enforce business-to-consumer and not business-to-business transactions.

“The geo-blocking proposal will work alongside the Regulation on cross-border parcels through a website created by the Commission which will have all Universal Service Providers cross-border tariffs in one place. This will allow individuals and SMEs to establish easily the cost of sending single items between Member States.”

2.22The Minister also sets out the views of UK stakeholders and whether the Government will be updating its impact assessment as a result of its ongoing consultations with interested parties:

“My Department has been actively engaging a wide range of business and consumer stakeholders to understand their views. Broadly speaking, stakeholders are content with the proposed Regulation and recognise the benefits it will bring to British consumers. Some businesses have concerns that the proposal could lead to unintended consequences, e.g. regarding the application of consumer laws. Where appropriate, we will try to use the Council negotiations to address these concerns and to make sure that the Regulation is workable in practice; striking a good balance between allowing customers to benefit fully from the best deals online and offline, and avoiding additional burdens for businesses, in particular smaller ones.”

The Government’s request for a scrutiny waiver

2.23The Minister seeks a scrutiny waiver to allow the Government to agree to a General Approach at the Competitiveness Council on 28 November. She sets out the Government’s negotiating aims and red lines as follows:

“The Government has nearly finalised its position on the proposal. There are four main issues which we are seeking to address throughout the negotiations:

“Continuing to ensure that businesses with turnover falling under their national VAT threshold are exempted from the provision on electronically provided services.

“Enhancing, if possible, the legal certainty for business relating to the applicability of the Rome I and Brussels I Regulations (which govern cross-border consumer rights) without amending these underlying Regulations.

“Ensuring that any requirements for consumers to give consent prior to re-routing to a different online interface are light touch.

“Minimising any obligation on Member States to set up specific enforcement bodies (beyond the courts) for business-to-business sales.

“The Slovak Presidency has made noticeable progress on the proposal in working groups, hence their aim of reaching a general approach at the upcoming Competitiveness Council.

“The main issue remains the applicable consumer law, with a majority of Member States concerned that the current drafting does not provide enough legal certainty for traders. Most Member States agree that whilst it is important to give businesses greater certainty, this should not be achieved by cutting across wider consumer protection principles set out under the Rome I and Brussels I Regulations. Some Member States are calling for a radical solution which would likely require amending these Regulations. We would not be able to support such an approach.

“Other areas of the proposal which are still under debate include the provisions on prohibiting agreements on passive sales (Article 6 of the draft Regulation) and on enforcement by Member States (Article 7).

“The Government supports the inclusion of Article 6 in the geoblocking Regulation as it protects traders from being subject to competing regulatory and contractual requirements and is likely to be pro-competitive overall. It has become apparent that a number of Member States are opposed to the Article. We believe that, as a compromise, it would be acceptable to have a carve-out to the geoblocking Regulation obligations where passive sales restrictions are currently allowed under competition law. This would avoid traders being subject to competing requirements.

“On Article 7, we believe that, if possible, there should be no obligation for Member States to task specific enforcement bodies with taking on business-to-business cases (B2B) as this is usually done via the national courts. Furthermore, the Regulation as drafted mandates that the mechanisms for cross-border cooperation between competent authorities set out in the Consumer Protection Cooperation (CPC) Regulation should also be available to enforce the geoblocking Regulation. However, these mechanisms apply only to consumers and will therefore only be available to enforce business-to-consumer and not B2B transactions.

“Member States have been supportive of the exemption for microbusinesses so far, and we have been making progress on our position in respect to consumers having to give consent prior to re-routing; gaining backing from other Member States that this should be light-touch and not create additional burdens for businesses and consumers.”

2.24The Minister also sets out the expected timetable of the proposal in the European Parliament:

“In the European Parliament, the proposal is being dealt with by the Internal Market and Consumer Protection Committee (IMCO). The Committee held its first debate on the proposal on 29 September, broadly supporting the Regulation’s objectives. They are planning to publish their draft report in December with the plenary vote scheduled to take place in April 2017.”

Previous Committee Reports

Seventh Report HC 71-v (2016–17), chapter 3 (6 July 2016).


3 As this is classified as Limite text, it cannot be published and was shared with the Committee in confidence, to enable the Committee to make an informed assessment about whether or not to agree to a scrutiny waiver for agreement of a General Approach.




28 November 2016