Documents considered by the Committee on 25 January 2017 Contents

1Digital Single Market: Tackling unjustified geo-blocking

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee and the Committee for Exiting the European Union

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

1.1Geo-blocking is a practice that enables online sellers to deny consumers based in another EU country access to their websites and content, to re-route traffic to a country-specific or local website or to apply different pricing or other practices according to the consumer’s nationality or residence. It can be detrimental to online consumers trying to get a better deal in another country.

1.2In 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.

1.3On 23 November 2016 the Committee granted the Government a scrutiny waiver to vote for a General Approach at the Competitiveness Council on 28 November, subject to the conditions outlined later in the report. The (then) Minister for Energy and Intellectual Property at the Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) writes to inform the Committee that the Government voted for the General Approach. She summarises the main changes to the text, which did not breach the Government’s negotiating objectives or the conditions of the Committee’s waiver.

1.4The General Approach extends the transposition period for the Regulation to eighteen months, which means that it will apply to the UK for a shorter period before it leaves the EU. However, the Minister states that, even after the UK has left the EU, UK businesses operating within the EU will have to comply with the Regulation, whereas EU businesses will remain free to employ unjustified geo-blocking techniques in relation to UK consumers. The Government has not decided whether to retain the Regulation in domestic legislation after the UK leaves the EU.

1.5Greater clarification of how and under what circumstances UK businesses would have to comply with the Regulation following Brexit is needed, including whether all of the key provisions would continue to apply equally. Further clarification is also necessary regarding the extent to which retaining the Regulation in domestic legislation would prevent unjustified geo-blocking by EEA businesses in the absence of a bilateral arrangement with the EU.

1.6The European Parliament’s Internal Market Committee (IMCO) recently published its draft report on the Commission’s geo-blocking proposal on 19 November 2016. The file is scheduled for the April plenary session.1

1.7We thank the Minister for her update from the Competitiveness Council of 28 November 2016 at which a General Approach was agreed in relation to the geo-blocking Regulation. We note that the proposal satisfied the Government’s negotiating objectives as well as the conditions of the Committee’s scrutiny waiver.

1.8We also thank the Minister for her responses to the Brexit-related questions previously raised by the Committee. Although she is cautions against assumptions about how the Regulation will apply in future, she states that:

1.9The Committee is concerned by the Minister’s initial assessment that UK businesses trading in the EU would continue to be constrained by this Regulation post-Brexit while EEA businesses would be remain free to use unjustified geo-blocking techniques in relation to UK consumers. We therefore request that the Minister provide further information on these points. In particular:

1.10We retain the document under scrutiny and ask the Minister to respond to these questions by the end of March and to update the Committee on the outcome of trilogue negotiations in due course.

1.11We draw the Minister’s letters and our conclusions to the attention of the Committee for Exiting the European Union and 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

1.12The 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 previous Report chapters listed at the end of this chapter.

1.13The main provisions of the Regulation are as follows:

The Minister’s letter of 19 December 2016

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

1.14The Minister cautions against making assumptions at this stage “about how this Regulation will affect UK consumers and businesses in the future” but provides an initial assessment of the applicability of the Regulation after the UK leaves the EU in relation to UK stakeholders.

Application of the Regulation to UK businesses after Brexit

1.15The Minister states that businesses based in third countries but operating within the EU will continue to be bound by this regulation:

“Currently, the text (recital 13) states that businesses based in third countries, but who operate in the European Union, are to be bound by this regulation”.

1.16The recital to which the Minister refers states that:

‘The effects for customers and on the internal market of discriminatory treatment in connection to commercial transactions relating to the sales of goods or the provision of services within the Union are the same, regardless of whether a trader is established in a Member State or in a third country. Therefore, and with a view to ensuring that competing traders are subject to the same requirements in this regard, the measures set out in this Regulation should apply equally to all traders operating within the Union’.

1.17Contact with BEIS officials suggests that the phrase “operating within the Union” means that the Regulation would apply to any UK business ‘directing activities’ to another EU Member State—i.e., selling or advertising its goods or services to consumers in that Member State. This suggests that the Regulation would continue to have a very wide application to UK businesses trading with the EU.

1.18Nonetheless, some of the Regulations’ provisions may cease to apply to UK businesses post-Brexit. For example, the prohibition on companies applying different general conditions of access to their goods and services in the case of ‘same place’ services (e.g., where services are supplied to an EU consumer at a physical location within the UK) may lapse, as service provision would no longer take place within the EU.

1.19Industry does not yet have a clear view as to whether it will continue to be constrained by the Regulation. E-Commerce Europe, which represents 19 national e-commerce stakeholder groups, reports that: “Post-Brexit, it is unclear to what extent EU regulations, like the proposed regulation on geo-blocking, will apply to the UK, and there is therefore considerable uncertainty about whether or not UK-based online merchants will be free to geo-block”.3

Application of the Regulation to UK consumers after Brexit

1.20The Minister suggests that, although UK businesses will have to comply with the Regulation, UK consumers will not benefit from the protections it provides when purchasing goods and services from EU businesses:

“Consumers in third countries may not see any direct benefit from the regulation and would be susceptible to geoblocking or price discrimination from businesses in Member States. This could cause consumers based in third countries to pay more for goods or services from the EEA.”

1.21In response to the Committee’s question about whether the Government intends to retain the Regulation in domestic legislation the Minister states that “It is too early to review whether this regulation will be retained under domestic legislation. This will be decided in the coming months.” It is unclear whether doing so would mean that UK consumers were provided with the same protections, or whether a bilateral agreement with the EU would be necessary in order to achieve this outcome.

1.22A fuller account of the applicability of the Regulation’s key provisions to UK businesses and consumers, post-Brexit, and the extent to which retaining the Regulation in domestic legislation could replicate its benefits, is clearly necessary.

Transposition period

1.23In her previous letter of 13 October the Minister had suggested that the “fairly short (six months)” transposition period meant that, providing the Slovak Presidency achieved a general approach by the end of November, it was “likely that the Regulation will come into force before the UK leaves the European Union.” However, the Minister now notes that the revised General Approach extends the transposition period from six to eighteen months:

“The transposition period, covered in Article 11, has been extended to eighteen months after the day of the Regulations publication. This is in line with the UK’s view, as we argued that six months was too short a time for national regulators to make the necessary arrangements for implementing the Regulation”.

1.24The extension of the transition period means that the UK will participate in the measure for a shorter period before it leaves the EU.

The Government’s update on the General Approach of 28 November 2016

1.25In its last correspondence with the Minister the Committee previously granted a scrutiny waiver for the Government to vote in favour of the Regulation at the Competitiveness Council, subject to the text satisfying five conditions (based on the Government’s negotiating objectives). The Minister explains that the final text of the General Approach “met the UK’s objectives, allowing us to vote in favour of the Regulation”.

1.26The first condition to which the Committee’s scrutiny waiver was subject was the retention of exemptions for microbusinesses (that fall below national VAT thresholds) relating to the provisions on electronically provided services (under Article 4(1)(b) and 4(2) of the draft Regulation)”. The text of the General Approach retains this exemption.

1.27The second condition to which the Committee’s scrutiny waiver was subject was “that the legal certainty of the applicability of cross-border consumer rights law (Rome I and Brussels I Regulations) should be enhanced (through Article 1(5) and the addition of Recital 10)”. The Minister writes that the UK “strongly supported” the adoption of Option 1 in Article 1 (5) over the alternative “which would have cut across the existing Rome I/Brussels I Regulations”. The adoption of the Government’s preferred text means that it achieved its negotiating objective and this second condition was satisfied.

1.28The third condition to which the Committee’s scrutiny waiver was subject was the assurance that any requirements for the consumer to give prior consent to re-routing to a different online interface should be light-touch for consumers and businesses”. The following text was added to recital 15 of the text of the General Approach, to encourage a light touch approach:

“Traders should not be under the obligation to require the customer’s explicit consent each time the same customer visits the same online interface. Once the customer’s explicit consent has been given it should be deemed valid for all subsequent visits of the same customer to the same online interface.”

The final text therefore satisfied this condition of the scrutiny waiver.

1.29The fourth condition to which the Committee’s scrutiny waiver was subject was “That no obligations should be placed on Member States (under Article 7) to set up specific bodies to enforce the Regulation in respect of business-to-business transactions”. The Government had, a little more loosely, sought to “minimis[e] any obligation on Member States to set up specific enforcement bodies (beyond the courts) for business-to-business sales”. Recital 27 of the final text requires that “Member States should designate one or more bodies responsible for taking effective action to secure compliance with the provision of this Regulation”, however, it also stipulates that “those bodies … could include courts or administrative authorities”. As the General Approach allows the designation of existing authorities for the enforcement of this Regulation, rather than the creation of “specific bodies” for the purpose, this outcome satisfies the fourth condition of the Committee’s scrutiny waiver.

1.30The fifth condition of the Committee’s decision to grant a scrutiny waiver was that the provision on passive sales in Article 6 was retained in its current form, with the caveat that “the Government could agree ‘as a compromise…to have a carve-out to the geo-blocking Regulation obligations where passive sale restrictions are currently allowed under competition law’”. The Minister explains that it accepted the Presidency’s changes “as this did not result in the text crossing any of our red lines”. The fifth condition of the Committee’s scrutiny waiver was therefore met.

1.31The Minister also notes that the review clause, which will require the Commission to consider in the future whether electronically supplied services should be included under the scope of the regulation “was extended from two to four years after the regulation comes into force”. The Minister adds that this did not affect any of the UK’s main objectives.

1.32The conditions of the Committee’s scrutiny waiver were therefore observed.

Previous Committee Reports

Nineteenth Report HC 71-xvii (2016–17), chapter 17 (23 November 2016); Seventh Report HC 71-v (2016–17), chapter 3 (6 July 2016).


2 The “main provisions” of the Regulation that this question refers to are outlined in the Background section of this report. They are (i) the prohibition on automatic blocking of access to online interfaces or re-routing, (ii) the prohibition on applying different ‘general conditions of access’ in three different situations, and (iii) the prohibition on discrimination for reasons related to payment.




27 January 2017