Select Committee on European Union Minutes of Evidence

Examination of Witness (Questions 1220 - 1239)



  1220. Whose job do you think it is to provide this information in a readily available fashion when it involves so much cross-border legislation or regulation? Before lunch we were told on at least one occasion that perhaps the Commission or the EU did not feel it was their responsibility. Whose is it and who is going to pay for it?

  A. This morning I was talking to the British Retail Consortium and we were talking about these same issues. Of course, they are the bigger players. In the E-Commerce Directive we actually impose certain transparency requirements on the website operator. Given that we rely on this idea of country of origin what we believe in, and here I am talking about the Internal Market DG, is that first of all the consumer should be aware where the physical establishment is. So if I am here in Belgium and I go on to the website, I know it is a United Kingdom company and therefore I am aware that they are held under United Kingdom law. Secondly, and we find that it is increasingly the case that it is good business practice, it is very easy for a small company through a logo to show which code of conduct it applies, if it belongs to a trade association or if it belongs to a certain Trustmark scheme, as the United Kingdom has developed, or an individual ADR system like the Consumer Association's Web Traders Scheme. It is easy to provide information to the consumer via your website and even to hyper link your website back to these codes so that the interested consumer can look at it and why not to the law as well. This may be part of the answer to your question. I feel that in terms of who should do it, the question is rather is the information available anyway. I am not asking you this but I ask myself how many consumers actually know all their rights; I suspect very few.

  1221. And SMEs?

  A. Absolutely. I think what we have with the Internet is a possibility of improving. It is a medium where it could be relatively easy in effect not only to put on the information regarding what the regulatory framework is, which I would say is partly the responsibility of the judiciary of the Member States but also at the European level—again speaking as an official not from an official Commission position—certainly in terms of Directives or Regulations there is no reason why those two should not be more available. We are certainly using the Internet. We all have our different websites. I am not sure whether the co-ordination between Member States and ourselves is as good as it might. The information is there, it is just a question of linking into it and making it readily accessible to the consumer. The consumer should be able to get to it through his access provider saying what the law is concerning guarantees for example in Europe. We need to have that direct access rather than expect the consumer to know that there is a thing called Europa plus where he will find the information under DG SANCO's website. That is frankly stretching the credulity a little bit. I think it is a joint effort but I do agree that information is key. I think that in our E-Commerce Directive, not wishing to flaunt it too much, we thought that was very important, that the consumer should be made aware, firstly that he was buying or entering into negotiations with a company established in another country—which he can discount or not, some will, some will not—and secondly to encourage traders themselves, if you like, to link into and make clear under which regulation or code they apply, which ADR schemes, etc, they apply as well. This in fact is good business practice. That will build up trust for the consumer. He can consult that information. It is not costly to do that frankly.

Lord Faulkner of Worcester

  1222. Can I ask you a question on this issue of tax. I am an Australian, and I come to London on holiday and I decide to buy a suit in Saville Row. I take it home with me and I can get a certificate which allows me to claim the VAT back on it.

  A. That is right.

  1223. I am in Sydney—I have got home now—and I now want to buy another suit from the same tailor. I order it over the Internet and they are going to post it out to me.

  A. Question.

  1224. Question, do I pay it with tax or without tax?

  A. Not being a fiscal expert, if I may condition my reply. What would happen as far as I can see, at the current time, the proposal would be that in the same way that in a sense you paid the tax when you were the tourist and then you got your money back on leaving, there would be a situation where as, let us say, the UK company in Saville Row was selling to you, they would declare, if you like, the VAT that was due to be charged to you but because they were trading and they would have to prove that—this is the proposal—to someone outside of the EU, that tax would not be charged. That is what we are proposing. It would lead to an equivalence.

  1225. That is what you are proposing. Is that not what happens now?

  A. No, now—

Lord Paul

  1226. If it is posted out you do not pay VAT.

  A. No, you do not.

  1227. It is more simple now.

  A. The reason why the Member States are pushing for this Directive is rather the other way round where Community consumers are supposedly buying in America and not paying tax on it. The idea is to say no to those traders who are completely established in America. Of course that would not hold for Amazon for example, for who are based in the United Kingdom—

Lord Faulkner of Worcester

  1228. British company.

  A. Yes. British company,

  1229. But

  A. Yes, if you were buying from let us say an American established trader, the idea there would be they would have to register themselves for tax purposes in the Community and get you to pay tax. They would charge you.

Lord Paul

  1230. I have one question. When people in Britain buy something on the Internet from America, half of the time with the good scam, somebody, the poor fellow ends up paying the VAT, the other person—

  A.—gets away with it, absolutely.

  1231. How is it happening in Europe?

  A. Same problem, Lord Paul. This is why I was talking about the problem of enforceability. I would not want my tax colleagues to hear this. Even if we change the Sixth VAT Directive, it does not necessarily mean that people will feel obliged to go and declare that they bought from America and that they wish to pay tax as good UK citizens or French citizens. I think that is a problem. Another example of that is what I alluded to regarding pharmaceutical products. I am not saying this to be flippant, I understand that—and I am sure pharmaceutical companies can confirm this—before Viagra came on to our market there was a large quantity sold over the Internet from the US into Europe. You cannot expect people—I do not but maybe that is my south London upbringing—to say "Oh, well, I bought this on the Internet" and go and tell the authorities, "why do you not do it here". Do you see what I mean? That is a general problem. That is why there needs to be an international solution.

  1232. I was reading an article the day before yesterday that you can buy in America, talking of Viagra, without prescription so people are ordering like mad.

  A. Absolutely.

  Lord Paul: And bringing it in.

Lord Faulkner of Worcester

  1233. You are required to give evidence of a medical history.

  A. That is right.

  1234. The consumer association are doing it as a test.

  A. Yes.

  1235. They are putting down a condition which makes Viagra very dangerous but nonetheless the stuff still arrives.

  A. Sure. This was why I was saying certainly we considered in terms of the Directive we wanted to bring legal certainty in Europe but we were very cautious as to what was going on in America as well. We did not make a proposal without considering what was going on in the States. On the other hand, there are solutions to this. This may sound odd but there can be competitive advantage by having the most effective, which is not necessarily the most restrictive, regulatory framework in encouraging investment and trade within the Community or from the Community into America. In effect if you could have a situation where your regulatory framework offers the best in terms of efficient protection of trade then you will attract trade to Europe, which is really what we are trying to do. The issue of pharmaceuticals, it is very interesting what you say. We even have the problem at intra Community level because the European Directive allows for the advertising to the general public of OTC pharmaceuticals, in other words not under prescription, but the Member States have different lists of what are prescribed and non prescribed pharmaceuticals. The existing Community Directives allows for the example that one of you provided where an individual consumer crosses a border and buys for his or her personal use a particular product. They can bring it back into the country without a problem. So in effect if you have a situation where you have an OTC drug which is prescribed in one country but not in another, if, let us say, Boots—to take an example—set up a site offering that drug in the United Kingdom, as they are allowed to do, then in theory the consumer should be able to buy that at a distance in spite of the fact that you need a prescription for it in another Member State. The key problem here, which is going to come under discussion, of course, is the whole issue of social security and what is reimbursed and what is not reimbursed which is a very real issue. This working group has been set up on pharmaceuticals specifically for that.

  1236. The Risk Capital Action Plan calls for remaining obstacles to the creation of a fully integrated pan-European risk capital market to be removed by the end of 2003. What are the main obstacles? Do you have a priority list? Are you on course to achieve this target?

  A. I tried to get as much information as I could on this. The issue regarding risk capital is integrated into the Financial Services Action Plan that I mentioned earlier. Some of the information I can tell you is how far we are going on that in terms of improving the remaining obstacles and the priorities. First, it was set out in the EU Summit in Lisbon that 2003 would be the Risk Capital Action Plan deadline. The key areas which we are looking at are EU legislation on listings and public offer prospectus. That needs to be reviewed. We are preparing proposals for market information which could introduce the simplified shelf registration techniques for companies that wish to have their shares publicly traded. That is one area which is a priority on which we are working. Again, that is in conjunction with finance ministries working towards a single financial reporting framework so that we have consolidated annual reports, which obviously is important, and work is ongoing on that. There is also a proposal for a Directive on occupational pension funds and that should be presented this summer, at least that is the plan. In a sense we are trying to move forward. Another area that could be of interest to you in that respect is there is going to be a fundamental review of the Investment Services Directive and this will begin this summer with a consultation as far as I am aware. We are taking very seriously the problem regarding the obstacles to the integration of capital markets. One has to be clear when you are talking in terms of pension funds, etc., some of the Member States are, unlike the United Kingdom, extremely reluctant to take this forward. You mentioned the French earlier, it seems to be sacrosanct that all money that goes into French pension funds should be for French investment, that is as I have always understood it, which will clearly lead to difficult negotiations. That is as much as I can tell you. Are we on course for achieving this target? I could not answer that, not least because it is not my responsibility.

  1237. The Data Protection Directive of 1995 is an important element in building consumer confidence. We understand that the Commission and the US Government are close to an agreement on the US proposal for safe harbours. What is the progress on these negotiations, and to what extent would the agreement to accommodate the US put EU consumers' data at risk?

  A. There has been agreement on the Data Protection Directive on the safe harbours. When will the Directive be implemented? The "safe harbors" agreement is not a Directive, the agreement, let us put it that way, regarding safe harbours was first agreed with the US and was presented to the Data Protection Commissioners a week ago and they have agreed in principle to taking it forward. As regards the transposition of the Directive, I believe that was due to have already taken place but it has not taken place in most Member States yet. That is the only answer I can give on that one. It is very much now in Member States' hands to transpose this fact as rapidly as possible.

  1238. The US experience also suggests that incentives (notably, share options) is of special importance in retaining talent in an industry where demand exceeds supply. What is the Commission's view? (We recognise that this subject is governed by Member States' fiscal policies).

  A. Regarding share options and retaining talent in the industry where demand exceeds supply, what is the Commission's view, I do not know. I cannot be more frank than that. I like the parenthesis "(We recognise that this subject is governed by Member States' fiscal policies"), yes, so do we! What I can say is that in the context of the Lisbon Summit a lot of accent was put on comparing in the areas I work the lacklustre performance of the European services industry compared with the US services industry. The issue was raised in particular in terms of start-up performance. In that respect what I can tell you is that currently, certainly in my service, a task force is looking at what remains to be done—unfortunately it is quite a long list of issues—to facilitate the Internal Market for services in general, so we are not talking here just on-line. Obviously we look at the regulatory side again, and that comes back to the answer to your first question but I suspect that other services, and notably the Employment DG will also be looking at these sorts of issues in terms of seeing how it can encourage employment, particularly with the development of micro enterprises, one man consultancies or other service providers where the real growth is. It is very much an SME start up issue which is taken very seriously. But, as your wording suggests in your question, it is again highly sensitive because we are walking into something completely different. Really what we are dealing here with are labour law and practices. Probably the United Kingdom has—and this is me speaking openly as I see it—a more flexible system. In other Member States it is still highly regulated and therefore difficult in a sense to set up any kind of start up, etc... I would not say the Commission is necessarily going to come forward with something but it has to respond to the conclusions of the Lisbon Summit.

  1239. Can I ask you our final question. The e-Europe Action Plan also calls for greater use of smart cards. This does not attract universal support amongst EU consumers who fear that the amount of information contained on such a card leaves them open to manipulation. How do you think this issue could be dealt with? I think I might say that during the course of taking evidence earlier we have established that a majority of Member States do in fact have ID cards, do they not?

  A. Yes.

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