House of Lords - Re-launching the Single Market

Re-launching the Single Market - European Union Committee Contents

CHAPTER 4: COMPLETION OF THE DIGITAL SINGLE MARKET

70. The Digital Agenda for Europe (DAE), one of the seven flagship initiatives of the Europe 2020 Strategy, intends to deliver economic growth and social benefits through the completion of the digital Single Market. This will involve greater use of Information and Communications Technology (ICT) including more and faster broadband availability, a greater emphasis on research and innovation, interoperable applications, increased digital literacy and enhanced security.

71. The Monti Report argued that regulatory and social factors had hampered the development of a digital Single Market, and that Europe was lagging behind competitors such as the United States. It quoted research which suggested that the EU could increase GDP by 4 per cent by 2020 due to the fast development of a digital Single Market.[91] Professor Monti highlighted five problems: the fragmentation of online markets, inadequate intellectual property legislation, the lack of trust and interoperability, the lack of high-speed infrastructure and the lack of digital skills.[92]

BOX 6

Digital Agenda for Europe and Towards a Single Market Act

The following proposals first appeared in the Digital Agenda for Europe, and were subsequently included in Towards a Single Market Act:

Framework Directive on the management of copyrights;
Development of electronic commerce in the internal market, concentrating in particular on problems faced by consumers in the digital economy; Communication on e-Commerce;
Legislative reform of the standardisation framework;
Decision on the mutual recognition of e-Identification and e-Authentication, and revision of the Directive on e-Signatures;
Decision establishing a European Radio Spectrum Policy Programme;
Initiative on the use of alternative dispute resolution to deal with cross-border consumer disputes, and a proposal for a European system for the settlement of online disputes for digital transactions.

72. The evidence we received unanimously stressed the importance of the further development of the digital aspect of the Single Market. According to Malcolm Harbour, the "digital Single Market is the Single Market, because if you now look at every single business that accesses the Single Market one of its strong components will be the internet or an electronic-based offering."[93] The CBI stated that "the creation of a Digital Single Market is central to the UK and Europe's future economic success."[94]

73. We strongly endorse the Commission's Digital Agenda for Europe. The digital Single Market is a priority area for the EU. It cannot be considered in isolation as all businesses within the Single Market now rely upon the internet to some degree in order to do business. The digital Single Market should therefore be "mainstreamed" through all aspects of the Single Market.

Broadband access and spectrum availability and new technology

74. Microsoft considered that new technologies such as cloud computing[95] could provide significant economic and social opportunities for governments, business and citizens, but that the key bottleneck for the deployment of wireless technologies was the lack of available unlicensed spectrum.[96] The Commission warned of technical and legal challenges emanating from the development of cloud computing, arguing that "many of the public policy issues, such as privacy, access and copyright protection are similar to internet policy issues at large, but given the fact that the cloud is inherently global, policy solutions must be cross-jurisdictional."[97] They argued that more research was required in this area in order to assess the implications of future EU measures.

75. The Commission has been active in addressing the issue of broadband provision through its Broadband Package.[98] The Broadband Communication sets targets based on the Digital Agenda for Europe for the roll-out of broadband to European citizens, aiming for speeds of 30 Mbps for all, and 100 Mbps for 50 per cent of the population by 2020. The Radio Spectrum Policy Programme aims to set the principles which should determine the use of spectrum, thus enabling a more efficient uptake of the wireless internet. This draft Decision is expected to receive political agreement in the middle of this year. Ofcom believes that the approach adopted by the Commission is the correct one[99].

76. We welcome the Commission's Broadband Package. Member States should support the Commission's work in this area. It is particularly important that there is adequate spectrum for emerging technologies, and that as many users as possible are encouraged and able to access the internet.

77. We recognise the potentially significant contribution which cloud computing is bringing, and will in the future bring, to the Single Market and call on the Commission to adopt early initiatives—taking full account of potential technological developments—in this area in order to reap the full benefits of such technology once it becomes more developed. We note that cloud computing raises important legal and regulatory difficulties which the Commission should address at the earliest opportunity.

Review of the e-Commerce Directive

78. The Digital Agenda for Europe included plans for a review of the e-Commerce Directive. This has not been followed up in Towards a Single Market Act, which merely proposes a Communication in the area.

BOX 7

e-Commerce Directive

The e-Commerce Directive[100] was adopted in 2000 and became law in the UK in 2002. The Directive established an internal market framework to provide legal certainty for consumers and businesses. It provided harmonised rules on transparency and information requirements for service providers, and limited the liability of intermediary service providers (providing, for instance, access to the internet). The Directive covers services such as online information (e.g. online newspapers), online selling of products and services (e.g. books, financial services and travel services), online advertising, professional services (lawyers, doctors, estate agents), entertainment services and basic intermediary services (access to the Internet and transmission and hosting of information).

In the DAE, the Commission identified a number of problems in the way the e-Commerce currently operates. For instance, it stated that online markets in the EU were fragmented; consumers and businesses had difficulty accessing online shops and services in other EU countries; some providers did not accept bank cards issued by other EU countries; and many providers did not deliver goods or services across the EU.

The Commission launched a consultation[101] on the e-Commerce Directive in August 2010, with a view to preparing a review of the Directive in 2011.

79. The Monti Report contained proposals to end the fragmentation of consumer rules regarding delivery, warranty and dispute resolution, and suggested a simplification of the business environment with regard to VAT rules, recycling requirements for used electronic equipment, and copyright. Professor Monti told us that 60 per cent of cross-border internet transactions failed and that, apart from the effect this had on trade in general, it was particularly damaging to the reputation of the Single Market amongst the young: "If they hear that there should be a Single Market and they are unable to use it in their daily or nightly life at the computer then this discredits Europe very much."[102]

80. Towards a Single Market Act builds on this analysis, and identifies as particular obstacles a lack of consumer confidence, because of different contract law and consumer protection rules applying in each Member State, and varying intellectual property rights, meaning that there is no such thing as a pan-European service selling music digitally on the internet.[103] The Commission's Information Society Directorate argued that the market for online music was fragmented due to diverging national implementations of the Copyright Directive and the exclusive rights of authors, and suggested that the difficulty of obtaining legitimate digital content was a driver for the illegal market.[104]

81. Several witnesses noted that the main companies operating digitally in Europe were of American origin, and that European companies seemed unable to compete. Jonathan Faull suggested the digital market at present was similar to the car market in the 1960s, where "the only car companies operating multinationally across Europe were Ford and General Motors. It was only after we had taken down, through long years of concerted effort, barriers to trade in cars between Member States that we ended up with a Single Market for the supply of cars and all that goes with them, and, by the way, good competitive European car companies capable of competing across the world as well."[105]

82. The BCC argued that the e-Commerce Directive should be reviewed as soon as possible, and was disappointed by the commitment in Towards a Single Market Act to produce only a general Communication about e-Commerce rather than the review suggested in the DAE. It described the current Directive as "woefully out of date"[106] and also argued that the e-Signature Directive needed to be reviewed as Member States were developing different kinds of electronic signatures which would not necessarily be compatible with each other.

83. It is more than ten years since the adoption of the e-Commerce Directive, and the time is now right for its review. It is particularly worrying that so many cross-border electronic transactions fail, and we therefore believe that the review of the e-Commerce Directive should be expedited. The Commission's proposals for further work on e-Signatures and e-Authentication are to be welcomed in the context of providing a coherent platform for digital trade and as supporting measures to the e-Commerce Directive.

84. The fragmentation of intellectual property regimes across Europe presents a barrier to a true Single Market in online goods. We therefore welcome the inclusion in Towards a Single Market Act and the Digital Agenda for Europe of plans to improve the handling of copyright, though we note that this is a complex area which may be difficult to resolve.

e-Procurement

85. The Commission recently issued a Green Paper on e-Procurement[107]. No plans specifically on e-Procurement were included in Towards a Single Market Act, but the document noted that a robust e-Signatures regime would be needed to underpin such activity. Public procurement accounts for 17 per cent of the EU's GDP, but the Commission reports that cross-border procurement accounted for only 1.5 per cent of public contracts awarded in 2009.[108] Malcolm Harbour argued that "the Single Market for public procurement is ... the most unexploited area of Single Market activity, not just because an insufficient number of public contracts are being advertised in the whole Single Market system but also because it is an underused tool to encourage innovative companies."[109] He also argued that the bureaucracy concerning tendering was a barrier to small companies entering bidding for public procurement contracts.[110] On the other hand, the BCC told us that SMEs accounted for 43 per cent of the public procurement market in the EU, compared to 23 per cent in the United States.[111]

86. The Commission stated that more needed to be done to encourage Member States to open up their procurement markets across the EU. It identified three particular problems with the EU procurement regime: the rules were often not applied properly, particularly at a local level; there were wide-ranging exceptions; and they were complicated and difficult to apply.[112] It also argued that electronic methods were likely to help open the market, as it was easier to reach a diverse range of providers via the internet, and, additionally, that it believed e-Procurement would reduce administrative transaction costs by 15-18 per cent.[113]

87. Public procurement represents a large proportion of the EU's GDP and is therefore an important tool for driving the completion of the Single Market. This is an area where Member States can take the lead in ensuring that procurement rules are applied properly and to the benefit of the Single Market. e-Procurement has great potential to reduce administrative burdens and to open the market to SMEs, and we hope the Commission will place greater emphasis on the area.

Improving consumer confidence

88. A consistent explanation for the lack of cross-border online trade in the EU was a lack of consumer confidence. Jonathan Faull suggested that the problem was part regulatory and part cultural. He described a "moment of hesitation" by consumers before they pressed the button to buy something from a foreign supplier, but noted that this hesitation also affected the suppliers themselves.[114] He ascribed the problem with consumer confidence to concerns about what would happen if a purchase went wrong: "Can you use the rights of the courts in the country where you sat at your computer or do you have to go through the courts and the legal system of the foreign country in which the service was provided or even perhaps where the website was located?"[115]

89. As noted in Box 6 above, the Commission has included plans for enhancing alternative dispute resolution and for the settlement of online digital disputes in both the DAE and Towards a Single Market Act. There is no mention of the current review of the Consumer Rights Directive in Towards a Single Market Act, and this was particularly regretted by the BCC.[116] There are currently no plans to include the sale of digital goods within the Consumer Rights Directive. In recent evidence to our Sub-Committee on Social Policies and Consumer Protection, Ed Davey touched upon some of the issues involved, arguing that the concept of ownership of digital goods was fundamentally different from material goods, that trader liability in respect of faulty goods, for instance early issues of new software, would need to operate differently from the equivalent regime for material goods, and that the inclusion of such a concept might hamper innovation.[117]

90. The DAE includes plans for a Code of EU Online Rights by 2012. This Code would summarise the existing rights of digital users. A public consultation is planned for 2011 and a Communication for 2012.

91. Consumer confidence is vital for the development of a digital Single Market. We have not considered the Consumer Rights Directive in detail during this inquiry but the exclusion of digital goods seems to be a mistake, as we have previously argued. We look forward to following the progress of negotiations on the Directive.

92. We welcome the production of a Code of EU Online Rights as a positive step to increasing consumer confidence. It is too early to assess its potential but we look forward to seeing the Commission's plans as they develop. We urge the Commission to produce its Communication as soon as possible.

91 Copenhagen Economics, The Economic Impact of a European Digital Single Market, Final Report, March 2010 Back

92 The Monti Report, pp. 44-46 Back

93 Q 31 Back

94 EUSM 2 Back

95 Cloud computing relates to the provision of ICT services via the internet. Users can access storage, computing power or software as needed rather than investing in fixed infrastructure. An analogy is often made between cloud computing and the provision of utilities such as gas and electricity via transmission networks and grids. Back

96 EUSM 1 Back

97 EUSM 11 Back

98 The Package was published on 20 September 2010 and included: Communication on European Broadband: investing in digitally driven growth, COM (2010) 472 final; Proposal for a Decision of the European Parliament and of the Council establishing the first radio spectrum policy programme, COM (2010) 471 final; and Commission Recommendation of 20 September 2010 on regulated access to Next Generation Access Networks (NGA), SEC (2010) 1037 final. Back

99 EUSM 6 Back

100 Directive 2000/31/EC, OJ L178 (17 July 2000) p 1 Back

101 See http://ec.europa.eu/internal_market/consultations/2010/e-commerce_en.htm Back

102 Q 19 Back