Opinion of the Economic and Social Committee on the 'Green Paper from the Commission on Commercial Communications in the Internal Market` (97/C 66/05)

On 13 May 1996, the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Union, on the 'Green Paper on Commercial Communications in the Internal Market`.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work, adopted its Opinion on 6 November 1996. The Rapporteur was Mr Simpson.

At its 340th Plenary Session (meeting of 27 November 1996) the Economic and Social Committee adopted the following opinion by 102 votes to three with five abstentions.

1. Introduction

1.1. The Green Paper on Commercial Communications is the outcome of a comprehensive review by the Commission, commenced in 1992, of the barriers, or distortions, in the functioning of the Internal Market which affect Commercial Communications. It contains proposals from the Commission designed to improve the position and seeks the views of the Economic and Social Committee and other interested parties on these proposals.

1.2. The proposals, which are outlined and discussed in later paragraphs, are aimed to codify, clarify and simplify the operation of the Internal Market with respect to the provision of Commercial Communications. The proposals are directed to the better functioning of the Internal Market: they would not alter the basic legal position established under the Treaty, particularly as set out in Articles 30 and 59. Equally, they do not affect the scope of the exemptions allowed to Member States by Article 56 of the Treaty.

1.3. The Commission also acknowledges the need to take account of the relationships with other Community policies and actions. It outlines an approach which should help the Commission to evaluate the problems of compatibility between Community Law and regulatory measures which exist in Member States. This should then provide a mechanism for the consideration of any relevant future legislative or regulatory changes being contemplated by individual Member States.

1.4. There is evidence of an increasing potential market for commercial communications which have relevance in more than one Member State. Advertising and brand marketing are only two of the potential areas of interest. National restrictions or differences in regulatory regimes can be a source of tension if they are regarded as unnecessary barriers to the functioning of the Internal Market. If the Commission takes no action, the expectation must be that it will receive an increasing number of complaints, where there are allegations of unjustified restrictions on the operation of the Internal Market, and there will be more frequent recourse to the European Court to determine the outcome.

1.5. The strength of the Commission argument for its initiative is that the present position is unsatisfactory, inefficient and uncertain. Reliance on the Court is itself a deterrent for some complainants and, when used, it is time consuming. It also leaves the Court to determine policy through the precedents of individual decisions. If administrative mechanisms existed which allowed the Commission to follow a considered systematically determined evaluative approach, this should facilitate quicker and more effective resolution of some questions. It might also aid the Court in determining those cases which are referred to it.

1.6. The term 'Commercial Communications` has been defined by the Commission as 'All forms of communication seeking to promote either products, services or the image of a company or organization to final consumers and/or distributors.`

1.7. It includes all forms of advertising, direct marketing, sponsorship, sales promotions and public relations promoting products and services. The scope is defined to include all enterprises including public and semi-public bodies, charities and political organizations. It has applications to printed, audio and televisual materials, including the rapidly expanding use of cable, telecommunications and satellites for the flow of information, marketing and distance selling.

1.8. In the evaluation of the Commission proposals it is important to acknowledge that, within the Internal Market, it is national regulations which must be examined to ensure that they conform with the Treaty: not vice versa. The principle of a freedom to supply services, of the types described as commercial communications, is already established.

If this freedom is to be constrained, the basic criteria which can now be codified following the principles and case law related to 'public interest` criteria, are that:

- the restriction is non-discriminatory between the providers from different States;

- there is a 'public interest` to justify the restriction;

- the restriction is proportionate to the justified objective.

The Commission has acknowledged that the complaints which it has received do not usually involve claims of discrimination because of the nationality of the provider of the services.

1.9. The justification of 'public interest` can take many forms including cultural factors, linguistic factors, protection of minors, consumer protection, moral codes.... etc. However, these methods of justifying national regulations are subject to examination, ultimately by the European Court, to ensure that they are not used as unacceptable indirect forms of discrimination.

1.10. Whilst the basic principles of the Internal Market as they apply to Commercial Communications can be readily summarized, because of the need to interpret these in situations where judgements must be made, their application is difficult and, inevitably, sometimes controversial.

1.11. It is possible to argue that the simplest principle on which to base policy might be that standards and methods of commercial communication which are allowable in the country of origin should also be allowable in other Member States, provided that they are in conformity with the Treaty, the Committee accepts that there are many defensible differences between the objectives of the national regulatory authorities. The principle of full mutual recognition is not consistent with the degrees of difference which are acceptable within the Internal Market.

1.12. In contra-distinction, it is possible to argue that in the field of commercial communications, Member States should be free to regulate according to national standards because there are so many cultural, linguistic and social differences. A completely laissez-faire approach would be an indirect means of allowing discrimination and would, in some cases, offend against the Treaty. Between these two contrasting positions, policy must be directed to an appropriate balance between the principles of the Treaty and the permitted protection of the 'public interest` by Member States.

2. The Commission Proposals

2.1. The Commission has invited comments on two wide ranging proposals. They are a pragmatic response to its extensive review of the position in each of the Member States which is briefly summarized in the Green Paper and supported by a Commission Working Paper ().

2.2. The Committee welcomes the publication of the Green Paper as a useful method of outlining the problems, seeking comments from interested organizations and institutions, and debating possible improvements in the functioning of the Internal Market.

2.3. The evidence from the review is not reproduced in this Opinion. It includes differences in national definitions of 'misleading advertising`; differing legislation on permissible comparative advertising; differing rules on price advertising, discounts and dumping; the permissible forms of advertising by telephone or mail or through promotional devices; media restrictions (especially TV advertising and teleshopping); sponsorship restrictions; product restrictions (such as on tobacco, children's toys, pharmaceuticals, etc.) and other restrictions related to taste, decency, professional ethics, language and politics.

2.4. The proposals made in the Green Paper are not legal instruments but are tools seeking to help to improve the Commission's decision making on potential infringement cases or regulatory proposals. These are, of course, founded on the legal bases set out in the Treaty. For infringement cases, the legal basis is Article 169. For Community proposals, as is explained in Part I of the Green Paper, because the activity of commercial communications is regulated for various objectives, these could be based on a number of legal bases (e.g. Articles 100a and 57(2) for the Internal Market, and Article 129 for health and consumer protection) depending on the relevant objective being pursued.

3. The operational implications

3.1. The first proposal outlines a framework for a methodology to be used in the assessment of whether national legislative or regulatory measures affecting Commercial Communications are appropriate and proportional.

3.2. The second proposal suggests (a) improved coordination and information at a European level through a combination of a system of notification, of existing and proposed national regulatory measures affecting commercial communications, to the Commission and (b) the creation of a representative committee, drawn from the Member States, to provide a forum to advise the Commission.

3.3. Methodology

3.3.1. The first proposal, for a methodology to deliver a more uniform assessment procedure of any restrictive national measures affecting Commercial Communications, is intended to combine the existing and developing jurisprudence with the provision of an agreed detailed impact analysis for particular cases. In essence, national restrictive measures must be likely to achieve the intended aim and must do so through restrictions which do not go beyond that which is the practical minimum necessary to achieve the objective. An agreed methodology would be helpful to the Commission and Member States in the framing of any proposed legislation or the introduction of new regulatory restrictions.

3.3.2. The methodology would be applied in two steps. The first would provide a factual overview of the possible effects of the measure using five key assessment criteria asking five critical questions. The second would apply the results of the assessment to the necessary decision on proportionality and/or coherence.

3.3.3. The five questions to establish the overview are:

A. What is the potential 'chain reaction` caused by the measure? (including the effect on users, suppliers and carriers, as well as the final consumer).

B. What are the objectives of the measure?

C. Is the measure linked to the objective?

D. Does the measure affect other objectives?

E. The efficiency of the measure (which raises questions about using the least restrictive means).

3.3.4. Having established the key characteristics, these five criteria should permit an assessment of proportionality, in relation to national measures, and consistency with respect to Community regulatory actions.

3.3.5. The Committee agrees that the introduction of this type of methodology would offer the prospect of a comprehensible and agreed assessment methodology which would reduce the ambiguity and/or uncertainty which prevails in its absence. It should serve a number of purposes. First, Member States and the Commission are more likely to better understand the motivation of each other and may be more likely to agree on the merits of decisions proposed by governments or the Commission. Second, the existence of the methodology may assist the European Court in deciding any cases referred to it.

3.3.6. There will be understandable concerns that the introduction of a methodology of this kind may not be 'policy neutral`. Some groups and associations have expressed concern as to whether adequate account will be taken of national regulations designed to offer protection to consumers and prevent unfair competition. Others question whether the effect will be to enhance the market opportunities for multi-national enterprises. Their worry is that the Commission may be able to give Internal Market considerations a higher priority.

3.3.7. These questions are natural. To reduce effective Community-wide consumer protection would not be acceptable. Also, any unfair advantage to multi-national enterprises would be a cause for criticism of the proposals. However, the Committee accepts that the methodology may offer the prospect of combining enhanced consumer protection with the opportunity for harmonisation of the practices used in commercial communications, if only by offering comparative and comparable information to each authority of key standards in Member States. Concern has been expressed that some large commercial organisations might gain increased market share and this might be capable of being abused. However, where this situation involves more than one Member State, the Commission already has the duty to challenge any abuse of a dominant position. Within a Member State, the national competition authorities would have this responsibility.

3.3.8. The Committee has considered carefully the possible effects on businesses and consumers of the proposals to establish more firmly the Internal Market for commercial communications. Two particular issues seem critical to this process:

(i) the implications for business and consumers of the present incomplete Internal Market;

(ii) the possible economic implications of the Commission proposals.

3.3.9. The present incomplete Internal Market has the effect of discriminating against cross-border Commercial Communications. Whereas the single market for goods and many services has been established, market differentiation between Member States in the freedom to supply common brand support, generic advertising or sponsorship ideas is often constrained by differing national regulations. The question for resolution is NOT the removal of all national regulations, NOR is it necessary to harmonize every regulation. It is to test the hypothesis that such regulations are justifiable within the framework of the Treaty. To offer an objective method of achieving this goal should not be seen as a bias in favour of some businesses: rather it would be the removal of an existing bias against cross-border business in Commercial Communications.

3.3.10. The second issue concerns the potential benefit for all consumers, whether as individuals or businesses, and the economy in general, of the opening-up of this market. Whilst the overall benefit may be considered small, nevertheless, any change in the direction favoured by the Commission is likely to release certain economies of scale and encourage specialization.

3.3.11. Of course, the same argument also points to the conclusion that many providers of Commercial Communications in a constrained domestic market will face a more competitive market place. However, whilst some may view this as unfair competition, in reality, an increased intensity of competition after a degree of protection is reduced is not necessarily unfair. If this logic applied, the whole case for the creation of the Internal Market would be challenged. On behalf of consumers, and those who use commercial communications to get a message across, it must be acknowledged that the present market fragmentation is likely to produce higher costs per unit of sales or, as media market specialists might express the same idea, in terms of 'cost per thousand` contacts.

3.4. Coordination and information

3.4.1. The second proposal is to create the means to improve the flow of information and better co-ordination of actions and policies at the European level. The method proposed involves establishing a Community-wide consultative committee, using the committee as the forum for an exchange of information on current and new developments affecting commercial communications and, within the Commission, creating a contact point for information on commercial communication policies.

3.4.2. Within the consultative committee, using the agreed methodology, the Commission would have an opportunity to explain the problems arising from different national laws. Member States would consider the problems caused by the differences in their regulations. The committee could express an opinion on the issue of mutual recognition. The subsequent decision by the Commission on whether to proceed with a formal Community initiative, ultimately through the European Court, would then follow. The Commission would, however, have had the opportunity to discuss the issue with representatives from the Member States before invoking the infringement procedures. Also, there would be the possibility of holding anonymous discussions as a preliminary review procedure. These actions, in themselves, might lead to a reduction in the reliance on the infringement procedures provided in the Treaty.

3.4.3. An additional potential benefit would be the possible moves to harmonize, or reduce the differences in, the actions of Member States. A Member State which was involved in the evaluation of the proportionality of actions by another Member State would be influenced by this knowledge when considering any domestic changes.

3.4.4. Another factor which may enhance the convergence process in domestic regulation of commercial communications is the prospect that cross-border operations might become more flexible than domestic operations if the Member State is obliged to accept, for example, advertising actions from outside the Member State (because of Community decisions about (dis-) proportionate actions) which allow cross-border transactions on a basis which disadvantages domestic operators. Co-ordinated consultation by Member States through the proposed committee should help to avoid such anomalies. (See also paragraph 4.3)

3.4.5. The Committee welcomes the proposal for a form of co-ordination, co-operation and information exchange which is embodied in the idea of a consultative committee. If this proves effective it will reinforce the pragmatic efforts to give an acceptable basis for the Internal Market in Commercial Communications. If it proves inadequate, then the Committee envisages that the Commission may have to consider legislative action. This is acknowledged to be conceptually difficult within the constraints of the Treaty and taking account of the dramatic changes in the potential for cross-border commercial communications, particularly as information technology evolves.

3.4.6. The Committee welcomes the suggestion that Member States should notify the Commission and other Member States of proposals for new legislation or regulations affecting commercial communications. The practical arrangements should place on the Commission the obligation to circulate draft proposals from a Member State. Then they could be considered by the consultative committee. This procedure would be consistent with the recent Commission proposal for a Directive on notification by Member States of future draft rules and regulations on Information Society services ().

3.4.7. The Green Paper gives little detail on the way in which the consultative committee would function and the composition of the membership. The Commission has suggested that there might be two representatives from each Member State. There is the usual conflict between making a committee adequately representative and yet maintaining a manageable size. Whilst the operational details can be determined at a later date, the Committee is concerned that a committee of two representatives from each Member State, alongside Commission representatives, might be less effective if there was no 'permanent` representative from each State, to ensure consistency and continuity.

3.4.8. The proceedings of the committee should be transparent. Relevant consumer groups, trade associations, service providers and other interest groups should have the opportunity to present their views to the committee and, helped by the transparency of the deliberations, be assured that these views have been adequately considered and taken into account.

4. Detailed comments

4.1. The definition of Commercial Communications suggested by the Commission is sufficiently comprehensive. However, the Commission acknowledges that commercial communications will sometimes relate to the activities of non-commercial organisations. In particular, the Committee acknowledges that many charities, or non-profit making organisations, make extensive use of commercial communications and that these are increasingly likely to affect their activities across the European Union. Presumably these organisations will be included in the general provisions outlined by the Commission.

4.2. As the spectrum of commercial communications widens with the expansion of satellite TV, cable television, internet communications, distance selling and on-line transactions, the ability of Member States to exclude, or constrain, certain commercial communication activities will diminish. The 'Television Without Frontiers` Directive has acknowledged the problems of regulation by Member States in comparable subject areas. Heavy reliance has been placed on broadcasts usually being acceptable if they conform with the regulations of the country of editorial control or transmission. Similarly, enforcement procedures are orientated to the place of origin of the broadcast. The Committee accepts that these developments will, themselves, create pressure for Member States to co-ordinate their regulatory regimes and welcomes the suggestion in the Green Paper that the impact of these technological developments will be an early consideration by the proposed consultative Committee.

4.3. An important aspect of any measures to regulate commercial communications within a Member State, or on a Community-wide basis, is an appreciation of the 'chain reactions` which may be created. The Working Document, prepared by the Commission (op. cit. Section E), examines the likely reactions for the commercial marketing of different types of goods and services in response to regulatory restrictions. This confirms, in analytical form, the experience of members of the Committee who have experience of the production and marketing of goods and services and also those who have examined the prospects from a consumer viewpoint. For many national regulatory measures there are therefore at least two differing elements to be considered. First, is the measure justified in the 'public interest` (as outlined in paragraph 1.8)? Second, is the measure likely to create a 'chain reaction` which may have unintended consequences, may erode its effectiveness, or may further distort the provision of commercial marketing services? The Committee commends the examination of potential chain re-actions as an important part of the overview process outlined in para. 3.3.3.

4.4. The Commission acknowledges that one of the illustrations of the unsatisfactory nature of the present arrangements affecting commercial communications is the fact that, if the regulatory restraints in a Member State are judged to be disproportionate to an acceptable objective, then, the principle of mutual recognition may allow external commercial communications which 'offend` domestic regulations. If Community law allows this type of situation to increase in significance, then it will have a precedence over national actions and may indeed cause domestic concerns to demand changes in the domestic regulatory framework. Alternatively, this may create pressure for the Commission to find a more flexible working arrangement. The Committee acknowledges that in some Member States there is the potential for unpalatable decisions arising from the procedure on 'proportionality`. Nevertheless, the merits of the evolving Internal Market make it difficult to argue that the legal provisions embodied in the Treaty are an inadequate defence of domestic 'public interest`.

4.5. In the debate about the scope and appropriateness of Commission action, the Committee foresees a possible tension between the overall principles of the Internal Market, as determined by the general provisions of the Treaty and the particular impact of Article 129a (3) which allows Member States to introduce more stringent measures of consumer protection than are required by Community legislation. However, 'such measures must be compatible with this Treaty`. The scope of Article 129a may, therefore, be more restricted than is sometimes thought.

4.6. One of the possible complications in the opening of the Internal Market for commercial communications is the distorting effect of differences in national tax rates. Whilst such differences may lead to suggestions that 'imported` services should be deterred, the logical answer, within the Community, is that indirect taxation should be further harmonized and that, for sources outside the Community, efforts should be made to make imports amenable to appropriate taxation. With new distance selling methods, this may be easier to recommend than to implement.

4.7. In the consultations which were preparatory to the drafting of this Opinion, one of the criticisms voiced was that, whilst the Commission had taken a useful initiative in the preparation and publication of the Green Paper, there was a concern that the Commission was insufficiently active in the pursuit of some cases which it had already received so that they could be tested in terms of their objectives and the proportionality subjected to the scrutiny of the European Court. The Committee would be concerned if the evolution of the ideas in the Green Paper was used as a reason to delay necessary action on existing major complaints.

4.8. The Green Paper makes no reference to any exemptions on a de minimus basis. In the area of commercial communications such an exemption does not seem to be necessary.

4.9. A feature of the Green Paper is the decision of the Commission to bring together responsibility for Commercial Communications. The Committee agrees that there is a need to ensure a common approach within the Commission to these complex topics and commends the idea that one DG should be designated to carry a 'lead role` for the Commission. This arrangement has the advantage that consumer-protection issues, for example, can be considered in a setting where there is a broadly based overview of the many strands and products which may be affected. Other DGs also have critical contributions to make. However, whatever administrative arrangement is made, the critical factor is that the involvement of all the relevant DGs should be effective. One development, which may not have gained adequate explicit recognition in the Green Paper, is the opportunity for the Commission to extend its influence on the market for Commercial Communications through international negotiations. If the Internal Market can be effectively 'opened` then the case for easier access in international markets may be made more convincingly on a global basis.

5. Conclusions and recommendations

5.1. The Committee welcomes the publication of the Green Paper on Commercial Communications. It has drawn attention to a complex and difficult series of questions and it makes constructive proposals to improve the functioning of the Internal Market.

5.2. A balance must be found between (a) the requirements of the Treaty to open the internal market for the supply of goods and services and (b) the protection of the public interest as allowed by the Treaty and found in many different forms of regulatory action within Member States. This balance must be achieved within a framework which is transparent and as objective as possible.

5.3. The first proposal for a methodology to deliver a procedure for a more uniform assessment of the proportionality of any restrictive national measures affecting Commercial Communications, is intended to combine the existing and developing jurisprudence with the provision of an agreed detailed impact analysis for particular cases. The Committee agrees that the introduction of this type of methodology would offer the prospect of a comprehensible and agreed assessment procedure which would reduce the ambiguity and/or uncertainty which prevails in its absence.

5.4. Any reduction in Community-wide consumer protection would not be acceptable. Also, any unfair advantage to multi-national enterprises would be a cause for criticism of the proposals. However, the Committee accepts that the methodology may offer the prospect of combining enhanced consumer protection with the opportunity for harmonisation of the practices used in commercial communications. As a result, this should also help to create more open competition between enterprises creating and supplying commercial communications.

5.5. The second proposal to create the means to improve the flow of information and better co-ordination of actions and policies at the European level involves establishing a Community-wide consultative committee. The committee will be useful as the forum for an exchange of information on current and new developments affecting commercial communications. Within the Commission, the intention is to create a contact point for information. The Committee welcomes these proposals. In addition, the Committee recommends that the Commission should ensure that each of the Commission Information Offices in the Member States is briefed and equipped to act as a contact point where information can be available to organisations which seek assistance on these questions and, where appropriate, can then gain access to the central contact point in the Commission. The Governments of the Member States might also consider parallel arrangements for subjects falling within national regulatory authorities.

5.6. There is a concern that a Committee of two representatives from each Member State, alongside Commission representatives, might be less effective if there was no 'permanent` representative from each State, to ensure consistency and continuity. Given this constraint, the proceedings of the committee should be transparent. Relevant consumer groups, trade associations, service providers and other interest groups should have the opportunity to present their views to the committee and, helped by the transparency of the deliberations, be assured that these views have been adequately considered and taken into account.

5.7. If this consultative committee, and the related actions, prove effective, it will reinforce the pragmatic efforts to give an acceptable basis for the Internal Market in Commercial Communications. If it proves inadequate, then the Commission may have to consider supplementary legislative action.

5.8. In particular, the Committee:

1) welcomes the suggestion that Member States should notify the Commission and other Member States of proposals for new legislation or regulations affecting commercial communications;

2) accepts that recent developments in Information Technology and new broadcasting technologies will create pressure for Member States to co-ordinate their regulatory regimes and welcomes the suggestion in the Green Paper that the impact of these technological developments will be an early consideration by the proposed consultative committee;

3) commends the examination of potential chain re-actions as an important part of the overview process (as outlined in paragraph 3.3.3).

5.9. The Committee would be concerned if the evolution of the ideas in the Green Paper was used as a reason to delay necessary action on existing major complaints.

5.10. The Committee supports the action of the Commission in bringing together, within a designated DG, responsibility for giving an overall lead for the Commission on Commercial Communications. This change should ensure a common and consistent approach to this complex topic.

5.11. The Committee acknowledges that in some Member States there is the potential for unpalatable decisions arising from the procedure on 'proportionality`. Nevertheless, the merits of the evolving Internal Market make it difficult to argue that the legal provisions embodied in the Treaty are an inadequate defence of domestic 'public interest`. In the debate about the scope and appropriateness of Commission action, the Committee foresees a possible tension between the overall principles of the Internal Market, as determined by the general provisions of the Treaty and the particular impact of Article 129a (3).

Brussels, 27 November 1996.

The President of the Economic and Social Committee

Tom JENKINS

() XV/9579/96 Working Document: Commercial Communications in the Internal Market.

() Commission Press Release IP/96/695.