Opinion of the Economic and Social Committee on "The effects of e-commerce on the single market (SMO)"
Date: 2001-01-24
Institutions: Provisional data
Subjects: Internet, data processing, economic development, electronic commerce, single market, transmission network

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Official Journal of the European Communities

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II

(Preparatory Acts)

ECONOMIC AND SOCIAL COMMITTEE

Opinion of the Economic and Social Committee on ‘The effects of e-commerce on the single
market (SMO)’

(2001/C 123/01)

On 2 March 2000 the Economic and Social Committee, acting under the third paragraph of Rule 23 of
its Rules of Procedure, decided to draw up an Opinion on the following subject: The effects of
e-commerce on the single market (Single Market Observatory).

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 10 January 2001. The rapporteur was
Mr Glatz.

At its 378th plenary session (meeting of 24 January 2001) the Economic and Social Committee adopted
the following opinion with 79 votes in favour and one abstention.

1.

Summary and conclusions

— Greater account also needs to be taken of these new

trends in competition policy.

— E-commerce currently accounts for a small proportion of
overall trade. This is particularly true of business-to-
consumer (B2C) trade. It is more significant in business-
to-business (B2B) trade.

— E-commerce is, however, growing extremely fast.

— Consumers are hesitant to use e-commerce. The reason
for this is lack of the opportunity or knowledge to
gain access and lack of confidence with regard to the
protection of privacy and security of payments.

1.1.
For these reasons a package of measures is needed
laying down the basic conditions for a functioning internal
market in e-commerce. It should be ensured that measures are,
above all, adopted at global level.

1.2.
If this does not happen, Europe will be missing out on
opportunities for economic and social development and it will
not be possible to narrow the gap between Europe and the
USA in this area.

— Another obstacle is the regulatory framework, which is
in some cases incoherent and often entirely lacking, as
well as the legal situation of suppliers which in some
areas is fragmentary — particularly in view of
the
convergence of telecommunications and media and the
corresponding infrastructure. A consistent framework
cannot therefore be said to exist.

1.3.
In summary,
following recommendations:

therefore,

the Committee makes the

— Support for a constructive dialogue between consumers
and manufacturers/distributors. Consumer organisations
should be comprehensively consulted, in order to create
a climate of confidence.

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— Promotion of strategies to flank and stimulate the new
technologies with the aim of providing access for as
many people as possible. Special account should be taken
of the problems of the less affluent sections of the
population, as well as those of the elderly, for example.

— Establishment of a European and worldwide legal frame-
work to ensure affordable and transparent access to
e-commerce, offering the consumer security and guaran-
tees. The measures adopted by the Commission for the
reorganisation of the telecommunications sector (package
of directives of 12 July 2000(1)) are an important
initiative.

— Establishment of a legal framework for areas which are
excluded from the scope of the e-commerce directive.
These would include a framework for alternative disputes
settlement procedures, questions relating to unfair mar-
keting, extension of the scope of the distance selling
directive, drawing up of a distance selling directive
covering financial services, and criteria for self-regulation
initiatives.

— The Committee believes that SMEs will have an important
role to play in e-commerce and that it must be made
possible for them too to make use of the opportunities.

— Suppliers should offer consumers the opportunity to
reach out-of-court settlements before legal proceedings
are instituted. It is also important for consumers to be
able to enforce their rights in their place of residence.

— In order to promote out-of-court settlement procedures
and quality labels whilst avoiding obstacles to the internal
market, comparable standards and principles need to be
developed and applied.

— The Community must assign the highest priority to
data protection. The Commission should encourage the
Member States to press ahead with implementation of
data protection. Data protection law needs to be adapted
to the new technological and economic context, in order
to guarantee data protection for all forms of modern
communication.

2.

Importance of e-commerce

As the technological basis for e-commerce, the Internet has
undergone rapid development. The importance of the Internet
varies greatly from one region to another, however. Thus the
OECD states, particularly the United States, dominate as
regards both the number of servers and the number of users.

The European Commission (2) believes that e-com-
2.1.
merce in Europe will have grown from $17 billion at the end
of 1999 to approximately $360 billion in 2003.

2.2.
The most important area is business-to-business (B2B)
commerce. Estimates coincide in suggesting that it accounts
for between 70 and 90 % of total e-commerce.

Business-to-consumer (B2C) e-commerce at present
2.3.
accounts for an insignificant proportion of business volumes.
In Europe e-commerce currently accounts for less than 1 % of
total final consumer transactions, i.e. less than traditional mail
order business. For 2001/2002 it is estimated that e-commerce
will account for 5 % of the total in the OECD 7, and for 2002-
2005 the corresponding forecast is 15 %.

— E-commerce poses new challenges for competition policy.
The new developments should be observed with vigilance,
particularly mergers, portals and network infrastructure.

2.4.
In some sectors, such as financial services or software,
however, e-commerce already enjoys far greater than average
importance. This shows that e-commerce will be able to play
a major role in intangible products in particular.

— Development of safe payments systems and reduction of

cost of cross-border money transfers.

— Reduction of existing tax obstacles and distortions.
European firms’ competitive disadvantage vis à vis third-
country firms should be eliminated.

2.5.
E-commerce should be understood above all as a
means of selling both digital and non-digital goods and
services, particularly over the Internet. Other forms of selling
are on the point of being introduced however, e.g. interactive
TV (t-commerce) and mobile commerce (m-commerce). The
latter in particular will gain in prominence with the introduc-
tion of UMTS technology.

(1) COM(2000) 384, COM(2000) 385, COM(2000) 386, COM(2000)

(2) Communication from the Commission — Strategies for jobs in

392, COM(2000) 393, COM(2000) 394, COM(2000) 407.

the Information Society (COM(2000) 48 final).

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2.6.
Europe is lagging behind the USA with regard to both
use of the Internet and the importance of e-commerce. There
are various reasons for this: a single language, a single currency,
lower telephone charges, more risk capital. Europe is, however,
the leader in mobile communications and can be expected to
develop this lead further with UMTS. The introduction of the
euro will also boost the importance of e-commerce in Europe
— even for European states which do not participate in the
euro.

3.1.4.
Some intermediary business will decline. Manufac-
turers and suppliers of services will sell directly to the
consumer. At the same time, however, the lack of clarity of
Internet supply will create a new need for intermediaries. New
forms and areas will develop, particularly in logistics, financing
and information services. Forms of distribution will also need
to be more closely geared to the needs and the — in some
cases greatly changed — lifestyles of consumers.

3.2. Businesses

3.

Importance of e-commerce for the internal market
and its operators (employers, consumers and wor-
kers)

For companies use of the Internet means the opening up of
new areas for business, the development of new products,
services and forms of selling

3.1.

Internal market

3.2.1.
The Internet also facilitates marketing, particularly
focused marketing. Advertising and transaction costs can be
reduced.

3.1.1.
E-commerce will influence the internal market in
many ways. The purchase of goods and services across national
frontiers will intensify. New markets are emerging. Consumers
have a wider choice. E-commerce will boost the importance of
the internal market. E-commerce can offer development
opportunities for rural areas too. The structure of markets is
changing.

3.2.2.
The Internet can be expected to produce cost
reductions which, with properly functioning markets, will lead
to lower prices, with the corresponding effect on prosperity.
The reasons put forward for these cost reductions are as
follows:

— disappearance of traditional middle men (disinterme-

diation)

In particular, electronic commerce in financial services can be
expected to take on much greater importance. Banks will
increasingly face competition from non-banks offering finan-
cial services.

— lower communication costs (telephone, computer etc.)

— less physical infrastructure (business premises etc.)

3.1.2. Mutual recognition, which is regarded as one of the
most important instruments for ensuring free movement of
goods in the internal market, will gain further in importance
as a result of e-commerce.

3.1.3.
The distribution of tangible products will, however,
grow in importance only if logistical problems are satisfactorily
solved. The increase in the electronic trade in physical products
will, however, also lead to an increase in traffic flows. It is
difficult to say at present whether the change from physical
despatch to downloading of certain products (e.g. music
media) will cancel out these effects. The Commission is urged
to initiate studies on the subject. The Committee highlights
this problem and points to the need to find appropriate
transport solutions.

— transfer of costs to customers (customers obtain infor-

mation themselves)

— lower cost of distributing digital goods.

3.2.3.
On the other hand, there will be new, additional
costs which should not be underestimated — particularly
public relations.

The new electronic media can be expected to have a
3.2.4.
greater impact on business-to-business transactions than on
transactions with the final consumer. This is illustrated by the
respective turnovers. The greater part of e-commerce is
business-to-business and its use in sub-contracting and pur-
chases of parts and materials
is becoming increasingly
common.

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3.2.5.
It is vital for SMEs to make use of this form of
business. However, they are at present often not in a position
to exploit these opportunities. It is particularly important for
SMEs to be offered effective advisory services which will enable
them to seize the opportunities and hold their own in this way
of doing business or respond to the requirements of main
contractors and other bigger enterprises to adopt new ways of
operating.

competitive than other areas. The reason for this is a high
degree of market concentration (familiarity). The market is
highly transparent in theory but much less so in practice. This
demonstrates the need for a framework — particularly a
competition-related and legal
framework — enabling the
consumer actually to exploit possible advantages.

For SMEs the additional PR costs may, as a result of
3.2.6.
the specific features and structures of the Internet, exceed the
technology-related cost savings. Barriers to adoption are thus
greater in B2C trade than in B2B. And thus also the risk.

3.2.7.
Through the Internet small and medium-sized enter-
prises can have improved access to markets, as a result of
lower communication costs. The technology also makes it
easier for suppliers to gather information on customers and
their purchasing behaviour. This makes it possible to target
customers more precisely without the usual scatter effect of
advertising.

3.2.8.
The Internet is therefore often seen as an opportunity
for SMEs, in fact particularly for SMEs. E-commerce will force
firms to take a greater interest in the specific skills of their
employees in this area. Succeeding in e-commerce will be a
challenge for SMEs and will require changes in logistics and
human resource development. Joint ventures and platforms
can reduce this risk.

3.3.3.
The Committee believes that firms, governments and
the European Community should think about new forms of
incentive to encourage simplification in terms of systems and
machine translation of
languages, promote the use of
e-commerce among less affluent sections of the population
and make the Internet an instrument used not only for
consumption, but increasingly for education and information,
an instrument which is of use to all.

3.3.4.
The Internet is being used not only as a vehicle for e-
commerce, but also increasingly for training and information.
It offers employment opportunities and helps to satisfy the
demand for greater knowledge. The Committee stresses that
education policy needs to react to this changed demand, in
schools, adult education and other areas such as the mass
media. Investment is needed in hardware and software and in
the construction of networks. There is also a need for training
of
teachers. Training in this field will be an important
precondition for Europe’s future competitiveness.

3.3. Effect on consumers

3.4. Workers

the economy,
Against a background of globalisation of
e-commerce offers the consumer an extraordinary opportunity
to have access to all markets when choosing products hitherto
unheard of — and to benefit from attractive prices or buy
products which would not be available on national markets.

Asymmetric information is a feature of retail markets
3.3.1.
in general and of the Internet in particular. It is usually very
expensive for the consumer to obtain information on all
suppliers. Confidence therefore plays a major role in these
markets. There is therefore likely to be a greater intermediary
role in future for providers of advisory and search services.

from the forecast

3.4.1.
EU citizens will be increasingly affected by e-com-
merce in their capacity as workers. The structural shifts which
can be expected to result
take-off of
e-commerce will create a demand for new skills in the labour
market. These forecast structural shifts must be met by
appropriate training and skills initiatives and other measures.
This will by no means involve only highly skilled workers.
Basic and further training will need to be tailored to such
workers.

Lower costs will be reflected in lower prices for the
3.3.2.
final consumer only if competition works. Empirical studies
show, however, that the Internet is in principle no more

3.4.2.
The Committee points out that education policy will
need to react to these changed demands both at school and
adult further education level. Education policy-making today
will determine Europe’s competitiveness in the future.

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3.4.3.
The development of partly virtual business structures
will encourage the emergence of new employment relation-
ships. Not least, teleworking will grow in importance as a
result of the rise of e-commerce. The social partners should
look at these trends in terms of their impact on employers and
workers. Particular care will need to be taken over compliance
with the protective provisions of labour law and over health
and safety in the workplace. Trade union access to companies
and representation by works councils must be guaranteed.

E-commerce should create new opportunities for
3.4.4.
workers. Opportunities for worker participation will increase
if
there is a move from hierarchical structures towards
networks of small, project-orientated units working relatively
autonomously. It will be necessary to develop and promote
these opportunities for workers.

In its Opinion on the White Paper on Commerce the
3.4.5.
Committee expressed views on initial and further training
issues. The results are to some extent also relevant
to
e-commerce.

3.4.6.
The rise of e-commerce also means increased worker
mobility. Activities which were hitherto located in firms’
administrative centres are being farmed out to places where
workers are cheaper and social standards lower. In order to
alleviate the increased pressure on Europe’s workers, social
rules are needed, at least at European level, to be agreed
between the social partners, or else more far-reaching rules
guaranteeing compliance with ILO standards for workers in all
areas.

The Committee believes that,

3.4.7.
in drawing up a
framework for e-commerce, it is important to strike a balance
between the interests of suppliers, consumers and workers.
The involvement of all three groups is essential for all aspects
of e-commerce. Joint initiatives by the social partners are also
extremely helpful
in coping with structural change. The
Committee also feels that the Commission should carry out a
study of the (physical, psychological and economic) effects of
e-commerce on workers.

4. Obstacles to the creation of an internal market in

e-commerce and solutions

4.1. Clear legal and regulatory framework needed

E-commerce will be able to realise its potential only if
there exists a reliable, transparent and predictable structural

framework for businesses and consumers. The Directive on
electronic commerce (2000/31/EC) established a legal frame-
work for suppliers, making it possible for them to do business
with customers in other Member States without having to
apply the laws of those Member States. The directive provides
for derogations in various areas, however. So,
instead of
ensuring a Single Market, e-commerce in the case of the retail
sector may still be characterised by fragmentation of the EU
into 15 different national markets thereby clearly restricting
the potential for e-commerce in Europe. Thus, while fully
understanding the situation of providers and the need to end
fragmentation, the Committee feels that, as long as high-level
harmonisation is lacking, an extremely responsible approach
is called for here.

In many cases it is necessary for the supplier to be
4.1.1.
certain of the identity of the other party to a contract. In
e-commerce it is also essential that the integrity of the data
transmitted is guaranteed. Electronic signatures make this
possible. The basic conditions were laid down in the Directive
on electronic signatures (1999/93/EC). In practice, however,
no use has so far been made of electronic signatures.

This e-commerce directive removes many of the
4.1.2.
obstacles to e-commerce for suppliers. And yet a consistent
framework cannot yet be said to exist as a result of the
inconsistencies which have arisen through the convergence of
telecommunications technologies with each other and with
the media. A new regulatory framework for communications
infrastructure and related services should above all be aimed
at promoting and underpinning in the long-term an open and
competitive market for communications services.

The Commission’s Green Paper on Convergence
4.1.2.1.
(COM(97) 623 final) has launched the discussion.
In its
1999 Communications Review (COM(1999) 539 final) the
Commission proposes horizontal rules for communications
infrastructure. In its opinion the Economic and Social Com-
mittee supported these initiatives and felt that the discussions
should be accelerated in order to provide businesses and
consumers with a safe and reliable framework. The Com-
mission’s July 2000 telecommunications reform package
adopts an approach of this kind. In view of the convergence
of telecommunications, media and information technology,
there is to be a single legal framework for all transmission
networks and services. The Committee is glad that with the
new legal framework an effort is being made to achieve greater
coordination with general EU laws on competition and
consumer protection.

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4.1.3.
A competition policy framework has been success-
fully established for telecommunications. Now the same path
needs to be followed in other areas.

4.2.4.
If e-commerce is to develop, processes and trans-
actions have to be simple and safe and the consumer must be
able to resolve difficulties and disputes quickly, cheaply and
effectively.

High initial investment (fixed costs) are a feature of
4.1.4.
the digital economy. The investment is often in intellectual
property. Distribution costs, on the other hand, are very
low. From the point of view of producers it is therefore
understandable that considerable attention is paid to the
protection of intellectual property, to copyright. In this context
the Economic and Social Committee would point out that
consumers’ legitimate wishes and needs should not be neglect-
ed such as the opportunity to make copies for private use (e.g.
recording of television programmes for later viewing). The
Council has adopted the common position on patent law.

4.2. Confidence in e-commerce

Consumers are often hesitant about using the Internet to buy
products and services because there is a lack of transparency
with regard to product characteristics, possible additional
costs, applicable law and jurisdiction. Consumers are unsure
whether the products they wish to buy are free of defects, will
be delivered on time, and whether they will be exchanged or
refunded in the event of problems (especially defects or
dissatisfaction) quickly, efficiently and fairly. Moreover, the
technological systems are often not user-friendly.

Consumers are also concerned about fraud, lack of
4.2.1.
security, particularly of payments, and lack of protection of
personal data.

The EU has recognised that a secure framework is
4.2.5.
needed opening up to customers the many opportunities of
e-commerce. Rules are needed covering minimum information
on suppliers, prices, postage and packing costs, taxes, cancel-
lation rights and the labelling of advertising matter.

4.2.6.
Apart from numerous confidence-building measures
via the establishment of legal conditions, the main rules are
contained in Directive 97/7/EC on the protection of consumers
in respect of distance contracts, which is already being
implemented, and Directive 2000/31/EC on electronic com-
merce.

4.2.7.
The network of protective provisions is incomplete,
however. Thus, important areas of services are still excluded
from major provisions of the distance selling directive (e.g.
leisure services such as travel). In particular, no suitable legal
framework exists for the distance selling of financial services.

that

‘The specific characteristics of

4.2.8.
In its Opinion (CES 458/1999) on the Proposal for a
Directive concerning the distance marketing of consumer
the Committee
financial services (COM(1998) 468 final)
pointed out
financial
services and their immaterial nature, combined with their
acknowledged complexity and importance to consumers,
provide justification not only for proposing special provisions
which do more than simply echo the general provisions
applicable to distance selling, but also for adopting a high level
of consumer protection in the areas to be harmonised’.

4.2.2.
Online shoppers will encounter situations which are
unfamiliar from conventional shops and mail-order. When
buying in a shop or ordering from a catalogue the consumer
generally knows who he/she is dealing with. But Internet home
pages are to be found which contain no information on the
company. When making complaints about goods or services
ordered it is therefore often difficult to locate the supplier,
return products or where necessary inform the court of the
address to which legal proceedings should be directed.

4.2.9.
The universal application of the country of origin
principle, as provided for in the e-commerce directive, could
mean consumers being confronted with advertising practices
or certain products (e.g. medicines) which they have so far not
encountered. This could be a cause of uncertainty. The aim
should therefore be to achieve a high level of harmonised
standards in these areas.

4.2.3.
In many cases consumers’ lack of confidence arises
from a lack of understanding. It is incumbent on the Com-
munity, the Member States, firms and consumer organisations
to make the necessary information available to consumers. In
this way consumers will be enabled to make their own
decisions.

4.2.10.
recommendations:

The Committee therefore makes the following

— The main provisions of the distance selling directive
should be extended to other services and corresponding
rules should be drawn up as soon as possible for the
services in question.

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— The decision on the proposal for the Directive on the
distance selling of financial services should be accelerated.
The main reason for delay is discussion in the Council of
Ministers of the question of
full harmonisation and
possible derogations. As suggested in the Committee’s
opinion of April 1999, the deadline for final implemen-
tation should be set at 30 June 2001.

— The Directive on the distance selling of financial services
should contain minimum requirements concerning infor-
mation, a suitable cooling-off period, restrictions on
certain forms of selling and a simple and effective system
for refund.

— Framework rules are also needed covering areas excluded
from the e-commerce directive. This would include a
framework for alternative disputes-settlement procedures,
questions of unfair marketing and criteria for self-
regulation initiatives; such rules could form the basis for
in the area of
the establishment of
marketing. In this way consumers would have more
confidence in self-regulation initiatives.

‘Eurocodes’, e.g.

— Suppliers should be liable for loss or the faulty trans-
mission of data provided in connection with consumer
transactions.

4.3. Codes of conduct and quality labels

4.3.1.
Codes of conduct by which companies operate
should help to boost consumer confidence in e-commerce. In
order not to impede the internal market, comparable standards
and principles should be drawn up, above all at Community
level, with input from the consumer associations and industry.
Bodies monitoring compliance with codes of conduct should
be supported.

4.3.2.
The award of quality labels to companies should be
considered as a suitable instrument for enabling consumers to
form a view of the quality and reliability of suppliers. The
quality label should give consumers the confidence to make
purchases over the Internet under customer-friendly con-
ditions.

accepted as possible. National quality labels should act merely
as a spur to this trend. A plethora of widely differing certificates
would create confusion rather than clarity and impede the
operation of the internal market.

4.4. Disputes settlement and enforcement of the law

4.4.1. When cross-border consumer transactions give rise
to disputes between consumer and supplier, it makes more
sense for both sides to reach a settlement before any legal
proceedings commence. Structured management of com-
plaints by the supplier has an important part to play here.

4.4.2.
Secondly, fair and simple disputes settlement has an
important part to play in cross-border consumer transactions.
Another consideration affecting consumers’ willingness to
enter into cross-border transactions is the existence of a
procedure for the enforcement of rights similar to that
applicable in domestic transactions. Initiatives on out-of-court
settlement procedures have an important contribution to make
here.

4.4.3.
The Committee therefore stresses the need for the
Commission and the Member States rapidly to develop cross-
border mechanisms for the settlement of consumer disputes It
must be ensured, however, that such procedures are freely
chosen, i.e. that they are not a precondition for the conclusion
of a contract and that the option of subsequent legal proceed-
ings is not excluded.

4.4.4.
Out-of-court settlement procedures should be of
comparable quality throughout the Member States. This will
serve the operation of the internal market, and only in this
way can it be ensured that consumers actually make use of the
procedures. It is therefore necessary to draw up comparable
standards and principles at European level. The Committee
suggests that accreditation, licensing or supervisory structures
be guaranteed to protect against abuses.

4.3.3.
and that suppliers actually abide by them.

It must be ensured that criteria are set at a high level

4.4.5.
The Committee points out that a great many ques-
tions still need to be answered in this connection (law
applicable to out-of-court settlement procedures, language of
proceedings etc.).

4.3.4.
The Committee feels that the monitoring criteria and
certification system should be developed with input from
consumer organisations and industry representatives at inter-
national level, so that the quality label is as widely used and

However, the operation of disputes settlement pro-
4.4.6.
cedures of this kind also depends on the consumer always
having the opportunity to enforce his/her claims in court.

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4.4.7.
Access to law and a secure framework are major
preconditions for the acceptance of e-commerce by consumers.
In December 2000 the Council stipulated in the Regulation on
jurisdiction and the recognition and enforcement of judge-
ments in civil and commercial matters that consumers may
bring an action in relation to cross-border electronic trans-
actions, or have an action brought against them, at their place
of residence. Further improvements in cross-border application
of the law are needed however (serving of documents, seizure
etc.).

4.4.8 While acknowledging the need for a high level
of consumer protection,
it is also essential to avoid the
fragmentation of the market for electronic commerce in the
EU by a plethora of national regulations and constraints on
competition and innovation.

4.5. Competition

Market structures in the e-commerce sector are developing
rapidly. ‘Lock-in’ and network effects could rapidly lead to the
development of oligopolistic or monopolistic structures. The
time factor plays a greater role here than in other areas. This
poses new challenges for competition policy. The new trends
therefore need to be monitored carefully.

— As a result of the network effect and the enormous
investment required, market participants in Internet busi-
ness tend more to concentration and the formation of
market-dominating positions than traditional markets.
This is true not only of service providers but also
particularly of suppliers of
infrastructure or
content.

Internet

— Thus the Internet’s network infrastructure is already
globally dominated by only a few companies, which are
involved in merger discussions. Moreover, these network
infrastructures are concentrated on US networks, and a
major part of trans-European Internet traffic is routed via
the USA. Thus European consumers and firms are
dependent on transatlantic links
security and
reliability.

for

— Competition authorities must ensure that

the group
of market participants which lays down the industry
standards for e-commerce does not abuse these for its
own advantage or in this way achieve a dominant market
position.

— The organisation and management of the Internet are of
fundamental importance in this context. In the interests
of European consumers and businesses the European
Union must address the question of the extent to which
European competition authorities can use their influence
to bring about a competition-neutral organisation of the
Internet.

4.5.1.
Competitive conditions need to be created at Euro-
pean level which make it possible for small Internet operators,
which are generally receptive to the needs of users, to survive,
thus ensuring balanced development of the sector.

4.6. Safe and cheap payment systems

The precondition for this is that there be a sufficient
4.5.2.
number of market participants at all
levels and that they
practise free competition. These levels include not only Internet
service providers but also particularly Internet infrastructure
suppliers.

4.5.3.
face up to new challenges:

In the process European competition policy must

— Products and services are often, thanks to the Internet,
supplied via dual distribution systems: the virtual and the
traditional market. It is becoming increasingly difficult to
delineate the relevant market, and clear assessment criteria
are needed, as is close cooperation with competition
authorities on all continents.

for

Functioning, cheap and safe payments are an essen-
4.6.1.
the operation of an internal market
in
tial basis
e-commerce.
In a number of countries consumers often
lack confidence in credit card payments, although European
legislation has gone some way towards boosting confidence.
Under the distance selling directive, credit card companies
now carry the risk in the event of the fraudulent use of credit
cards or credit card numbers.

4.6.2. Moreover, prepaid cards enable consumers to make
payments anonymously. This opens up e-commerce to new
groups of consumers (young people), to which it would
otherwise be inaccessible for lack of the means of payment
(credit cards).

— Information on prices, raw materials, quantities etc. is
exchanged via B2B platforms. The competition auth-
orities have the difficult task of establishing whether
agreements restricting competition or illegal concerted
practices are thereby coming about.

4.6.3. T h e C o m m i t t e e ’ s c o m m e n t s a n d r e c -

o m m e n d a t i o n s

— Suitable means of payment need to be developed for

small transactions.

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— The cost of cross-border bank transfers is too high. This
was shown by the Commission survey of March 2000.
Small, cross-border payments must be made cheaper as a
matter of urgency and fees payable by the final consumer
must be substantially cut.

— Rules applicable to smart cards are needed (data which

may be stored).

from the need to prevent damaging tax competition which
could weaken the European Union’s position in the world
trading system. The Committee therefore welcomes the pro-
posals submitted by the Commission for applying VAT to
e-commerce. The Committee also feels that the tax arrange-
ments applicable to e-commerce must not place conventional
commerce at a disadvantage.

— Secure standards for payment by credit card exist (SET)
but are at present rarely offered by companies (partly
because of the high costs involved).

4.8. Access and access costs

— The Commission is called upon to adopt uniform rules
on the burden of proof in the event of fraudulent use of
credit cards and credit card numbers and on the criteria
for reimbursement. Rules are also needed on the reim-
bursement of payments by card companies in the event
that the terms of a contract have not been properly
fulfilled by the supplier (non-delivery or faulty delivery).

The speed with which the use of electronic instru-
4.8.1.
ments for communication and business transactions grows
depends in part on cost. In some countries rapid growth is
impeded by the acquisition, access, connection and operating
costs of the relevant devices, which are still too high as a
proportion of an average family’s budget. The danger of the
polarisation of society (digital divide) must be countered.

4.7. Adaptation of the tax system

Cross-border electronic commerce is increasingly
4.7.1.
throwing existing tax hindrances and distortions into sharp
relief. Competition between tax systems is intensifying. This is
particularly true of VAT.

4.7.2.
In its proposal for a Council Directive (COM(2000)
349 final) the Commission set out new rules on the taxation
of indirect electronic commerce.

4.7.2.1.
There is felt be no need for regulation in cases
where private individuals buy goods over electronic networks
but where the goods are delivered by conventional means.
Such cases do not create any special problem with regard to
turnover taxes.

4.7.2.2.
New rules are planned covering the online delivery
of digital products, particularly to the final consumer. Elec-
tronic deliveries are treated as provision of services. If the
service is provided by a firm with its head office in a non-EU
country for a customer resident
the
transaction will be taxed in the EU.

in the Community,

4.7.3.
The Committee feels that an internationally compat-
ible government framework for e-commerce urgently needs
to be established. The existing competitive disadvantage of
European firms vis à vis third-country competitors needs to be
eliminated. This need arises both from the danger of tax
erosion to the detriment of government budgets as well as

4.8.2. Whether these dangers can be averted depends on a
number of obstacles being overcome. These obstacles particu-
larly affect groups which potentially could benefit greatly from
the new technology and e-commerce: the elderly, the sick and
the disabled.

4.8.3.
European research still has a long way to go in
relation to computer hardware and software development.
Some obstacles, which have so far been insurmountable, such
as use of the English language, which has a particularly strong
deterrent effect in the Latin countries, could for example be
eliminated. Rapid and reliable machine translation systems
could solve the problem of incomprehensible contract clauses
which threaten to ensnare many buyers.

4.8.4.
Access to infrastructure and services is particularly
important. In this context, the interconnection of networks is
important for the development of competition and interop-
erability of services.

Rules on access and interconnection are a fundamen-
4.8.5.
tal
framework for the investment decisions of both new
entrants to the market and existing market participants. A
high degree of legal certainty is therefore extremely important
in this area.
In the light of the specific situation of the
communications market, even market participants with no
great market power also need to be regulated to some extent
in order to ensure fair competition at all levels of the market.
This applies in particular to the requirement for the negotiation
of interconnection and access.

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25.4.2001

4.8.6. T h e C o m m i t t e e ’ s r e c o m m e n d a t i o n s

4.9. Privacy and data protection

— If the market does not guarantee access to infrastructure
and services, political decisions are needed establishing
the appropriate conditions.

— The Committee feels that a package of measures is needed
to ensure affordable access to communications and
e-commerce. This would include targeted promotion
measures, telephone company services (such as leased
equipment) and more competition over access to local
networks.

— A proposal for a regulation has been presented by the
European Commission which
the
unbundling of access to customers. In this way more
competition should be created in this area. It should be
ensured, however, that this does not lead to problems or
capacity shortages.

provides

for

One reason why consumers have taken to e-commerce only
hesitantly is the fear of Internet activities compromising their
privacy. E-commerce leads to a vast quantity of data being
collected and processed. Data paths are becoming traceable.
Directive 1995/46/EC on the protection of personal data lays
down a framework for suitable data protection and for the free
movement of data within the EU.

4.9.1.
In practice, however, data protection does not always
work. The improper collection of data and the compilation of
consumer profiles are commonplace. The right to protection
of privacy must, however, not be infringed, and personal data
must therefore be restricted to information which is absolutely
necessary for transactions and for the companies concerned.

There is also considerable scope for infringement of
4.9.2.
privacy in connection with the use of ‘cookies’ (to collect
information on the habits of the user), the sending of which is
a condition for access to many websites.

4.9.3. F o r

t h i s
o m m e n d s t h a t

r e a s o n t h e C o m m i t t e e

r e c -

— The fact that the cost of leased lines is still relatively high
makes measures urgently necessary — particularly at
national level. If this is not successful, the competition
rules will have to be applied extremely strictly at European
level.

— In the light of technological developments and conver-
gence between services the universal service concept
needs to be reassessed to establish whether it meets
current requirements. The Commission should therefore
propose criteria for the extension of the concept of
universal service in Community law and mechanisms for
regular checks in the light of the dynamic and progressive
character of the universal service concept. The Committee
also feels that, if the definition and scope of universal
service is enlarged, these should include fast Internet
services.

— The Community assign the highest priority to data

protection.

— The Commission encourage the Member States to pro-

mote the application of data protection.

— The Commission promote initiatives to raise public

awareness of this issue.

— Consumers be offered support in order to control this

data flow.

— The data protection directive for the telecommunications
sector needs to be adapted to new technological and
economic circumstances in order to ensure that data
protection extends to all forms of modern communi-
cations (from telephone conversations to communi-
location data, rules restricting the
cations in general,
use of data provided for marketing purposes; rules on
electronic profiling).

Brussels, 24 January 2001.

The President

of the Economic and Social Committee

Göke FRERICHS