European Union e-commerce regulation expected soon

The development of electronic commerce in Europe is being jeopardized by a new law set to take effect at the end of this month, industry groups said in a joint statement Wednesday.

The wake-up call to legislators comes on the eve of a crucial meeting of ambassadors from the 15 member states of the European Union (EU) where ambassadors will set the agenda for a meeting of justice and home affairs ministers in Brussels at the end of the month. That ministerial meeting will decide the final shape of a new regulation governing whose court cross-border legal disputes go to. For instance, who has jurisdiction when there is an online transaction between a consumer in one EU country and an e-commerce Web site based in another nation.

The European Commission, the executive body of the EU, conceived the new regulation. Regulations require unanimous support by all 15 ministers to be passed. Once ministers agree to a regulation, it becomes enforceable in all 15 countries from the moment it is passed.

The Commission has proposed that courts in the consumer’s country should handle online disputes. The industry groups want ministers to rule that courts in the country where the supplier is based should have jurisdiction.

“Industry believes that the commission’s approach could hamper the growth of e-commerce in Europe,” the industry groups said. The trade groups are the European Mail Order Traders Association, the European Publishers Council, the Federation of European Direct Marketing, the Internet Advertising Bureau, and the American Chamber of Commerce in Belgium (Amcham).

Financial institutions are also concerned about the shape of the new regulation. The principle of “country of destination” (the consumer’s country) laid down in the Commission’s proposal “would create legal uncertainty for SMEs (small and medium-sized enterprises) looking to trade in Europe on the Net,” said Wim Mijs, vice-president of EU affairs and in-house legal counsel at Dutch bank ABN Amro.

“For large companies like ABN Amro it isn’t a problem, because we have offices and lawyers in all EU countries. The SMEs would be burdened with substantial legal and insurance costs if they took protection against litigation from outside their home market,” Mijs said. “As a result, venture capitalists might be a little more cautious about investing in a European Web venture.”

ABN Amro’s Mijs summed up what all this means to SMEs in Europe with an anecdote. “A friend of mine sells old MG sports car parts. He’s thinking of going online because there are MG owners all over Europe, but if the country of destination principle is enshrined by the regulations I’d warn him not to,” Mijs said. “The legal uncertainty would be huge. If he is sued in Italy or wherever because of a fault in one of the parts he’d go broke.”

Consumer representatives sound equally alarmist when defending the “country of destination” principle. “If the ‘country of origin’ principle were applied to e-commerce, as industry is demanding, then in a cross-border legal dispute the consumer would have to deal with different legislative codes,” said Ursula Pachl, legal adviser to European consumer watchdog BEUC.

“It’s even more unreasonable to demand that of consumers,” she said. “Who needs more protection? I’d say it is the consumer.”

Three countries are believed to have concerns with the proposed regulation: the United Kingdom, Ireland and Luxembourg. However, none has said it would veto the regulation at the ministers’ meeting on Nov. 30 and Dec. 1.

If all 15 justice ministers decide to side with consumers a glaring contradiction in EU laws would be created because an e-commerce directive in the process of being adopted by EU member states says that the laws of the country of destination should apply to cross-border online transactions.

If the regulation is adopted before the e-commerce directive becomes law in the EU nations, the directive might be thrown back to the Commission for re-writing, in order to iron out the contradiction over which country’s law to apply in a dispute,” said Alastair Tempest, director general at FEDMA, the European federation of direct and interactive marketing.

The deadline for transposition into national law of the e-commerce directive is June 2001.

The Commission is currently drafting a second regulation on cross-border legal disputes. This one will rule on which country’s law should apply in such a situation. Applicable law is treated separately from the question of jurisdiction.

The second regulation is expected to follow the first by enshrining the laws of the consumer’s country, rather than those in the country of origin, Tempest said.