08 May 2015

Europe’s Bright Digital Future?

Overview

The global economy is increasingly digital, with technology no longer viewed as sector specific, but instead as the foundation and future of all modern innovative economic systems. Despite this, European Commission Statistics show that only 15% of online shoppers in the European Union buy something online from another EU country and only 7% of small and medium-sized businesses (“SMEs”) sell across national borders. It is no surprise that on 6 May 2015 the European Commission unveiled its highly anticipated plans to create a Digital Single Market (“DSM”) within the European Union. 

The European Commission President Jean-Claude Juncker explained that the aim of the DSM Strategy was to: “see every consumer getting the best deals and every business accessing the widest market - wherever they are in Europe”. This has been confirmed by the European Commission Vice-President for the Digital Single Market, Andrus Ansip, and the EU Digital Commissioner, Günther Oettinger, who have both indicated that the DSM Strategy is a priority for the EU Executive over the next few years in order to ensure that Europe does not fall behind other more technologically advanced regions.

What is a DSM?

A market in which the free movement of goods, persons, services and capital is ensured so that individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition, irrespective of their nationality or place of residence. 

The DSM Strategy contains 16 targeted actions to be delivered by the end of 2016, built on three pillars:

(Pillar 1) Providing better access for consumers and businesses to digital goods and services across Europe

Measures to make it easier for products to be sold across all EU Member States, including:

  • Simple and effective cross-border contractual rules for online sales of physical and e-goods;
  • An initiative on parcel delivery to improve price transparency between Member States;
  • Legislation to tackle unjustified geo-blocking of online products such as Netflix; 

Geo-blocking is an element of the DSM Strategy that has already generated significant interest and commentary. Geo-blocking refers to practices used for commercial reasons, when online sellers either deny consumers access to a website based on their location, or re-route them to a local store with different prices. Such blocking means that consumers in a Member State may end up paying more for a product in another Member State. The Commission is planning to make legislative proposals in the first half of 2016 to end unjustified geo-blocking. This will give consumers more choice of products and services at lower prices. However, as a result, traders will have increasingly fewer opportunities to maintain margins through their preferred distribution networks.  Traders will have only limited possibilities to deny access to online services.

  • Modernisation of copyright rules; and
  • Reducing any VAT burden on SMEs created by various VAT regimes across Europe. 

The measures in pillar one of the DSM Strategy do not include Net Neutrality Regulation or provisions relating to Roaming Charges. These are dealt with separately in the Telecoms Single Market Package which is currently being negotiated by the European Institutions.

The E-Commerce Sector Inquiry

In parallel to the legislative proposals in Pillar One of the DSM Strategy, the European Commission has also launched an E-Commerce Sector Inquiry (the “E-Commerce Inquiry") to analyse the application of competition law in this area. Margrethe Vestager, European Commissioner in charge of Competition Policy, announced the E-Commerce Inquiry which will enable the European Commission to identify any competition concerns affecting European e-commerce markets, particularly if contractual restrictions in distribution agreements are preventing retailers from selling goods purchased online or cross-border to customers located in another Member State.  The E-Commerce Inquiry will focus on goods and services in which e-commerce is most widespread, "such as electronics, clothing and shoes, as well as digital content”. 

The E-Commerce Inquiry will begin by the European Commission gathering information from a range of stakeholders throughout the EU, including manufacturers and wholesalers, using formal powers to request information from them. The Commission expects to publish a preliminary report for consultation in mid-2016 and the final report is expected in the first quarter of 2017.

(Pillar 2) Creating the right conditions for digital networks and innovative services to flourish

Measures to develop high-speed, secure and trustworthy infrastructure and content services, supported by regulatory conditions that will encourage innovation and investment, including: 

  • Incentives to invest in pan-European high-speed telecoms infrastructure;
  • A fit-for-purpose regulatory environment for online platforms;
  • Restriction of illegal content on the Internet; and
  • Strengthening consumers' trust and security in the handling of personal data. 

(Pillar 3) Maximising the growth potential of the digital economy 

Creation of market conditions that support the growth of the industry, including:

  • Legislation to tackle existing restrictions on the cross-border movement of data; 
  • Development of an e-society to help modernise public administrations and to achieve interoperable public services between Member States; 
  • An integrated plan to identify and define key priorities for standardisation with a focus on the technologies and domains that are deemed to be critical to the DSM; and
  • Development of networks that safeguard consumers’ fundamental rights to privacy and personal data protection. 

Implications

The introduction of the three pillar approach of the DSM Strategy reflects ambitions for global growth of the European Digital Economy. 

Support for the creation of a DSM has already been far reaching. If successful, the initiative may contribute up to 415 billion Euros ($470 billion) annually to the EU economy, as well as creating hundreds of thousands of new jobs.

Resistance to the reforms is inevitable and any draft legislation created as a result of the DSM Strategy will still need approval from national governments and lawmakers in the European Parliament before taking effect. 

Concerns have already been raised in relation to the ability of the European Commission to progress the DSM Strategy under the proposed timetable. Smaller regional companies have already voiced their concerns that the introduction of the DSM could allow larger offerings to dominate markets, making it difficult for smaller platforms in local languages to survive.  

The current scope and aim of the DSM Strategy is ambitious and further resistance will no doubt surface over the coming months. In the words of Andrus Ansip, "the strategy is just the start, not the target”.

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