Old sayings hold true, even in changing times. Take "customer is king". To grow, you can't afford not to treat all as kings, regardless of where they are in the world.

E-commerce and the ability to trade globally online is an area of fierce competition between traditional retailers, the newer pureplay e-tailers and increasingly now, the social or sharing economy. This smorgasbord of choice, spiced with new fun tools to turn shopping into a virtual reality "experience", has led to engaging with customers in a whole new way to turn them into loyal customers, who come back again and again.

However, surveys repeatedly find that consumer trust and confidence when shopping online is low and levels of cross border trade are substantially lower than trade within domestic markets. Addressing this is high on the EU's agenda, as evidenced by the EU Digital Single Market Strategy ("DSM") adopted on 6 May 2016. One of its 16 initiatives is tackling the lack of trust is harmonised consumer protection and rights.

In voting to leave the EU, the UK has taken itself outside of any EU-mandated harmonisation. However, no right-thinking business will want to ignore a 500-million strong consumer market worth €415 billion, so it seems highly likely that the UK's consumer protection legislation will continue to follow where the EU leads (albeit now without a hand on the wheel). The UK government has deliberately held back in publishing its own Digital Strategy. It was already six months late at the time of the referendum and is now delayed further so we will have to wait for the official word on direction of travel. But if harmonisation of consumer protection law is the answer, then opting out of the EU's legal regime will not give the UK a share of the pie. The UK cannot have its cake and eat it.

Digital Single Market Strategy proposed reforms

Anticipating that the UK will not diverge significantly from the EU's regime, we have set out below the key areas where the European Commission (the "Commission") has issued proposals to harmonise the European market and give consumers enhanced, uniform protection when buying goods and services online:

  • returns periods,
  • geo-blocking,
  • cross border parcel delivery,
  • international co-operation and enforcement of consumer protection laws.

Rights to return products

As a purely legal reform, the Commission proposes to reverse the burden of proof for consumers buying goods cross-border. A consumer will have the right to return goods within 2 years of purchase if they are defective, without having to prove that the defect existed at the time of delivery. For digital content, consumers can request that the issue is fixed, and if this is not appropriate or carried out properly, they should receive a price reduction or a termination of the contract and to be fully reimbursed.

Preventing Geo-Blocking

Geo-blocking occurs when consumers wishing to buy products and services from a seller in another country are treated differently based on their nationality or place of residence. They might find they are charged a different price, offered different payment conditions, or may not be able to access a website at all. A Commission survey in 2015[1] found that only 37% of websites actually allow cross-border customers to reach the final step before completing the purchase. This is not in line with the principles of the Digital Single Market.

The Commission is proposing to prevent geo-blocking unless there is an objectively justified reason for doing so, such as VAT or certain public interest legal provisions. The regulation will not go as far as to impose an obligation to deliver across the EU (viewed as undue or disproportionate burden) and exempts small businesses that fall under a national VAT threshold from certain provisions. It is clear though that the attitude of retailers to allowing cross-border trade via regional websites will have to change.

Retailers consider markets very separately in order to ensure that their product ranges, discounts, website layout and presentation are best suited to local tastes and hence often restrict delivery to that market. The Commission feels that this has gone a step too far, despite the logistical delivery issues that will result. Logistics hub-and-spoke infrastructures are based around a linear flow of goods into an area, so diversifying that model to allow a flow of goods across regions is going to be more complicated and expensive. The cost of set-up may not be compensated by actual flow of produce cross-border, at least not on current levels of transactions. This could be eased by changes to cross-border deliveries.

Efficient and affordable cross-border parcel delivery

Consumers and small business have highlighted that a key barrier to e-commerce is the high prices in delivery costs, often three to five times higher than the domestic equivalent[2]. The Commission wants to improve price transparency for cross-border parcel delivery services, allowing consumers to benefit from affordable deliveries and convenient return options even to remoter regions.

The proposed regulation will encourage competition by creating more price transparency as opposed to capping prices. National postal regulators will be given information to monitor cross-border markets and check affordability and cost-orientation of prices. The Commission will also encourage competition by requiring transparent and non-discriminatory third party access to cross-border parcel delivery services and infrastructure.

International enforcement and disputes

Evidence shows that there is a higher proportion of disputes relating to cross-border trade than domestic trade (two thirds of 37,000 complaints received in 2014 related to cross-border trade[3]) and that that levels of non-compliance with basic consumer rights are high (up to 69% in some countries[4]). The Commission has therefore proposed a replacement regulation for the current Regulation on consumer protection co-operation[5] to address this. They are looking to create additional powers, create standards to spot market trends and infringements and how to spend limited funding effectively. The ultimate aim is to create a more rapid, agile and consistent enforcement regime.

The UK had been an active participant in the consultations on the new regulations. In order to benefit from increased trade and consumer trust in the future (and without bearing all the cost of policing cross border), it may have to adopt the EU's approach and negotiate its inclusion in the enforcement regime.

The Commission has already legislated[6] to establish a new online platform to give consumers access to dispute resolution bodies in other countries to resolve issues arising from cross-border trades. You can read more about that in our previous article entitled 'Online traders need to prepare for the new European online dispute resolution platform'.

Conclusion

These new proposals are shaped to tackle the specific issues which the Commission's research suggests block cross-border trading. However, let's not forget that the Commission has a history of two failed attempts to reform legislation to boost the Digital Single Market Pre-2010 the Commission favoured a European Contract Code or Civil Code. This was replaced by the alternatives set out in the Green Paper of 2010, following which the Commission plumbed for the Common European Sales Law. This was abandoned in late 2014 after it was criticised for creating a layer of complexity by having a totally new optional law, in addition to national laws. Third time lucky, has the Commission's research been refined to alight on the key areas that could successfully remove barriers to cross-border trade? Or could Brexit and fears about the future of the European Union fuel Britain's and other member states' desire to make the new proposals a success?

Footnotes:

[1] http://ec.europa.eu/justice/newsroom/consumer-marketing/news/160318_en.htm
[2] https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/1-2016-285-EN-F1-1.PDF
[3] ECC-Net's anniversary report 2005-2015
[4] As evidenced by the Commission's co-ordinated screening of online e-commerce websites ("sweeps") carried out since 2007, showing non-compliance with basic consumer rules at between 32-69% in markets that were examined.
[5] Regulation (EC) No 2006/2004 on co-operation between national authorities responsible for enforcement of consumer protection laws.
[6] Regulation (EU) No 524/2013 (the "ODR Regulation")