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Internet issues

Speech by Mario MONTI
European Commissioner for the Single Market
Electronic Commerce in Europe - Creating a Favourable Environment for Electronic Commerce

Electronic commerce offers enormous opportunities for consumers and for business in Europe in terms of job creation, welfare enhancement, cohesion, integration and competitiveness. By the year 2000, 250 million people are expected to be connected to the Internet worldwide and the value of the global electronic commerce market is estimated to reach 200 billion ECU. In many sectors such as financial services - where recent surveys indicate that 60% of companies will use the Internet for transactions with customers by the year 1999 - Internet based transactions are already having a great impact on the way business is conducted.

A. Single Market principles: the best framework for electronic commerce in Europe

Electronic commerce stands to both benefit from and contribute to the Single Market. And with more than 370 million people, the Single Market is well over the critical mass required to ensure many electronic commerce services are economically viable.

The Single Market is based on liberal principles, namely free movement of services, capital, goods and people and freedom of establishment, which are translated into legally binding transnational rules by the EC Treaty. The EU's Single Market, like electronic commerce, does not recognise frontiers. It therefore represents an ideal, ready-made foundation on which to base an appropriate regulatory framework within which electronic commerce can flourish in the European Union. This framework promotes entrepreneurial creativity, while promoting consumer confidence.

The Single Market framework not only gives business legal certainty throughout the EU but also allows sufficient flexibility for entrepreneurial creativity because it is sensitive to market forces and keeps public intervention to a minimum. It therefore provides an environment conducive to large-scale investment in electronic commerce products, services and infrastructure. Mutual recognition of each Member State's rules, and harmonisation when this is not possible, can be used to dismantle existing legal and regulatory barriers and prevent the creation of new obstacles, and so ensure that services and products lawfully offered from one EU country via the Internet or similar network have unrestricted access to the entire Community market.

At the same time, the Single Market framework gives consumers confidence to make the most of electronic commerce opportunities. In particular, the Single Market framework can ensure that recognised general interest objectives (such as consumer protection, privacy, protection of minors and public health) are effectively protected (via home country control) in the cross border trading environment. This means that consumers can rely on equivalent levels of protection and redress throughout Europe irrespective of country of residence.

As well as benefiting from the Single Market framework, electronic commerce can also add a new dimension to the Single Market, particularly when combined with the introduction of the single currency. In particular, consumer choice stands to grow enormously as cross-border provision of certain services will become a reality for the first time as they are released from previous technological or other constraints. For example, it is now possible to envisage consumers, in the comfort of their own homes, booking their holiday or taking out a loan from a firm based in any one of the 15 Member States.

Electronic commerce also brings benefits in terms of consumer choice, competition and economic cohesion by lowering barriers to market entry. This allows small firms and economic operators in outlying areas to compete within the Single Market, and beyond, for the first time or on a more equal footing with larger and/or more centrally located competitors.

B. The need for action at the EU level

The existing Single Market regulatory framework already includes several instruments directly relevant to facilitating electronic commerce in the EU. These include the Directives on protection of personal data, legal protection of computer programs and legal protection of databases.

Although the Community is committed to take regulatory action only where it is strictly necessary, it is also clear that electronic commerce poses new challenges which may require changes to the regulatory framework. For example, the technology now exists to trade certain services, previously limited to a local market, across borders. Restrictions emerging from these new developments include:

  • different national regulations in areas such as professional requirements, prudential and supervisory systems and notification or licensing requirements. These differences can hinder the development of a number of cross-border electronic commerce activities such as services offered by regulated professions, financial services and on-line agencies offering real estate, employment or advertising services.

  • different national rules on contracting - the new virtual environment makes it more difficult to apply traditional contractual rules. Indeed, a number of Member States' rules concerning the form of contracts and the value of electronic documents in the context of dispute settlement are not appropriate for an electronic commerce environment and may make contracting in the new virtual economy hazardous and in some cases impossible.

  • divergent national regulations for commercial communications, which can also hamper a firm's attempts to promote its goods and services on the Web or on-line.

The Commission's recently adopted Communication on Electronic Commerce identified these and other potential obstacles to the development of electronic commerce in Europe, set out the objectives of further Community action in this area, laid down the principles on which any Community initiative should be based and outlined plans for a series of specific regulatory initiatives before the end of 1997 concerning electronic payments, contracts negotiated at a distance for financial services, copyright and neighbouring rights, legal protection of conditional access services and digital signatures. These initiatives also feature prominently in the Action Plan to improve the functioning of the Single Market by 1999, which was recently endorsed by the European Council in Amsterdam.

The Electronic Commerce Communication puts particular emphasis on the need to avoid “regulation for regulation's sake” and aims to remove barriers at every stage of the commercial chain. I am glad to say that we have received very positive reactions so far. Industry has supported our ideas concerning both the areas where action needs to be taken and the principles on which action should be based.

The Commission is conscious that electronic commerce involves a very wide range of different players and interests including telecommunications operators, Internet access providers, small and large retailers, providers of all kind of services, publishers and other content producers such as software, database, audio-visual and phonogram producers, public administrations and of course consumers. Finding an appropriate framework where the activities of all these players can be carried out is our challenge. We need to carefully strike a balance of the various interests involved. We don't want an unbalanced legal framework to deter any of these groups from participating in the electronic market place as this would be against the interests of all other players and of the development of the market itself.

Work is already well underway on the specific regulatory initiatives I mentioned. Moreover, I have instructed my services to undertake an in-depth analysis of a number of other horizontal Single Market issues which have a direct impact on the ability of different actors to offer their products or services, to benefit from the application of the country of origin rule, to conclude contracts electronically and to have the necessary legal certainty as regards applicable law, jurisdiction and liability questions. The need for an updating initiative that would coordinate the adaptation of existing Community and national measures thus completing the necessary regulatory framework for electronic commerce in Europe is being assessed.

We also need to give consideration to the risk of diverging new national legislative initiatives fragmenting the market and creating new barriers to trade. To address this problem, the European Commission has already proposed a transparency mechanism which would require Member States to notify their draft legislation affecting Information Society services to the Commission and to each other. This constitutes a pragmatic and straightforward initiative to reduce the risk of Member States introducing diverging measures. It therefore reduces the need for subsequent Community action and gives Member States the opportunity to cooperate on issues as they arise.

To allow electronic commerce to develop, it is also vital for tax systems to provide legal certainty (so that tax obligations are clear, transparent and predictable), and tax neutrality (so there is no extra burden on these new activities as compared to more traditional commerce). Electronic trade in goods and services clearly falls within the scope of VAT, in the same way as more traditional forms of trade do. There is therefore no need to introduce new, alternative taxes, such as a bit tax within the EU.

C. The need for coordination at the international level

By definition, the global dimension is of crucial importance to electronic commerce. Our work at the level of the EU must be accompanied by close cooperation at the wider European level and at the international level to ensure that electronic commerce can develop its full potential. I was delighted to see that the US policy paper “”A framework for global electronic commerce” released on 1 July largely coincides with the views expressed by the Commission in its Electronic Commerce Communication as regards both the importance of electronic commerce and the issues that need to be tackled for it to develop at a global scale. I also welcome warmly the liberal tone of US President Bill Clinton's comments on electronic commerce. .

The WTO Agreement to eliminate tariffs on information technology goods by 2000 is a concrete step. However, for the liberal global framework for electronic commerce to become a reality, we also need agreements on cooperation at the global level on a series of specific issues. These include the protection of privacy and personal data, and the recognition of digital signatures, taxation, encryption, domain names and trademarks, legal protection of databases and the establishment of basic uniform commercial practices.

Adequate protection at the world level of copyright and related rights in the digital environment is also essential for the development of electronic commerce. In this respect, the two new Treaties on copyright adopted under the auspices of WIPO last December are an important step forward and must now be implemented rapidly.

D. Conclusions

In conclusion, I strongly believe that the Single Market, and the liberal principles on which it is based, offer an ideal framework for the development of electronic commerce in the European Union. This Single Market framework recently received an additional boost from the highest political level in the EU when the European Council in Amsterdam recognised the Single Market's crucial role in promoting competitiveness, economic growth and employment and endorsed the Action Plan to improve the functioning of the Single Market by 1999.

I also firmly believe that the Single Market model, and the solutions we have found to many issues using the Single Market approach, have much to offer individual trading partners and to the world trading system in terms of creating a favourable environment for electronic commerce.


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