CHAPTER 4: COMPLETION OF THE DIGITAL
SINGLE MARKET |
70. The Digital Agenda for Europe (DAE), one
of the seven flagship initiatives of the Europe 2020 Strategy,
intends to deliver economic growth and social benefits through
the completion of the digital Single Market. This will involve
greater use of Information and Communications Technology (ICT)
including more and faster broadband availability, a greater emphasis
on research and innovation, interoperable applications, increased
digital literacy and enhanced security.
71. The Monti Report argued that regulatory and
social factors had hampered the development of a digital Single
Market, and that Europe was lagging behind competitors such as
the United States. It quoted research which suggested that the
EU could increase GDP by 4 per cent by 2020 due to the fast development
of a digital Single Market.
Professor Monti highlighted five problems: the fragmentation of
online markets, inadequate intellectual property legislation,
the lack of trust and interoperability, the lack of high-speed
infrastructure and the lack of digital skills.
Digital Agenda for Europe and Towards
a Single Market Act
|The following proposals first appeared in the Digital Agenda for Europe, and were subsequently included in Towards a Single Market Act:
- Framework Directive on the management of copyrights;
- Development of electronic commerce in the internal market, concentrating in particular on problems faced by consumers in the digital economy; Communication on e-Commerce;
- Legislative reform of the standardisation framework;
- Decision on the mutual recognition of e-Identification and e-Authentication, and revision of the Directive on e-Signatures;
- Decision establishing a European Radio Spectrum Policy Programme;
- Initiative on the use of alternative dispute resolution to deal with cross-border consumer disputes, and a proposal for a European system for the settlement of online disputes for digital transactions.
72. The evidence we received unanimously stressed
the importance of the further development of the digital aspect
of the Single Market. According to Malcolm Harbour, the "digital
Single Market is the Single Market, because if you now look at
every single business that accesses the Single Market one of its
strong components will be the internet or an electronic-based
CBI stated that "the creation of a Digital Single Market
is central to the UK and Europe's future economic success."
73. We strongly endorse the Commission's Digital
Agenda for Europe. The digital Single Market is a priority area
for the EU. It cannot be considered in isolation as all businesses
within the Single Market now rely upon the internet to some degree
in order to do business. The digital Single Market should therefore
be "mainstreamed" through all aspects of the Single
Broadband access and spectrum
availability and new technology
74. Microsoft considered that new technologies
such as cloud computing
could provide significant economic and social opportunities for
governments, business and citizens, but that the key bottleneck
for the deployment of wireless technologies was the lack of available
The Commission warned of technical and legal challenges emanating
from the development of cloud computing, arguing that "many
of the public policy issues, such as privacy, access and copyright
protection are similar to internet policy issues at large, but
given the fact that the cloud is inherently global, policy solutions
must be cross-jurisdictional."
They argued that more research was required in this area in order
to assess the implications of future EU measures.
75. The Commission has been active in addressing
the issue of broadband provision through its Broadband Package.
The Broadband Communication sets targets based on the Digital
Agenda for Europe for the roll-out of broadband to European citizens,
aiming for speeds of 30 Mbps for all, and 100 Mbps for 50 per
cent of the population by 2020. The Radio Spectrum Policy Programme
aims to set the principles which should determine the use of spectrum,
thus enabling a more efficient uptake of the wireless internet.
This draft Decision is expected to receive political agreement
in the middle of this year. Ofcom believes that the approach adopted
by the Commission is the correct one.
76. We welcome the Commission's Broadband
Package. Member States should support the Commission's work in
this area. It is particularly important that there is adequate
spectrum for emerging technologies, and that as many users as
possible are encouraged and able to access the internet.
77. We recognise the potentially significant
contribution which cloud computing is bringing, and will in the
future bring, to the Single Market and call on the Commission
to adopt early initiativestaking full account of potential
technological developmentsin this area in order to reap
the full benefits of such technology once it becomes more developed.
We note that cloud computing raises important legal and regulatory
difficulties which the Commission should address at the earliest
Review of the e-Commerce Directive
78. The Digital Agenda for Europe included plans
for a review of the e-Commerce Directive. This has not been followed
up in Towards a Single Market Act, which merely proposes
a Communication in the area.
The e-Commerce Directive was adopted in 2000 and became law in the UK in 2002. The Directive established an internal market framework to provide legal certainty for consumers and businesses. It provided harmonised rules on transparency and information requirements for service providers, and limited the liability of intermediary service providers (providing, for instance, access to the internet). The Directive covers services such as online information (e.g. online newspapers), online selling of products and services (e.g. books, financial services and travel services), online advertising, professional services (lawyers, doctors, estate agents), entertainment services and basic intermediary services (access to the Internet and transmission and hosting of information).
In the DAE, the Commission identified a number of problems in the way the e-Commerce currently operates. For instance, it stated that online markets in the EU were fragmented; consumers and businesses had difficulty accessing online shops and services in other EU countries; some providers did not accept bank cards issued by other EU countries; and many providers did not deliver goods or services across the EU.
The Commission launched a consultation on the e-Commerce Directive in August 2010, with a view to preparing a review of the Directive in 2011.
79. The Monti Report contained proposals to end
the fragmentation of consumer rules regarding delivery, warranty
and dispute resolution, and suggested a simplification of the
business environment with regard to VAT rules, recycling requirements
for used electronic equipment, and copyright. Professor Monti
told us that 60 per cent of cross-border internet transactions
failed and that, apart from the effect this had on trade in general,
it was particularly damaging to the reputation of the Single Market
amongst the young: "If they hear that there should be a Single
Market and they are unable to use it in their daily or nightly
life at the computer then this discredits Europe very much."
80. Towards a Single Market Act builds
on this analysis, and identifies as particular obstacles a lack
of consumer confidence, because of different contract law and
consumer protection rules applying in each Member State, and varying
intellectual property rights, meaning that there is no such thing
as a pan-European service selling music digitally on the internet.
The Commission's Information Society Directorate argued that the
market for online music was fragmented due to diverging national
implementations of the Copyright Directive and the exclusive rights
of authors, and suggested that the difficulty of obtaining legitimate
digital content was a driver for the illegal market.
81. Several witnesses noted that the main companies
operating digitally in Europe were of American origin, and that
European companies seemed unable to compete. Jonathan Faull suggested
the digital market at present was similar to the car market in
the 1960s, where "the only car companies operating multinationally
across Europe were Ford and General Motors. It was only after
we had taken down, through long years of concerted effort, barriers
to trade in cars between Member States that we ended up with a
Single Market for the supply of cars and all that goes with them,
and, by the way, good competitive European car companies capable
of competing across the world as well."
82. The BCC argued that the e-Commerce Directive
should be reviewed as soon as possible, and was disappointed by
the commitment in Towards a Single Market Act to produce
only a general Communication about e-Commerce rather than the
review suggested in the DAE. It described the current Directive
as "woefully out of date"
and also argued that the e-Signature Directive needed to be reviewed
as Member States were developing different kinds of electronic
signatures which would not necessarily be compatible with each
83. It is more than ten years since the adoption
of the e-Commerce Directive, and the time is now right for its
review. It is particularly worrying that so many cross-border
electronic transactions fail, and we therefore believe that the
review of the e-Commerce Directive should be expedited. The Commission's
proposals for further work on e-Signatures and e-Authentication
are to be welcomed in the context of providing a coherent platform
for digital trade and as supporting measures to the e-Commerce
84. The fragmentation of intellectual property
regimes across Europe presents a barrier to a true Single Market
in online goods. We therefore welcome the inclusion in Towards
a Single Market Act and the Digital Agenda for Europe of plans
to improve the handling of copyright, though we note that this
is a complex area which may be difficult to resolve.
85. The Commission recently issued a Green Paper
No plans specifically on e-Procurement were included in Towards
a Single Market Act, but the document noted that a robust
e-Signatures regime would be needed to underpin such activity.
Public procurement accounts for 17 per cent of the EU's GDP, but
the Commission reports that cross-border procurement accounted
for only 1.5 per cent of public contracts awarded in 2009.
Malcolm Harbour argued that "the Single Market for public
procurement is ... the most unexploited area of Single Market
activity, not just because an insufficient number of public contracts
are being advertised in the whole Single Market system but also
because it is an underused tool to encourage innovative companies."
He also argued that the bureaucracy concerning tendering was a
barrier to small companies entering bidding for public procurement
the other hand, the BCC told us that SMEs accounted for 43 per
cent of the public procurement market in the EU, compared to 23
per cent in the United States.
86. The Commission stated that more needed to
be done to encourage Member States to open up their procurement
markets across the EU. It identified three particular problems
with the EU procurement regime: the rules were often not applied
properly, particularly at a local level; there were wide-ranging
exceptions; and they were complicated and difficult to apply.
It also argued that electronic methods were likely to help open
the market, as it was easier to reach a diverse range of providers
via the internet, and, additionally, that it believed e-Procurement
would reduce administrative transaction costs by 15-18 per cent.
87. Public procurement represents a large
proportion of the EU's GDP and is therefore an important tool
for driving the completion of the Single Market. This is an area
where Member States can take the lead in ensuring that procurement
rules are applied properly and to the benefit of the Single Market.
e-Procurement has great potential to reduce administrative burdens
and to open the market to SMEs, and we hope the Commission will
place greater emphasis on the area.
Improving consumer confidence
88. A consistent explanation for the lack of
cross-border online trade in the EU was a lack of consumer confidence.
Jonathan Faull suggested that the problem was part regulatory
and part cultural. He described a "moment of hesitation"
by consumers before they pressed the button to buy something from
a foreign supplier, but noted that this hesitation also affected
the suppliers themselves.
He ascribed the problem with consumer confidence to concerns about
what would happen if a purchase went wrong: "Can you use
the rights of the courts in the country where you sat at your
computer or do you have to go through the courts and the legal
system of the foreign country in which the service was provided
or even perhaps where the website was located?"
89. As noted in Box 6 above, the Commission has
included plans for enhancing alternative dispute resolution and
for the settlement of online digital disputes in both the DAE
and Towards a Single Market Act. There is no mention of
the current review of the Consumer Rights Directive in Towards
a Single Market Act, and this was particularly regretted by
the BCC. There
are currently no plans to include the sale of digital goods within
the Consumer Rights Directive. In recent evidence to our Sub-Committee
on Social Policies and Consumer Protection, Ed Davey touched upon
some of the issues involved, arguing that the concept of ownership
of digital goods was fundamentally different from material goods,
that trader liability in respect of faulty goods, for instance
early issues of new software, would need to operate differently
from the equivalent regime for material goods, and that the inclusion
of such a concept might hamper innovation.
90. The DAE includes plans for a Code of EU Online
Rights by 2012. This Code would summarise the existing rights
of digital users. A public consultation is planned for 2011 and
a Communication for 2012.
91. Consumer confidence is vital for the development
of a digital Single Market. We have not considered the Consumer
Rights Directive in detail during this inquiry but the exclusion
of digital goods seems to be a mistake, as we have previously
argued. We look forward to following the progress of negotiations
on the Directive.
92. We welcome the production of a Code of
EU Online Rights as a positive step to increasing consumer confidence.
It is too early to assess its potential but we look forward to
seeing the Commission's plans as they develop. We urge the Commission
to produce its Communication as soon as possible.
91 Copenhagen Economics, The Economic Impact of
a European Digital Single Market, Final Report, March 2010 Back
The Monti Report, pp. 44-46 Back
Q 31 Back
EUSM 2 Back
Cloud computing relates to the provision of ICT services via the
internet. Users can access storage, computing power or software
as needed rather than investing in fixed infrastructure. An analogy
is often made between cloud computing and the provision of utilities
such as gas and electricity via transmission networks and grids. Back
EUSM 1 Back
EUSM 11 Back
The Package was published on 20 September 2010 and included: Communication
on European Broadband: investing in digitally driven growth,
COM (2010) 472 final; Proposal for a Decision of the European
Parliament and of the Council establishing the first radio spectrum
policy programme, COM (2010) 471 final; and Commission
Recommendation of 20 September 2010 on regulated access to Next
Generation Access Networks (NGA), SEC (2010) 1037 final. Back
EUSM 6 Back
Directive 2000/31/EC, OJ L178 (17 July 2000) p 1 Back
Q 19 Back
Towards a Single Market Act, Proposal No 5 Back
EUSM 11 Back
Q 164 Back
Q 99 Back
Green Paper on expanding the use of e-Procurement in the EU,
COM (2010) 571 final, 18 October 2010 Back
Towards a Single Market Act, p 15 Back
Q 28 Back
Q 34 Back
Q 127 Back
Q 162 Back
Q 161 Back
Q 164 Back
Q 165 Back
Q 99 Back
EU Sub-Committee on Social Policies and Consumer Protection, one-off
evidence session on the Consumer Rights Directive, 27 January
2011, Q 8. In 2009, this Committee published a report, The
Consumer Rights Directive: getting it right, 18th Report 2008-09,
HL Paper 126, which supported the inclusion of digital goods within
the scope of the Directive (para 104). Back