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Law for Business

Knowhow - guidance - precedents

17 OCT 2012

New Single Market Act, E Commerce and Competition law

By Zia Akhtar*

The European Commission has published plans in October 2012 for the integration of the national economies of member states into a single EU market. It has issued 12 proposals that it said would bring the national economies into a single infrastructure and allow businesses to operate across borders more freely. The Single Market Act II establishes the goal of ‘12 key actions' for ‘rapid adoption' by member states centred on integrated networks, cross-border mobility of citizens and businesses, the digital economy, cohesion and consumer benefits. [ec.europa.eu/internal_market/smact/docs/single-market-act2_en.pdf]

The EC plans to initiate legislative debate on content of the Act by spring 2013, with a view to adoption by the European Parliament and Council by spring 2014. The UK has welcomed the proposals and its thrust in enlarging the economic base in Europe. The UK has played a part in the promulgation of this upcoming legislation to ensure the removal of unnecessary burdens on companies and barriers to trade [http://news.bis.gov.uk/Press-Releases/UK-welcomes-removal-of-trade-barriers-in-Single-Market-Act-II-68113.aspx].

The Act will augment the British businesses and provide access to markets for the UK companies. It will help improve the functioning of the supply and demand mechanism across the continent. The ambit of the Single Market Act II will be to balance the interests of all the 27 member states of the union. This is presumed to bring ‘about new growth and jobs, to strengthen citizens' and businesses' confidence and to deliver concrete day-to-day-benefits to them'. [http://ec.europa.eu/internal_market/smact/index_en.htm ]

The initial section of the SMA II concentrates on further integration of Europe's transport and energy networks, which support the infrastructure of the single market. Further measures increases competition among the rail networks in Europe, remove administrative and customs formalities for EU and goods shipped across the EU seaports. It would also speed the implementation of the ‘Single European Sky', which the Commission has claimed would enable them to save approximately €5bn a year in costs relating to current erosion of the base. It also proposes ‘actions to make the application of existing EU energy legislation effective' through its Third Energy Package, potentially opening up international suppliers to consumers and thus increasing competition.

There is also a proposal to revise the ‘practical and legal barriers' that exist to the free movement of citizens, business investment and funding sources through the EU. This will enhance the role of the European Job Mobility Portal (EURES) into developing a ‘fully-fledged cross-border job placement and recruitment tool' while changes will be made to make permanent the finance available to private companies for their long term expansion. The Act will also revamp the insolvency proceedings, particularly in the transnational liquidations and offer the companies on the brink of collapse an opportunity to continue trading.

In continuing to expand its new objective of integrating the ‘digital single market' into a Europe wide link by 2015 the SMA II will aim to make payment services easier user friendly and provide the electronic invoicing standard in publicly procured projects. It also aims to cut the ‘civil engineering costs' of high speed broadband, improve the enforcement of product safety rules and take action to ensure widespread access to bank accounts with transparent fees and easier switching to payment of companies who are in distance selling contracts.

The EU has already placed its legislative plank by issuing the Directive 2011/83/EU to reduce costs for businesses and provide increased rights to consumers by granting them the opportunities to purchase cheaper merchandise. It is estimated that currently businesses spend €10,000 on average in legal costs when expanding into selling in a new country within the EU. The new measure will streamline the consumer law in the member states and bridge the contract law that exist in these countries.

By adopting this new Directive there is cover available for contracts entered into electronically or digitally. This ordinance is a comprehensive document that builds on the previous Directive 97/7/EC that governed distance selling and regulates the conduct of the parties by providing for greater certainty and legal protection. It has a primary purpose of strengthening the consumer rights in the 27 EU countries, particularly when shopping is online. [The member states will have two years from the publication in the Official Journal to implement the Directive into national legislation.] There are common rules for all businesses to ensure an identical approach in trading by introducing a set of elementary codes which are for distance selling contracts inside the EU, reducing business expenditure for trans-border traders, particularly for the transactions on the internet.

In the UK the numerous statutes of Consumer protection such as the Unfair Contract Terms Act 1977, Consumer Protection Act 1987, Unfair Consumer Contract Regulations 1999 will be abolished and a new Consumer Bill of Rights will be enacted. This will complement the Single Market Act II in providing more scope for the companies who sell to a consumer are regulated by the statute. The main advantages that the consumers can derive from the Directive when it enters force are the hidden expenses on the internet will be cancelled. These will be an increased price transparency by which the traders will have to disclose the full cost of the product or service, and consumers will not have to pay any charges if they were not properly informed before ordering.

This is an area where the issue that has caused attention such as purchasing concessionary airline tickets. There is also a ban on the websites, including those advertising on e-bay that invite the consumers to be provided additional services on a default basis who are unsuccessful in responding to the un answered boxes. After the adoption of the Directive there will have to be a definite purchase necessary in proving that a legally binding contract was entered that was recognised.

In the EU jurisdiction of disputes are determined by the Regulation 97/13 at present. If the parties have not agreed jurisdiction, the basic rule is that a defendant may be sued where they live, or where the contractual obligation was performed. The consumers can invoke the protection laws either in their home jurisdiction or the supplier's jurisdiction, but decide in favour of their local jurisdiction. The online businesses dealing with consumers must be prepared to comply with consumer protection regulations in each market to which they offer their products.

This has been unfavourable for the competition laws and impeded the free trade of the companies in the pharmaceuticals field. The UK also operates a concept of parallel trade which is the legal importation of a patented drug without the authorization of the patent holder. [As the European Union is legally a single market, no formal permission from the rights holder is necessary, only a Parallel Import Product License issued by the relevant national agencies or by the European Medicines Evaluation Agency (EMEA). Competitiveness of the EU Market and Industry for Pharmaceuticals - Volume I: Welfare implications of 40 regulation.] The main driver behind parallel trade is the variation in the manufacturers' drug prices across markets. This importing of goods occurs from countries with a low drug price relative to the price of the same drug in the importing country and where the price difference is sufficient to cover the costs of transport, registration, labeling, repackaging, creating and inserting leaflets according to national requirements. In the EU it was recently estimated 66 that the standard deviation of EU prices was some 28% of average prices, making the incentives for parallel trade high.

The system of parallel trade is illegal in many parts of the world but it is permissible in the EU single market, key changes in the harmonisation of regulation under the EU's mutual recognition procedure, and Articles 28-30 governing the free movement of goods have enabled an environment where parallel trade can capitalise on pharmaceutical price differences across countries. In addition to abiding by the EU regulations, the parallel importer has to conform to national regulations (i.e. the relevant government agency that has to give its permission for sale of the re-imported product).

The advent of the SMA II and the Directive 1161/11 will enable the formulation of the permanent code for markets, commerce and the consumers. This is because they are deemed as instruments for harmonisation. The outcome has been the segments of legislation whose evidence is found in the DST Directive and the E Commerce Directive and now the Single Market Act II. Their objective of achieving ‘contract law neutrality' will be successful in the establishing of the rules that do not impinge on the national jurisdiction.


* Zia Akhtar is a member of Grays Inn. He specialises in Food, Consumer and Compliance law. He has written in the Law Society Gazette; Solicitors Journal European Food and Feed Law Journal; European Competition Law Review; International Business Law Journal, etc.


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