The Electronic Retailing Association

Committee Bulletin: Public Affairs 4Q19

The ERA Public Affairs Committee discusses current national and European public affairs issues and defines ERA Europe's position on them.

Report from the Public Affairs committee

I. Impact on ERA Members: New EU Commission, new priorities

On 27th November 2019, the European Parliament approved the new European Commission for a five-year term until 2024 headed by Ursula von der Leyen who has assigned the portfolios to the new Commissioners. The new Commission started work on 1 December 2019.

An overview of the portfolios is provided here:

https://ec.europa.eu/commission/sites/beta-political/files/allocation-portfolios-supporting-services_en_0.pdf

The Commission will focus on six priorities

https://ec.europa.eu/info/strategy/priorities-2019-2024

Of these six priorities, “making Europe fit for the digital age” will have greatest significance for our members and will focus in particular on Data and Artificial Intelligence (AI) technologies

https://ec.europa.eu/info/priorities/europe-fit-digital-age_en

It will also kick off actions and reviews on the following policy areas:

  • Data protection

Reforming data protection to give people control over their data and help businesses comply. Ensuring that non-EU countries protect the data of EU citizens.

  • Better access to online goods for consumers and businesses

Helping to make the EU's digital world a seamless and level marketplace to buy and sell.

  • The right environment for digital networks and services

Designing rules that match the pace of technology, such as the rollout of next-generation 5G mobile connections or the Action Plan on Financial Technology.

This will presumably trigger the following legislation dossiers:

Reviewing the E-Commerce Directive that dates back to the year 2000 and since then remains one of the cornerstones of European internet regulation. Von der Leyen has made updating it one of the goals of her Commission Presidency: a new “Digital Services Act” will be proposed in order to “upgrade our liability and safety rules for digital platforms, services, and products”.

This leads the Council of the European Union into adopting a General Approach on the ePrivacy Regulation, which has been blocked by Member States.

Following up on a European-wide digital tax, an initiative blocked by some Member States by referring it to the OECD level to find a compromise while others went on in introducing a national digital tax system.

Our most important policy dossiers will presumably be dealt with either as digital-related dossiers by Margrethe Vestager (Denmark), Executive Vice President for the Digital Age and Commissioner Mariya Gabriel, Innovation and Youth (Bulgaria) or as consumer-dossiers by the Commissioner, Internal Market (France).

II. How these priorities correspond with our activities and priorities

1. OECD pushing further for a common approach to a digital tax system EU-wide; conference on 16th January in Berlin, Germany.

Together with the German industry body association BDI, the OECD is organizing its second international Tax Conference in Berlin on 16th January 2020 with the title: “New World Tax Order for a Digitalized Economy Addressing the Tax Challenges of the Digitalisation of the Economy”.

Experts, OECD representatives and industry members will focus on the main challenges in establishing a digital tax system, such as the revision of profit allocation and nexus rules, the global anti-base erosion proposals, determination of the responsible jurisdiction for taxation and the income characterization.

Van der Leyen declared that if there is still no global solution for a fair digital tax by the end of 2020, the EU should act alone. A common consolidated corporate tax base would provide businesses with a single rulebook to compute their corporate tax base in the European Union. For this reason, she promised to make use of the clauses in the treaties that allow proposals on taxation to be adopted by co-decision and decided by qualified majority voting in the Council.

Such a move forward on introducing a fair taxation system that also applies not only to local SMEs but also to international, data-driven tech companies and marketplaces (digital taxation) meets the position taken by ERA.

Tech (non-EU) companies are avoiding to pay their tax which leads to distortion of competition between our web shop services – being subject to local taxes - and their marketplaces, often avoiding paying tax as they are not resident within the EU.

In moving towards an EU-wide tax system, differences from EU Member State to EU Member State proving also burdensome in setting up businesses could be also prevented.

As ERA irepresents a significant number of SMEs, one of our major concerns is to avoid a burdensome, one-sided digital tax applying over-proportionally to SMEs.

2. Online Data protection: future of ePrivacy Regulation unclear

The Permanent Representatives Committee of the Council of the European Union has rejected the draft ePrivacy Regulation brought forth by the Finnish Presidency of the Council of the EU in November 2019 and stopped the controversial draft for the time being, after more than a dozen countries objected to the text.

The next Commission of Ursula von der Leyen could consider withdrawing or re-drafting the text. Meanwhile, the Finnish presidency posed the following four questions to the member states at their telecom council meeting in December 2019:

  1. The main objective of the proposed regulation is to protect the fundamental right of private life and confidentiality of the communications. To this end, which parts of the proposed regulation could be considered as the most essential?
  2. On which parts of the text is more discussion still needed? As the text stands now we would like to especially have your views on:
    1. Which parts are the most problematic and how can those problems be concretely solved?
    2. Can some parts be identified where no changes are necessary?
    3. Are there some parts of the text you consider unnecessary and should be deleted?
  3. Some delegations have indicated that further alignment with the General Data Protection Regulation and ePrivacy rules would be needed. In this regard, what kind of specific changes to the text would be needed?
  4. What should be the next steps to be taken to continue the negotiations in the Council?

The initial plan was for ePrivacy to go into effect at the same time as the General Data Protection Regulation (GDPR). During the first half of this year, the Romanian presidency appeared to advance the ball on ePrivacy negotiations unexpectedly, as it held numerous meetings and calls on the issue as well as published several revisions to the proposed text.

The (old) Commission’s proposal as currently discussed raises serious concerns regarding its potential impact on the business models and harm particular digital EU small and medium-sized enterprises on their sustainability and their marketing tools.

The proposed draft ePrivacy Regulation in its current form would consolidate market dominance for the same handful of players it seeks to curtail as it will (indirectly) only benefit large platforms. The ePrivacy Regulation, in its current form, disadvantages SMEs and therefore our members. SMEs are not generating big data and have to rely on third parties that can use their network effects in comparison to the SMEs to have reliable market data and analysis. The ePrivacy Regulation enhances monopolistic effects and hampers diversity of services and products because it strengthens the gatekeeper position of browsers or telecommunication companies via the prior consent principle. Broader forms of online marketing are not covered by Article 16 as they do not target particular individuals. A proposal should fully align with the GDPR. More clarity is needed on a number of issues regarding the compatibility with GDPR.

ERA is convinced that a new approach to ePrivacy is necessary. ERA will continue in the debate to ask for a new legal draft delivering a technologically adequate, neutral and practically feasible regulation, adjusted to today’s digital economy and taking into considerations the sustainability of smaller and medium-sized enterprises such as our members.

ERA has set out its concerns in a position paper:

https://era-global.org/entries/1037-e-privacy-regulation

3. Digital Services Act: EU Commission considers a complete overhaul of regulation on online platforms by changing the liability regime

The responsible Unit for the legislative and other activities relating to e-commerce, including geoblocking, and online platforms is Unit F.2. headed by the Austrian Werner Stengg, DG CNECT (Communication Networks, Content and Technology), who is also appointed member of cabinet of Margrethe Vestager:

https://ec.europa.eu/digital-single-market/en/content/e-commerce-and-plan

The Commission may well require a year or more to develop its legislative proposal. First, it will prepare a consultation document, publicly laying out regulatory options of varying degrees of rigor and invite comment from companies and other stakeholders.

The EU Commission is considering replacing the decades-old framework of the e-Commerce Directive, a note by the European Commission suggests. The document outlines a complete overhaul of the rules governing the internet and the online platforms in order to “upgrade the liability and safety rules for digital platforms, services, and products.

The new Act would affect "all digital services and in particular online platforms“, according to a first paper. The note mentions social networks, cloud services, services such as Uber and Airbnb as well as internet service providers. The paper was written by officials in the Commission’s Directorate-General Connect. It is part of a discussion process towards a more detailed proposal to be brought forward by the next Commission.

At the core of the note is the Commission’s wish for companies to take more responsibility for content on their platform. As one way to achieve this, the paper suggests changing liability rules.

Currently, under article 14 of the current e-Commerce Directive, providers are only liable for illegal content uploaded by users, such as copyright infringements, if they do not remove it after being requested to do so.

This could change. The note proposes to distinguish between providers and in some cases to prescribe "proactive measures“ to avoid direct liability. Such measures could include upload filters as required by the recently adopted EU copyright reform.

Whereas the act focus on content issues, the plans to change the liability regime in general and shift the compliance responsibility to online platforms will be a game changer in the area of combating counterfeits. Unlike today, e-commerce marketplaces such as Amazon would be liable in removing illegal products from its platform, a position taken by ERA.

The paper lists different options for monitoring compliance with the rules. The Digital Services Act could create a new "central regulator“, but there could also be a decentralised system or "an extension of powers of existing regulatory authorities"

Review of e-commerce Directive meets the objective of ERA public affairs work in 2019: fair level playing field with third-country webshops and fair regulation on eCommerce marketplaces and their share of liability.

We are constantly pushing for a review of the the e-commerce Directive and a shift of the liability to online marketplaces in order to combat the e-commerce sales of counterfeit goods through online marketplaces. This legislation initiative will be therefore at the core of our policy work for the next weeks and years to come.

Our members are more and more affected by the sale of counterfeit goods via marketplaces as it undermines the product quality of the original products and as a consequence the selling opportunities via the licensed e-commerce shops of our members.

A common practice evolved as rogue sellers identify best-selling products, piggyback these listing with their own products. They add their own price and delivery options and provide Amazon with their (counterfeit) stock. The Amazon Buy Box list with a certain product the price, delivery options and ratings. With the low pricing the counterfeiters win this buy box as the listing usually lists the cheapest product first. This happens despite the fact that many of these products have a very long delivery time.

As these are counterfeits, they do not keep the quality standards and kill the customer rating of a product in a short timeframe. Even if the rightful owner can prove to Amazon that counterfeiters are selling the product on their platform, it takes too long to be taken down. Additionally new counterfeiters start their activities for that product. The product is ruined. This leads not only to a loss of sales for that product but also ruins the overall reputation of the product owner. The final outcome is that the honest product owner and consumer are seriously harmed. Not only this but also the market place, i.e. the intermediation service (Amazon/ Ebay…) earn a lot of money through the provisions paid out of this criminal act.

Therefore online marketplaces must be liable to ensure that no counterfeits are sold on their platforms, a concept similar to the obligation introduced on clearing VAT (Directive 2017/2455) and by the Copyright Directive (2019/790) and which should be applied by a revised e-commerce directive by lifting the privilege. Online marketplaces should only be exempted if, in accordance with high industry standards of professional diligence, they can prove best efforts to ensure counterfeits are not available on their platforms, e.g. by using detection systems; by preventing technical counteroffers on their platform without the permission of the rightful owners once an IP right is registered; or by providing a compliance system asking the seller for product certificates etc.

ERA published its position in August 2019.