Eurocrat Law Threatens Transatlantic eTrade

8th Aug 1999

If governments in Europe hunger after future economic growth that can be fuelled by creating the right environment for E-commerce to thrive, then they are fast approaching the crunch point.

The crunch point is a legislative one. How can you harness the pioneering spirit and entrepreneur-ship of those who risk setting up new ventures on-line, if the legal obstacles placed in their way are too complex or time-consuming?

Therein seems to lie a major difference between the European instinct to legislate, and American laissez-faire policy, which appears to allow self-regulation time to develop.

Witness the current spats between the EU and the USA over the question of how to work within the new directive on data protection (95/46/EU), specifically over transfer of data to areas outside the EU where less "adequate levels of protection for the rights and freedoms of data subjects" exist.

Currently The US, which has no general data protection law, has proposed a system of industry self-regulation to create safe harbours enshrining various data protection principles issued by the US Department of Commerce.

The EU wants more clarity over verification, to ensure that companies that signed up were adhering to these principles, and wants to know what sanctions there will be for transgressors.

In any case it is arguable whether the idea of safe harbours is the best solution. Colin Fricker of the DMA favours model contracts, as do I, which have the effect of committing the US destination point to the same levels of data protection as in the EU.

Model contracts have general applicability worldwide, whereas the safe harbour idea is specific to discussions between the EU and the US.

However, the US is feeling pushed around and doesn’t want to be bound unduly by the Commission-sponsored agreement.

The bottom line is that the two sides don’t seem to trust one another, evidenced by one Commissioner who blurted out "what it boils down to is that Americans don’t mind junk mail and we do." (FT 9 June 1999). God help us all.

The underlying principles behind these negotiations are that the laws of the country of origin must take precedence. In order words the EU wants to commit other jurisdictions to the same levels of data protection as its own.

When it comes to E-commerce, a new Directive that passed its first reading in May is also predicated on the basis that laws of the country where the site is located apply.

Or is it?

Not necessarily when it comes to contractual terms, where country of destination rules might apply. That then raises the prospect that E-commerce Internet sites would have to take into account the laws of the country of destination.

For now, there are no clear rules that apply, in the absence of direction from the courts or national legislatures.

There is one recorded precedent which occurred in the UK, where the judge indicated that anyone engaged in E-commerce ran the risk of contravening the laws of the country of destination.

Looking to the USA for a lead doesn’t improve matters much either, where the rule of thumb is that the State laws at point of purchase apply.

Bristows and Eversheds solicitor firms in London both agree that there is a real risk that unsuspecting organisations might find themselves breaking the laws of other countries, leaving them contractually exposed (FT: July 7 1999).

Clearly it is important that consumers who buy over the Internet feel protected, and there should certainly be clear contractual terms at the point that a purchase is made on-line.

The trouble is that an Internet shop is different to a corner shop, yet the law doesn’t yet make any distinction.

Meanwhile questions over data protection agreements between Europe and the USA, and lack of guidance over Internet shopping, arguably threaten to create future transatlantic problems.

In the case of data protection because of issues with personal information; in the case of E-commerce, because of the risks of doing business across borders.

Can European countries afford not to make it simpler to do trade with the biggest economy on earth? I doubt it. After all US consumers have successfully helped the world’s economy Get Out Of Jail over the last 12 months.

It is inconceivable that the future global market leaders in E-commerce could achieve a leading position without access to American wallets.

In the UK, the Interactive Media in Retail Group (IMRG), the Office of Fair Trading, the Department of Trade and Industry, the Consumers Association, the Direct marketing Association and the Advertising Standards Authority, are working on an umbrella organisation to assume responsibility for consumer protection.

I suggest that their overreaching challenge will be to balance the protection of the consumer with the need to make global E-commerce a real option.

It would do well to temper the natural instinct of British Government to legislate, with its desire to put Britain at the forefront of allowing companies to trade electronically – the stated goal of a new electronic communications bill.

The proposed new organisation will do remarkably well if it manages consensus among its constituent parts on where the balance between protection and enterprise needs striking.

I’ll believe it when I see it, but being an optimist means I live in hope. Being a realistic I know that the prize at stake is too great to get it wrong. Please don’t fail us.


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