UK is right to seek to block '28th regime' plans, says expert

Out-Law Analysis | 21 Dec 2011 | 9:00 am | 3 min. read

OPINION: The European Union was founded as a trading bloc and it is no surprise that the European Commission is annoyed that online commerce has not led to a massive upsurge in online sales.

That annoyance may have clouded its judgment, though, because the action it is taking to rectify this makes little sense for most businesses and consumers. The Commission thinks that faltering sales are the result of confusion about foreign contract law. Its solution? Invent a new, foreign contract law.

This law, the '28th regime', is not attached to any individual country, it applies across Europe where buyer and seller agree to use it. The Commission hopes that it will become the standard for cross border sales.

The trouble is that weak online sales are not the result of contract law confusion. Few buyers and sellers have identified this as being the main barrier to cross border sales, so the Commission is not getting to the root of the problem.

Worse, its proposed solution could cause more problems for consumers and businesses by making them even more confused than they already are. Many are not familiar with the contract laws in their own country. Adding more new contract law into the equation is unlikely to provide an elegant solution to the problem.

The Commission is disappointed because it thought that online commerce would greatly assist in the promotion of the single market, which is the fundamental principle of the European Union. This hasn't happened.

The Commission thinks that this is because of consumer uncertainty about contract laws in other EU countries. The trouble is, research doesn't back its view.

In a recent Eurobarometer survey quoted by the UK Government 80% of companies said that they were "never or not very often deterred by consumer contract law-related obstacles".

So what do they care about? According to the UK Government the biggest fear for consumers is fraud. They are also concerned about what to do if something goes wrong and about delivery. Add in consumers' natural tendency to buy locally and you have a list of problems that is not addressed by the Commission's measures.

So the Commission has identified a problem but mis-identified its cause. And the measures it is putting in place will not only fail to solve the real problem but will actually create new ones.

It will cause problems for consumers because it will confuse them further. It will cause problems for many businesses because it will increase the regulatory burden on them, with direct and indirect costs.

There is no doubt that it could suit some businesses. For a big retailer with massive cross border sales such as Amazon or Apple, this 28th regime could make real sense. Operating a uniform sales law across Europe could make the sales process cheaper and easier and give the business more legal certainty.

Small businesses cannot access those benefits so easily, though, because they are not doing business on such a huge scale and don't have the same power to make consumers agree to use the new law.

Consumers are unlikely to be helped by the change, either. They will be confused by the introduction of this new law, and will be unlikely to understand the choices they are presented with at point of purchase.

And there is real doubt about whether this will even end up being a uniform sales law at all. National interpretations of the law will vary and soon there will be 27 national laws and 27 versions of this new 28th law. This will lead to even more uncertainty for consumers and for businesses.

The UK Government does not think the new law is necessary and has written to Council of the European Union making technical legal arguments against it. But it opposes the move on a policy basis as well and argues that retail law should not be governed by European law in this way.

A new EU Directive, the Consumer Rights Directive, is a planned measure that will go a long way to solving some of the problems the Commission is seeking to address, making its 28th regime plans seem all the more redundant. It will increase and standardise consumer rights and give consumers more certainty in domestic and cross border dealings. In the UK the Directive will be used as the basis of plans to standardise fragmented consumer protection laws.

The Commission is looking at the wrong issue and has proposed a solution that causes more problems than it solves.

Claire McCracken is a technology law specialist at Pinsent Masons, the law firm behind Out-Law.com