Communication to the European Parliament, the Council,
the Economic and Social Committee and the Committee of the Regions
European Initiative in
I - The Electronic Commerce Revolution
II - Ensuring Access to the Global Marketplace
III - Creating a Favourable Regulatory Framework
IV - Promoting a Favourable Business Environment
Creating a favourable regulatory framework
The pace and the extent to which Europe will benefit from electronic
commerce greatly depends on having up-to-date legislation that fully
meets the needs of business and consumers. The objective of the Commission
is to implement the appropriate regulatory framework by the year 2000.
The existing Single Market regulatory framework has proved its worth
for traditional forms of business. It must now be made to work for
electronic commerce by achieving two complementary objectives: building
trust and confidence and ensuring full access to the Single Market.
Building trust and confidence
35. The first objective is to build trust and confidence. For electronic
commerce to develop, both consumers and businesses must be confident
that their transaction will not be intercepted or modified, that the
seller and the buyer are who they say they are, and that transaction
mechanisms are available, legal and secure. Building such trust and
confidence is the prerequisite to win over businesses and consumers
to electronic commerce. Yet many remain concerned about the identity
and solvency of suppliers, their actual physical location, the integrity
of information, the protection of privacy and personal
data , the enforcement of contracts
at a distance, the reliability of payments, the recourse for errors
or fraud, the possible abuses of dominant position
 - considerations which are heightened
in cross-border trading.
36. Secure technologies such as digital signatures and digital certificates
go some way to meeting these challenges. Digital signatures enable
the unambiguous confirmation of the identity of the sender and the
authenticity and integrity of electronic documents. Unique to the
sender and unique to the message sent, digital signatures are verifiable
and non-repudiable. Similarly, the exchange of digital certificates
("Internet ID cards") through an automatic "digital
handshake" between computers provides assurance that the parties
are who they say they are, and helps to assess whether the service
provided and the goods or services delivered are genuine.
Copyright protection mechanisms, also based on secure technologies
such as encryption and smartcards, ensure the protection of digital
material and are a crucial factor in the emergence of a mass-market
in electronic content. Also based on cryptographic methods, secure
electronic payment mechanisms provide the final element of trust:
the ability to pay and to be paid. Such secure technologies are for
the most part fully operational and commercially available. However,
the necessary regulatory and institutional framework supporting such
technologies is not yet complete, particularly in areas such as interoperability
and mutual recognition across borders.
Ensuring full access to the single market
37. The second objective is to ensure full access for electronic
commerce to the Single Market. Given its size, the Single Market potentially
offers businesses a critical mass"of customers before addressing
further global markets. However, faced with the new challenges posed
by electronic commerce, Member States are responding in different
ways. The development of divergent legislative approaches is not only
ineffective given the transfrontier nature of electronic commerce
but also risks fragmenting the Single Market and thus inhibiting the
development of electronic commerce in Europe. The proposed Transparency
Mechanism Directive  is precisely
targeted at reducing the risk that new measures, by being different
from one Member State to another, could restrict the free movement
of Information Society services.
38. However important it is to avoid regulatory inconsistency by
discouraging divergent actions at national level, the Union must also
ensure that a coherent regulatory framework for electronic commerce
is created at European level. Such a regulatory framework will inevitably
be built on existing Single Market legislation which already largely
creates the right conditions for online businesses. As part of that
framework, specific measures have already been taken to respond to
new developments. They include the recently adopted directives on
data protection ,
on the legal protection of databases 
and on contracts negotiated at a distance
; and the proposed revision of the Television
without Frontiers Directive . In
addition, a number of consultation or policy documents have been issued
to stimulate debate on various policy areas, including the legal protection
of encrypted services ,
copyright and related rights ,
industrial property ,
commercial communications ,
public procurement ,
and the protection of minors and human dignity in audiovisual and
information services .
Principles of an electronic commerce
39. The application of four principles will provide the Union with
an adaptable and appropriate framework of legislation.
- No regulation for regulation's sake: in many cases, the
free movement of electronic commerce services can be effectively
achieved by mutual recognition of national rules and of appropriate
self-regulatory codes. This means that companies engaged in cross-border
business operate under the law of the country of origin ("home
country control"). Only where mutual recognition does not suffice
to remove obstacles in the market or to protect general interest
objectives, will there be a need for Community action . Any legislative
action should impose the fewest possible burdens on the market and
keep pace with market developments.
- Any regulation must be based on all Single Market freedoms:
electronic commerce cuts across a wide range of cross-borders activities.
Whether companies engaged in electronic commerce are providing one
or several goods and/or services, freedom to do so - easily and
effectively - must be at the heart of future policies. Equal weight
must be given to all the freedoms offered by the Single Market:
the realisation of the free movement of goods, persons, services
and capital together with the freedom of establishment. Only in
this way can the crucial objectives of coherence, predictability
and operational simplicity be achieved.
- Any regulation must take account of business realities:
in any electronic commerce operation, a trader needs to set up business,
to promote its products or services and to sell, deliver and finance
them. This is part of the normal process of trading - a commercial
chain. In many cases, legislation will not be necessary to tackle
actual or potential problems. Where it does, it must seek to facilitate
operations throughout the commercial chain, for it makes no sense
to remove barriers in only one part of that chain whilst leaving
- Any regulation must meet general interest objectives effectively
and efficiently: a Single Market for electronic commerce will
not develop without the effective safeguarding of recognised general
interest objectives such as privacy or consumer protection and other
public interests such as wide accessibility to the networks. Without
such protection there is a real risk that national regulatory borders
will remain in place as individual Member States seek to safeguard
the legitimate concerns of their citizens.
The essential features of a regulatory approach
Based on these four principles, an appropriate regulatory response
must be developed where necessary. In some cases, responses have already
been identified; in other cases, responses need to be found urgently.
To ensure that electronic commerce freely flows across national frontiers,
different legal issues need to be addressed at each step of business
From the establishment of the business ....
40. A wide range of regulations at national level could inhibit
the establishment of service providers across frontiers. These include
differing professional requirements, differing prudential and supervisory
systems, and notification or licensing requirements (for example for
regulated professions or financial services). The Commission is therefore
examining how best such obstacles can be tackled while respecting
general interest objectives and will come forward with policy proposals.
41. The new virtual environment also makes it more difficult to
determine who are the contracting parties, where an electronic commerce
operator is established and whether that operator is complying with
all relevant legal conditions. This can create legal uncertainty about
which Member State will be competent and about the applicable law
in disputed cases. It also complicates the application of Single Market
principles, in particular the principle of country of origin control.
The Commission will examine these and related issues to clarify any
areas of doubt or inconsistency - including the application of the
Rome Convention 
and the Brussels Convention 
in the new electronic context - and will work to improve consumers
access to justice, in particular the possibilities for redress.
To the promotion and provision of electronic commerce activities
42. Any online service provider or company establishing a website
is subject to divergent national regulations including those on commercial
communications (covering advertising, direct marketing, self-promotions,
sponsorship and public relations). This hampers the use of efficient
and creative cross-border commercial communications strategies and
creates legal uncertainty. As a follow-up to the Green Paper on Commercial
Communications, the Commission will come forward with detailed proposals
to remedy actual or potential difficulties.
43. At present, Member States apply certain restrictions to the
marketing of particular financial services to protect the public interest.
The effect of such restrictions is that the Single Market for financial
services, including financial services provided electronically, is
fragmented. Before the end of the year, the Commission will put forward
a proposal for a directive on financial services contracts negotiated
at a distance which will seek to remove obstacles to cross-border
provision whilst safeguarding consumer protection.
Through negotiation and conclusion of contracts ...
44. A directive on contracts negotiated at a distance which covers
electronic transactions and a certain number of horizontal directives
(on unfair contract terms in consumer contracts, on misleading advertising)
and sectorial directives (on consumer credit, travel packages, timeshare)
have been adopted. Furthermore, a proposal on the sale of consumer
goods and associated guarantees is in the pipeline. These directives
are establishing a minimum level of protection for consumers which
is also applicable to electronic commerce transactions within the
45. A number of Member States' rules governing the formation and
the performance of contracts are not appropriate for an electronic
commerce environment and are generating uncertainties relating to
the validity and enforceability of electronic contracts (for example
the requirements for written documents, for hand written signatures,
or the rules of evidence that do not take into account electronic
documents). The Commission will take concrete steps to address the
problem of how to eliminate barriers for the legal recognition of
electronic contracts within the Single Market. Furthermore, as regards
consumer protection in the field of electronic commerce, this point
shall be dealt with in the Communication on the consumer dimension
of the Information Society.
46. Book-keeping, accounting and audit rules will also have to be
adapted to electronic commerce and will have to allow, for example,
for electronic verifications without any paper copies or for electronic
invoices. National rules could develop in a divergent way and threaten
the Single market. The Commission will initiate discussions with the
Member States in order to prepare appropriate action.
... To the making and receipt of electronic payments
47. Electronic commerce will not develop without sound, user-friendly,
efficient and secure electronic payment systems. The Commission, the
EMI and the Member States are currently considering the appropriate
supervisory framework for the issuance of electronic money. In the
light of this discussion the Commission intends to present by the
end of 1997 (i.e. the target date for completion of the work) a proposal
for a Directive on the issuance of electronic money, so as to ensure
the stability and soundness of issuers of such payment products. This
will contribute to boosting consumer confidence. Meanwhile, the Commission
envisages modernising and updating the Recommendation of 1988 concerning
payment systems 
before the middle of 1997 in order to provide guidance for the relationship
between issuers and users of all new means of payment (e.g. on liability,
transparency and redress procedures).
48. Compatibility between electronic payment systems, which is in
the interest of both consumers and business, will mainly rely on agreements
among operators. Such agreements must be in conformity with the Community's
competition rules. To provide guidance, the Commission will in the
course of 1998 issue a competition notice which will clarify the application
of competition rules to new means of payments.
49. Fraudulent use and counterfeiting, which is a serious concern
for means of electronic payments, is only punishable in a minority
of Member States. The financial industry and users have requested
the Commission to take initiatives covering all non-cash means of
payment to improve the security of new payment systems. The Commission
is presently considering a regulatory response that would meet these
A regulatory approach that develops appropriate
Ensuring Data Security and Privacy
50. The use of strong encryption which ensures the confidentiality
of both sensitive commercial and of personal data is one of the foundation
stones of electronic commerce. Widely divergent national laws restricting
the use, exportation importation and offering of encryption technologies
and products are adding substantial barriers to the development of
electronic commerce in Europe. The removal of such cross border barriers
is crucial for the implementation of the Single Market in electronic
commerce. The Commission will seek to develop a policy which will
aim to guarantee the free movement of encryption technologies and
products while safeguarding public security concerns. The Community
will work at international level towards the removal of trade barriers
for encryption products. The recently adopted OECD
Cryptography Guidelines constitute a first attempt to achieve
international consensus on this matter.
51. A more specific issue is that of digital signatures, which will
be the subject of a Commission initiative. This initiative will aim
at ensuring a common legal framework encompassing the legal recognition
of digital signatures in the Single Market and the setting up of minimum
criteria for certification authorities. Worldwide agreements on digital
signatures will also be needed.
52. Key amongst confidence-building measures is the need to safeguard
the individual's and a company's right to privacy while avoiding obstacles
to the cross-border provision of electronic commerce services. The
EU Framework Directive on the protection of personal data meets these
two objectives. It remains to be seen whether further regulatory measures
may be needed to address specific issues emerging from the developments
of electronic commerce. In particular, privacy principles need to
be safeguarded in the area of electronic payment systems, taxation
and copyright management systems. The Commission will pursue a WTO
initiative aiming at a multilateral agreement on trade-related aspects
of global information flows whilst protecting the right to privacy
and personal data.
Establishing Appropriate Protection for Intellectual Property
Rights and Conditional Access Services
53. The protection of copyright and related rights is essential
for the development of electronic trade. The Commission will take
a legislative initiative to deal with certain aspects of copyright
and related rights .
It will focus on online communications, reproduction and distribution
of protected material. This will be flanked by adequate legal protection
against the circumvention of anti-copy devices and electronic management
systems. The two international treaties adopted in December 1996 under
the auspices of WIPO, the World
Intellectual Property Organisation (the WIPO
Copyright Treaty and the WIPO
Performances and Phonograms Treaty) are essential to stimulate
and facilitate electronic commerce internationally. The Community
shall aim for their early entry into force. Moreover, a successful
outcome of the present WIPO negotiations on the legal protection of
the substantial investment made in databases will constitute a further
milestone in facilitating electronic commerce worldwide. The work
on this issue will continue in the framework of WIPO, during the second
half of 1997 and the Commission considers it of importance to adopt
an international convention in the near future on this topic.
54. Trademarks are major commercial instruments that will play an
important role in the electronic market place. However, in an open
network environment the trademark owner is faced by severe difficulties
in controlling the legitimate use of his trademark. The Commission
is now consulting interested circles about this and related issues
and will take appropriate steps to resolve conflicts between the allocation
of Internet domain names and trademarks. The Commission will seek
to ensure that European interests are duly taken into account in the
reorganisation of the Internet Domain Name System (DNS). In the context
of the WIPO Consultative Group on Trademarks
and Internet Domain Names, the Commission is actively contributing
to the definition of internationally acceptable solutions, such as
online arbitration, mediation and challenge panels.
55. A secure distribution of services will require adequate legal
protection of conditional access services across the Single Market.
Many services will use some form of encryption or other conditional
access system to ensure proper remuneration. Service providers will
need to be protected against the piracy of their services by illicit
decoders, smart cards or other piracy devices. The Commission will
propose a directive to establish an equivalent level of protection
for service providers across Europe.
Ensuring a Clear and Neutral Tax Environment
56. To allow electronic commerce to develop, it is vital for tax
systems to provide legal certainty (so that tax obligations are clear,
transparent and predictable), and tax neutrality (so there is no extra
burden on these new activities as compared to more traditional commerce).The
potential speed, untraceability and anonymity of electronic transactions
may also create new possibilities for tax avoidance and evasion. These
need to be addressed in order to safeguard the revenue interests of
governments and to prevent market distortions.
57. Indirect taxation, and particularly VAT, is the area in which
the Community rules are most harmonised. Electronic trade in goods
and services clearly falls within the scope of VAT, in the same way
as more traditional forms of trade do. However, thorough analysis
is needed to evaluate the possible impact of electronic commerce on
present VAT legislation (on issues such as definition, control and
enforceability) and to judge if, and to what extent, present legislation
needs to be adapted while ensuring tax neutrality. Adaptations should
avoid putting excessive burdens on small companies. While some
commentators have suggested that there might be a need to look
at alternative taxes such as a bit tax, the Commission is of the opinion
that this is not appropriate, since VAT already applies to these transactions.
58. The territorial concepts which underlie direct taxation systems
("residence" and the "source" of income) also
need to be examined in the light of commercial and technological developments.
As with indirect taxation, the goal is threefold: to provide legal
certainty, to avoid undue revenue losses, and to ensure neutrality.
59. The Commission and the Member States have recently decided to
start an analysis of the impact and consequences of electronic commerce
on customs and indirect taxation. The Commission will use the Taxation
Policy Group to explore these issues at EU level with Member States.
Further work will be done in the OECD Committee on Fiscal Affairs.
Working towards a consistent global regulatory
60. At present, the pioneers of electronic commerce are operating
in a fragmented regulatory environment despite the fact that a number
of aspects of electronic commerce are already covered by international
agreements such as WTO/GATS (General Agreement on Trade in Services)
and WIPO. As in the case of the Single Market existing and new national
legislation in diverse areas (for example encryption, digital signatures,
data protection and privacy, contract law, new electronic means of
payments) can create trade barriers which will hamper the development
of electronic commerce at a global level. Solutions need to be found
to provide for a consistent international regulatory framework for
Important steps have already been taken in a variety of different
international forums such as WIPO,
OECD (Organisation for Economic Cooperation and Development),
the World Customs Organisation, UNCTAD
(United Nations Conference on Trade and Development),
UNCITRAL (United Nations Commission on International Trade Law),
the Export Credits Arrangement, and the Council of Europe.
Building on this, the Community should further work through appropriate
international forums and bilaterally with its major trading partners
to establish a coherent global regulatory framework.
61. An International Ministerial Conference on "Global Information
Networks: Realising the Potential" will be organised by the Commission
and German Government in Bonn on 6-8 July 1997 which will address
international policy-making amongst others for electronic commerce
with a view to adopting a Ministerial Declaration.
Privacy is a particular concern of consumers. According to the survey
"Information Technology and Data Protection", Eurobarometer
46.1, January 1997, two-thirds of respondents are worried about trails
of personal data that are left behind when using digital information
virtual shopping malls which operate across borders could become very
dominant once they achieve a substantial size. Some adaptation of
retail legislation may be required.
for a European Parliament and Council Directive amending for the third
time Directive 83/189/EEC laying down a procedure for the provision
of information in the field of technical standards and regulations,
COM (96) 392 final, 30 August 1996.
95/46/EC of the European Parliament and the Council on the protection
of individuals with regards to the processing of personal data and
the free movement of such data. OJ L281, 23.11.95, p.31.
96/9/EC of the European Parliament and of the Council on the legal
protection of databases OJ L77, 27.03.96, p.20.
97/7 of the European Parliament and the Council of 17 February 1997
on the protection of consumers in respect of distance contracts (to
be published in the Official Journal).
for a European Parliament and Council Directive amending Council Directive
89/552/EEC on the coordination of certain provisions laid down by
law, regulation or administrative action in Member States concerning
the pursuit of television broadcasting activities. COM (95) 86 Final
of 31 May 1995, OJ C185, 19.07.95, p. 4.
Green Paper "Legal Protection of Encrypted Services in the Internal
Market", COM (96) 76 final, 6 March 1996.
from the Commission "Follow-Up to the Green Paper on Copyright
and Related Rights in the Information Society", COM (96) 568
final, 20 November 1996.
on "Industrial Property Rights in the Information Society".
Version 5.0, September 1996, DG XV/E/3.
 Green Paper
on "Commercial Communications in the Internal Market", COM
(96) 192 final, 8 May 1996.
 Green Paper
on "Public Procurement in the EU: exploring the way forward",
COM (96) 583 final, 27 November 1996.
 Green Paper
on the "Protection of Minors and Human Dignity in Audiovisual
and Information Services", COM (96) 483 final, 16 October 1996.
on the law applicable to contractual obligations. Rome 1980. OJ L266,
on jurisdiction and enforcement of judgements in civil and commercial
matters. Brussels 1968. OJ C97, 11.04.83.
Recommendation of 17 November 1988 concerning payment systems, and
in particular the relationship between card-holder and card issuer.
OJ L317, 24.11.88, p.55.
 For further
details see Communication from the Commission "Follow-Up to the
Green Paper on Copyright and Related Rights in the Information Society",
COM (96)568 final, 20 November 1996.
I - The Electronic Commerce Revolution
II - Ensuring Access to the Global Marketplace
III - Creating a Favourable Regulatory Framework
IV - Promoting a Favourable Business Environment
This document is located at http://www.cordis.lu/esprit/src/ecomcom3.htm
It was last updated on 16 April 1997 by