Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 360 - 379)

WEDNESDAY 8 MARCH 2000

MR DAVID GRIFFITHS, MS VANESSA MARSLAND AND MR ETIENNE WONG

  360. Did you want to add anything?
  (Ms Marsland) No, save to say that the proposals for an Information Society Copyright Directive are expected to be concluded this year, but the signs are that the level of compromise which will have to be negotiated and agreed in order to get that through will mean that it is only a partial harmonisation. It is a harmonisation with many options, with an ability to derogate. So it has achieved something but by no means what one would have hoped if one were trying to be a fully harmonised copyright environment in Europe.

Baroness O'Cathain

  361. The lowest common dominator, is it?
  (Ms Marsland) The way it is likely to end up is with a range of permitted options that Member States can select, and probably also with additional rights to derogate if necessary to achieve political agreement. It is harmonisation under one sort of name, I suppose.

Lord Paul

  362. With all the complexities of e-commerce and the international aspect of this business, is it really possible to have an evaluation which is enforceable, or is it a try-on and hope for the best?
  (Mr Griffiths) In answer to the question: is it possible to have regulation which is enforceable? the answer is yes, it is. It is certainly possible because most businesses will be located somewhere. There will be some physical place where businesses, so to speak, touch the ground for regulatory purposes. The difficulty for the law-abiding business is that as they move their services into additional countries, they have to look at what the laws are in all those countries, and have to face the possibility that they will be regulated in all those countries. So the problem is not so much, to my mind, that business is not regulated but that it is over-regulated.

  363. There is nothing to stop a business of e-commerce being run by putting a ship 12 miles off the coast of a country. In whose country would you have regulation? You could easily work from there. You do not have to be in any country.
  (Mr Griffiths) I have not had to look at using a ship as a base for e-commerce services. We would have to go back and look at the experience of pirate radio stations to see how that should be dealt with.
  (Ms Marsland) We do know from our experience that it can be difficult to enforce regulation, where you have somebody who is a local player in one market having effects in a different market. Of course, for larger scale businesses who are present in a number of markets, they are forced to be much more compliant; and then they get the cost of compliance problems even to the point, as we have seen in some situations, where it has been almost impossible to find a way forward which was lawful in every state in the EU because of competing regulation.

  364. It is almost impossible—or very, very difficult—to enforce a judgment of one country on the other.
  (Mr Griffiths) Yes. There are Conventions which you can use to enforce it but procedurally it is time-consuming.

  365. You have to have a big claim to be able to go through all that Convention. If you have a small claim you are sunk with legal costs.
  (Mr Griffiths) Yes, I would agree with that.

Lord Chadlington

  366. Partly following on from Lord Paul's comments, I have two questions. Are we putting an enormous amount of effort behind this attempt to harmonise when, in fact, it is doomed to failure? I sit here for hours and hours and hours listening to all this very strong information. I just think it is going to fail. That is the first question. Perhaps you will deal with that first.
  (Mr Griffiths) Is it doomed to failure? I do not think the efforts are doomed to failure unless you set your standard as complete harmonisation. I believe every step towards increasing harmonisation will reduce the costs of the complexity of legislation so step by step life will get easier. A related point is that simply the passing of time will mean that more businesses will have faced these problems and found solutions to them. So the extent to which the diversity of regulation presents a barrier to electronic commerce will decline with time because businesses will understand how to deal with the issues.

Chairman

  367. But in one or two areas, do you not think that people will continue with practices, regardless of whether or not there is regulation? For example, if you take language requirements and the French attitude on it, if you set up a Web page you will put on that what you want. What can they do about it?
  (Mr Griffiths) They can prosecute you if they can establish jurisdiction over you. It depends on the nature of your business. If you are a business, which has subsidiaries or operations in multiple countries, then it is more likely, in practice, that the regulators will be able to do something which will persuade you to comply. If you are essentially a single company, not part of a group, located in one jurisdiction, and that jurisdiction is remote from the jurisdiction which is trying to enforce, then it will be very difficult.

  368. We constantly hear about the 2-for-1 offers being unacceptable in Germany. Have there been cases where people have been prosecuted for making these offers?
  (Mr Griffiths) The German unfair competition rules are generally enforced by actions from competitors. Typically, a civil action again the company making the offer is brought by a competitor or a body representing competitors. I was speaking to one of my German colleagues today about this. What he said was that if there is an effect in the German market on the German competitors, then it is likely that the German courts would accept jurisdiction and ultimately give a judgment. It would then be a matter of seeking to enforce that judgment under the Brussels Convention against the service provider in the Member State in which they have their domicile.

  369. Two air flights for the price of one being offered by United Kingdom airlines. Action taken against them?
  (Mr Griffiths) I do not know, to be honest.

Lord Chadlington

  370. May I explore another way of looking at the problem. What are the tax benefits that I have by not operating in the EU? It would begin to throw up the advantages the other way round, so if I was operating outside the EU what tax advantages would I have?
  (Mr Wong) Let us take the example of a company which sells software, which you can download via a website. If that company were to establish itself in Jersey, that is a more favourable corporate tax regime anyway. It may even be possible to set the company up in such a way that it is exempt from tax in Jersey. So that is the first tax advantage. The second tax advantage is that to the extent that the company has any capital assets if it were to dispose of those assets, if the company were set up in the United Kingdom then it would be subject to tax on chargeable gains. Again, if it were in Jersey, then it would escape UK taxation on chargeable gains. Thirdly, and this is the part which a lot of United Kingdom based vendors are complaining about, if the nature of the product being sold by the Jersey company were something like software which can be downloaded via a website, then the Jersey company does not have to charge VAT to European private consumers whereas European based competitors would have to charge VAT to European consumers. From not just the tax but also a competitive commercial perspective, that is one of the more important advantages for siting the company offshore.

  371. Mr Wong, when I hear you outlining it like that, I become closer and closer to Lord Paul's position, which I think is that it becomes harder and harder to implement the tax regulations which the EU is demanding.
  (Mr Wong) Agreed.

  372. On a point of clarification, Chairman, I was confused under the heading, Advertising and Unfair Competition Regulations, in the sense that these regulations are not, strictly speaking, about the purchase of advertising space, are they? They are, strictly speaking, about the method by which a product is promoted.
  (Mr Griffiths) Yes.

  373. Are there regulations that apply to the notional purchase of space, which is different from one part of the EU to another as it impacts on to e-commerce issues?
  (Mr Griffiths) I am not aware of any regulations outside the regulation of television broadcasting, where under the TV Without Frontiers Directive we have, essentially, home country regulation of advertising.

  Lord Chadlington: That is what I understand too. Thank you.

  374. [not allocated]

Lord Skelmersdale

  375. Following on directly from the series of questions, I remember that it was Bernard Shaw who said, "The politician is someone who has a problem with solutions." A cynic—or perhaps you will regard him and me as heretic in relation to e-commerce—would say, first of all, that it is only another modern super hyped-up form of mail order and mail despatch. Point two, a whole lot of national laws and national regulations already exist in the various Member States of the EC, so what we really want to know is what is missing? It may be that we will want to bring them all together. You may want to, if you were a German, extend the German competition laws community wide. It may be that you want to extend the British tax laws community-wide. That is not actually what I am asking. What I am asking is, what is not there?
  (Mr Griffiths) My Lord Chairman, that is a tricky question because my immediate reaction to that question is that the problem we face is not what is not there, but what is there. Let me try and be a little bit more helpful than that. There is quite a range of laws that make it difficult to enter into certain types of transactions on-line. In the United Kingdom we can take the example of our consumer credit regulations, which do not fit well with electronic transactions. If you look at those, you will see what is missing is a scheme for regulating consumer credit in an on-line environment.

  376. Why is on-line different? Why is it different from the mail order company that I run?
  (Mr Griffiths) Those regulations, for example, can contain requirements for the consumer credit agreement to be executed by both parties. As a practical matter, under a relatively cautious interpretation, you would say that you have to have a piece of paper signed by the customer and signed by the supplier. So you do need, if you want comfort, to change that.

  377. With the greatest respect, you can book your theatre ticket over the telephone and there is no signature involved at any point?
  (Mr Griffiths) Absolutely, but that is not the same as taking out a loan to buy a car, which you cannot do over the telephone. There you have to sign a piece of paper at the moment.

Baroness O'Cathain

  378. On the Internet could you buy a car without a piece of paper?
  (Mr Griffiths) You can buy a car without any piece of paper over the Internet, but to borrow, under a regulated consumer credit agreement, the money to buy the car would be very difficult.

  379. If you had enough money and you did not want to get a hire purchase or purchase agreement, could you just say, "I want to buy a car for £12,000 and here is my credit card"?
  (Mr Griffiths) Yes.


 
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