Legal Eye: Ecommerce held back by outdated laws

The legal and regulatory scheme for buying and selling online across European borders needs a rethink, says lawyer Petra Papinniemi.

Ecommerce is a way of life in many EU states, with an annual transactional value in excess of €100bn. One-third of consumers have bought at least one item over the internet, according to a recent report on ecommerce from the European Commission. In countries such as the UK, France and Germany, this figure is even higher.

However, while ecommerce is taking off at national level, this trend is not mirrored in cross-border trade. Only seven per cent of consumers buy their goods online from a seller based in another member state - and the gap between domestic and cross-border ecommerce is widening.

Common barriers such as language differences, higher delivery costs and difficulties in receiving after-sale services were identified in the EC report as attributing factors in the lack of engagement in cross-border online transactions.

Consumers' lack of familiarity with the protection and redress available against a foreign seller is also a major concern, the report revealed. General anxiety about payment security and fraud relating to online purchases add to buyers' reluctance to trade across borders, a result of the increased difficulty of establishing the trustworthiness of a foreign seller.

According to the report, online retailers are also concerned about the risks associated with non-compliance with different fiscal regulations and national laws relating to consumer transactions.

While some of these barriers to trade are easier to overcome than others, changes to the legal and regulatory framework are now a priority if cross-border ecommerce is to reach its full potential.

With this in mind, the current legal framework that applies to cross-border selling is in obvious need of change. For example, data protection laws largely preceded the emergence of ecommerce and do not afford businesses the flexibility required by their business models to exchange data around Europe. The fragmentation of consumer protection legislation is also a problem which the EU is keen to address.

The Office of Fair Trade (OFT) has responded cautiously to a newly proposed EC Consumer Rights Directive whereby all EU countries would have the same level of consumer protection. But this could have the undesired affect of watering down much tougher, existing consumer protection in the United Kingdom - so the OFT has expressed a preference for the standard to remain flexible to allow member states to maintain even more stringent rules.

A review of the European ecommerce directive is expected later this year.

The legal framework that applies to cross-border ecommerce needs to catch up with market realities. Without clear legal standards, it is not surprising that many consumers and businesses remain reluctant to engage in ecommerce, as such conflicts appear aggravated when viewed in the cross-border context.

The weak sterling and the current slowdown in the domestic market should make cross-border sales more appealing than ever to UK exporters.

The removal of legal and regulatory barriers is not only desirable but essential to allow ecommerce to thrive and struggling businesses to enter into new markets. In the meantime, businesses that sell online should ensure that they are aware of the legal and regulatory pitfalls and the risks they pose to their business.

Petra Papinniemi is an associate in law firm DLA Piper's commercial contracts department, specialising in international trade.