European Union negotiators have agreed to put an end to unjustified geo-blocking, meaning that consumers should be allowed to purchase more products and services online from websites in other European countries.
The agreement was reached on Nov. 20 by the European Parliament, the Council and the Commission, which made it a priority to tackle the issue at a digital summit in Tallinn in September. The new regulations will apply nine months after their publication in the EU Official Journal, implying that unjustified geo-blocking should no longer exist by the end of 2018.
The rules will apply to three specific situations where there is no justification and no objective criteria for a different treatment of customers from different EU member states. They are the sale of goods without physical delivery, the sale of electronically supplied services, such as data storage and website management, and services provided in a specific physical location, such as tickets for events or amusement parks.
In practice, this means that European consumers will be able to choose from which website they want to buy such products and services, without being blocked or re-routed automatically based on their nationality or the country where they're permanently or temporarily located, using payment methods that apply in any country.
However, sellers have no obligation to harmonize prices or to deliver products in all European countries. In other words, a German consumer should be allowed to buy a cheap pair of skis in Spain, but he or she may well have to pick them up away from his or her location.
The end of unjustified geo-blocking could further increase price competition across Europe, particularly through price engines that search for the cheapest prices across the European market.
The agreement does not cover products where geo-blocking may be objectively justified. This would be the case when regulations applying to a specific category of products differs from one European country to the other. That could also be the case for music, videos and other copyrighted contents, involving services such as Spotify and Netflix.
Many consumers have been ordering product online at a lower price from countries where the sales tax is lower, resulting in an estimated annual loss of €5 billion in VAT on online sales across the EU. This problem was solved through an agreement reached on Dec. 5 by the economic and finance ministers of the EU member states on VAT rates.
Among other things, the new rules will ensure that VAT is paid in the member state of the final consumer, following a procedure that is already in place for online services, pending the creation of a single VAT across the EU and the establishment of a one-stop shop” for online sales that is due to come into effect in 2021.
Furthermore, for the first time, large online marketplaces are being made responsible for ensuring that VAT is collected on sales that are made to EU consumers through their platforms by companies that are not located in the EU. That includes the sale of products that have been previously stored by those companies in a warehouse located inside the EU.
The agreement reached last month on unjustified geo-blocking is part of the Commission's commitments to create a single digital market. This has been earmarked as a priority by the European Commission appointed in November 2014. The Commission previously conducted a sector inquiry on e-commerce and adopted its final report in May.
Along the way, the Commission gathered evidence from nearly 1,900 companies operating in online sales of consumer products and digital content, and analyzed around 8,000 distribution and license contracts. In June it opened formal antitrust investigations into the licensing and distribution practices of Nike and two unrelated companies.
This ongoing investigation is meant to establish whether they illegally restrict sales of licensed merchandise, such as replica football shirts, across borders and online in the European Union. The probe is distinct from the discussion about selective distribution, as it focuses on the relationship between brand owners and licensees, rather than brands and their retail partners (see the seperate story on the topic in this issue).
The next and related priority in this context is to reduce prices of cross-border parcel delivery, which currently make it less interesting for people to buy and sell products across the European Union. An agreement may be reached as early as this month, when further negotiations are planned on the issue between representatives of the European Parliament, the Council and the Commission. It should lead to more transparency in delivery prices, where the Commission has found huge discrepancies around Europe.
Judging from a fact-sheet provided by the European Commission, the end of unjustified geo-blocking and other barriers to online trading across EU countries could substantially alter retailing habits. The Commission found that 63 percent of the websites in operation in the region did not let shoppers buy products online from another EU country. The rate reached 65 percent for clothing, footwear and accessories – just above the average, the highest being electrical household appliances at 86 percent. The Commission's figures suggest that the potential of cross-border trade is largely untapped, since only 15 percent of consumers buy online from another EU country, and only 8 percent of companies sell cross-border.
The Commission says the rules on unjustified geo-blocking will boost e-commerce for the benefit of consumers and companies that take advantage of the growing online market. It adds that the rules will also provide more certainty for companies that want to sell products online across Europe.