A new EU regulation is due to enter into force aimed at removing barriers to cross-border e-commerce in the EU.
As part of its drive to harmonise the EU internal market, a new regulation has been approved by the European Parliament and Council aimed at preventing location-based discrimination by online sellers of certain goods and services. The regulation, due to enter into force on 3 December 2018, takes aim at a practice called 'geo-blocking' and will require traders who are active in multiple EU member states to assess their current practices in light of the regulation's requirement.
WHAT IS GEO-BLOCKING?
The term 'geo-blocking' commonly refers to practices whereby businesses discriminate against online customers based on their location. This normally involves blocking access to a website, or automatically redirecting the customer to a 'local' website in the member state the customer is based. More broadly, geo-blocking can encompass any discriminatory commercial practice based on geographical factors.
REGULATION (EU) 2018/302
WHAT GOODS AND SERVICES DOES THE REGULATION COVER?
The regulation sets out rules on geo-blocking in respect of three categories of goods and services:
- physical goods;
- electronically supplied services (such as cloud services or website hosting); and
- the sale of services provided in a specific physical location (such as rental of summer accommodation, concert tickets and car hire).
Controversially, the regulation does not cover any forms of digital media, such as music and video streaming services, despite geo-blocking being a common concern in this area. The inclusion of such material within the regulation's scope was vetoed by member states due to concerns over copyright.
WHAT DOES THE REGULATION PROHIBIT?
The regulation prohibits "unjustified geo-blocking" in relation to the sale of the above goods and services. Under the regulation, the following practices will not be permitted:
- Refusing sales based on a
customer's location
An online retailer cannot refuse to sell to a customer due to their being located in a different member state. They will also be prohibited from applying any additional fees to that customer. - Preventing access to websites
The regulation bans the blocking of websites to customers based on geographical factors. Similarly, re-routing a customer to a 'local' website without their consent will not be permitted. Where a customer has consented to being re-routed, the original website they tried to access must still be readily accessible. - Discrimination for reasons related to
payment
The regulation also curtails the ability of online traders to require different methods of payment depending on where a customer is located. For example, if a retailer accepts payment by credit card in one member state it will, in certain circumstances, also be obliged to accept credit cards issued in other member states.
WHAT DOES THE NEW REGULATION MEAN FOR BUSINESSES?
DO BUSINESSES NEED TO DELIVER PHYSICAL GOODS CROSS-BORDER?
Whilst traders cannot refuse to sell to a customer based on their location, they will not necessarily be obliged to deliver their goods cross-border under the regulation. The regulation recognises that there are legitimate reasons for which an online retailer may choose to deliver their goods only domestically, such as shipping costs and the costs of registering with foreign tax authorities. Where a business has opted to deliver only domestically, a customer from another member state may still purchase goods from them if they are able to provide a delivery address in the country the retailer delivers, or arrange to pick up the goods themselves.
Of course, if a trader already delivers to customers across different member states, they can continue to do so under the regulation.
DO BUSINESSES NEED TO HARMONISE PRICES?
For physical goods, businesses will not be required to harmonise prices across their different online shops. Part of the rationale behind the regulation was to encourage cross-border selling so as to allow customers the opportunity to purchase products at the lowest price, regardless of where in the EU they are based. It waits to be seen whether the regulation will lead to a significant increase in such transactions, given that many customers will need to arrange their own delivery solutions, as set out above.
In the case of services supplied electronically, such as web hosting and data warehousing, and services provided in a specific physical location, online retailers will only be permitted to charge different prices across the EU if those differences are not purely based on geographical factors. The differentiation must therefore be justified by reasons unrelated to the customer's location. If not, suppliers may be required to offer uniform prices to customers across the EU.
As customers will not be obliged to organise delivery in relation to such services, as they may have to for physical goods, it seems likely that the regulation will have a greater impact on the service industries covered by the regulation. We may therefore see a greater increase of cross-selling in relation to these services, as opposed to physical goods.
WHAT STEPS SHOULD BUSINESSES BE TAKING?
Firstly, businesses should establish whether any of their current practices constitute geo-blocking measures covered by the regulation. Are customers redirected to the version of your website based in their home country? Do you only sell goods to customers based in certain member states?
If any of your current practices do fall within the regulation, will they be justifiable under the new rules? If, for example, you charge different prices for electronically supplied services, is that differentiation solely based on the customer's location?
If they are not justifiable, then consider what changes need to be made. For example, do you need to introduce a pop-up on your website asking for the visitor's permission to redirect them to their local site, rather than doing so automatically? Will you need to start accepting orders on your online shop from customers outside of the member state you are based in? Will you need to accept a greater range of payment methods in order to permit access to customers across the EU? Although the regulation should not necessitate wholesale changes of commercial practice for most businesses, online retailers should be alert to the possibility that their current arrangements may inadvertently fall foul of the new rules, even if they were not implemented for discriminatory reasons.
BREXIT
WHAT IMPACT WILL BREXIT HAVE ON THE REGULATION'S IMPACT TO UK BUSINESSES?
The regulation is due to come into force on 3 December, from which date UK businesses will need to comply. Its continued applicability to the UK post-Brexit will ultimately depend on the terms of any withdrawal agreement reached and any transition period entered into, all of which remains uncertain. Currently, it would appear that a transition period until at least 2020 is likely, during which the regulation will probably continue to apply.
After any transition period, if the regulation is codified into UK law, UK businesses will need to continue to comply. However, there may be no similar obligation on EU traders who may therefore be able to geo-block customers based in the UK. Discussions concerning geo-blocking post-Brexit are likely to be negotiated alongside similar issues concerning the Digital Single Market, such as mobile roaming fees and the portability of digital content.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
