Explanatory Memorandum to COM(2003)443 - Cooperation between national authorities responsible for the enforcement of consumer protection laws ("the regulation on consumer protection cooperation")

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dossier COM(2003)443 - Cooperation between national authorities responsible for the enforcement of consumer protection laws ("the regulation on ...
source COM(2003)443 EN
date 18-07-2003
1. Executive Summary

* The effective functioning of the internal market calls for a significant improvement in the way laws that protect consumers economic interests are enforced in cross-border cases. The development of cross-border transactions, including through the greater use of the Internet, has made the need for this improvement more urgent. Enlargement further reinforces the need for action.

* The protection of consumers from cross-border infringements requires the creation of a network of public enforcement authorities throughout the internal market. These authorities require a minimum of common investigation and enforcement powers. The proposal provides a framework of mutual assistance rights and obligations for enforcement authorities to use when dealing with cross-border infringements. The resulting network is designed to give national enforcement authorities an enforcement solution to deal quickly with the most serious rogue traders.

* The proposed regulation also provides for wider administrative cooperation among the Member States and with the Commission on projects of common interest that are designed to inform and educate consumers and empower them. The scope of the proposed regulation is limited to cross-border infringements. Therefore the Member States are not required to change their arrangements for domestic infringements.

Contents

1.

2. The need for Action


* In 2001, the Green Paper on EU Consumer Protection i identified a gap in the enforcement of consumer protection laws relating to consumer economic interests in the internal market. It argued that there was a need for a legal framework for cooperation between public authorities responsible for the enforcement of consumer protection laws. It outlined the possible elements for inclusion in such an instrument.

* The Commission's ideas were very favourably received by nearly all stakeholders i. There was widespread agreement that such an instrument would help secure the proper functioning of the internal market and enhance consumer protection. Business stakeholders in particular welcomed the Commission's intentions.

* In the communication on the follow-up to the Green Paper i, the Commission undertook to present a proposal for such a legal instrument, following further consultation with national governments. This consultation took place in the autumn of 2002 and spring of 2003 (including at the informal ministerial meeting at Eretria in May) and broadly confirmed the orientations of national governments expressed in their responses to the Green Paper and follow-up communication i. The recent Internal Market Strategy 2003-2006 i also argued that better enforcement was needed to ensure consumer confidence in the internal market and identified this proposal as a priority action.

* In addition, the Council adopted a resolution on 2 December 2002 on the Community's consumer policy strategy 2002-2006 that welcomed the Commission's intention to make a proposal in this area i. The European Parliament adopted a resolution on the consumer policy strategy and two resolutions on the Green Paper and follow-up communication on 13 March 2003 that also welcomed the Commission's intention to make a proposal i.

* There is therefore a broad consensus that consistent and effective enforcement of consumer protection laws is essential to the good functioning of the internal market, the elimination of distortions of competition and the protection of consumers.

* The development of cross-border shopping has increased the possibility of cross-border infringements. It is increasingly likely that the advertiser or retailer will be located in a different jurisdiction from the consumer. In only its first sixteen months of operation, the European Extra-Judicial Network of alternative dispute resolution bodies (EEJ-net) recorded 1115 cross-border disputes i. The Consumer Sentinel, a US-led international enforcement project, has recorded 4100 cross-border complaints from consumers against traders in EU, EEA and acceding countries since 1999, over half of which occurred in January to September 2002 i.

* The development of e-commerce, the arrival of Euro notes and coins and the more widespread use of common languages are likely to increase cross-border shopping still further. The greater use of cross-border advertising and marketing through post, the Internet and television will have an important part to play in stimulating cross-border shopping. However, unless backed by effective enforcement, the freedoms of cross-border trade and e-commerce could become freedom for rogue traders to undermine the internal market and harm consumers with impunity. The European Advertising Standards Alliance (EASA) estimates that around 63% of the cross-border complaints received between 1992 and 2002 concern rogue or peripheral traders and that this figure rises to around 86% for direct mail i.

* Consumer confidence in cross-border shopping in the internal market depends, in large part, on effective cross-border enforcement. In a recent Eurobarometer survey, 43% of those consumers who were less confident in cross-border shopping said that enabling their own national authorities to intervene abroad on their behalf was very important in increasing their confidence. A further 33% said that such a measure would be important i. Business confidence in a level playing field also depends on the guarantee of consistent and effective enforcement throughout the internal market.

* Each Member State has developed an enforcement system adapted to its own laws and institutions. Each system has come into being in order to tackle purely domestic infringements and is not fully adapted to the challenges of the internal market. Domestic authorities lack the power to investigate infringements outside their jurisdiction. Some are also restricted in acting against traders within their own jurisdiction who are directing their activities at foreign but not domestic consumers. National authorities are also under no obligations to assist their counterparts in other Member States.

* The result is a system of enforcement in the internal market that has not adapted sufficiently to meet the demands of the internal market and is not, at present, able to meet the challenge posed by rogue traders seeking to exploit the potential of the Internet in particular. The enlargement of the internal market in 2004 is likely to significantly increase the enforcement challenges that already exist and further highlight the inadequacies of current arrangements.

* This analysis of the importance of the enforcement cooperation to the internal market is hardly new. It has been recognised in several policy fields, notably customs i, indirect taxation i, competition i, financial services i and food i and product safety that the greater development of cross-border trade requires the development of a more rigorous EU approach.

* The need for effective cross-border enforcement for consumer protection has also been recognised in the international domain. In 1999 the OECD adopted a recommendation on consumer protection in relation to e-commerce that stated that member countries should through their judicial, regulatory and law enforcement authorities co-operate at the international level, as appropriate, through information exchange, coordination, communication and joint action to combat cross-border fraudulent, misleading and unfair commercial conduct i. On 11 June 2003, the OECD adopted further guidelines protecting consumers from cross-border fraudulent and deceptive commercial practices that recognise that the same enforcement problems and inadequacies of existing systems exist worldwide i.
[C(99)184/FINAL]

* Some initiatives have been taken at EU and international level to address these issues. The Injunctions Directive i gives certain bodies, notably consumer associations, nominated by the Member States the right to seek injunctions in courts in other Member States against rogue traders. The International Marketing Supervision Network (IMSN) recently re-named the International Consumer Protection Enforcement Network (ICPEN) provides a bi-annual opportunity for enforcement officials from several countries to cooperate informally. An EU sub-group also meets bi-annually to discuss issues related to EU law.

* In addition some Member States have signed bilateral cooperation agreements. The most notable of these is the cooperation agreement between the four Nordic enforcement authorities.

* These initiatives have an important part to play in the enforcement dimension of EU consumer protection. They are not however sufficient. As in other internal market policy fields, a network is needed of enforcement authorities in each Member State linked through reciprocal rights and obligations ('mutual assistance'). This network needs a legal basis, not least to overcome the legal barriers to cooperation that have been identified.

2.

3. The regulation on consumer protection cooperation


3.

3.1 Chapter 1: Objective, definitions, scope and competent authorities


4.

3.1.1 Objective


* The overall goals of the regulation are to ensure the smooth functioning of the internal market and the effective protection of consumers participating in the internal market. The proposed regulation has two specific objectives to achieve these goals, both related to the way the Member States and in particular their competent authorities cooperate with each other and with the Commission to protect consumers' economic interests. They are:

- to provide for cooperation between enforcement authorities in dealing with intra-Community infringements that disrupt the internal market;

- to contribute to improving the quality and consistency of enforcement of consumer protection laws and to the monitoring of the protection of consumer economic interests.

* The first objective is designed to ensure that enforcement authorities can cooperate efficiently and effectively with their counterparts in other Member States. The second objective recognises that the EU can contribute to raising the standard of enforcement through common projects and the exchange of best practice on a wide range of information, education and representation activities. It also acknowledges the EU contribution to monitoring the functioning of the internal market.

* These goals and objectives have determined the choice of legal base and instrument. The Commission has opted for Article 95 of the Treaty as a legal base . There are a number of examples of the barriers to efficiently and effectively tackling cross-border rogue traders that disrupt the smooth functioning of the internal market:

* A public authority in the Member State of the consumer may be prevented, under national confidentiality rules, from communicating the necessary information requesting assistance from an authority in the Member State of the trader.

* The public authority in the Member State of the trader is unable to act on behalf of foreign consumers, lacks the powers or resources to investigate or act or simply refuses to act, on grounds of national interest, rather than the Community interest. The public authority may also lack the power to seek injunctions to cease a practice quickly, thus having to use criminal law procedures.

* No public authority exists in the Member State of the trader to investigate the infringement and to seek an injunction against the trader.

* No public authority exists in the Member State of the consumer to seek the assistance of a public authority in the Member State of the trader.

* No obligations exist between Member States to provide mutual assistance in cross-border cases.

* These barriers to cross-border enforcement mean that a rogue trader can evade enforcement relatively easily either by targeting consumers in another jurisdiction or by targeting their own consumers but from another jurisdiction. Consequently, traders respecting the law suffer from a competitive disadvantage from this lack of effective cross-border enforcement, leading to a distortion of competition.

* These barriers to cross-border enforcement are also likely to inhibit the development of consumer confidence in cross-border shopping in the internal market and thus cause obstacles to the take-up of goods and services cross-border. The proposed Regulation thus both contributes to removing distortions of competition and to eliminating internal market obstacles.

* The Injunctions Directive, which also aims at improving enforcement of consumer protection rules, provides one precedent for the use of Article 95 for enforcement questions. Existing directives on data protection and investment services, which also provide for the establishment of public bodies with investigative and enforcement powers are also based on Article 95.

* A regulation has been chosen (as has been the practice in other such EU cooperation instruments, notably those on customs cooperation, VAT cooperation and feed and food controls), as the measure essentially provides arrangements for cooperation between public authorities of direct applicability.

5.

3.1.2 Definitions, scope and competent authorities


* The scope of the regulation is limited to intra-Community infringements of EU legislation that protects consumers' interests. The scope of the regulation will be enlarged when the proposed framework directive prohibiting unfair commercial practices enters into force.

* Competent authorities are at the heart of the proposed regulation. The regulation puts in place a series of mutual assistance tools. The use of these tools rests entirely in the hands of the competent authorities, who are best placed to judge the operational enforcement needs of consumer protection. The regulation grants the Commission no enforcement rights or responsibilities.

* The designation of competent authorities is left to the Member States, in order to take account of national constitutional arrangements for consumer protection enforcement. Member States are free to nominate national and/or regional, local or sectoral competent authorities. The proposal also provides for the designation by each Member State of a single liaison office to ensure proper co-ordination between the competent authorities nominated in each Member State.

* Competent authorities are defined as public authorities with specific consumer protection enforcement responsibilities. The proposal also ensures that only those authorities with a minimum of common investigation and enforcement powers can be designated as competent authorities. This common minimum is required to ensure that the provisions on mutual assistance can function in practice and act as a credible deterrent to rogue traders. The need for a network of public authorities having such powers has also been recognised in Community instruments on data protection, competition and financial services.

* The regulation will require some change to the enforcement rules of all Member States. Clearly however, some Member States will be more affected than others will. A large majority of Member States and acceding countries nevertheless have public authorities with specific consumer protection enforcement responsibilities.

* However no such authorities exist in Germany, the Netherlands or in Luxembourg. In Austria, Länder authorities have executive authority to impose fines on traders for breaches of certain laws.

* The Member States, since the Injunctions Directive, have provided a privileged place for consumer organisations in enforcement and many also foresee an enforcement role for competitors and business organisations. All these organisations have a valuable role to play. The present proposal does not change or diminish the role played by these organisations at national or EU level in any way. Their role should continue to be encouraged, including in cross-border cases.

* The proposed regulation puts in place a network of competent authorities and a framework for mutual assistance that complements those which exist already in each Member State or which exist on a sectoral basis at Community level. The existing systems are not on their own sufficient to ensure the smooth functioning of the internal market or the protection of consumers. The proposed network is designed to provide an enforcement solution to deal quickly with the most difficult rogue traders committing cross-border infringements, especially those who seek to exploit the freedoms of the internal market to harm consumers.

* There are several reasons why an EU network of public authorities is required.

* Only public authorities can have the investigation powers necessary to obtain evidence of an infringement.

* Only public authorities can provide sufficient guarantee of the confidentiality and professional secrecy concerning information exchanged. A guarantee of confidentiality and secrecy is essential to ensure the trader's reputation is not unfairly harmed and to prevent investigations being compromised.

* The public authorities in the large majority of Member States where they exist have demonstrated the efficiency and effectiveness of a public dimension to enforcement. The threat of speedy action from public authorities is an important deterrent to rogue traders, especially those taking advantage of the opportunities of the internet. The credibility of this deterrent at EU level would be harmed if there were gaps in the network. Some anecdotal evidence has come to light in ICPEN discussions that some rogue traders may already be exploiting these gaps to base themselves in Member States without public authorities.

* Public authorities are both impartial and accountable in the way that they operate to defend the public interest. This is an important reassurance for traders. Private bodies are not so accountable. In order to ensure the accountable operation of the regulation, the mutual assistance rights provided in the regulation should therefore only be entrusted to public authorities. In addition, private bodies are primarily concerned, given their organisation along national lines, with consumers in their own country rather than other consumers in the EU

* The effectiveness of the enforcement network established in the proposal depends upon the reciprocal rights and obligations of mutual assistance. Because of this reciprocity, each Member States can be sure that their consumers will be effectively protected in cross-border situations. This reciprocity can only be guaranteed by equivalent public authorities in each Member State.

* Given that a large majority of the Member States recognise the value of a public dimension to their enforcement systems, the creation of a network of public authorities at EU level is an important element in overcoming reluctance to apply the principles of maximum harmonisation to consumer protection laws. Reassuring the Member States that consumers will be protected by equally effective public authorities when shopping cross-border will make inclusion of maximum harmonisation in a directive on unfair commercial practices and future consumer legislation more acceptable.

* The prospect of enlargement demands action to safeguard consumer interests in an enlarged internal market. Most of the new Member States do not have a long tradition of consumer protection enforcement, although they have established public authorities. The proposed regulation is therefore an opportunity to ensure that effective enforcement is in place throughout the new internal market.

* The scope of the proposed regulation is limited to cross-border infringements. Therefore the Member States are not required to change their arrangements for domestic infringements by this regulation.

* New public authorities are also not necessarily required in those Member States that currently lack them. The limited responsibilities of the regulation could be given to existing public authorities. For example, in several Member States and third countries, enforcement responsibilities for consumer protection are carried out by the agency responsible for the enforcement of competition law matters. Positive synergies exist between the consumer protection and competition dimensions of market surveillance and enforcement.

6.

3.2 Chapter II - Mutual Assistance


* The proposed regulation establishes several reciprocal mutual assistance rights and obligations on competent authorities. This balance reflects the fact that the competent authority in the Member State of the consumer is best placed to understand and judge the harm suffered by the consumer but the competent authority in the Member State of the trader is best placed to act within their own jurisdiction and national culture. All competent authorities will have to play both roles.

* The basis of mutual assistance is free and confidential information exchange between competent authorities. The proposal puts in place a system of exchange on request and, just as importantly, spontaneous exchange. Spontaneous exchange is essential to effective internal market surveillance.

* If the information exchanged confirms the existence of an intra-Community infringement, the proposal requires that competent authorities act to bring about cessation of the infringement without delay. The requested authority is free to determine the most effective and efficient way to achieve this, being best placed to make this judgement. Injunctions are likely to be the main enforcement tool. They enable action to be taken speedily and effectively to remove practices from the internal market that infringe EU rules before consumers are harmed.

* The proposal also provides for co-ordination of surveillance and enforcement actions between competent authorities. It is increasingly likely that cross-border problems will not simply be bilateral but will involve consumers in several Member States, especially where the Internet is involved.

7.

3.3 Chapter III: general conditions governing mutual assistance


* The proposal establishes the general principle that competent authorities can act against traders within their jurisdiction regardless of the location of the consumers involved. This chapter also sets out general procedural rules for the conduct of mutual assistance and standard rules on the use of information exchanged as a result of the Regulation.

* Article 13 sets out the possibility for information to be exchanged with competent authorities of third countries under bilateral agreements. Article 14 foresees the conditions under which competent authorities may refuse assistance. The default principle of the Regulation is that requests for assistance should be accepted. This article sets out the conditions that can be used to justify a refusal to assist.

8.

3.4 Chapter IV: Community activities


* The principal task of the Regulation is to provide a system for cooperation between competent authorities in enforcement. However, the Community also has a role to play in supporting enforcement and in co-ordinating the wider Member States' information, education and representation activities designed to promote consumer economic interests. The Community's role is limited here to supporting measures which raise the standard of enforcement generally and which improve the ability of consumers to enforce their rights. The Community has a traditional role of encouraging the exchange of best practice and co-ordinating national efforts so as to avoid duplication and the waste of scarce resources.

* There is in addition a need for negotiation at Community level of mutual assistance agreements with third countries. Similar agreements exist in the area of competition and customs. The work in the OECD has demonstrated that there is a demand for mutual assistance on an international scale. Considerable efficiency gains can be expected if such international agreements can be negotiated on a Community-wide basis rather than individually with each Member State. The arrangements for this are set out in Article 18.

* Article 15 provides for information notified to the Commission to be stored in a database accessible to competent authorities. This is designed to improve the quality of the surveillance of the internal market. A similar database already exists under the aegis of the EU-group of the ICPEN and the Commission.

* Article 16 provides for Community co-ordination of administrative activities of competent authorities related to enforcement. The article sets out possible areas for co-ordination, leaving the Member States and the Commission to decide over time the precise actions needed at Community level to co-ordinate their enforcement work. It also makes explicit provision for exchanges of officials between competent authorities.

* Article 17 sets out further possible areas for Community co-ordination in relation to national actions on information, advice and education, consumer representation, the extra-judicial settlement of disputes, access to justice and statistics. Once again, it is left to the Member States and the Commission to decide over time the precise actions needed at Community level to coordinate their actions.

* These coordinated actions may or may not require Community and/or national funding. The present proposal does not of itself provide the legal basis for Community expenditure on these actions. The Commission's proposed legal framework for Community action in support of consumer policy 2004-2007 i and successor frameworks shall provide the basis for such expenditure. The present proposal instead provides a decision-making framework for co-ordinated actions. It will provide the possibility for the practical arrangements concerning the operation of the EEJ-net and the European Consumer Information Centres (sometimes known as the Euroguichets) to be put on a more formal basis.

9.

3.5 Chapter V: final provisions


* The proposal provides for an Advisory Committee to be set up to assist the Commission in implementing the practical procedures for the operation of the regulation. Articles 6, 7, 8, 9, 11, 14, 15, 16, 17, and 19 provide for detailed practical arrangements (such as common forms) and other implementing measures to be delegated to the Committee, as is common to other mutual assistance arrangements. Given the operational enforcement issues covered by the Regulation, representatives of competent authorities, amongst others, should be members of this Committee. The role of the Advisory Committee shall not include issues covered by the Contact Committee established under the Television without frontiers Directive.

* Articles 20 and 21 set out the necessary arrangements for the monitoring of the effectiveness of enforcement in the EU. Member States are required to regularly report on the application of the Regulation.


10.

4. Final Remarks


* The proposed regulation is designed to operate on the basis of the existing consumer protection acquis. However the effective operation of the arrangements would undoubtedly be boosted with the adoption of a directive on unfair commercial practices and the development of maximum harmonisation in all the consumer protection acquis. A more harmonised and simpler regulatory system can make the work of enforcement officials easier as well as that of traders and consumers.

* The Commission considers that adoption of the proposed regulation by Council and Parliament should be undertaken as quickly as possible, in particular, given the imminent enlargement of the EU.