The creation, over the past half century, of a single market within the European Union – with guarantees for the free movement of goods, services, capital and people between the 28 member states – has led to enormous economic benefits for European businesses and consumers.

However, various barriers to trade between member states remain, not least on the internet. Many are concerned that the single market is not, in its present state, fit to deal with a society that is increasingly doing its business online.

Why do we need the digital single market?

According to figures published by the European Commission, only 15% of European shoppers, and only 7% of SMEs, buy and sell goods across the EU’s internal borders.

The cost of this lost opportunity is massive. The Commission estimates that the failure to exploit the single market online shaves €415 billion off EU-wide GDP every year. The online market’s shortcomings also go some way to explaining why European digital business all too often lags behind its competitors in the United States – where businesses have largely unobstructed access to an internal market of 320 million potential customers.

Why the reluctance to buy and sell online into other member states? Consumers often have concerns about varying standards of protection for their rights (for example, where goods they buy are defective), and worry that their personal data will be less protected than at home. Businesses cite weighty and overlapping regulatory burdens – the need to register for VAT in each member state in which they trade, the lack of co-ordination between regulators in areas such as cyber-security, and high delivery charges making their products unaffordable.

Trade in digital content – films, music, broadcast TV, apps and so on – is also hampered by the remaining inconsistencies in copyright rules across the EU, and a preference in some sectors for restrictive licensing rules which permit the use of content in some member states but not others.

The net result is that European businesses often feel that selling their products to customers in other member states is more trouble than it is worth. However, this is set to change.

What is the digital single market?

To address the digital gap in the single market, in June the European Commission announced its digital single market initiative, which it heralded as a top priority for the Junker presidency. The Commission noted that “It’s time to make the EU’s single market fit for the digital age – tearing down regulatory walls and moving from 28 national markets to a single one.”

The Commission plans to build the digital single market by implementing several specific policy proposals, which it aims to deliver on a very tight timescale – by the end of 2016.

Access to digital goods and services across Europe

The Commission aims to:

  • harmonise member states’ laws regulating e-commerce – the sale and purchase of goods and digital content online. As well as ensuring adequate protection for consumers when buying digital content, which is often lacking, harmonisation will ensure that consumers know that they will not be any less protected when buying from another member state than they are at home;

  • encourage greater co-operation between the regulators tasked with enforcing consumer protection in each member state to ensure consistency, efficiency and speed;

  • use its powers to combat anti-competitive behaviour to investigate various practices in the e-commerce sector which it suspects are in breach of current rules;

  • take action to end unjustified ‘geo-blocking’ of online content. Geo-blocking occurs where a business denies a consumer access to a website based on that customer’s geographic location, or directs them to another website instead. The Commission’s view is that these practices are discriminatory, since they allow businesses to offer different prices for the same services, and lead to the patchy availability of digital content;

  • reform the copyright system. The Commission intends to further harmonise copyright across the EU to ensure that content that can be lawfully viewed in one member state will not infringe copyright in another;

  • consider the further regulation of online broadcasts, for example video on demand (VOD) services such as Netflix and BBC iPlayer, to bring them more into line with the regulations applicable to conventional broadcasts.

Level playing field for digital networks

The Commission’s actions in this area will include:

  • reviewing the role of so-called ‘online platforms’, such as search engines, social media sites and app stores. The Commission has already voiced concerns about certain practices adopted by some online platforms, such as a lack of transparency in pricing, search results and co-operation between businesses;

  • overhauling the regulation of telecoms service providers; co-ordinating the administration and allocation of space on the broadband spectrum, presently the preserve of each member state; and encouraging EU-wide investment in high-speed broadband;

  • building confidence in the uniform protection of privacy across the EU, in tandem with the adoption of the proposed Data Protection Regulation later this year;

  • working more closely with the online industry to strengthen cybersecurity.

Maximising the growth potential of the digital economy

The Commission aims to achieve its third pillar by:

  • encouraging more businesses to move to the cloud, by launching the ‘European Cloud’ initiative. This scheme will set uniform standards for certification of cloud service providers, and will impose rules which will help businesses switch providers more easily;

  • setting out its priorities for the development of uniform technology standards and interoperability rules in areas which will enhance the digital single market. Sector priorities that have been identified so far include e-health, transport, planning and energy. Expect new rules in areas such as smart metering;

  • developing an e-government action plan. This will set out best practice for governments and public sectors to interact with business online. It will also connect business registers across the EU – removing the need to register (eg for VAT purposes) in multiple member states. This initiative alone is expected to save €5 billion by 2017;

  • accelerating the roll out of ‘e-procurement’, to allow more public procurement to take place online, and setting standards for e-signatures.

The verdict

The changes promised to build the digital single market will touch every aspect of doing business online in Europe. Businesses that buy and sell online must be prepared for some significant changes to their legal landscape. However, if these changes are successful in giving UK online business greater access to an additional 440 million potential customers across the EU, and adding the expected €415 billion to annual GDP, the digital single market is unlikely to have too many critics.