Draft Communications Act (e-Commerce) (EU Exit) Regulations 2020
(Limited Text - Ministerial Extracts only)
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The Minister for Media and Data (Mr John Whittingdale)
I beg to move,
That the Committee has considered the draft Communications Act (e-Commerce) (EU Exit) Regulations 2020.
It is a pleasure to serve under your chairmanship, Mr Gray, and to welcome my colleagues who are here in quality, if not in quantity. These regulations were laid in both Houses on 24 September. They seek to end the direct effect of article 3 of the e-commerce directive, which is also known as the country of origin principle, with regard to sections 120 to 124 and 128 to 131 of the Communications Act 2003. If these regulations were not in place, these provisions would become retained EU law after the end of the transition period.
The country of origin principle is an EU internal market measure designed to facilitate digital trade among businesses in the European economic area. It would not be appropriate to retain this measure in UK legislation beyond the end of the transition period. These regulations do not create new policy; instead, they are technical measures to fix failures of retained EU law arising from the withdrawal of the United Kingdom from the European Union. This intervention is essential to ensure that UK rules can be effectively enforced at the end of the year.
Turning to the detail of the regulations, the primary impact is that they will allow a UK regulator—the Phone-paid Services Authority—to enforce its code of practice against online service providers based in the European economic area. At the moment, article 3 of the e-commerce directive inhibits the exercising of the PSA’s powers under sections 120 to 124 against EEA businesses. These regulations will also allow Ofcom to enforce rules under section 128 to 131 of the Act. Again, at the moment, article 3 of the e-commerce directive inhibits Ofcom from enforcing these rules on the misuse of electronic communications services against EEA businesses. This change will allow quicker regulatory action and more efficient user redress. UK regulators will be able to enforce UK laws for the protection of UK consumers.
I should also bring to the attention of the Committee the reports of the European Statutory Instruments Committee and the Secondary Legislation Scrutiny Committee, and I thank those Committees for their work. I will address a couple of the points they raised in a moment, but before I do so, I will explain again why the Government are intervening in this area and give a little more background to the proposal.
The e-commerce directive seeks to contribute to the proper functioning of the European internal market by ensuring the free movement of online service providers within the European economic area. However, that directive will no longer apply to the UK at the end of the transition period, including the country of origin principle. That principle applies to online service providers based in any EEA state that operates across the European economic area, and it means that the service provider only has to follow the requisite rules of the state in which it is based, rather than the rules in each state where its service is received. If the state where the service is received wishes to enforce its own laws against the online service provider, it can only do so where certain conditions set out in article 3 are met. That state must also follow a derogation procedure, notifying the European Commission and the relevant member state before enforcing its rules.
While the UK has been bound by the directive, this exemption has been reciprocal between the UK and European economic area member states. UK-based online services have been exempt from relevant laws in EEA states, as provided for by the country of origin principle, and equivalent businesses in EEA member states are exempt from those relevant laws in the UK. The country of origin principle is implemented in relevant pieces of national law. Once the transition period ends, we will no longer be bound by the directive and UK-based online service providers will lose their exemption from relevant laws in EEA states, as currently provided for. If we do not intervene to remove article 3’s effect on the 2003 Act, then online service providers in the EEA will continue to receive preferential market access beyond the end of the transition period, while the same benefit will not be afforded to UK online service providers.
The regulations remove the direct effect of the country of origin principle from the 2003 Act, and they remove the exemption from rules under sections 120 to 124 and 128 to 131 of the Act for businesses based in the EEA. The principle will be removed for all UK legislation in due course, to ensure that businesses in the EEA will be in scope of all the UK laws from which they are currently exempt.
Of course, the loss of the country of origin principle as a result of leaving the EU also means that UK businesses will be newly in scope of certain EEA laws from which they were previously exempt. However, we expect that the impact on UK businesses will be relatively low. The scope of the directive is narrow and we do not expect the regulatory regimes to be markedly different in the UK in comparison with other EEA states. Depending on the nature of the online service, many UK businesses may already be compliant and there will be little to no immediate change that they need to make in order to be compliant from 1 January 2021.
These regulations are, as I say, a technical measure to fix failures of retained EU law to operate effectively, arising from the withdrawal of the UK from the EU. They will ensure that our regulators are able to effectively apply their laws to online service providers based in the EEA and to ensure that UK consumers are protected by UK law.
Mr Whittingdale
I am most grateful to the hon. Lady. It is always slightly alarming for a Minister to discover that the Opposition spokesperson is actually highly qualified on the subject being discussed—[Laughter.] She raises a number of very valid points.
First, I agree with the hon. Lady and welcome her recognition that premium rate services are not always malicious or designed to con people out of their money. They actually perform valuable services. They contribute a substantial amount to the economy and, as she said, they play an extremely important role in raising money for charity, which we are very keen to support.
Like the hon. Lady, I am of course aware of the dark side of premium rate phone messaging. While she was adjudicating on the “Richard and Judy” case, when she was at Ofcom, I recall that I was chairing the Culture, Media and Sport Select Committee in this House, where we summoned ITV to account for some of its practices, which was making it a lot of money in ways that I think most people thought were not entirely appropriate, and indeed resulted in ITV being fined a considerable sum.
Chi Onwurah
I do not mean to dwell on “Richard and Judy” for too long in this Committee. To clarify, because of the way in which the regulatory regime was set up, I did not actually adjudicate on it, but we did develop the recommendations that led to stronger regulation of premium rates.
Mr Whittingdale
I congratulate the hon. Lady on her efforts at that time. She is right that this area obviously continues to evolve, and it is important that we maintain appropriate regulation and keep it up to date. I can tell her that the Phone-paid Services Authority is currently reviewing the code to strengthen standards across the market. It tends to try to prevent harm before it occurs. It actually issued a consultation document in February and is now drafting a revised code, which we expect shortly.
I said that we expect little or no immediate change for most businesses in this country. The hon. Lady raised the impact on business. I should of course make clear that this statutory instrument does not actually have any bearing on UK businesses; UK businesses will be outside the scope of the country of origin principle as a result of our leaving the European Union transition period at the end of December. The SI is creating the level playing field so that EEA-based businesses come within the scope of UK regulation, which they would not otherwise do unless we brought in these changes.
The hon. Lady asked what evidence we have on the impact on business. It is quite difficult. We have calculated that something like 75,000 businesses are potentially in the scope of the regulations, but for the vast majority of those, the difference will be relatively minor. They are already compliant with UK regulation, and UK regulation is in most cases is similar, if not identical, to that pertaining in other EU member states. The one piece of evidence we had was the Phone-paid Services Authority’s estimation of the number of derogation requests it gets each year from other EU member states, which is just a handful each year, indicating the small number of cases in which the regulations in another EEA member state are different from those that apply in the UK. On that basis, we are relatively confident that the number of companies that will have to make changes is relatively small.
We have sought to communicate. We have been engaging with sectors for at least the last six months, to alert them to this change when it comes. The Cabinet Office is conducting a communications campaign. Of course, in this case, this is not dependent on whether the UK obtains a comprehensive free trade agreement with the European Union, since we do not actually wish to maintain the country of origin principle. At the end of the transition period, it will no longer apply, whether or not negotiations on a comprehensive agreement achieve a successful outcome.
We have not published an impact assessment for the reasons I say—it is difficult to assess in detail how these changes will work—but on the evidence I suggested, we are confident that the number of affected businesses will be small, not substantial. However, it will be the responsibility of businesses in the future, if they wish to operate in another EEA member state, to ensure that they are compliant with the regulations that apply there.
Finally, the hon. Lady raised the online harms legislation which, while a little way removed from the subject we are debating, is nevertheless a matter of great importance. I can tell her—she will have heard this before, but I say it with absolute confidence—that we will publish the Government’s full response to the White Paper consultation very shortly. It is almost in a state where it is ready for publication, and it is still our intention to introduce legislation to enact it early next year. We absolutely share her view that the matter is extremely important. We are determined to make the UK the safest place in which to conduct online activities and to do as much as possible to protect our children, and also to ensure that our regulatory framework is up to date and encourages innovation and growth, while at the same time installing the necessary safeguards.
I am grateful to the hon. Lady for indicating that the Opposition will not oppose the regulations, so I invite the Committee to approve them.
Question put and agreed to.