Communications Act (e-Commerce) (EU Exit) Regulations 2020
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Baroness Barran
That the Grand Committee do consider the Communications Act (e-Commerce) (EU Exit) Regulations 2020.
The Parliamentary Under-Secretary of State, Department for Digital, Culture, Media and Sport (Baroness Barran) (Con)
My Lords, 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, also known as the country of origin principle, on Sections 120 to 124 and 128 to 131 of the Communications Act 2003; otherwise, it would become retained EU law after the transition period. These sections refer to the regulation of premium-rate services and nuisance calls respectively. 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. Rather, they are a technical measure to fix failures of retained EU law arising from the withdrawal of the United Kingdom from the EU. This intervention is essential to ensure that UK rules can be effectively enforced at the end of the year. The primary impact of these regulations 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. Currently, article 3 of the e-commerce directive inhibits the exercising of its powers under Sections 120 to 124 of the Act against European Economic Area businesses. The regulations will also allow Ofcom to enforce rules under Sections 128 to 131 of the 2003 Act. Article 3 of the e-commerce directive currently inhibits it from enforcing these rules on the misuse of electronic communications and services against European Economic Area businesses. This change will ensure quicker regulatory action and more efficient user redress. UK regulators will be able to enforce UK laws for the protection of UK consumers.
I also bring to the attention of the Committee the reports of the European Statutory Instruments Committee in the House of Commons and the Secondary Legislation Scrutiny Committee in the House of Lords, and thank them for their work. I would like to address the Secondary Legislation Scrutiny Committee’s wish to discuss wider costs to UK business as a result of the UK becoming a third country in relation to the e-commerce directive. It is worth reiterating that these regulations have very limited bearing on UK businesses. UK businesses will be out of scope of the country of origin principle as a result of our leaving the European Union transition period at the end of December, not as a result of these regulations. Rather, these regulations ensure that European Economic Area businesses will come within the scope of UK rules, which they would not do unless we brought in these changes.
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 European Economic Area laws from which they were previously exempt. We expect that the impact on UK business will be relatively low. The scope of the directive is narrow, and we do not expect regulatory regimes to be markedly different in the UK compared with other European Economic Area states. Depending on the nature of the online service, many UK businesses may already be compliant with relevant EEA laws and they will need to make little or no immediate changes to be compliant from 1 January 2021.
I will now give some further background on the proposals themselves and reiterate our reasons for intervening. 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. The e-commerce directive will no longer apply to the UK at the end of the transition period. This includes the country of origin principle set out in article 3 of the directive. The country of origin principle applies to online service providers based in any EEA state that operates across the European Economic Area. It means that the service provider has to follow certain rules only in the state in which it is established, rather than rules in each state where its service is received. If the state where the service is received wishes to enforce its laws against the online service provider, it can do so only 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 EEA member states. UK-based online services have been exempt from relevant laws in EEA states as provided for by the country of origin principle. Equivalent businesses in EEA member states are exempt from those relevant laws in the UK. This 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 e-commerce directive, and UK-based online service providers will lose their exemption from relevant laws in European Economic Area states, as currently provided for by the country of origin principle. If we do not intervene to remove article 3’s effect on the Communications Act, 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.
These regulations remove the direct effect of the country of origin principle from the Communications Act 2003. This removes the exemptions 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 from all UK legislation in due course. This is to ensure that businesses in the EEA will be brought into scope of all UK laws from which they are currently exempt as a result of article 3.
As I have set out today, these regulations are 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 UK laws to online service providers based in the EEA, and ensure that UK consumers are protected. I beg to move.
Baroness Barran (Con)
I thank all noble Lords who spoke for their contributions on these regulations. I will start with some points that I will respond to in writing. I do not have with me information on the exact timing of the recruitment process for the chair of Ofcom, but I will find that out and share it with your Lordships. I will also write on some of the broader issues raised by the noble Lord, Lord Stevenson, such as spectrum management, roaming and net neutrality. He may also have raised one or two other points, but I will make sure that I address those ones in full.
All noble Lords, including the noble Baroness, Lady Wheatcroft, questioned the impact of the SI and the Government’s assessment of it. A number of elements lead us to be confident in our assessment. First, the figures we have received from the primary regulator, the Phone-paid Services Authority, on derogation requests it receives from EEA states that wish to enforce their legislation against UK-based companies are very low. Double figures have not been reached in any given year, which suggests limited situations where a UK-based business has not complied with requirements similar to those in the 2003 Act when operating within the EEA.
Secondly—this perhaps touches on some of the issues raised by the noble Lords, Lord Clement-Jones and Lord Stevenson—because the scope of this directive is narrow, the current exemptions to which UK businesses have access apply to very few rules governing online activities. They do not apply to areas such as tax, certain gambling activities, personal data covered by GDPR, or legal requirements relating to goods. The noble Lord, Lord Stevenson, is absolutely right about the use made by charities of premium phone lines. However, the overall scope is very restricted. We also believe that there is unlikely to be marked divergence in regulatory regimes in the UK compared to the EEA in the coming years.
On the number of businesses that these regulations might impact, we estimate that approximately 75,000 UK businesses that provide services to one or multiple EEA-area states have the potential to fall within their scope. The figure for premium-priced phone services is 12,000, which is within that 75,000 estimate. I stress that no exact data exists, but these are the best estimates the Government have. I hope that goes some way to addressing the valid points that your Lordships raised.
On the online harms legislation, our position remains unchanged. We expect to publish the full government response by the end of the year and introduce the legislation early next year.
As I hope I have outlined, these regulations are a necessary technical measure to fix what would become a failure of retained EU law. Our intervention will empower UK regulators to enforce UK laws for UK consumers.