A few days ahead of an official announcement, leaked documents obtained by the Financial Times previewed the European Commission’s strategy for a unified digital market. Following the outline presented in March, the commission is slated to announce its plan to create a “Digital Single Market” on Wednesday (May 6). The central goal is eliminating many of the barriers preventing a more robust Internet economy within Europe.
The potential for a single market to spur innovation across the continent is significant, and has major implications for cross-border B2B commerce. As it stands now, variations in rules and regulations addressing everything from delivery fees to taxation make it hard for European businesses to scale up. Markets are segmented and digital skills lag behind other nations. Not one of the four largest Internet companies—Google, Apple, Facebook and Amazon—is European.
The EC’s proposal aims to make European companies more competitive online and to bring together the patchwork of regulations that currently governs the Web, making the European Union’s 28 member states function more like a single unit. By lessening or eliminating national barriers, the commission estimates the EU could create some 3.8 million jobs and add an additional €415 billion ($465 billion) to the GDP, according to the document.
The commission acknowledges that today, conducting business across national borders is complex. A fact sheet released by the European Commission shows some 315 million Europeans use the Internet every day, but EU cross-border online services make up only 4 percent of the digital market. National services make up nearly 40 percent, and U.S.-based services dominate the market with 57 percent market share.
For the B2B sector, sections of the proposal tackling obstacles of cross-border online sales are key. More than half of online sales between nations fail because the seller does not serve the country of the buyer, the Commission said. Proposed changes would end the practice of so-called geo-blocking, except in cases where the seller must comply with legal obligations.
Conducting business across nations under the current environment is costly. According to figures released by the Commission, small businesses can face up to €9,000 ($10,077) in additional costs because they have to comply with individual national laws. One area the Commission is expected to seek a reduction in costs is Value Added Tax (VAT). The Commission will propose the introduction of an EU-wide threshold for small businesses selling across borders. This would directly reverse changes that went into effect at the beginning of the year that transferred the burden of tax collection from the country if the seller to that of the buyer. Simplifying the tax scheme could both boost cross-border sales for SMEs and also prevent large, multinational eCommerce companies like Amazon from routing online purchases through nations with lower taxes. Legislative proposals for VAT will be introduced in 2016.
The push for a central market will also extend to public procurement. The Commission reportedly foresees a complete transition to e-procurement by October of 2018. The advantages of linking existing networks and services to a single portal are two-fold. First, addressing a fragmented and incomplete existing system. Second, the shift to a central e-procurement system will also ease financial and administrative burdens on nations struggling to develop the infrastructure needed to meet the digital mandate on their own.
A large portion of the proposal is dedicated to the market influence of platforms—the search engines, eCommerce sites and social media tools—that many businesses and consumers rely on. In particular the commission is concerned with transparency and fairness in the market. Soon the commission will conduct a “comprehensive assessment” into the role of such platforms. The probe will occur separately from the current antitrust investigations into Google.
Similar to efforts elsewhere in Europe, the commission’s proposal mirrors plans for a single capital market, making access to funding across national boundaries easier. The commission points to leveling the playing field among all of member nations as well as giving all business access to the 500 million customers across the continent. While the proposals may boost eCommerce within Europe, some fear it could also create a “European fortress” that will cut Europe off from innovation happening on the other side of the Atlantic.