| 26 March 1999 Ref: US Perspectives on Consumer Protection in the Gobal Electronic Marketplace - comment P994312 EUROPEAN ADVERTISING STANDARDS ALLIANCE A response to the Federal Trade Commission's 1. Introduction 1.1 It is generally recognised by national Governments and European Commission officials that a "light touch" regulatory regime is needed for the Internet. Such regimes already exist around the world in the form of nationally based self-regulatory organisations (SRO) applying codes of practice which operate within frameworks of national legislation. 1.2 The existing national self-regulatory systems for advertising co-operate on a European level through the European Advertising Standards Alliance (EASA). The EASA comprises self-regulatory bodies from 23 European countries, including all EU member states, as well as two corresponding members in South Africa and New Zealand. The national codes are based on those drawn up by the International Chamber of Commerce. 1.3 Since 1992, the members of the EASA have operated a cross border complaints procedure to resolve complaints generated in one country about the content of advertisements that are published in cross border media. These procedures are also applicable for Internet advertising as self-regulation, backed up where appropriate by nationally based legislation, is seen to be the most appropriate and effective measure to provide protection for consumers while enabling commerce to flourish. A list of Alliance members is attached in Appendix I. 2. Self-regulation in electronic advertising 2.1 The EASA and its respective members work to promote the development of effective self-regulation. Self-regulation is more flexible than the law and can be adapted quickly to suit market changes and consumer concerns. It is also inexpensive for consumers since complaints can be resolved without the need for costly litigation. It is with these benefits in mind that the Alliance is keen to ensure that the Federal Trade Commission is informed about the existing consumer protection measures for the content of advertising which operate in Europe. 2.2 The key objectives of the EASA's development of self-regulation for the Internet are:
3. Which national Codes/laws apply? 3.1 Country of origin and mutual recognition The European Union "Television without Frontiers" Directive(1), adopted in 1989, aimed to establish a Single Market for broadcast media based on the key principles of mutual recognition and home country control. The Directive endorses the "country of origin" principle on which current legislative and self-regulatory consumer protection measures are based. 3.2 The proposed EU Directive on Certain Legal Aspects of Electronic Commerce in the Internal Market(2) aims to establish a coherent legal framework for the development of electronic commerce within the Single Market. The proposed Directive would ensure that information society services benefit from the Single Market principles of free movement of services, and freedom of establishment, and could provide their services throughout the EU if they comply with the law in their country of origin. The Directive uses country of origin principles based on where the advertiser resides, however, it also opens the possibility to deviate from the country of origin principle in the area of consumer protection. 3.3 The determination of jurisdiction is based on the judgement of the European Court of Justice which provided that "the concept of establishment within the meaning of Article 52 [of the Treaty of Rome] involved the actual pursuit of an economic activity through a fixed establishment in another member State for an indefinite period". This definition is based on qualitative criteria concerning the actual nature and stability of the economic activity rather than formal criteria (such as a letter box) or technology which readily enables operators to evade supervision. 3.4 Determining the country of origin for advertisements is based on where the advertisement is published. In the on-line environment the advertiser is their own e-publisher. Therefore, for Internet advertisements the country of origin would be identified as that where marketing decisions are made or the commercial activity is conducted. 4. Existing consumer protection measures: European codes and proper avenues for consumer protection against misleading or offensive advertisements 4.1 The EASA established a cross border complaints procedure in 1992 and this has now been developed to resolve consumer complaints about the content of electronic advertisements. The procedure is based on the country of origin principle and applies to complaints from one member country about advertisements that originate in another. (See leaflet attached as Appendix II). 4.2 There is a danger that rogue advertisers may exploit the country of origin principle by choosing to operate from countries with no self-regulatory or statutory constraints. On-line advertisers should declare to consumers which national laws and codes apply and provide a channel for complaints to be resolved. 4.3 Where there is no mutual recognition, or where the country of origin is not stated or not clear, or where the country of origin stated does not provide satisfactory consumer protection, any rights of redress should be pursued through the complainant's nationally based self-regulatory organisation (SRO). Where more than one SRO could be involved the body which has powers to sanction the advertiser should resolve the complaint under their national codes. If the none of the SROs are able to resolve the complaint, the consumer would need to seek redress through the appropriate statutory body. 4.4 The EASA cross border complaints system essentially covers the content of advertisements although some of the national SROs provide other measures to help consumers, for example resolving complaints about the non-receipt of goods or refunds in the course of mail order transactions. However, the principle of resolving consumer complaints at a national level, based on where the company bases its marketing decisions or bases its commercial operation, could be applied to other aspects of e-commerce. 5. Identifying the country of self-regulatory competence 5.1 Unless Internet advertisers identify their origin it is not always possible to identify easily a single source to apply the country of origin principle. However, as an initial starting point EASA recommends the following four main ways to determine which national self-regulatory body has competence to deal with the complaint, although of course these are not the only ways:
5.2 Once a national regulator has been identified any complaint about advertising would be considered under their code. As with the existing cross border complaints procedure, operated by EASA members, the objective is to resolve the complaint. Other national SROs co-operate to resolve a complaint using their respective enforcement measures where appropriate in support of the investigating self-regulatory organisation. Where no action is possible by a national SRO, the consumer would be referred to a nationally based statutory body with competent consumer protection powers. 6. National enforcement measures 6.1 Sanctions within the EU member states Each national self-regulatory body has developed systems of sanctions to bring advertisers into line with the national codes. Where an advertiser is uncooperative, or where no self-regulatory sanctions exist, respective bodies in the European Union have recourse to legal action via national statutory bodies under the Misleading Advertising Directive 1984 to ensure that advertisements do not mislead consumers. 6.2 Sanctions outside the EU Outside the European Union, as well as the self-regulatory framework of controls, other EASA members may have recourse through other domestic laws in the event that they have exhausted self-regulatory sanctions. However, the application of such sanctions will vary according to the national interpretation of the law and resources available to apply it. 6.3 Sanctions across the EASA members As well as national measures taken to ensure, where appropriate, that advertisements are modified or withdrawn in line with national codes, the EASA operates a system of cautions to invite supporting enforcement action to be taken by other national regulators. These Ad Alerts serve to warn other self-regulatory organisations and alert the advertising industry to potential problem areas. 6.4 Responsibility for advertisements Primary responsibility for advertising material rests with the advertiser. However, others involved in the preparation, publication and dissemination of advertisements should accept some responsibility for making sure that they are legal, decent, honest and truthful. For example, the EASA recognises that Internet Service Providers (ISPs) cannot be ultimately responsible for everything on their servers but ISPs would be asked to help protect their customers from advertisements that broke the applicable national codes or laws in the event that the advertiser was uncooperative. 7. International codes 7.1 The respective national self-regulatory codes operating in Europe are based on those originally developed by the International Chamber of Commerce (ICC). The ICC developed Guidelines on Advertising and Marketing on the Internet to apply to "all marketing and advertising activities on the Internet for the promotion of any form of goods or services". The Guidelines were published in 1997. 8. New consumer protection measures - verification schemes 8.1 There is a strong argument for developing verification schemes such as those being considered in the UK, France and Germany. These schemes, through the use of encrypted (verifiable) icons, indicate to consumers that the advertising has been developed according to recognised national codes of practice. They provide channels for complaints to be resolved with the national regulatory body where appropriate. 8.2 The EASA is promoting the development of nationally based verification schemes for advertisers and the World Federation of Advertisers is also encouraging their use siting the UK's proposals for the "e-advertising scheme" as an example. Although, essentially the verification schemes being developed for advertising do not extend to other aspects of e-commerce the same principles apply: using these schemes to denote which codes/laws apply and identifying for consumers avenues of redress at a national level for the resolution of complaints about advertisements. 9. Scope of the self-regulatory codes across Europe 9.1 Matters of interpretation and definition The European Union defines commercial communications (advertising and direct marketing, etc) as "any form of communication designed to promote, directly, or indirectly, goods services or the image of a company, organisation or person pursuing a commercial industrial or craft activity or exercising a liberal profession(3)". There are also broad principles that apply to all EASA members' self-regulatory codes, such as the requirement that advertisements should be legal, decent, honest and truthful. They should adhere to the global ICC Guidelines and the Codes those are based on. However, there is no standard definition of an advertisement between EASA members and the application of national codes can differ. For example, one country might regard a home page on a web site as an advertisement while another might consider it to be public relations material or editorial. Others may decide that banner advertisements or the use of e-mail for selling purposes are outside their remit. 9.2 Cultural and regional considerations As well as differences in the application of the respective codes, national SROs may apply different interpretations to the same rules according to cultural and regional differences. For example, in the UK the same rules apply both to non-commercial and commercial advertisers but in Ireland their codes do not apply to advertisements by charities. Other countries apply prohibitions through legal bans in some sectors such as advertising to children, alcoholic drink and cigarette advertising and the like. 9.3 Matters of taste and decency Harmonisation of rules applying to advertisements that cause offence is not possible across Europe due to differences in cultural interpretation: An advertisement that might cause significant offence in one country might raise no objection at all in another. EASA members agree that advertisers targeting consumers in other countries should not cause serious or widespread offence within the targeted market. 9.3 Special rules: Advertising to children All the EASA members' national codes have special rules governing advertising to children. This is an area of concern that has been highlighted by a number of calls for action with regard to protecting minors and vulnerable people from harmful material on the Internet. In addition to the special rules in the national self-regulatory codes a number of initiatives are underway to develop rating systems to enable parents to control their children's access to Internet material such as pornography and violent material. The Internet Watch Foundation in the UK and the Entertainment Software Rating Board in the USA are two such schemes. 9.4 Some national statutory controls go further than others in restricting advertisers' access to children. For example, Greece does not permit toy advertising and Sweden does not permit TV advertising to children under 12. Direct marketing material in Sweden is not sent to under 16s: this is not a legal requirement but is a voluntary constraint since those under the age of 16 cannot enter into binding contracts. 9.5 Special rules: Data Protection All the EASA member countries have national codes backed up by legislation to protect the use of personal data. Privacy schemes are being developed so that data collection and use is transparent rather than covert. The ICC Internet Guidelines also include advice on the use of data. In addition schemes, such as the E-mail Preference Service in the UK, will help consumers to prevent or reduce the receipt of unsolicited e-mail. 10. Consumer information 10.1 A consumer education and information campaign will be needed to build awareness of verification schemes for e-advertising. Consumers have to feel confident that advertisers joining such schemes do comply with national self-regulatory codes and will co-operate with the national SRO in the event of a complaint upheld. 10.2 There is a valuable role to be played by consumer organisations in providing information to consumers on how to conduct transactions safely on the Internet. SROs, statutory bodies and the advertising industry should also promote the consumer protection measures being developed so that consumers are aware of their rights and how to use the avenues of redress that exist. 11. Business information: promoting best practice 11.1 Information on best practice is made available on a national basis through the trade and professional bodies that support the national self-regulatory systems. These frameworks provide the best means for informing and educating business on how to foster credible advertising on the Internet. 11.2 Where national frameworks do not exist, international bodies such as the International Chamber of Commerce and the Organisation for Economic Development (OECD) have important roles to play. 12. International liaison 12.1 The EASA and its respective members liaise with overseas regulators and self-regulatory organisations to resolve complaints about advertisements originating from countries outside the European framework. However, it is not always possible for such complaints to be dealt with and the EASA is not always informed about the action taken by other national regulators. 12.2 Co-operation needs to be improved to help develop international measures to resolve Internet advertising complaints. The International Chamber of Commerce have set up a Task Force to examine issues of jurisdiction and applicable codes/laws for e-commerce. EASA members' experience of operating the cross border complaints procedure provides a useful basis for the development of international complaint resolution. 13. Conclusions 13.1 In looking at the development of consumer protection measures for e-commerce and e-advertising, the aim should be to use and build on the existing self-regulatory systems and applicable codes using the national self-regulatory body identified as competent. 13.2 Advertisers and those conducting business on the Internet should declare to consumers where they reside and, therefore, which country they have identified as having jurisdiction so that it is clear which national codes and laws apply. This system could not override private international law but it is aimed at facilitating international co-operation of cross border complaints when rules are not harmonised. 13.3 The development of verification schemes will facilitate the identification of jurisdiction and provide proper avenues of consumer redress. Where the country of origin is not known, or where no proper avenue for consumer complaint exists, action to resolve the complaint will be taken by the consumer's national self-regulatory body. Where the SRO is unable to apply sanctions, the consumer may need to take action through the competent statutory body with consumer protection powers. This should limit the potential for rogues traders operating from countries without effective self-regulatory, or statutory consumer protection measures, from evading controls. 13.4 Differences in the interpretation and application of national codes and laws, together with cultural and regional differences, need to be taken into account in targeted markets. However, the minimum standards are that e-advertising should be legal, decent, honest and truthful. Advertisements should comply with the global ICC Codes and Guidelines. 13.5 Effective self-regulation operates within the framework of the law. The development of existing self-regulatory systems for the Internet will keep the need for legislation to a minimum. Where new legislation is being considered on a national or international level account should be taken of existing self-regulatory structure so that measures already in place are enhanced rather than replaced. The EASA will need to work closely with other overseas self-regulatory and regulatory bodies to develop international co-operation to resolve consumer concerns and ensure fair competition. Attachments: Appendix I: List of EASA members and associated industry trade and professional bodies. Appendix II: Leaflet - Advertisements in the Single European Market: How to make a Cross-Border Complaint Appendix III: Examples of Internet Cross-border complaints Appendix IV: The Blue Book - An analysis of advertising self-regulatory systems and their codes of practice in 20 European countries, published 1997 Appendix V: EASA Internet Working Group. 1. Broadcasting Directive (89/552) 2. Published for consultation 1998 3. Commercial Communications Green Paper 1996, published by the European Commission |