EU’s New Regulation to Improve Online Platforms' Trading Practices

A deal that aims to provide a fair, transparent, and predictable setting for online businesses and traders was recently decided by the European Parliament, the European Commission, and the European Union. This new regulation is set to benefit online sellers on marketplaces, hotel owners who use booking platforms, and app developers.


The regulation is bound to open new possibilities in terms of dispute resolution and make the industry easier to predict and a more transparent environment.


Background


Online marketplaces have been the go-to place for much successful business because it allows them to access a broader range of opportunities to tap into the international consumer markets.

However, some issues with their structure often allow unfair trading practices among businesses that use mainly online platforms to reach clients and undermine the innovation potential of platforms.


In 2016, certain areas were identified that needed more work to ensure that there would be an open, innovation-driven, and lawful ecosystem in the EU. This was the result of the Commission's study through the Communication on Online Platforms. In 2018, an EU Regulation on fairness and transparency in online platform trading was proposed by the Commission along with the creation of an Observatory on the online platform economy.


This complies with the promise made by President Juncker's 2017 State of the Union address to ensure that there would be a fair, predictable, sustainable, and a trusted business environment in the online economy.

The new regulation will be scrutinized through an impact assessment that would look into the evidence and the stakeholders' views collected during a two-year fact-finding exercise.


Following the Digital Single Market strategy, the new regulation applies to the whole online market economy, affecting more or less 7000 online market or platforms that operate in the EU. This includes large markets known internationally, along with small start-up companies. Provisions of the new regulation are also bound to affect search engines in terms of their transparency.


"Today's agreement marks an important milestone of the Digital Single Market that will benefit millions of European companies relying on digital platforms to reach their customers. Our target is to outlaw some of the most unfair practices and creates a benchmark for transparency, at the same time safeguarding the great advantages of online platforms both for consumers and for businesses," said Andrus Ansip, Vice-President for the Digital Single Market.


"Our new rules are specially designed with the millions of SMEs in mind, which constitute the economic backbone of the EU. Many of them do not have the bargaining muscle to enter into a dispute with a big platform. Still, with these new rules they have a new safety net. They will no longer worry about being randomly kicked off a platform, or intransparent ranking in search results," added Elzbieta Bienkowska, Commissioner for Internal Market, Industry, Entrepreneurship, and SMEs.


"These are the first rules of this kind anywhere in the world, and they strike the right balance between stimulating innovation while protecting our European values. They will improve the relationship between businesses and platforms, making it fairer and more transparent, and ultimately leading to great advantages for the consumers. We will closely monitor the evolution of this field, not least through our Online Platform Observatory," said Mariya Gabriel, Commissioner for the Digital Economy and Society.


Almost half of the small and medium businesses in the EU use online marketplaces in selling and advertising their services and products; this was the result of a survey made by Eurobarometer.


The European Commission conducted an impact assessment and found that about 50% of those businesses that use online platforms experience setbacks. Most of them had problems with contractual relations which no concrete solution has been found yet. Although some were solved, it was with apparent difficulties, which resulted in around €1.27-2.35 billion sales lost as a result.


Small establishments will especially profit quickly from:


1. A restriction on certain unjustifiable practices

  • Ban on abrupt, unexplained account suspensions. With the new regulation, computerized stages can never again suspend or end a merchant's account without clear reasons, and potential appeals. The platform will likewise need to reestablish accounts if a suspension was made arbitrarily.

  • Understandable and coherent terms and early notification for changes. Terms and conditions must be effectively accessible and given in plain and unambiguous language. While changing these terms and conditions,s 15 days notification should be given to permit establishments to adjust their business to these changes. More extended notification periods apply if the progressions require complex adaptions.

2. More transparency in online platforms

  • Transparency in the ranking. Marketplace and search engines need to unveil the fundamental parameters they use to rank products and business on their website, to assist them with seeing how to enhance their quality. This rule aims to help enterprises without permitting gaming of the ranking framework.

  • Compulsory disclosure for a scope of business strategies. Some online platforms are marketplaces, but on the other hand, are simultaneously sellers. As per the new transparency rules, stages should comprehensively reveal any favorable position they may provide for their items over others. They should likewise show what information they gather and how they use it – and specifically how such information is imparted to different business partners that they have. Where individual information is concerned, the standards of the GDPR apply.

3. New roads for resolving disputes.

  • Today merchants are regularly left stranded without any avenue to request or resolve objections when issues emerge. This will change with the new regulations.

  • All online platforms must have an internal complaint-handling system that would take care of and help business clients. Only those platforms with small operations would be absolved from this mandate.

  • Platforms should provide more choices to determine a potential issue through mediators. This will help settle more problems out of court and lessen the wasted time and cash of businesses.

4. Enforcement

  • Business associations will be able to take platforms to court to stop any non-compliance with the rules. This will help overcome the fear of retaliation and lower the cost of court cases for individual businesses when the new rules are not followed. Also, Member States can appoint public authorities with enforcement powers, if they wish, and companies can turn to those authorities.


Moving Forward


The new regulation's application will begin one year from its adoption and publication. It shall be made subject to review within 18 months after to make sure that it is in line with the rapidly developing market. An Online Platform Observatory has also been set up by the EU to monitor the progress of the online market and the effectiveness of the new regulation's implementation.

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