The case of the cooling-off period from online contracts

Transcription

1 Author Andreia-Roxana MACSIM MSc in EU Business and Law Thesis Supervisor René Franz HENSCHEL Department of Business Law THE NEW CONSUMER RIGHTS DIRECTIVE A COMPARATIVE LAW AND ECONOMICS ANALYSIS OF THE MAXIMUM HARMONISATION EFFECTS ON CONSUMERS AND BUSINESSES The case of the cooling-off period from online contracts Aarhus School of Business, Aarhus University Spring 2012

2 ABSTRACT Regarding the path towards a more coherent European consumer law, the newly adopted Consumer Rights is certainly pioneering. It has the potential to move from often criticized fragmented legislation to a coherent set of rules in one single piece of legislation. This kind of coherence can greatly assist consumers and businesses in understanding their rights and making better use of the Internal Market full potential. In this respect, this piece of legislation could open the door to an important modernization of European consumer law and become an example of a more systematic approach. 1

3 TABLE OF CONTENTS PART I... 5 INTRODUCING THE TOPIC OF CONSUMER RIGHTS DIRECTIVE Introduction Problem identification Problem statement Methodology Analytical framework Delimitation Structure of the thesis PART II THE EFFECTS OF A HARMONISED COOLING-OFF PERIOD FROM ELECTRONIC CONTRACTS ON THE ONLINE INTERNAL MARKET The online internal market untapped potential Barriers to the online internal market Legal fragmentation as a justification for intervention Legal fragmentation from an economic perspective Harmonization of cooling off period in cross border online shopping PART III CONSUMER PROTECTION IN THE LIGHT OF A HARMONISED COOLING-OFF PERIOD FROM ONLINE CONTRACTS Legal foundation of the right to withdrawal from electronic contracts Economic rationale of the right to withdrawal from electronic contracts Disadvantages of cooling off periods

4 3.4 Cost benefit analysis of cooling off periods The optimal harmonized cooling off period to promote online trade Strengthening consumer protection in the IM Increasing legal confidence for consumers in the online IM? The way ahead PART IV BUSINESS ATTITUDES TOWARDS CROSS-BORDER TRADE IN THE LIGHT OF A HARMONISED COOLING-OFF PERIOD FROM ONLINE CONTRACTS Barriers faced by e businesses in the internal market The importance of a harmonised set of rules for e businesses The optimal level of consumer protection for e business CONCLUSIONS LIST OF REFERENCES

5 List of Abbreviations B2C - Business-to-Consumer transactions B2B - Business-to-Business transactions BEUC - Bureau Europeen des Unions de Consommateurs (The European Consumers Organisation) CRD - Directive 2011/83/EU of the European Parliament and of the Council of 25 October on Consumer Rights COFACE - Confederation of Family Organisations in the European Union DSD - Distance Selling Directive EU - European Union IM - Internal Market IMCO - European Parliament Committee on Internal Market and Consumer Protection MS - Member States OIM - Online Internal Market pcrd - Proposal for a Consumer Rights Directive COM (2008) 614 final RIA - Regulatory Impact Assessment SANCO - Directorate General for Health and Consumer Protection 4

6 PART I INTRODUCING THE TOPIC OF CONSUMER RIGHTS DIRECTIVE 1.1. Introduction On 8th of October 2008 the European Commission adopted the proposal for a Directive on Consumer Rights 1 (pcrd). This draft directive marked the culmination of the Review of the Consumer Aquis 2. The proposal was based on the Green Paper 3 on the Review of the Consumer Acquis and a large number of comments received by the Commission. The Impact Assessment 4 of the Consumer Acquis revealed an incomplete business-to-consumer internal market due to linguistic, logistical and regulatory barriers. A significant regulatory barrier is that created by the fragmentation of the national laws regulating consumer transactions. The main cause of the fragmentation is the minimum harmonisation clause contained in the consumer directives. Under the minimum harmonisation approach, Member States have the right to maintain or adopt stricter consumer protection rules in their national law. The Impact Assessment report identifies two major internal market effects of the regulatory fragmentation: reluctance by businesses to sell cross-border to consumers, and a low level of consumer confidence in shopping cross-border. First, a trader wishing to sell cross-border to customers from another Member State will have to incur legal and other compliance costs to make sure that he respects the level of consumer protection in the country of destination. Such costs either reduce the incentive for businesses to sell cross-border, or are passed on to consumers in the form of higher prices. Second, low level of consumer confidence in shopping cross-border mainly stems out from the fact that consumers are insufficiently aware of their rights or they encounter 1 Proposal for a Consumer Rights Directive of the European Parliament and of the Council on Consumer Rights of 8 October 2008, COM (2008) 614 final 2 The Consumer Acquis was defined in the Green Paper as encompassing eight Directives: Sale of Consumer goods and Guarantees; Unfair Contract Terms; Distance Selling; Doorstep Selling; Price Indication; Injunctions; Package Travel; and Timeshare 3 Green Paper on the Review of the Consumer Acquis of 8 February 2007, COM (2006) 744 final 4 European Commission (2008) : Impact Assessment Report Accompanying the Proposal for a Directive on Consumer Rights, Commission Staff Working Document 5

7 difficulties in enforcing them. Major consumer fears relate to the level of protection received when buying abroad, non-delivery or delivery of defective goods bought over the Internet, and way of redress. Third, these problems are exacerbated by the development of new markets because of the recent years' widespread use of new technologies. The research shows that cross-border shopping is stalling. This particularly worries the Commission when it comes down to online shopping. Domestic online shopping is increasing, but crossborder online shopping is not. Therefore, the proposal is built on three assumptions: that the fragmented national regimes negatively affect the internal market trade potential, negatively affect consumer confidence in shopping cross-border and that businesses are reluctant to extend trade activities across-borders due to legal compliance costs. In drafting the proposal, the Commission was clearly motivated by the fact that cross-border sales are not taking off and consumers and businesses are not enjoying the full benefits of the internal market. To tackle these internal market problems, the Commission proposed that the Directives on Doorstep Selling, Distance Selling, Unfair Contract Terms, and Sale of Consumer Goods be merged into a single horizontal directive based on maximum harmonization. The horizontal measure was thought as the best option to regulate common aspects in a systematic way by simplifying and updating existing rules, removing inconsistencies and closing gaps. Thus, these changes have a major purpose: to boost a real business-to-consumer internal market by striking the right balance between a high level of consumer protection and the competitiveness of enterprises Problem identification While e-commerce is taking off at national level, it is still relatively uncommon for consumers to use the internet to purchase goods or services in another Member State. The gap between domestic and cross-border e-commerce is widening because of cross-border barriers to online trade. From 2006 to 2008, the share of all EU consumers who bought at least one item over the Internet increased from 27% to 33% while cross-border e-commerce remained low, 6% to 7% 6. 5 COM (2008) 614 final Explanatory Memorandum 6 European Commission (2009): Report on Cross Border E Commerce in the EU, SEC(2009) 283 final 6

8 Cross-border e-commerce has the potential to increase consumer awareness of commercial opportunities and to widen consumer choice at lower prices. The role of the internet in allowing consumers to compare prices, the wider range of offers, the affordability of products and the choice of alternative suppliers are among the main reasons why they are satisfied with this sales channel. However, consumers are hindered in their decision to purchase by such aspects as: product information, protection of privacy, cross-border delivery and after-sale support, returns and payments, trustworthiness of the website. 7 Even though such aspects are perceived by consumers as being of a practical nature, they all have a regulatory dimension that is relevant under EU consumer protection rules and their application in national law 8. National provisions regulating these aspects have been interpreted differently in the Member States, being a source of confusion for consumers. The result is a fragmentation of the online internal market along national lines. The Commission also claims that uneven levels of consumer protection across the EU make it difficult to conduct information campaigns on consumer rights 9. The problems affecting consumers in cross-border transactions are mirrored by those affecting businesses, and supply side barriers are thus equally important. Among important practical obstacles to cross-border trade are the cost of compliance with different national laws regulating consumer transactions, the cost involved in resolving cross-border complaints compared to domestically, higher costs of cross-border delivery compared to domestic delivery, higher costs in ensuring an efficient cross-border after-sale service compared to domestic after-sale service. Again, as in the consumer case, several problems of a practical nature listed above have regulatory underpinnings. Where consumer contracts are concerned, the laws regulating such aspects as: conflict of law rules, the rules on cancellation rights, returns, and guarantees are implemented differently by Member States. 7 European Commission (2009): Report on Cross Border E Commerce in the EU, SEC(2009) 283 final 8 European Commission (2008) : Impact Assessment Report Accompanying the Proposal for a Directive on Consumer Rights, Commission Staff Working Document 9 European Commission (2009): Report on Cross Border E Commerce in the EU, SEC(2009) 283 final 7

9 The Commission states in several reports that the fragmentation of the EU consumer regulatory framework is a significant source of compliance costs for traders wishing to trade in several Member States and retailers would be much more willing to engage in cross-border selling if they had EU-level rules. E-commerce is characterized by the fact that the buyer and the seller engage in a business relationship, where they do not meet face to face. The buyer has a market disadvantage compared to a face-to-face selling in shops. The European legislator laid down some specific product related information requirements for the seller, which ensure a minimum level of quality of product information for the buyer. Lack of product information is therefore one of the buyer s biggest concern in distance selling. The parties to an online transaction concluded a contract during the order process, which binds the seller to deliver the product and the buyer to pay the price for it. Therefore, the distance buyer has to pay for a product he does not like and which he would not have bought in a face-to-face shop, where he would have had the opportunity to check out the product prior to a purchase. The distance seller benefits from the buyer s lack of product information. The distance buyer can check the product once he received it. However, at that time, the distance buyer is already bound by the contract. At that time, he cannot simply return the product without paying for it, if he does not like it. The European legislator tackled this problem by granting the consumer a right of withdrawal. The right to withdraw gives the consumer the right to unilaterally go back on his decision to conclude a contract. Therefore, it is an instrument that protects the consumer from the seller by restricting the binding nature of the contract 10. This right of withdrawal puts the online buyer in a position comparable to that of a face-to-face buyer. Consumers can check the product during a cooling-off period, after they have received the product, can get a complete picture of the product, return the product to the distance seller, and in the same time cancel the contract. This right of withdrawal shall take the consumers fear away, which they might have because of their lack of information when they place an online order, and increase consumer confidence in e-commerce Marco Loos, Rights of Withdrawal, in Geraint Howells and Reiner Schulze (eds.), Modernising and Harmonising Consumer Contract Law, Sellier, Munich, Fina, S., The Consumer s Right of Withdrawal and Distance Selling in Europe, A Consumer Stronghold in European Distance Selling and E Commerce. Available at (last date of access: 5 June 2011): 8

10 So far, the EU was only able to establish minimum standards concerning withdrawal from electronic contracts. Pursuing Article 14, Distance Selling Directive (DSD) some Member States introduced more favorable national provisions for consumers regarding their right of withdrawal. Consequently, there is no uniform consumer protection law in the field of distance selling in the EU. The current European online market calls for some intervention insofar as it is cumbersome for consumers to shop online, while in the same time businesses are exposed to 27 national consumer protection laws in this field Problem statement The introduction of a right of withdrawal in distance selling of goods and services also relates to the desire to remove barriers to cross-border trade 12. Another linked reason for introducing a right of withdrawal is the promotion of concluding online contracts. If more online contracts are concluded, this will ultimately lead to more cross-border contracts. It is thought that the disadvantages of distance purchases would diminish or be taken away if the consumer were allowed to rethink his decision when he has the good in hand. Therefore, in a distance selling environment, the right of withdrawal is aimed at enticing the buyer to engage in cross-border transactions. Still, the right of withdrawal is a far-reaching instrument for the goal mentioned. As Marco Loos argues 13 [it] seems unlikely that harmonisation of private law will result in a (substantive) increase in crossborder contracts, as other barriers such as diverging tax rates and different languages are not taken away. Although harmonisation will certainly take away some barriers for trade within the internal market, the promotion of the internal market is therefore not a convincing argument to introduce or maintain a right of withdrawal. In the author s opinion, the right of withdrawal is hardly justified in the case of distance contracts. Based on the above, we first question to which extent the right of withdrawal from electronic contracts is a useful tool in promoting cross-border online trade in the internal market. Related to the first question, it is important to analyze how does the harmonization 12 Cf. Recitals 3 and 4 of the preamble to the Distance Selling Directive 13 Marco Loos, Rights of Withdrawal, in Geraint Howells and Reiner Schulze (eds.), Modernising and Harmonising Consumer Contract Law, Sellier, Munich,

11 of withdrawal right and cooling-off period from electronic contracts affect the completion of online internal market. The overall objective stated in the proposal is to contribute to the better functioning of the B2C internal market by enhancing consumer confidence in the internal market and reducing business reluctance to trade cross-border. This overall objective should be attained by decreasing the fragmentation, tightening up the regulatory framework and providing consumers with a high common level of consumer protection and adequate information about their rights and how to exercise them 14. Following the main purpose of the action, we put under analysis the desired right balance between a high level of consumer protection and the competitiveness of enterprises. Therefore, we launch a second question that is focused on the main participants to the online internal market, the distance buyer and the distance trader. Taking into account the introduction of a harmonized cooling-off period for electronic contracts, has the legislator managed to achieve a high level of consumer protection while enticing businesses to engage in cross-border e-commerce? This paper intends to prove by way of analysis that establishing a legal instrument such as 14-day cooling-off period can indeed contribute to a high level of consumer protection which translates into increasing consumers confidence in the internal market based on equivalent rights 15. However, we notice that there is a long way to run from establishing a high-level consumer protection by offering uniform rights and increasing consumers confidence in shopping cross-borders. In addition, this paper argues that from an economic point of view, a cooling-off period from online contracts provides a remedy for irrational behavior on the part of consumers and cures market failures due to asymmetric information. In all likelihood, consumers will financially support part of the higher protection received through higher prices. Secondly, a uniform European right of withdrawal could help enterprises decrease their compliance costs and set up cross-border marketing strategies. On the other hand, a longer withdrawal period could be problematic since it causes changes in the business. When drafting the provisions regarding withdrawal right from online contracts, the 14 COM (2008) 614 final Explanatory Memorandum 15 Poncibo, C. (2009), Some Thoughts on the Methodological Approach to EC Consumer Law Reform. Loyola Consumer Law Review, Vol. 21, No. 3, pp

12 Commission used the internal market argument, as granting this right would boost the level of consumption and trade. However, a longer withdrawal period could cause changes in running the business, and thus cross-border trade would be hampered by traders that do not wish to sell abroad Methodology Overall, this thesis intends to comparatively analyze from both legal and economic perspectives the effects likely to occur in the IM as a result of full harmonization introduced by the new Consumer Rights Directive. More precisely, the analysis will focus on the consequences that full harmonization of withdrawal rights from online selling will have on consumers and businesses in the IM. The reason for choosing this approach is to assess whether the new rules on cooling-off period will manage to improve the status quo of consumers and businesses imposed by the old DSD. Before getting into the topic, one important consideration must be mentioned. As mentioned above, in 2008, the European Commission proposed the amendment of four directives on consumer contractual rights and their consolidation. The proposal in its initial form applied to both domestic and cross-border contracts, and adopted a full harmonization approach. The goal of the amendment was to simplify the regulations, clarify the rights of consumers upon entering into a contract, and for Member States to adopt strict regulations because of full harmonization legislative technique. Due to the divergent views of Member States and hence the difficult task of attaining consensus, when taking its vote, the Council of Ministers took the stance of narrowing down the scope of the new directive and ensuring full harmonization upon the aspects agreed upon. On the other hand, the Consumers Affairs Committee of the European Parliament (IMCO) took a mixed approach, seeking full harmonization in certain areas such as information requirements, delivery deadlines and a right of withdrawal for distance and off-premises sales while letting Member States free to retain higher standards in other areas, such as in relation to the available remedies when the goods are not in conformity with the contract of sale 16. Legislators reached the conclusion that full harmonization would be feasible and would bring about legal certainty and 16 Cardona, M. V. (2011), The Consumer Rights Directive A step in the right direction?, Times of Malta.com, Available at: [Accessed: 20 May 2011] 11

13 simplification if applied solely to clear, cross-cutting issues (definitions, right of withdrawal, information obligations); for the other areas dealt with by the proposal full harmonization would not bring about more cross-border trade and would even create more legal uncertainty mainly due to the interplay with general contract law and existing case law. In an exchange of views with IMCO, Commissioner Reding admitted that full harmonization was deliberately ambitious. She pointed out that a single set of consumer rights would encourage more cross-border purchasing and selling which would in turn improve the economy of the EU. It was believed that this would improve EU citizens confidence in buying goods over the internet and would allow the Commission to conduct a pan-european information campaign on consumer rights. Reding also stated that she realized the need for flexibility would negate the possibility of full harmonization and that this was the reason for the Commission s change of heart on full harmonization. The option of more targeted harmonization where practical was chosen, and after 3 years of tough negotiations between the three institutions, European Commission, European Parliament and the Council of Ministers, the CRD was finally adopted on October 25, The Directive entered into force on November 22, 2011 when it was published in the Official Journal 18 of the European Union and MS will have 2 years from this date to implement the measures into national law. It might seem outdated now after the adoption of the CRD, when finally a 14-days withdrawal period is legally binding across the IM, to approach a topic such as maximum harmonization of the right to withdrawal and its effects on the online internal market. However, the author of this paper believes that the story does not end with the adoption of the Directive. On the contrary, now we can base our analysis on a factual existence (de facto) of a 14-days cooling-off period and not just on an assumption of having this provision in a future legal act. One might argue that ex post analysis is less important than ex ante analysis because counterproductive effects can be stopped in real time. However, follow-ups are recommended when new legislation is implemented in order to assess the evolution of the process. 17 Pinsent Masons (2011), New EU Consumer Rights Directive receives final approval, Legal news and guidance from Pinsent Masons. Available at: Law.com [Accessed: 30 October 2011] 18 Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on Consumer Rights, Official Journal of the European Union, L 304/64,

14 Some considerations need to be done regarding the choice of withdrawal right from distance contracts as the main topic of this thesis. Obviously, an exhaustive analysis of the CRD would fall outside the scope of this paper because of its complexity. Therefore, work delimitation needs to be done and the question of why withdrawal rights as a topic arises. First, withdrawal right grant an option to withdraw simply because the consumer changed his mind, which means that the consumer entitled to the right may withdraw from an agreement, but the consumer is not forced to withdraw nor commit to the execution of the agreement 19. As such, mandatory withdrawal right is a far-reaching instrument, protecting one party from another party by restricting the binding nature of the contract, a practice that is at odds with the principle known in contract law as pacta sunt servanta 20. The provisions on the right of withdrawal belong to the core matters of Community law and the field of consumer protection 21. The right of withdrawal may be considered as being one of the central bodies of European Consumer Law with EC legislation having played a pioneering role in how this consumer right has spread and taken shape. Second, it is well known from legal literature that the revision of the acquis communautaire concerning withdrawal is entirely appropriate. Most MS have made use of the minimum clause in the DSD introducing extended cooling-off periods; others kept it to the minimum level. In addition, major inconsistencies or ambiguities are present regarding the exercise of the right to withdrawal. The different withdrawal periods, the formal requirements imposed on consumers when exercising their withdrawal rights, and the differences with regard to the unraveling of the contract after withdrawal constitute obvious barriers to trade 22. Therefore, it is interesting to see whether the new changes in the withdrawal rules will bring any improvements in the IM, specifically to its market actors, consumers and traders. With respect to full harmonization of cooling-off periods, two considerations must be mentioned. First, the provisions on withdrawal are suitable for full harmonization for the 19 Eidenmuller, H. (2011) Why Withdrawal Rights? European Review of Contract Law, Vol. 7, Issue 1, pp Marco Loos, Rights of Withdrawal, in Geraint Howells and Reiner Schulze (eds.), Modernising and Harmonising Consumer Contract Law, Sellier, Munich, Schulze, R., The Right of Withdrawal, in Hans Schulte Nölke and Luboš Tichý (eds.), Perspectives for European Consumer Law, Sellier, Munich, Schulte Nölke, Twigg Flesner & Ebers (2007), EU Consumer Law Compedium Comparative Analysis, Universität Bielefeld 13

15 following reasons: they have mostly developed in the Member States based on Community law, so that they display relatively similar features across the Union; and they are relatively independent doctrines with regard to the general contract law of the Member States. Second, there was great concern about the level of consumer protection in full harmonisation that has to be greater than the level set by minimum harmonization in the old DSD; otherwise, the result would be a race to the bottom for consumer protection in the European Union. In this respect the provision on cooling-off period of 14 days, as opposed to the minimum 7 days period in the DSD, represents a step forward. Therefore, there is strong support for harmonizing the provisions on withdrawal as they strengthen the level of consumer protection and they favor the process of Europeanization of contract law 23. Moreover, full harmonization is easier to obtain for technical aspects such as the right of withdrawal. It is therefore neither too late, nor irrelevant to discuss the changes that the CRD brings regarding withdrawal right Analytical framework As stated above, the aim of this thesis is to analyse how the new provisions on withdrawal right as presented in the CRD will affect consumers legal protection and businesses trade pattern within the OIM. As such, the problem statement is analysed from two perspectives: one being the analysis of the legal changes regarding right of withdrawal from online consumer contracts, which the CRD would have for both consumers and traders; and the other being an economic analysis of these new legal changes. One section of the paper will focus on the legal implications of the new provisions on withdrawal right as an instrument of consumer protection in distance selling. This approach requires a search into the legal justification and the effectiveness of the coolingoff period from online contracts. As Marco Loos argues, the function it is to fulfill influences the answers to the questions of how long the cooling-off period should last, and how the consumer is to effect his withdrawal in case he decides to make use of his right, as 23 Schulze, R., The Right of Withdrawal, in Hans Schulte Nölke and Luboš Tichý (eds.), Perspectives for European Consumer Law, Sellier, Munich,

16 these affect the effectiveness of the right of withdrawal and, therefore, contribute to answer to whether the use of the instrument of a right of withdrawal as such is actually justified. The legal analysis shall be complemented by an economic perspective over the usefulness of withdrawal right in distance selling environment. Eidenmüller argues that a withdrawal right should be granted only after a cost-benefit analysis is conducted. Whereas the costs associated with withdrawal right come in different forms, the principal benefit is only one: it counteracts the performance of inefficient contracts. However, increased consumer protection, which equals to increased obligations on the producers, might be to the disadvantage of consumers as they support the costs of increased protection. Therefore, in order to evaluate the effect on consumers of these new provisions one has to compare two effects 24 : 1) the (presumed) positive effect of withdrawal right harmonisation across EU, and 2) the possible negative effects of the strengthening of consumers rights by mandatory provisions. Another section of the paper will focus on the legal and economic implications of the new legal changes on the side of the business. The new provisions on withdrawal right, apart from their main goal of strengthening consumer rights, have a complementary role, which is to encourage businesses to engage in more cross-border selling. Therefore, it is challenging to see whether the new legal technique of full harmonization has any influence on traders decision to sell to customers from other MS. There are many reasons why e- traders may be reluctant or unable to expand their operations to other parts of Europe. Apart from different national laws regulating consumer transactions, cross-border trade faces important practical barriers; to name just a few: higher risk of fraud and non-payment in cross-border sales; higher costs of delivery; difficulties in resolving complaints and conflicts cross-border than domestically; difficulties in offering after-sales services; language differences 25. These cross-border problems and their economics may mean that in some instances, it simply may not be profitable to do business. The (presumed) positive effect of full harmonization may fade away in the face of these barriers. In the end, all these legal changes with consequences on consumers and traders are intended to acknowledge the great economic potential and to support the growth of the 24 Eide, E. (2009), Is the Consumer Directive Advantageous for the Consumers?, European Journal of Law and Economics, Volume 28, Number 3, pp European Commission (2009), Report on Cross Border E Commerce in the EU, SEC(2009) 283 final 15

17 internal market. However, applying general economic reasoning and analysis on a specific law provision, as the right of withdrawal, in order to assess the economic consequences it may have in the IM is a difficult, almost impossible task to fulfill. Based on cross-border numbers that some MS have experienced as a consequence of implementing the DSD provisions on right of withdrawal in a high protective manner for its consumers (e.g. cooling-off period for distance selling of 14 days in Germany), one can extend the logic to the IM functionality. As such, we can assume that the length of withdrawal period matters in cross-border transactions and MS offering more withdrawal days, experience more crossborder trade. This implies that consumers are aware of their rights and they take advantage of more protective systems. However, this type of inference from country level to IM level is over ambitious for at least two reasons. First, cross-border trade values cannot find an explanation only in withdrawal right provisions and second, each country has its own trade patterns due to its specific market conditions. This discussion will be commented on more thoroughly in the section dedicated to the internal market analysis Delimitation One has to recognize the economic importance of e-commerce in accomplishing the IM. As any market, the virtual market needs to establish rights and obligations for its participants. The Consumer Rights Directive regulates some of these rights and obligations, which are considered important when trading online. From all provisions contained in the CRD that regulate internet purchasing, I have chosen to delimit the critical analysis to the provisions dealing with the right of withdrawal. The reason for this choice is the change in the legal technique opted for in the new directive, more exactly the introduction of a uniform cooling-off period in matter of distance selling. Exercising the right of withdrawal is based on a contractual relationship between the parties that is regulated by the CRD. This ensures that there are certain rights and obligations to respect in order to exercise the withdrawal right. Therefore, the provisions on the right of withdrawal regulate the start and the end of the cooling-off period, the length of the cooling-off period, traders obligation to inform consumers about their right of withdrawal, form requirements of withdrawal, use of goods during cooling-off period, consequences of withdrawal on contract performance. 16

18 I recognize that analyzing all these issues thoroughly from both legal and economic perspective would be an over-capacious achievement, which cannot be confined to the scope of this thesis. Therefore, the analysis shall focus on the implications the length of the cooling-off period has on the IM, implicitly on consumers and traders. The thesis shall focus only on a strict comparative analysis of the length of the cooling-off period between the status quo assured by the old DSD and the new provisions contained in the CRD Structure of the thesis The content of this paper is divided into three main sections following a threefold analysis of the online internal market, the consumer and the business. The first part shall focus on the consequences that the uniform legal right of 14-day cooling-off period has on the development of the online internal market. I argue that the benefits of this provision are limited since there is a mix of other factors influencing the rhythm of digital market evolution. I hold forth that the IM development depends on two course of action. Firstly, it needs an assurance effect of European protection, taking into account that lack of knowledge of consumer rights restrains consumers from cross-border consumption. Secondly, a harmonised consumer acquis across the Union would unburden businesses from legal compliance costs they incur insofar it concerns consumer protection. These issues shall be discussed in the internal market section. The part following the internal market section analyses consumers attitudes in cross-border online shopping. I claim that the harmonization measures which have been justified with reference to the need for promoting consumer confidence in reality only to a limited extent are relevant with respect to the creation of such confidence. The legal analysis conducted in this part will prove that consumers now enjoy a higher level of protection due to the change in the withdrawal period. However, the economic analysis shows that this improvement is not to their advantage as they financially support their increased protection. In the last part of the paper, I try to identify the effects likely to be felt by the business side as a consequence of increasing consumer protection by offering a longer withdrawal period. The thesis shall finalize with the never-failing conclusions. 17

19 PART II THE EFFECTS OF A HARMONISED COOLING-OFF PERIOD FROM ELECTRONIC CONTRACTS ON THE ONLINE INTERNAL MARKET In accordance with Article 26(2) of the TFEU, the internal market comprises an area without internal frontiers in which the free movement of goods and services and freedom of establishment are ensured. The internal market is all about bringing down barriers and simplifying existing rules to enable everyone in the EU individuals, consumers and businesses to make the most of the opportunities offered to them by having direct access to 27 countries and 480 million people 26. E-commerce is seen as the best way to transcend national borders and enable businesses and consumers to get the most out of the Single Market, even if national markets still dominate today. Consumers and businesses across Europe are given a great opportunity to save costs and to compare a wide range of goods and services throughout Europe. In order to analyze the online internal market (OIM), we first need to clarify this phrase. When referring to the OIM in this paper, we mean a harmonized and integrated European market without barriers hindering the use of digital technologies and services, and an internal market which encourages and makes possible online business-to-consumer trade across Member States. Following this definition, from a theoretical perspective, the OIM makes it just as easy for a consumer or firm in an EU Member State to access information, goods and services in another Member State as in the country where the consumer or firm is based. 26 Website of the European Commission, Internal Market Division, (last date of access: 19 June 2011) 18

20 2.1. The online internal market untapped potential In the last few years, e-commerce has grown both domestically and cross-border. Between 2004 and 2010, the percentage of consumers conducting online transactions in the EU rose from 20% to 40%. There is significant variation in the levels of e-commerce across EU Member States, ranging from 4% in Romania to 68% in Denmark. In many Member States (Denmark, Germany, France, Luxembourg, the Netherlands, Finland, Sweden and the UK) the figure is higher than 55%, yet in other Member States (Bulgaria, Greece, Italy, Cyprus, Estonia, Latvia, Lithuania, Hungary, Portugal, Romania) the figure is below 20% (Fig. 1, Annex). However, most of these purchases were domestic and only 9% of EU consumers made a cross-border purchase online. Concerning cross-border purchases, country variations are rather significant, with six countries at 20% or higher (Belgium, Denmark, Luxembourg, Malta, Austria and Finland) and eight countries below 5% (Bulgaria, Czech Rep., Greece, Italy, Lithuania, Hungary, Poland and Romania) (Fig. 2, Annex). Among retailers, about 53% of retailers have chosen e-commerce to sell their goods and services to consumers from their own country and to a certain extent, cross-borders. Of course, there are big variations at country level among EU-27 retailers selling online. These ranges from around 19% of retailers in Romania selling goods or services online, to a proportion that is almost four times higher in the UK (78%) (Fig. 3, Annex). On the retailers side, cross-border potential of e-commerce also seems not to be exploited: only 22% of EU-27 retailers conduct cross-border sales. Cross-border transactions usually involve very few Member States: only 4% of retailers trade with 10 or more Member States and most of them trade with just one or two other Member States. Interestingly, the percentage of retailers conducting cross-border sales from mature e- commerce markets (UK, Germany and France) is around the EU average (21%). Even in these countries, many retailers are not taking advantage of the strong interest that consumers from other EU countries have to shop cross-border and the fact that many consumers are willing to buy in a language other than their own such as English, German and French. It seems that many retailers in the biggest e-commerce markets are content to focus on domestic sales (Fig. 4, Annex). 19

21 When comparing cross-border to domestic e-commerce, it is apparent that crossborder e-commerce is developing in parallel with domestic e-commerce. In mature e- commerce markets, cross-border levels are relatively high, albeit lower than domestic levels. Countries where domestic e-commerce is less developed have lower levels of crossborder e-commerce. As e-commerce develops in the EU and as growth markets mature, it is reasonable to expect that cross-border e-commerce will do the same. The striking difference between cross-border e-commerce and domestic e-commerce, which takes place within each EU country, indicates that there is an untapped economic potential for the digital internal market. The small volume of cross-border online trade is a clear indicator of a fragmented digital market. Consequently, each individual market requires a separately approach, implying additional country-specific costs. According to a study by the Association de l économie numérique, based on the number of online purchasers, e-commerce markets in the EU could be categorized as follows 27 : - A mature market in Northern Europe, including the UK, Germany and the Nordic countries, where between 60% and 80% of internet users are online purchasers. - A growth market in France, Italy and Spain, where the number of online purchasers is lower compared to the numbers of internet users, but where the number of new online purchasers is growing fast, signaling a strong potential for growth in the short and medium term. - An emerging market in Eastern and Southern Europe (Greece, Bulgaria, Romania). The countries that attract most online shoppers from other EU countries are Germany (27%), the UK (24%) and France (14%), which are also the most mature e- commerce economies in Europe. In addition to the market size of different countries, geographic location and knowledge of the language in which offers are made constitute important factors underpinning cross-border online trade. Many consumers in other EU countries speak German, English or French. Two in three EU online cross-border shoppers bought goods from websites available in English, 21% bought from websites in German and 14% bought from websites in French. 56% of European consumers use another 27 European Commission (2009), Report on cross border e commerce in the EU, SEC (2009) 283 final 20

22 language than their own for searching or buying goods and services online. Most crossborder online shoppers in Belgium and Luxembourg do their online shopping in France or Germany, while cross-border online shoppers in Ireland and Malta tend to shop in the UK. Portuguese shop cross-border in Spain, while Danish purchase cross-border in Sweden. There is also significant cross-border shopping between Czech rep. and Slovakia, between Finland and Sweden, between Austria and Germany and between Netherlands and Belgium 28. Apparently, language is not so much of a barrier in cross-border trade, especially if e-traders use English as the main language. The level of development of e-commerce in various Member States, and the overall consumer confidence and willingness to engage in online shopping seem to be related 29. A recent consumer survey 30 which takes into account how confident, knowledgeable and protected by law consumers feel shows that the highest scores on all three come from northern European countries, in particular the UK, Germany, the Netherlands, Denmark and Sweden, and lowest from southern and eastern European states, including Bulgaria, Romania, Greece, Italy and Portugal. Other factors that make some countries more advanced than others in the e-commerce field are more related to the overall quality of shopping experience. These include: delivery of goods, payment systems, high speed broadband penetration, retailer engagement and culture and traditions. The welfare gains of e-commerce for EU consumers are concrete 31. The economic benefits of an integrated digital market result from the increasing competition, leading to lower prices and a wider variety of products for consumers, especially when products are not available locally or nationally. Empirical evidence is found for lower prices, less price dispersion and more frequent price changes among e-retailers 32. The results of an EU-wide 28 Civic Consulting, Executive Agency for Health and Consumers (2011), Consumer market study on the functioning of e commerce and Internet marketing and selling techniques in the retail of goods. Available at: htp://ec.europa.eu/consumers/consumer_research/market_studies/docs/study_ecommerce_goods_en.pdf 29 Idem FN According to Eurobarometer 342, the overall confidence indicator is highest in the Netherlands, Sweden, Finland, UK, Denmark and Ireland (74% 64%) and lowest in Bulgaria, Greece, Lithuania, Romania. 31 An economic analysis conducted by CIVIC indicates that total welfare gains for EU consumers resulting from lower online prices and increased online choice under a hypothetical situation of a 15% share of Internet retailing (currently 3.5%) and a Single EU consumer market in the e commerce of goods amounts to 1.7% of EU GDP. This is four times higher than a situation with a similar share of internet retailing and fragmented national markets. 32 Julia Häring (2003), Different Prices for Identical Products? Market Efficiency and the Virtual Location in B2C E Commerce, Centre for European Economic Research, Discussion Paper No

23 test 33 of online shops give some idea of the potential savings that consumers could make on cross-border transactions. The test compared domestic and cross-border offers for similar goods, and for at least half of all the product searches, testers were able to find one crossborder offer that was at least 10% cheaper than the best domestic offer (all delivery costs included). Cross-border shopping has the advantage of widening the choice and variety of goods and enables consumers to find products that are not distributed locally online. This aspect is particularly important for smaller markets, and current studies show that consumers from these countries (e.g. Malta, Ireland, Denmark, Netherlands, Portugal) shop cross-border in larger markets from neighbor countries with language and cultural ties. However, consumers have certain concerns when it comes to online shopping. Issues dominating are related to late or damaged delivery, concerns about returning a product and reimbursement, or replacing and repairing a faulty product, misuse of payment card details, uncertainty about consumer rights when shopping cross-border. Moreover, because of a fragmented online internal market, consumers willing to extend their shopping experience cross-borders fail to take advantage of an increased choice and cheaper prices that e-commerce can deliver. This situation requires a better understanding of consumer experience with online shopping, especially when navigating cross-borders, followed by appropriate actions to improve the status quo. This topic shall be analyzed in more detail in the next section of the paper. Online cross-border shopping is also affected by the extent retailers are willing to sell to consumers located in other Member States. While some retailers are prepared to deliver to non-domestic customers, the reluctance of many retailers to allow cross-border sales clearly restricts the ability of consumers to benefit from potential savings available. Many traders do not sell cross-border due to existing barriers governing e-commerce transactions, traced from the complexity and lack of harmonization of the EU legal environment to language and cultural differences. However, according to a recent survey 34, the big majority of retailers who have already sold products in other EU countries (70%) would be interested in selling cross-border to more countries if the laws regulating 33 YouGovPsychonomics (2009), Mystery shopping evaluation of cross border e commerce in the EU, Conducted upon the request of DG SANCO 34 European Commission (2011), Flash Eurobarometer 300 on business attitudes towards cross border trade and consumer protection; Conducted by The Gallup Organization upon the request of DG SANCO. 22

24 consumer transactions were the same across the EU. Moreover, the benefits for the minority of businesses who do sell cross-border seem clear. In 2009 e-commerce accounted for 14% of businesses turnover in the EU27. The share of businesses turnover generated from e-commerce in 2009 varied significantly between Member States (Fig. 5, Annex). The highest percent was realized in Ireland (24%), followed by Norway (21%), and Czech Republic (19%). The lowest percent was realized in Cyprus (1%), Bulgaria (2%) and Romania (4%). In 2008, the firms turnover from e-commerce was 12%. During this period, three quarters (73%) of e-commerce turnover came from within the country, 19% from the other Member State and 8% from outside the EU27 (Eurostat, 2010). The potential of e-commerce can be found in more consumers shopping online and more retailers selling online, both domestic and cross-border. If e-commerce develops into a concrete alternative to offline retail, this will lead to an increased competition, both online and offline, to the benefit of consumers and a more competitive internal market. What is important is to make e-commerce a viable option for consumers and businesses that are willing to make transactions online. Despite the fact that the market tends to find solutions by its own, much remains to be done to improve the regulatory environment in order to reach the untapped potential of online trading. An improved and harmonized European legal framework on consumer rights can facilitate cross-border e-commerce. 2.2 Barriers to the online internal market The aim of the European policy makers is to create a sustainable digital internal market, which is characterized by a high level of trust and confidence, a balanced regulatory framework with clear rights regimes in which customers and firms can reap all its benefits 35. However, in pursuing this brave strategy, first there is a range of barriers which needs to be addressed. 35 European Commission (2010), A Digital Agenda for Europe. Available at (last date of access: 20 June 2011): agenda/documents/digital agenda communication en.pdf 23

25 According to Copenhagen Economics 36, the barriers can be summarized in three broad categories. The first type stems from the fragmentation of the EU legal system. This means that traders have to adapt their business model from Member State to Member State and consumers get confused about their rights when shopping cross-borders. The second type stems from differences in culture between the EU countries, which lead consumers in different EU countries to demand different characteristics from their goods and services. This implies that consumers may be reluctant and have difficulty navigating web pages in other Member States. A third set of barriers is generally related to a low level of consumer confidence in making transactions on the internet generated by a set of factors including unknown and non-harmonized consumer protection rights. This indicates that consumers will refrain from doing shopping online, especially cross-borders, regardless of which country they originate. The barriers of interest, from a European regulatory perspective, are those which can be removed through changes to the regulatory framework. There are many legal barriers hindering the creation of a genuine OIM spanning areas such as: privacy and data protection; content and copyright; liability of online intermediaries; e-payments; electronic contracts; spam; cybercrime; dispute resolution and self regulation 37. A comprehensive strategy to tackle most of these barriers is needed. There are many elements to be taken into account when drawing such a complex strategy, yet the limited contribution to the overall strategy of the improved consumer rights directive is very welcomed. A thorough analysis of the OIM legal barriers is outside the scope of this paper. We are interested, though, to analyze the efficiency of the CRD in removing existing legal fragmentation and boosting consumer and business confidence in the European online internal market. 36 Copenhagen Economics (2010), The Economic Impact of a European Digital Single Market. Available at: (last date of access: 19 June 2011): 37 Idem FN 38 (Copenhagen Economics) 24

26 2.3 Legal fragmentation as a justification for intervention As mentioned above, a significant regulatory barrier to e-commerce is the existence of 27 diverse consumer protection regimes within the internal market. The European Commission pointed to the minimum harmonization clauses contained in the consumer acquis as the main responsible for the fragmentation of the national laws regulating consumer transactions. These clauses recognize the right of Member States to maintain or adopt stricter consumer protection rules in their national law. Legal fragmentation is also a consequence of national customary law which reflects national preferences, and is furthermore affected by a lack of coordination between member states regulatory bodies. A concrete example of legal fragmentation described above and which negatively affected European legal certainty is the case of the right of withdrawal from distance selling. Previously in the DSD, the consumer was awarded a period of at least 7 working days to withdraw from a transaction after he has received the good he purchased or, in case of service, after the day the contract was concluded 38. As the DSD imposes minimumharmonization, national legal systems may provide for longer cooling-off periods than 7 working days. Obviously, for a seller or service provider trading cross-border this leads to uncertainty about the length of the cooling-off period in a situation where Rome I Regulation safeguards that consumers are not deprived by the protection that their country of residence offers to them. Take for example a German seller of books on the Internet that may be confronted with a cooling-off period of 7 working days if the consumer is a resident of Belgium, the Netherlands, Spain or UK, of 10 calendar days if he is a resident of Italy, of 14 calendar days if he lives in Norway, and of 14 days if the consumer lives in Germany. The fact that national legislations mention of calendar days, but sometimes of working days further complicates the matter. As the trader has an obligation to provide the consumer with the appropriate information about the length of cooling-off period, the obligation to inform is rather difficult to perform in such cases 39. These different periods for the exercise of the right of withdrawal lead to a complex and unclear system, which proves difficult to handle for courts, lawyers and, especially, the parties to the contract. 38 Article 6, paragraph 1 of the Distance Selling Directive 39 Marco B. M. Loos (2007), The case for a uniform and efficient right of withdrawal from consumer contracts in European Contract Law; Zeitschrift für Europäisches Privatrecht, 1,

27 On the consumer side, the length of withdrawal also generates confusion. Consumers from Belgium, Netherlands or UK shopping online in Germany are better off concerning the cooling-off period than when shopping in their own country. Even though consumers benefit of 7 days of withdrawal in their own country, they can consciously take advantage of a better protection system from another country. However, this situation is conditioned on consumers willingness and confidence to shop cross-border and on consumers knowledge of their rights when shopping online. On the other hand, consumer from Germany shopping online cross-border in UK or the Netherlands may wrongly assume that they have 14 days to cancel a transaction while in the contract a shorter length may be stipulated. The consumer will not be deprived by his country of origin rights as he is protected by the Rome I Regulation. However, such confusion sometimes may financially cost the consumer in case of litigation, and may have negative consequences on consumer confidence in cross-border online shopping. As a consequence of inducing legal uncertainty and confusion for both traders and consumers, legal fragmentation hinders the development of trade in the internal market. The Commission in its impact assessment report 40 accompanying the pcrd identified two major internal market effects of national legal fragmentation. First, traders are reluctant to sell cross-border to consumers because of the conflict of law rule. As a result, cross-border trade is more expensive for traders than domestic trade, which implies that the conditions for competition are not the same throughout Europe and in fact worse for foreign traders than for domestic traders. More often than not, foreign online traders will refuse to accept orders from consumers living in another country. Second, consumers cannot be sure that they will receive the same level of protection they are used to in their home country when they shop cross-border, even though they are protected by their home country rights through the Rome I Regulation. The fragmentation translates into low levels of consumer confidence in shopping online in another country. 40 European Commission (2008), Impact Assessment Report accompanying the proposal for a directive on consumer rights 26

28 2.4 Legal fragmentation from an economic perspective Legal uncertainty derives from imperfect national legal systems and also from the different natures of legal systems within the internal market. Legal uncertainty causes transaction costs and lowers cross-border trade. Consumers as well as retailers tend to refrain from contracts in foreign legal systems if transaction costs seem too high or unpredictable 41. Wagner (2009) argues that legal uncertainty generates the following transaction costs for firms and consumers when transacting in a multi-legal system framework, such as EU-27: a) costs of collecting information about applicable law, administrative procedures, and about competent legal advice; b) costs of legal enforcement and legal disputes (litigation or alternative dispute resolution); c) costs of setting incentives for pushing through legal claims which may include private attempts to speed up approval procedures; d) and other transaction costs such as complaining about goods, making warranty claims, returning goods. Such costs prove to be higher in the case of crossborder purchases in comparison to domestic purchases. From an economic perspective legal uncertainty decreases the level of trade and the level of income as against the case with legal certainty. Legal uncertainty translates into higher transaction costs. Transaction costs are reflected in higher prices for consumers or in reduced revenues for the trader. For consumers, legal uncertainty in cross-border transactions means that foreign goods bring them fewer benefits. For businesses, additional costs reduce profits. They have to increase prices in order to prevent a reduction in their return on capital in cross-border transactions. Both, price increases and a fall in the return on capital lead to lower cross-border transactions and lower consumption. 41 Helmut Wagner (2009), Legal Uncertainty Is Harmonization of Law the Right Answer? A short Overview, University of Hagen Department of Economics, Discussion Paper No

29 The gains from cross-border trade in the single market are not fully exploited as a result of the non-tariff trade barrier of legal uncertainty 42. The foreign retailer is in a less favorable position and has to find new solutions to overcome legal barriers and to compete with domestic retailers. The existence of transaction costs caused by legal uncertainty of foreign markets appears to hinder consumers in shopping cross-borders more that it does with businesses in trading cross-borders. The explanation lies in the fact that consumers are for many transactions just one-shot players with higher costs of learning and lower incentives to overcome legal fragmentation. Businesses, on their part, are repeat players with more at stake in cross-border transactions, thus facing greater opportunities to learn how to tackle legal fragmentation and also having greater incentives to incur the costs of doing so. It is true that there does not seem to be an overwhelming body of evidence showing the significance of legal diversity as an obstacle to cross-border trade 43. But such evidence is not entirely lacking, on the other side. The study commissioned by the EU (Vogenauerand Weatherill, 2006) 44 on the matter was indicative of the relevance, but not totally conclusive in the magnitude of costs at stake. However, there is some evidence that cannot be discarded as providing clear illustration of the importance of legal diversity as a source of transaction costs. Den Butter and Mosch (2003) 45 find in an empirical study that similarity of legal systems may be able to produce roughly between 50-80% more crossborder trade, using data of 25 OECD countries. Turrini and Van Ypersele (2006) 46 estimate that legal similarity can increase trade among OECD countries up to 65%, controlling for transportation costs, common culture and language, and similar factors. In sum, transaction costs from legal fragmentation do not seem to be negligible. 42 Idem FN 43 (Helmut Wagner) 43 Fernando Gómez and Juan José Ganuza (2009), Optimal harmonized standards for promoting crossborder trade, Universitat Pompeu Fabra, Working Paper 44 Vogenauer, S., and S. Weatherill (2006), The Harmonization of European Contract Law: Implications for European Private Laws, Business and Legal Practice, Hart Publishing 45 den Butter, F., and R. Mosch (2003), Trade, Trust, and Transaction Costs. Tinbergen Institute Working Paper No /3 46 Turrini, A., and T. Van Ypersele (2006), Legal Costs as Barriers to Trade. Center for Economic Policy Research Discussion Paper Series, Paper No

30 2.5 Harmonization of cooling-off period in cross-border online shopping It seems hard to deny that legal complexity and variety is responsible for the existence of transaction costs for firms conducting commercial activities in different markets regulated by diverse legal regimes, and for consumers who could become customers of these goods and services. In all likelihood, harmonized rules in consumer law would contribute to produce a reduction in complexity and disparity, and this, in turn, would produce more gains for the internal market and for its participants. Two different reasons are given when stating that harmonized rules in consumer law serve to promote the European internal market, and implicitly the digital internal market as well. The first one refers to the reduction for firms of the costs of doing business in various national markets: if a firm plans to extend its operations in several Member States, the costs of compliance with legal conditions are obviously higher enough in the presence of different legal requirements than with a single set of legal conditions for the business. Also, transaction costs created by legal diversity constitute barriers to entry in national markets for foreign firms. Legal harmonization implies better chances for newcomers, which increases competition within the national market. The increased competition eventually results in better prices and increased choice for consumers. Of course, it can be argued that legal and regulatory diversity will not disappear as a consequence of a few harmonized legal rules in consumer law. Even if the law across Member States may become similar in some aspects, the law in action would still definitely differ widely: courts, legal procedure, legal culture and environment in general will remain national and will perpetuate legal diversity and not allow a dramatic reduction in transaction costs for firms doing business across national borders. Moreover, every national market requires a specific adaptation to its local condition which of course implies different types of costs. In this scenario, the extra cost of legal compliance in different jurisdictions would become part of the business. However, it is worth noting that in a diversified European legal environment the e-trader going cross-borders would be better-off if legal environment is less confusing, be it only at the level of harmonized cooling-off periods. 29

31 The second element of the reasoning has to do with consumers. Existing surveys 47 clearly indicate that consumers perceptions about legal and other uncertainties and shortcomings of transacting online over national borders are the key factors affecting the implementation of the digital internal market through regulatory and legal harmonization. The crucial obstacles to trade and contracting across national borders would thus essentially be demand driven, those that consumers view, perhaps mistakenly, as negatively influencing their decision to contract cross-border. The perspective of consumer is also important, and not just for the reason that many of the benefits from reducing legal diversity and thus, costs for firms in cross-border transactions ultimately result in gains for consumers. Consumers also face transaction costs in cross-border trade, and these are also real economic costs, whose reduction would also bring them benefits. Another problem here is that the perceptions of consumers on the real importance of diversity, and the extent of the reduction brought by the harmonized rules are, with high probability, less accurate than those of firms. Therefore, even if a real reduction in legal diversity and legal uncertainty in cross-border transaction has taken place, if consumers do not acknowledge the new situation, transaction costs would remain at the previous high level, and little would be gained by the adoption of harmonized rules. In conclusion, the reduction in diversity and the enhanced certainty needs to be internalized by the contracting parties, in order to exploit the advantages of harmonized rules in consumer law. Otherwise, transaction costs may persist, even when the base for them has been removed 48. Whether legal diversity is an important obstacle to the formation and development of a vigorous unified online internal market is a matter that can receive different answers from a theoretical perspective, and should be addressed essentially as an empirical issue 49. If a given measure such as the harmonization of cooling-off period from electronic contracts brings about a decrease, greater or smaller, in the existing level of transaction cost involved in cross-border online contracting, that measure actually entails a reduction of real costs for the economy and society, which implies a direct social gain. 47 European Commission (2011), Flash Eurobarometer: Consumer attitudes towards cross border trade and consumer protection. Conducted by The Gallup Organization upon the request of DG SANCO 48 Fernando Gomez (2008), The Harmonization of Contract Law through European Rules: A Law and Economics Perspective. InDret, Vol Idem FN 50 (F Gomez) 30

32 These gains may be difficult to assess and quantify, and their extent may never be accurately determined, but the overall benefits would be real. Going back to the first problem statement, namely to which extent the introduction of a uniform cooling-off period from online selling is a useful tool in promoting the internal market, we notice that is not an easy question to answer. Much depends on consumers and businesses reaction in the market to these new legal changes. From a theoretical perspective, introducing a uniform withdrawal right increases legal certainty for both parties. However, the benefits stemming from legal certainty could be counteracted by a negative response from the business side towards increased consumer protection costs. Moreover, we take into account the deterrent effect to the development of the online internal market of other important barriers, mentioned above. 31

33 PART III CONSUMER PROTECTION IN THE LIGHT OF A HARMONISED COOLING-OFF PERIOD FROM ONLINE CONTRACTS The right to withdrawal is considered a consumer protection tool 50 ; as such, a series of directives issued between 1985 and 2011 introduced the right of withdrawal for life insurance, real estate timeshare, distance selling of goods, doorstep selling, financial services and consumer credit contracts 51. The right to withdrawal also appears in the 2008 draft Common Frame of Reference for European Private Law, an academic effort of codifying European private law. Chapter III of the Consumer Rights Directive 52 recognizes a general right to withdraw for most distance and off-premises contracts. Consumer protection in electronic commerce was previously assured by the DSD which was designed to serve the following two purposes. Firstly, it was designed to raise the standard of consumer protection in Europe in the area of contracts concluded between consumer and supplier at a distance. Secondly, it was supposed to encourage the crossborder trade of goods and services in Europe Legal foundation of the right to withdrawal from electronic contracts In pursuing our analysis we first assess the legal foundations of the right to withdrawal from electronic contracts contained in the newly adopted Consumer Rights Directive. Chapter III of the directive, Articles 9 to 16, recognizes a general right to withdraw for most distance contracts. The right to withdrawal simply provides the consumer the right to cancel the contract within a period of time after the contract has been entered, even if that contract has already been performed by the parties. The counterpart to the contract, a professional seller or service provider, is not given such possibility. 50 Eidenmüller, H. (2011), Why Withdrawal rights? European Review of Contract Law, Vol. 7, Issue 1, pp Ben Shahar, O., Posner, E. (2010), The Right to Withdraw in Contract Law, Economics Working Paper No. 514, University of Chicago, The Law School 52 European Parliament, Consumer Rights Directive, texts adopted at the sitting of 23 June The aims are expressed in the 24 recitals of the Distance Selling Directive preamble, particularly in recital number 3. 32

34 When the consumer does exercise his right of withdrawal, all contractual obligations are extinguished 54. The consumer must return the goods or discontinue use of the services, and the seller is obliged to return the purchase price. Typically but not always, the consumer must pay the cost of depreciation, if any. The seller has an obligation to inform the consumer of the right to withdraw at the time of contracting. The consumer has a 14-day period in which to exercise the right to withdraw. Withdrawal is entirely discretionary; the consumer need not have, or provide, a reason for withdrawing from the contract. After the consumer exercises the right to withdraw, the seller must return any payments received within 14 days. The consumer bears the cost of returning the goods unless the seller has agreed otherwise. The consumer is also liable for any diminished value of the goods resulting from the handling other than what is necessary to ascertain the nature and functioning of the goods, unless the trader did not give notice of the right to withdraw prior to contracting. Likewise, the consumer is not charged for any benefit he derived prior to withdrawal. Thus, in the case of service contracts, the consumer is not liable for the cost of performance prior to withdrawal. There are numerous exceptions to the right of withdrawal. For distance contracts, examples include goods and services whose prices depend on fluctuations in financial markets, customized goods, sealed recordings and software that were unsealed by the consumer, newspapers and other periodicals, gaming and lottery services. The right to withdrawal in the context of consumer protection legislation constitutes mandatory contract terms. In the legal literature 55 we find as a main reason for their introduction the need to promote the interests of the weak consumer in the face of the economic power of his partners in the marketplace. Consumers are seen as less knowledgeable and economically inferior to producers and traders. In order to protect the weak consumer and correct the perceived imbalance in economic power, the legislator attempts by mean of mandatory law to adjust the environment within which the bargain is struck. Hence, from a legal perspective protective rules are designed for distributional reasons. The issued directives are expected to give consumers what is taken away from the 54 Marco Loos, Rights of Withdrawal, in Geraint Howells and Reiner Schulze (eds.), Modernising and Harmonising Consumer Contract Law, Sellier, Munich, Howells, G., Weatherill, S. (2005), Consumer Protection Law, 2nd Edition, Ashgate Publishing 33

35 trader, in order to equalize consumers position. We shall see that cooling-off periods are also seen as a remedy for market inefficiencies 56. Justification for the right of withdrawal is reflected in the functions that the legislator wishes it to fulfill. Recital 22 of the proposal for a consumer rights directive states: since in the case of distance sales, the consumer is not able to see the good before concluding the contract he should have a right to withdrawal, which allows him to ascertain the nature and functioning of the goods. However, no critical reflection on this important point is to be found in the Commission s proposal. Eidenmuller notes that withdrawal rights are endorsed as an instrument of consumer protection without proper reflection. He asserts that withdrawal rights should be granted pursuing an economic analysis of their costs and benefits. The need for consumer protection in distance contracts is related to the desire to let consumers and businesses benefit more from the advantages of the internal market by taking away barriers to cross-border trade 57. Therefore, the legalization of the right to withdraw from distance contracts serves a number of purposes: encourage consumers to use the internet to make purchases, encourage consumers to engage in cross-border purchases, actions which indirectly promote the online internal market. Loos notes that these justifications are not persuasive and any psychological barrier against buying goods from someone outside one s presence has by now surely crumbled. These justifications may reflect special European concerns, namely, the drive to integrate national markets 58. The promotion of the online conclusion of contracts could be thought to constitute an independent reason for the introduction and maintenance of a right of withdrawal for distance contracts. As such, we notice an overlap of arguments between consumer protection and internal market as justifications for the legalization of withdrawal right from online contracts. 56 Rekaiti, P., Van den Bergh, R. (2000), Cooling Off Periods in the Consumer Laws of the EC Member States: A Comparative Law and Economics Approach, Journal of Consumer Policy, Vol. 23, pp Cf. Recital 3 and 4 of the preamble to the Distance Selling Directive 58 Loos, M., 2008, Review of the European Consumer Acquis, Working Paper Series No. 2008/03, Centre for the Study of European Contract Law, Amsterdam 34

36 3.2 Economic rationale of the right to withdrawal from electronic contracts In a distance-selling environment, cooling-off periods can be seen as a remedy for market inefficiencies. The existence of withdrawal rights is related to the economic concept of allocative efficiency. Consumer choice is a central issue of this economic notion, which refers to situations where resources move to their most valued uses. Allocative efficiency is obtained when two key assumptions are satisfied 59. First, consumers must behave rationally by choosing courses of action in line with their preferences, and thus maximizing their utility. Second, consumers must have all the necessary information concerning the alternatives among which they can choose and the effect that each option carries. Both conditions of allocative efficiency relate to the amount of information received and how the consumer makes use of it. In real life business-to-consumer transactions, including online contracts, the assumption of full information is not satisfied and, as a result allocative efficiency cannot be obtained. Therefore, the problem of information asymmetry in distance selling causes markets to fail. From this perspective, the establishment of coolingoff periods for online contracts has an economic rationale: the legislator uses this instrument to provide a remedy to consumers for problems caused by asymmetric information. The idea is that consumers should be afforded the chance to physically inspect the object they want to purchase before making a binding commitment. Where buyers are unable to know the quality of the goods offered for sale, a socalled lemons market might develop. Buyers that are uncertain about the quality of the good purchased will assume a medium quality standard. High quality vendors will not be able to charge high prices for their goods, as buyers will not be willing to honor such high quality since they are incapable of recognizing it 60. Hence, race-to-the-bottom competition due to adverse selection 61 drives down quality and prices until the market finally collapses 62. The granting of a cooling-off period works as an incentive for sellers to set product prices that correspond to the products actual quality; or to put it differently, not to 59 Idem FN 61 (Rekaiti & van den Bergh) 60 Eidenmüller, H. (2011), Why Withdrawal rights? European Review of Contract Law, Vol. 7, Issue 1, pp Akerlof, G. (1970) The Market for Lemons: Qualitative Uncertainty and the Market Mechanism, 84 Quarterly Journal of Economics, Wagner, G. (2010) Mandatory Contract Law: Functions and Principles in Light of the Proposal for a Directive on consumer rights. Erasmus Law Review, Vol. 3, No. 1 35

37 set prices in excess of the full-information value of their products. For example, the consumer who realizes that the quality of a purchased good does not correspond to its price will make use of his right to return it. The use of this withdrawal right can have the cumulative effect of diminishing the particular business total sales. To avoid this loss, the price of the products offered will reflect their real quality 63. In other words, differences in the relative quality of products will be successfully signaled to the consumers through the price mechanism. The provision of a cooling-off period as an information remedy provides the consumer with the possibility to check the quality of the product he bought and to compare it with rival products; in this respect it enhances consumer choice. Therefore, we find support in economic theory for the idea of granting a right to withdrawal for online contracts as it eliminates the problems of adverse selection and quality deteriorations by setting up incentives for traders to improve the quality offered. The economic rationale of cooling-off periods, i.e. their ability to deal with market failures, gets further support from their voluntary acceptance in the context of self-regulation Disadvantages of cooling-off periods The economic analysis of the right to withdrawal would be incomplete if their potential adverse effects were not taken into consideration. These disadvantages range from opportunistic behavior from the part of the consumer to increased transaction costs for businesses. If consumers can easily withdraw from concluded contracts, they may be tempted to abuse this right. First, opportunistic behavior may arise when consumers can use the products during the cooling-off period and return it afterwards to the seller claiming bad quality. An experimental study conducted in Germany by Borges and Irlenbusch (2007) found indications that a mandatory right to withdrawal has increased the rate of returns, exploiting sellers too heavily. Additionally unofficial statements increasingly report cases in which a distance contract with a right to return is used to borrow goods. Examples include orders of expensive TV-sets before a soccer championship, which are returned after 63 Idem FN 61 (Rekaiti & van den Bergh) 64 Consumer Affair and Competition Policy Directorate,

38 the tournament, or the order of a wedding dress. The same authors claim that, to a large extent, the behavior of online buyers tends to be rational in the sense that they maximize their own payoff. However, there are also customers that take into account considerations of fairness towards their business partner. The main factor responsible for a self-interested consumer withdrawal behavior is the shift from a voluntary granted right of withdrawal to a mandatory law provision. The mere existence of return costs does not distract consumers from misusing the withdrawal right. Second, cooling-off periods increase the costs of carrying out transactions because contracts are in effect completed only after the expiration of the cooling-off period, which causes delay and uncertainty for the trader. Third, supply may be reduced and the spectrum of products and services offered may shrink due to the risk of the possible withdrawing and the compliance costs, eventually, causing suppliers to even leave the market 65. Compliance with the legally imposed duty to provide all buyers in certain transactions with a cooling-off period may prove quite costly for the seller. The seller might ask a higher price, proportional to the value of the product, when the transaction is finally completed, in order to be compensated for the costs of transactions that were called off. But even if all agreements are finalized after the expiration of the cooling-off period, the payment still comes at a later point in time. The deferred payment s value is always less than the immediate payment s value. Hence, the seller may impose a price increase incorporating an interest for the delayed receipt of payment. In a competitive market, all the costs just mentioned are ultimately borne by all consumers. They bear the costs triggered by those consumers who can be characterized as withdrawal rights users 66. To put it differently, withdrawal rights are paid for by all consumers, regardless of whether they wish to have and/or to exercise such rights. This demonstrates the fact that consumer protection is not a zero-sum game and in reality the consumers may have to bear the costs of their protection through higher prices, and goals of allocative efficiency in consumer protection matters may thus not be achieved. 65 Barefoot, Marrinan., & Associates, Inc., Thakor, A. V., & Beltz, J. C. (1993), Common Ground: Increasing Consumer Benefits and Reducing Regulatory Costs in Banking. Madison, WI: University of Wisconsin, Herbert V. Prochnow Education, General Banking Study. 66 The experience conducted by Borges and Irlenbusch (2007) reveals that a large portion of returns (40%) is caused by a vely small number of customers (10%), often persons with low income. 37

39 3.4 Cost-benefit analysis of cooling-off periods In the policy debate on withdrawal rights, such rights are sometimes defended with the argument that they strengthen consumer confidence in distribution channels such as distance selling. However, such a benefit is very hard to quantify. Moreover, granting withdrawal rights irrespective of their cost-benefit effects on the micro level of specific transactions would surely be over-inclusive. Withdrawal rights would exist even though, on that level, they are clearly not worth their costs. Cooling-off periods may be welfare reducing if used as a means to inspire consumer confidence regardless of their necessity as a protective tool on the micro level. In an economic analysis of cooling-off periods, the question of whether the costs of their regulatory provisions outweigh their benefits is fundamental. Eidenmüller argues that a withdrawal right makes sense and should be granted only if its benefits clearly outweigh its costs. As we have seen above, the costs associated with withdrawal rights come in different forms, whereas the principal benefit is only one and it can be stated as follows: the right to withdraw is a tool to counteract the performance of inefficient contracts. The case for a withdrawal right is strongest if the consequences of not being able to withdraw from an inefficient contract are grave for the consumer. 3.5 The optimal harmonized cooling-off period to promote online trade The effectiveness of such a right is conditioned on the length of the cooling-off period and on how the consumer is to perform his withdrawal in case he decides to make use of such a right. The purpose of this paper is to concentrate on the length of the coolingoff period; therefore the discussion shall not take into consideration the proceedings of how the consumer is to withdraw from a contract. Considering the topic of this paper, the question naturally arises whether the new introduced 14-day length of the cooling-off period in online transactions is optimal from a consumer protection standpoint. Ben-Shahar and Posner (2010) have demonstrated in a theoretical model that rules that mandate free withdrawal for a fixed period can lead to inefficient outcomes any time the depreciation cost exceeds the allocative value that more information affords the buyer/consumer. The longer the free withdrawal period, the greater 38

40 the potential inefficiency. Therefore, the depreciation costs sellers expect to suffer as a result of free withdrawals translate into higher prices or reduced choice for consumers. On the one hand, a cooling-off period should allow the consumer sufficient time to gather and process all relevant information concerning his purchase. On the other hand, periods that are too long may cause transaction costs in excess of the benefits achieved by curing the problem of asymmetric information 67. The optimal length would balance the buyer s gain from the reduction of uncertainty, and the seller s loss in terms of depreciation 68. If the buyer gains a great deal of information from having the good in his house, and the good depreciates very little, the buyer would have the right to return the good. This right benefits the seller ex ante, because buyers are more likely to buy a good if they have the right to return it if they do not like it. The right to free withdrawal should end at the point where depreciation costs exceed the information benefits. A second combination would give the buyer, rather than a free withdrawal right, the option to return the good and pay the depreciation loss to the seller. This option forces the buyer to support the cost that the seller incurs during the withdrawal and in this way gives the buyer the optimal incentive to keep or return the good. This contract does not require an ex ante prediction of the point in time at which depreciation costs will exceed the information benefits, as long as the depreciation is priced accurately. However, both these solutions have their own catch because they rely on accurate pricing of depreciation which practically makes them difficult to apply. A third option which overcomes the depreciation problem is to use time as a proxy for depreciation. If goods tend to depreciate slowly, while buyers can gain most of the information they need quickly, then the optimal duration would extend for just a few days after the sale 69. We have seen above that, from a theoretical perspective, the optimal cooling-off period could be determined by identifying the point where depreciation costs equals the information benefits. However, it has to be mentioned that the particular contents of the transaction will determine the optimal duration of the cooling-off period. 67 Haupt, S. (2003), An Economic Analysis of Consumer Protection Law, 4 German Law Journal, Ben Shahar, O., Posner, E. (2010), The Right to Withdraw in Contract Law, Economics Working Paper No. 514, University of Chicago, The Law School 69 Idem FN 73 39

41 When the goods purchased over the internet are search goods 70, a fourteen-days cooling-off period appears rather long. The purchase of a book may serve as an example. The quality of such product may be ascertained within a shorter timeframe than fourteen days after receipt. However, for experience good 71 and credence good 72 qualities, there is great skepticism regarding the effectiveness of a fourteen-day cooling-off period to cure information asymmetries. For example, it is hard to check within fourteen days whether non-corroding Japanese kitchen knives really deserve this attribute. In such cases, comparing the duration of the commercial warranties granted by different sellers may prove a more effective remedy for the informational asymmetry problem 73. In the case of experience and credence goods, a cooling-off period could be rather justified with instable preferences than as an efficient remedy to cure information asymmetries 74. It is not easy to establish what an optimal duration for the cooling-off period would be. In deciding on the duration, the different interests of both the consumer and the trader need to be reconciled. In addition, the cross-border element of the transaction needs to be taken into account. In this respect one should recognize that the cooling-off period should be sufficiently long for the consumer to be able to make use of the right to withdrawal in due time in cross-border contracting. On the other hand, the cooling-off period should not unreasonably burden the trader with uncertainty as to the finality of the contract concluded. In choosing for a uniform 14-days period to withdraw the new CRD seems to strike an optimal balance between the interest of both consumers and businesses. 70 In economics, a search good is a product or service with features and characteristics easily evaluated before purchase. In a distinction originally due to Philip Nelson, a search good is contrasted with an experience good. 71 In economics, an experience good is a product or service where product characteristics such as quality or price are difficult to observe in advance, but these characteristics can be ascertained upon consumption. The concept is originally due to Philip Nelson, who contrasted an experience good with a search good. 72 Post experience goods, also called credence goods, are goods for which it is difficult for consumers to ascertain the quality even after they have consumed them, such as vitamin supplements. 73 Idem FN 61 (Rekaiti & van den Bergh) 74 Idem FN 72 (Haupt) 40

42 3.6 Strengthening consumer protection in the IM From the start, the Proposal for a CRD has been presented with enthusiasm as a mean to secure both a high level of consumer protection and to finalize the internal market for an optimal exchange of goods and services. In paragraph 5 of the preamble to the CRD final version 75, we find the following statement: [...] the full harmonization of consumer information and the right of withdrawal in distance and off-premises contracts will contribute to a high level of consumer protection and a better functioning of the business-to-consumer internal market. Based on the above statement, this section argues that establishing a European uniform legal instrument such a 14 days cooling-off period can indeed contribute to a high level of consumer protection which translates into increasing consumer confidence in the internal market based on equivalent rights 76. However, given the fact that consumer confidence in online shopping is a complex process dependent on various factors, the contribution of a harmonized right of withdrawal is limited. Analyzing the provisions on withdrawal right 77, one can argue that consumer rights regarding online shopping have been strengthened in all 27 EU countries. The CRD contains several provisions which support this point of view. The fact that the period to withdraw from online contracts has increased from 7 to 14 calendar days, may constitute an argument in favor for the process of increasing consumer confidence over the Internet. Also, we welcome the alignment of the time period for the trader s obligation to reimburse the money received from the consumer and that for the consumer obligation to send back the goods 14 days for both. This is a fair solution for both parties as in most cases the return of the good coincides with the reimbursement of the money paid. Further in the withdrawal right provisions we find other examples that confirm strengthening consumer rights. First, it clarifies the start period for withdrawal, which is now the moment the consumer acquires physical possession of the goods, as opposed to the old legislation, 75 European Parliament, Consumer Rights Directive, Text Adopted at the Sitting of Thursday, 23 June Poncibo, C. (2009), Some Thoughts on the Methodological Approach to EC Consumer Law Reform. Loyola Consumer Law Review, Vol. 21, No. 3, pp Articles 9 16 of the Consumer Rights Directive 41

43 which was stated ambiguously as the day of receipt by the consumer 78. Second, where the seller hasn t clearly informed the customer about the withdrawal right, the return period will be extended from three months to one year. Third, consumers will be able to (but not obliged to) make use of a brand-new EU-wide model withdrawal form for the exercise of their withdrawal right, a reasonable effort at approximating the practice of withdrawal in Europe and at reducing unnecessary differences in the formats of such forms. In the Digital Era in which we now live, more and more goods are purchased or downloaded in an intangible, digital format. Millions of consumers buy online music, films, software, ringtones, games and books in digital format. The frequency of sales of digital products increases continually. It needs to be underlined that EU and national law have been very slow to reflect this lacking protections in case of problems 79. However, many online goods and services are provided across Europe, despite the lack of consistency in consumer protection, simply because the providers drafted a single high level consumer protection policy complying with all the existing legislations in the EU 80. The adoption of some new rules to address consumer concerns in the digital environment is very welcomed. Common problems faced by consumers when purchasing digital goods downloaded directly to the computer include goods which simply do not work or do so imperfectly, are not interoperable with hardware and legitimate expectations are not being met. Fortunately, the provisions on consumer information and right of withdrawal for distance contracts underline that before the consumer is bound by any distance contract or any corresponding offer, the trader shall provide the consumer with sufficient and clear information on functionality of digital content, including technical protection measures, and any relevant interoperability of digital content with hardware and software 81. Article 16(m) of the new CRD provides that the consumer loses his right of withdrawal when purchasing downloadable digital content if the performance has begun with the consumer s prior 78 The issue of when receipt takes place has been raised on occasion (e.g. if a parcel is delivered when the consumer is absent, does receipt occur when the postman leaves the card notifying attempted delivery or when the consumer picks up the parcel from the post office?) 79 BEUC Press Pack, The Consumer Rights Directive, in need of revival, Brussels, March Available at: skrar/pr2011_011e_crd_press_pack.pdf 80 COFACE, COFACE s Comments on the Consumer Rights Directive, March, Available at: eu.org/en/upload/05_policies_wg3/2010%20coface%20comments%20consumerrightsen.pdf 81 Conform Article 6, paragraph 1, subparagraphs (k), (q), (r) of the Consumer Rights Directive 42

44 express consent and his acknowledgment that he hereby loses his right of withdrawal. The trader has an obligation to inform consumers that they will not benefit from a right of withdrawal, and where applicable, the circumstances under which the consumer loses his right of withdrawal. Moreover, if the consumer has not given his prior express consent to the beginning of the performance before the end of the 14-day cooling-off period, or if the consumer did not acknowledge that he loses his right of withdrawal when giving his consent, or if the trader has failed to provide the confirmation of the contract concluded, then the consumer shall bear no costs for the supply of downloadable digital content 82. The Directive s attempt to uniform withdrawal right within the internal market constitutes a reasonable effort at approximating the practice of withdrawal in Europe and at reducing unnecessary differences in the formats of such forms. The approximation of the right of withdrawal was easy to achieve as this is more a technical aspect of consumer law. The fact that the harmonization level chosen was high enough and reflected other high national levels of protection in the EU made negotiations and agreements between legislators easier. Given the fact that consumers enjoy the same high level rights in matters of withdrawal in his country and across-borders, it contributes to the assurance effect 83 that European legislation may have. A case in point is the duty on air carriers to inform customers of their rights under the Denied Boarding Regulation 84. From the point of view of national and EU consumer organizations there was great concern about the level of consumer protection already achieved in some Member States, which would be sacrificed for the sake of the internal market. Of course, the directive has its own downsides. Certain national levels of protection will have to be abolished or at best, locked for the next years with the impossibility to legislate and provide higher protection if needed. A case in point is Ireland, where to exercise the right of withdrawal consumers would need to comply with new formal requirements which complicate the consumer s use 82 Conform Article 14, paragraph 4 (b) of the Consumer Rights Directive. 83 Van Boom, W.H. (2009). The Draft Directive on Consumer Rights: Choices Made & Arguments Used, Journal of Contemporary European Research. Volume 5, Issue 3. pp Regulation (EC) No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights. Art. 14 (1) Denied Boarding Regulation reads: The operating air carrier shall ensure that at check in a clearly legible notice containing the following text is displayed in a manner clearly visible to passengers: If you are denied boarding or if your flight is cancelled or delayed for at least two hours, ask at the check in counter or boarding gate for the text stating your rights, particularly with regard to compensation and assistance. 43

45 of the right of withdrawal; before, sending back the good to the trader was considered a tacit withdrawal. Overall, we agree with Monique Goyens comments, Director General of BEUC: this piece of legislation is a tough compromise between consumers and traders interests and even though some national rules will be overruled, on the whole there will be progress for consumers. In this light, we conclude that even a single piece such as a uniform right of withdrawal will benefit consumers in the internal market from more legal certainty. 3.7 Increasing legal confidence for consumers in the online IM? We have assessed the possible effects resulting from fully harmonizing the right of withdrawal from online purchases likely to affect consumer rights in the internal market. This section focuses on the relationship between strengthening consumer rights and increasing consumer confidence in online purchasing. More exactly, we question if withdrawal right harmonization has any impact on consumer confidence to conclude online contracts. The notion of consumer confidence comes from the domain of economic psychology and it concerns a consumer s appraisal of current economic conditions and his expectations of future economic conditions 85. George Katona 86 suggests that two broad factors influence consumer decision to buy. The first one is an objective factor: what he called the ability to buy, related to financial considerations. The second one is a subjective factor that he called the willingness to buy. This willingness to buy is what the concept of consumer confidence tries to capture. From the outset, I underline that consumer confidence is the result of a complex social construction resulting from a series of factors. In such a framework, the assumption that the consumer avoids buying in another state just because he does not know the law is an obvious oversimplification 87. One of the fundamental arguments forwarded by the Commission and sustained by the Parliament as well, is that the CRD s law approximation and high level protection will help increase consumer confidence in order to complete cross-border internet transactions. 85 Idem FN 81 (Poncibo) 86 Katona, G. (1975), Psychological Economics, Elsevier, New York 87 Idem FN 81 (Poncibo) 44

46 In other words, the confidence and trust of consumers in the internal market requires the eradication of law differences between Member States so that consumers know that they are covered by the same high level of consumer protection across the Community. This reference is to be found in paragraph (6) of the Directive final version preamble 88 : Certain disparities create significant internal market barriers affecting traders and consumers. They increase compliance costs to traders wishing to engage in the crossborder sale of goods or provision of services. Disproportionate fragmentation also undermines consumer confidence in the internal market. The message is as follows: if consumer protection rules are harmonized throughout the internal market, in this way one can stimulate consumers to shop across borders and this in turn will activate the internal market. Of course, this claim is connected with an express presumption that the harmonized legislation will ensure a high level of consumer protection. This type of argument adopts the internal-market purpose, but puts the activity of the consumers into focus 89. The well protected confident consumer is seen important for internal market reasons. It is interesting to note that the same line of reasoning, the need to strengthen consumer confidence in the internal market, was used in several minimum directives, creating a minimum safety net for consumer protection throughout the Community. This is clearly stated in the Unfair Contract Terms Directive 90 and Consumer Sales Directive 91. This demonstrates that the internal market purpose remains the same, while the harmonization method has changed in order to gear the activity of the consumers towards constructing the single market. Therefore, we question whether the measures taken under the form of maximum harmonization will be effective in convincing consumers to step into other national markets in the process of creating a virtual European market. At the outset legal fragmentation affecting consumer confidence seem to be a very plausible reasoning. Consumers may indeed be reluctant to purchase from abroad because of a lack of confidence in the protection offered to them in foreign markets. 88 European Parliament, Consumer Rights Directive, Text Adopted at the Sitting of Thursday, 23 June Wilhelmsson, T., (2004) The Abuse of the Confident Consumer as a Justification for EC Consumer Law, Journal of Consumer Policy, vol. 27, Issue 3, pages Directive 93/13/EEC on Unfair Terms in Consumer Contracts 91 Preamble (5) of Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees 45

47 However, empirical data from Consumer Surveys 92 identify other major obstacles preventing consumers from cross-border shopping. Firstly, concerns about late or nodelivery or fraud are a major factor preventing cross-border e-commerce. 62% of consumers who had not made a cross-border distance purchase said that fears about fraud put them off, 59% cited concerns about what to do if problems arose and 49% were worried about delivery. In addition, 44% agreed that being uncertain about their rights discouraged them from buying goods or services from sellers in other EU countries. Secondly, many online shops are not prepared to sell to consumers from every EU country, which means that transactions are often interrupted when it becomes apparent that the consumer resides outside a particular market. For example, many consumers are not able to register on the website in order to continue the transaction, many websites refuse to ship to the shopper s country and many payment options are not really available for crossborder transactions. Testing 93 online shops to compare how domestic transactions are handled compared to cross-border transactions revealed that on average 61% of all crossborder orders fail because traders refuse to serve the consumer s country. I will return to these problems in the next section of the paper. In the third place, it is questionable how the law harmonization is going to increase consumer confidence in online shopping when there are doubts about consumer s knowledge of their rights, and thus their confidence cannot be "influenced" by something they do not know about. To a large extent, the Rome I Regulation already gives precedence to the level of protection offered by consumer law of the country of residence of the consumer 94. Recent empirical evidence regarding awareness of consumer rights shows that few consumers actually read the conditions of sale. 18% of individuals who ordered goods or services over the Internet never read the terms and conditions of sale, 47% sometimes read the conditions and 35% said they always read the conditions of sale. Even though consumers are not familiar with their rights, they tend to trust traders from their country more than unknown foreign traders. However, a general understanding that the systems are 92 European Commission, Consumer Conditions Scoreboard, Consumers at home in the Single Market, 5 th Edition (March, 2011) 93 YouGovPsychonomics (2009), Mystery shopping evaluation of cross border e commerce in the EU, Data collected on behalf of the European Commission, DG SANCO 94 Art. 6 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) 46

48 more similar, even though the concrete knowledge concerning their content is lacking, may support attitudes which are favorable to cross-border shopping. A close analysis of these reasons points to completely other obstacles that undermine consumer confidence and which primarily concern various access problems following from the fact that the consumer and the seller are located in different countries. The adoption of the new legislation, and in particular the harmonization of coolingoff periods, will be a useful tool to simplify the existing legislation, but, it will probably have only a limited impact on the confidence of European consumers, that may continue to be undermined by other factors, such as legal factors (legal security), cultural factors (national preferences), economic and social factors. Therefore, European legislator has abusively used the consumer confidence argument in the CRD context in connection with measures aiming at maximum harmonization of consumer law. In conclusion, there is no better way to say it than professor Micklitz: [ ] the European Commission discovered the confident consumer as a political tool to convince MS that mandatory standards in contract law were needed to strengthen consumer confidence in the internal market. The concept of the confident consumer now becomes a legal normative prerogative which changes the outlook of consumer law. Consumer confidence is meant to justify the development of one coherent body of consumer law which surplants national consumer law The way ahead Internet selling carries inherent risks even when run by reputable traders. Its success as a selling medium is dependent upon consumers feeling secure. Consumer s right to safeguard must be recognized. This involves technological and logistical issues, but also legal security is an important factor. Not all consumers need initially to be persuaded to use the internet, but sufficient members have to have confidence in it that they can spread news of its advantages so that ultimately it becomes a familiar part of the retail environment that most consumers are happy to use. 95 Hans W. Micklitz, (2008), The visible Hand of European Regulatory Private Law. The Transformation of European Private Law from Autonomy to Functionalism in Competition and Regulation. EUI Working Papers, Law 2008/14 47

49 Underlying data from Consumer Survey 96, suggest that many concerns can be overcome if consumers can be persuaded to make at least one cross-border purchase. If indeed lack of knowledge of consumer rights restrains consumers from cross-border consumption, why not assisting consumers in recognizing European rights 97? If there was a real concern with legal issues in cross border consumption, perhaps what the European consumer needs is education on their harmonized rights. Now, after the adoption of the CRD, what would be beneficial for both consumers and the internal market is pursuing a marketing campaign 98 with the harmonized European rights, as a genuine online market needs a change in consumers attitudes and perceptions. Secondly, apart from safeguarding rights for consumers, another important aspect needs to be further examined, especially in the evolving e-commerce environment. This new approach concerns consumers needs as against the established consumers rights in the internal market. If the key principle is to empower consumers to participate actively in the market and make it work for them in a way which protects their rights and economic interests, then it is recommended to deal with the problems consumers encounter when shopping cross-borders. We have seen from above that consumer confidence does not necessarily coincide with offering consumer more rights, therefore consumer rights do not satisfy consumer needs all the time. Empowering consumers, and along with that building consumer confidence, requires a broader focus than rights alone, namely means to solve the most common and urgent problems of consumers in the different MS. We agree that rights of withdrawal and information rights in the CRD are useful and necessary means to satisfy legal needs for consumers. However, rights alone often fail to satisfy the legal needs adequately. Among the most important reasons 99 why rights fall short on empowering consumers we mention: most of consumers are not aware of their rights; consumers have limited abilities to make rational choices; consumers have problems enforcing their rights. 96 Idem FN Micklitz, H. W.,The Targeted Full Harmonisation Approach: Looking Behind the Curtain, in: Geraint Howells/Reiner Schulze (ed.), Modernising and Harmonising Consumer Contract Law (2009) 98 Idem FN De Hoon, Machteld W. and Mak, Vanessa, (2011) Consumer Empowerment Strategies A Rights Oriented Approach Versus a Needs Oriented Approach. Zeitschrift fur Europaisches Privatrecht (ZEuP) 3/2011; Tilburg Law School Research Paper No. 018/

50 Therefore, consumer empowerment requires establishing clear and easily enforceable rights along with other measures that fulfill consumers practical needs. This requires a bottom-up approach to identify and tackle the problems encountered by consumers when shopping online. Firstly, of a real benefit would be undertaking real empirical research to identify the actual problems of consumers and the weak spots of consumer protection in solving these issues. Specific in depth research should focus on consumers from new MS and from markets with the most common problems, to find out more about effective measures to empower consumers in these areas. To identify real needs of consumers, research should include for instance the following questions: what are the problems consumers face in online transactions, both domestic and cross-border? What are the products/services that consumers want to buy online? what kind of redress do consumers need in case a product is faulty? What makes consumers feel confident or reluctant to shop cross-border? Where do consumers buy their products from? Secondly, special measures should be developed to support consumers becoming better self-helpers in solving conflicts. Consumers from established MS are more inclined to complain and to resolve disputes with traders through alternative dispute resolution. This kind of behavior should be promoted in the MS where consumers are reluctant to file complaints (especially consumers from ex-communist countries). One example of measure that would encourage self-help is the development of an online library that comprises data collection of consumer problems and responses in cross-border online shopping covering each MS. The data base should include particular outcomes in disputes, grouped as specifically as possible in order to cover a large range of issues. Consumer input is encouraged in order to contribute to the development of the data base by describing the matter and asking for advice in a specific issue encountered. It would give consumers a better perspective of what may be a reasonable outcome in this situation and give them confidence in negotiating their way out of the problem. The platform should be available for both consumers and sellers. This action is in the interest of businesses as well. They can have a better perspective of consumers disappointments and expectations when it comes to online business. In addition, traders benefit from information about consumer rights. In conclusion, these measures should contribute to the process of empowering consumers to benefit the internal market potential. 49

51 PART IV BUSINESS ATTITUDES TOWARDS CROSS-BORDER TRADE IN THE LIGHT OF A HARMONISED COOLING-OFF PERIOD FROM ONLINE CONTRACTS This chapter gives an overview of the barriers that keep away businesses from engaging in cross border online selling. More importantly, the analysis shall focus on the relationship between consumer law harmonization and business attitudes towards crossborder trade. In this respect, the analysis goes further to identify any potential benefits that full harmonization of cooling-off periods from online contracts, and thus legal certainty, may occur on business willingness to conduct cross-border transactions. 4.1 Barriers faced by e-businesses in the internal market In order to understand why businesses are reluctant to engage in cross-border e- commerce we need to identify the potential obstacles they might face throughout Europe in the relationship between businesses and consumers. It is also worth noting that a sizeable proportion of e-traders are not interested in selling to other Member States (around 25% at EU27 level) 100. For simplicity reasons and connection to the topic we choose to categorize the barriers to e-businesses into practical and legal barriers. Practical barriers identified by retailers, enumerated based on their importance, are the following: non-payment and risk of fraud, different national fiscal regulations, different VAT pricing calculations, the difficulty in resolving cross-border complaints and conflicts, extra costs arising from cross-border deliveries and the difficulties in ensuring after-sale service. From an economic perspective these barriers imply higher costs for businesses, if trade was to be conducted in other regions (e.g. higher costs of delivery, marketing, advertising, servicing and support). The costs arising from language differences seem to have less importance then it would be 100 European Commission (2011), Flash Eurobarometer 300 on business attitudes towards cross border trade and consumer protection; Conducted by The Gallup Organization upon the request of DG SANCO. 50

52 expected 101. To draw a parallel to the previous chapter on consumer confidence in online shopping, it seems that we can identify a trade pattern in e-commerce. Consumers as well as businesses who have direct experience with cross-border trade perceive barriers to e- commerce to a lesser degree than those unfamiliar with this form of trading. Divergent provisions regulating consumer transactions are among the legal reasons that prevent retailers from engaging in cross-border e-commerce. It seems that differences in regulations related to failure to provide information, in legislation regarding goods not in conformity with the contract, in the treatment of costs of return and differences in the length of cooling-off periods are now seen as important obstacles by retailers 102. These differences in national legislation which imply additional legal costs for traders and the need to formulate different contractual clauses for each MS constitute reasons that would prevent firms to sell their goods or services to consumers from other MS. The need for harmonization of the right of withdrawal was confirmed in the responses to the Green Paper 103, as follows from the staff working document 104 accompanying the CRD proposal. According to this working document, a clear majority of the respondents showed support for unification of the cooling-off period, including 65% of the consumer organizations, 75% of practitioners, and a well majority of MS. According to business stakeholders, the remarkable differences between national legislation of the MS impede businesses in cross-border situations dealing with the right of withdrawal and the duty to properly inform the consumer on the applicable duration of the cooling-off period. Given these comments, it is surprising to note that only 44% of business respondents spoke in favor of harmonization of cooling-off periods. In the responses to the Green Paper there is a variation in opinion as to the length of a uniform cooling-off period. In particular it was suggested from the business side that a uniform period of 14 days would be too long and it would open the opportunity for consumers to abuse their cooling-off period. Conversely, consumer organizations argued that a period of 14 calendar days would 101 YouGovPsychonomics (2009), Mystery shopping evaluation of cross border e commerce in the EU, Report conducted on behalf of DG SANCO 102 Idem FN Green Paper on the Review of the Consumer Acquis of 8 February 2007, COM (2006) 744 final 104 European Commission (2008) : Impact Assessment Report Accompanying the Proposal for a Directive on Consumer Rights, Commission Staff Working Document 51

53 satisfy an acceptable high level of consumer protection following the example of well established regimes of consumer protection in Europe. Therefore, it was opted for a consumer friendly rule, easy to handle and to explain of a 14 days cooling-off period. 4.2 The importance of a harmonised set of rules for e-businesses Legal and practical barriers may result in territorial differentiation for e-commerce which has a negative impact on price competition and the availability of offers for consumers. According to a recent study 105 regarding cross-border e-commerce in the EU, for 61% of cross-border online transactions, consumers were not able to place an order mainly because businesses refused to serve the consumer s country. The suggestion from EU legislator for this situation (at least partly) is that traders have to take account of minimum protection rules of the country of residence of the consumer according to Rome I Regulation. While that may be overstating the matter, since practical barriers like delivery costs or payment problems appear to be problematic as well, it is likely that differences in law have their contribution to sellers hesitance to deliver to consumers in other MS. Of course, consumers from some MS will miss out on the benefits of the internet to have more choice and lower prices available to them. The consequences will be felt most severely by consumers from smaller countries that are not attractive enough for businesses from other countries to invest in serving those consumers. Exclusion of consumers from other member states also stands in the way of the free exchange of culture, knowledge and information throughout Europe. Legal obstacles increase the costs of doing business in the internal market, in particular when new business entrants such as SMEs wish to engage in cross-border sales. The CRD aims at leveling the playing field for businesses, therefore enabling them to comply with national legislation requirements and save up on administrative burdens to adapt their legal contract rules. The Commission strongly argues that businesses need legal certainty meaning that clear standards are set, so that businesses know which rules they have to comply with. As we have seen in the previous chapter, to a certain extent such barriers also make consumers uncertain about their rights and undermine their confidence 105 Idem FN

54 in the internal market. When crafting the provisions of the directive the EU legislators have struggled to provide the necessary legal certainty to both businesses and consumers in the European internal market. Harmonization and uniformity of rights will considerably increase legal certainty for both sides. Both parties will be able to rely on a single regulatory framework based on clearly defined legal concepts regulating aspects regarding online trade in the EU. The effect will be to eliminate the barriers stemming from the fragmentation of the rules in electronic contracts and to enable the internal market to be achieved in this area. Therefore, rules that provide legal certainty can be of economic benefits both to businesses and to consumers. However, there are critics 106 arguing that the efforts of European legislators to increase legal certainty will not have a sound impact on the development of European e- commerce. The most important to note here is that legal certainty is a relative concept. This is a goal that can never be achieved, no matter the harmonization approach chosen. In some circumstances, there will always be unclear issues for the parties, businesses and/or consumers, which are in need of legal counseling or eventually, court of justice intervention. The first argument forwarded by critics emphasizes the reality of business practice in cross border online selling, a reality that is underestimated by the legislators. Many retailers selling via websites across the EU apply only one consumer contract and guarantee, but drafted with a high consumer protection level by default in order to meet the requirements across all MS 107. However, an argument against this one would be that the CRD s purpose is to protect consumer s interests, for they are considered the engine to the internal market. Furthermore, the second argument is that practical barriers such as the costs of delivery abroad, associated with the costs of providing a multilingual website, multilingual consumer after-sale services, different VAT pricing calculation and other administrative burdens unrelated to consumer contracting makes it unlikely that, thanks to legal certainty stemming from a harmonized right of withdrawal and information requirements, businesses will automatically have the resources necessary to start selling cross-border goods and services. The most common problems faced by businesses relate to 106 COFACE (2010), COFACE s Comments on the Consumer Rights Directive, Position Paper 107 Such is the case for instance, for the German retail store Music Store ( ), which sells all over the EU countries, having a 30 days money back guarantee for all countries. 53

55 the shipment of goods or to the means of payment 108. Shipment abroad is usually more costly than internal posting. Further it appears that the availability of payment options is often more limited for cross-border transactions than for domestic ones. What matters for the trader is whether the consumer is actually able to pay. The fact that it is harder to ascertain the credit ratings of foreign customers than of domestic ones or that the costs of legal proceedings will be high in comparison to the value of the good, may well be real factors that deter traders from selling cross-border 109. Last, but not least, in a competitive environment businesses need to differentiate from their competitors by advertising different sales conditions susceptible to convince the consumer to buy their goods or services. Mandatory rules in contract law limit the space of maneuver that entrepreneurs need in order to adapt to the evolution of the market. One argument for this would be to allow for commercial innovation and new sales conditions for businesses in the online market. 4.3 The optimal level of consumer protection for e-business We have seen from above that legal certainty for businesses means foremost that a clear set of standards is set, so that they know which rules they have to comply with. At the same time, however, it would be unrealistic to think that businesses will accept any degree of consumer protection. What level will be acceptable will depend on an assessment of costs and profits: it is likely that a lower level of protection will decrease costs (e.g. costs of uncertainty of transaction during the cooling-off period) and will therefore be more attractive for businesses. Even if legal certainty can be ensured through any standard as long as businesses know which it is, their preference may still be for a lower level of protection. Moreover, a lower level of consumer protection could open up new possibilities for consumer sales between traders and consumers in different MS. The problem of online offers being refused to consumers in some MS would so be addressed. In other words, availability of products would be paid by consumers through the concession of part of their 108 Idem FN De Hoon, Machteld W. and Mak, Vanessa, (2011) Consumer Empowerment Strategies A Rights Oriented Approach Versus a Needs Oriented Approach. Zeitschrift fur Europaisches Privatrecht (ZEuP) 3/2011; Tilburg Law School Research Paper No. 018/

56 protection. This approach would deprive consumers of certain rights, and on the other hand would offer them a more competitive market, with lower prices and increased choice. On the contrary, assuming that 14-day cooling-off period ensures a high level of consumer protection, it may be less attractive for businesses from a cost perspective. Accordingly, when cooling-off periods are too long they may encourage moral hazard, implying that consumers take advantage of certain obligations imposed on firms, and raise transaction costs as a result of delay and uncertainty of transactions. A compulsory coolingoff period can have further adverse effects. For example, a cooling-off period with severe sanctions on non-compliance and high costs associated with it have the effect that businesses exit the market, which leads to a reduction of supply and higher prices. Therefore, a high level of consumer protection eventually works in the detriment of consumers. One solution to counteract moral hazard and opportunistic behavior would be to make consumers conscious of the price of added protection, therefore making them pay for exercising the right of withdrawal. However, this is also counterproductive for businesses as they will lose buyers in favor of offline selling channels. However, one positive and educative scenario would be to use the new rules as a marketing tool ( your European rights are safeguarded with us ) and so attract more consumers. If the increase in purchases supersedes the additional costs derived from the added protection provided, this could be a lucrative solution for businesses. Most sellers that are active in online trading offer rights of withdrawal on a voluntarily basis, raising the level of consumer protection higher than the CRD requires. Some of the businesses take the full costs of withdrawal upon themselves, usually in domestic sales. The motive behind this practice is, of course, to entice the consumer to order goods in the first place. If an e-seller of shoes did not offer a withdrawal rights, hardly anybody would order goods from his website, even if they were sold at low prices. The same consideration applies to clothes and other goods that must fit. For certain type of goods sold on the internet, rights of withdrawal would be offered and agreed on a voluntary basis without the need to have a mandatory right of withdrawal. We can draw the conclusion that in certain cases sellers do not need a mandatory rule to take into account consumer s interest and they come up with new levels of consumer protection in order to 55

57 offer buyers strong incentives to purchase. In the end consumers are the engine of every business. However, the EU legislator is not willing to let the market competition develop new strategies on withdrawal rights, but chooses to expand its oversight of consumer markets. The Commission has repeatedly emphasized the idea that online commerce is unlikely to grow in popularity in Europe unless consumer confidence can be enhanced, and the most obvious means of achieving that end is greater regulation of B2C transactions to protect consumers. By mandating a high level of protection, EU online consumer contract law forces all businesses to internalize high compliance costs and constraints the range of possible innovation in marketing channels. In conclusion, businesses may benefit from greater legal certainty and lower compliance costs due to a uniform and harmonised right of withdrawal, but, on the other side, they lose ground on possible innovation in marketing channels. 56

58 CONCLUSIONS Recently, a new consumer rights directive was adopted which purports to fully harmonize the right of withdrawal for consumers and information obligations for businesses in distance selling environment as a means to boost e-commerce and online shopping in the internal market. Full harmonization is a new technique used by the European legislator to establish a set of uniform rights for businesses and consumers in order to break the barriers to online trade in the internal market. The 21th century goal of a virtual internal market for the benefit of European consumers and businesses is a readaptation to nowadays conditions of a previous internal market goal, the only difference between the two goals is of methodology. It seems that minimum harmonization is not delivering to its expectations; therefore a decision was taken to switch to maximum harmonization. Due to divergent views of Member States regarding harmonization and its impact on cross-border trade, legislators reached the conclusion that full harmonization would be feasible and would bring about legal certainty and simplification if applied solely to clear, cross-cutting issues such as definitions, right of withdrawal and information obligations in distance selling; for the other areas dealt with by the proposal on consumer rights directive full harmonization would not bring about more cross-border trade and would even create more legal uncertainty mainly due to the interplay with general contract law and existing case law. Therefore, the new directive introduces a 14-day right of withdrawal from online contracts. Is the choice for a uniform period a correct decision? Is there a good balance between the interests of both consumers and businesses while maintaining a high level of protection? In this respect, one should recognize that there is no one-size-fits-all cooling-off period. On the one hand, the cooling-off should be sufficiently long for the consumer to be able to exercise his right of withdrawal. On the other hand, the cooling-off period should not unreasonably burden the trader with uncertainty as to the finality of the transaction. The interests of both parties need to be reconciled. We can conclude that the uniform duration of the cooling-off period from online contracts can be deemed successful. In certain cases, the cooling-off period might be a too friendly consumer rule. 57

59 The legal analysis conducted in this paper shows that legal fragmentation can be eliminated by introducing uniform rights at EU level. The harmonization process can benefit both consumers and businesses of a clear and easily enforceable set of rights, on condition that both parties internalize the legal changes. However, these actions of harmonization increase legal certainty only to a limited extent, as they represent small changes in the consumer acquis. These small steps might constitute the beginning of the Consumer Law Europeanization. In all likelihood, the harmonization of cooling-off period from electronic contracts has the potential to cut down on existing transaction costs in cross-border online contracting, implying a direct gain for economy and society. The introduction of a right of withdrawal in online selling is justified by two reasons: to protect consumers from market failures caused by asymmetric information in distance selling and to promote the online internal market by giving consumers an incentive to conclude transactions online. The development of the online internal market depends on consumers feeling confident shopping online cross-borders. The adoption of the new directive, and in particular the harmonization of cooling-off periods, will be a useful tool to simplify the existing legislation, but, it will probably have only a limited impact on the confidence of European consumers, that may continue to be undermined by other factors, such as legal factors (legal security), cultural factors (national preferences), economic and social factors. Consumer confidence calls for consumer empowerment. The key principle is to empower consumers to participate actively in the market and make it work for them in a way which protects their rights and economic interests by dealing with the problems consumers encounter when shopping cross-borders. Empowering consumers requires a broader focus than rights alone, namely means to solve the most common and urgent problems of consumers in the different MS. The CRD aims at leveling the playing field for businesses, therefore enabling them to comply with national legislation requirements and save up on administrative burdens to adapt their legal contract rules. Businesses may benefit from greater legal certainty and lower compliance costs due to a uniform and harmonised right of withdrawal, but, on the other side, they lose ground on possible innovation related to withdrawal in marketing channels. 58

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