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Geo-Blocking: a chance for growth or a risk for lower-income countries?

March 28, 2018

Geo-Blocking is defined as a discriminatory practice that prevents online customers from accessing and purchasing products or services from a website based in another member state.
On the 29th of November 2017, the Council – at that time under Estonian presidency – and the European Parliament confirmed their intention to elaborate a directive to address this issue. The removal of geo-blocking barriers is in fact seen as a core step in the EU digital single market strategy.

 

On February 27th 2018 the Council approved the drafted regulation on geo-blocking barriers.
Specifically, this new charter removes any discrimination based on customers’ nationality, place of residence and place of establishment. The new regulation will enter into force nine months after its publication, which should take place within the month of March. The evaluation procedure of the impacts of new rules will start two years after their implementation.

 

Still, what are the reasons behind EU action toward geo-blocking barriers?

 

According to the Council website, the existing barriers represent a limitation of the four fundamental freedoms (movement of goods, persons, capital and services) upon which the Union itself was built. In fact, EU citizens and companies faced discrimination with respect to access to prices, sales or payment conditions when buying products and services in another EU country.

 

Specifically, the new regulation will address access to goods and services, payment transactions, access to e-commerce websites and passive sales.

In fact, customers will no longer be discriminated with respect to general terms and condition in three cases: first, when the trader offers delivery in the EU Member State in which the good or service is purchased; second, when the transaction concerns the purchase of an electronic or digital service; third, when the goods or service is purchased in the Member State in which the trader operates.

Furthermore, firms will no longer be legitimated to discriminate customer in relation to payment methods on the base of their nationality.

Moreover, equal access to e-commerce websites will be granted on the whole EU territory.

Finally, the new regulation addresses passive sales. In fact, firms will no longer be able to launch sales to tackle unsolicited orders. Active sales (i.e. targeting specific market sectors) will still be permitted.

Still, the regulation does not address audio-visual contents. Whether this is due to higher cost of production or higher lobbying capabilities of the film industry is open to discussion.

 

All in all, there seems to be no reason – at least from a purely legal perspective – to worry about the implementation of this new regulation. In fact, it can be easily interpreted as a natural step for the functioning of the European Common Market.

 

As stated by Lilyana Pavlova, Minister for the Bulgarian Presidency of the Council of the EU: “the end of geo-blocking means wider choice and consequently better deals for consumers and more opportunities for businesses”.

 

In slight contrast, there is reason to be less optimistic than the statement above. In fact, even if it is certainly true that the implementation of the new regulation will produce positive effect both on the aggregate demand and supply sides, there could be some undesirable effect.

 

Specifically, purchasing power is still far from being evenly distributed across EU Member States. This raises concern around whether prices will converge toward higher or lower income countries. In the first case, there could be negative side effects for (some of the) producers. In the latter, consumers would benefit from lower prices. This mostly concerns digital products or services like music or e-books. Conversely, products which requires delivery or services that can only be consumed where they are delivered are less likely to be touched by any market distortion. As a consequence, there is matter to believe that, thanks to reduced average transaction costs, the overall economic effect of the new regulation would be positive for both consumers and suppliers.

 

Moreover, some concerns were raised around an alleged danger of (excessive) cultural homogenisation. This argument – again, specifically referring to digital products (songs, e-books…) – warns about the mismatch in commercial power of material produced in certain EU languages vis-à-vis others. Explicitly, English songs and books hold a competitive advantage since they benefit from a way broader demand. Nevertheless, this reasoning relies on an – in the opinion of who writes, quite fragile – assumption, that is seeing digital products as substitutes on the basis of their language. In any case, if this concern will prove to be actually true, some form of cultural desertification could come about via market disincentives to produce materials in local languages.

 

Concluding, it is possible to be optimistic about the effect of the newly approved regulation on geo-blocking barriers. However, some attention should be devoted in the following years to specific cases which could escape a globally positive scenario: digital products – it is important to remind, carrying an artistic and thus cultural value – like music and e-books.

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