Scrutiny of EU Proposals.

There are three EU legislative proposals to scrutinise. The first two on the agenda are: COM (2003) 356, the proposal for a directive concerning unfair business to consumer commercial practices; and COM (2003) 443, the proposal for a regulation on enforcement co-operation. I propose that we take these together.

I welcome Eamonn Carey, Mary Barrett and Orla McGann from the Department of Enterprise, Trade and Employment and Pat Delaney and Patricia Callan from the Small Firms Association. I remind the visitors that while the comments of members are protected by parliamentary privilege, visitors are not so protected. Members are also reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name in such a way as to make him or her identifiable. I now go over to Mr. Carey for a brief presentation.

We propose that I speak on the first item, the unfair business to consumer proposal, and my colleague, Mary Barrett, will deal with second item, which deals with enforcement co-operations. We circulated a short list of headings on which we propose to speak, and I start with some procedural points about what is called the UCP proposal - unfair commercial practices.

This is a proposal of the European Commission for a directive, which means that there is some discretion for member states as to how they transpose it. However, as committee members will see, the proposal is actually quite detailed. It is fairly precise so we will not have very much discretion in how we transpose this measure.

Its legal basis is Article 95 of the treaty, meaning that it falls under qualified majority voting. The decision-making procedure is co-decision, meaning that it must be, agreed by both the Council and the European Parliament. Our focus is primarily on the Council framework in Brussels but the European Parliament will certainly have a significant say in both of these proposals and we may expect significant input from it.

Regarding the timing of UCP, it came out in June or July 2004, during the Italian Presidency. We now have the Irish Presidency and substantial progress is being made. We are aiming for fairly significant progress by the May Competitiveness Council. We aim to get political agreement there on the main policy issues, the big issues, and we are on track for that. Ireland is represented in Brussels by our permanent representative, Eddie Feehan, who is chairing the working group, and by ourselves within our Department, supported by the Office of the Director of Consumer Affairs.

Turning to the substantive aspects of the paper, I will stick broadly to the proposal itself, COM (2003) 356. It is accompanied by a very good explanatory memorandum which explains the background and main elements of the proposal, and then there is the actual proposal itself. The background and purpose essentially revolve around two things - the single market and consumer protection. It is believed that the tremendous variety of consumer protection arrangements throughout Europe is having an adverse effect on the willingness of consumers throughout Europe to engage in cross-border transactions or shopping.

The basic idea is that this would level the playing pitch in terms of consumer protection arrangements in the area being co-ordinated. The purpose of the proposal is to achieve two things - a more complete single market and, at the same time, high levels of consumer protection.

A central concept of this proposal is unfair commercial practice. Basically, it is a way of regulating negatively. The directive does not say what constitutes a fair commercial practice, but it states what it is unfair and prohibits it. That is the basic idea. Various articles, including Articles 6 and 7, go into this is some detail and distinguish between misleading practices and aggressive practices. Annex 1 contains a blacklist of practices, which are banned in all circumstances. That is a crucial building block of the whole proposal.

Another important element is the so-called internal market clause in Article 4. We would draw attention to that because it is one of the central features of the proposal. Bearing in mind the internal market motivation of this, this clause basically means that if a trader is doing business anywhere in Europe, instead of having to reckon with 15, as it is now, or 25 different consumer protection regimes he or she will, after this directive, only have to deal with one. The regime that will apply is the one where the trader is based. Therefore, traders will only have to comply with the rules of the country in which they reside or their business is established. If they comply with those rules they are free to proceed throughout the rest of the European Community. That is a very important clause, and we have to ensure that the playing pitch is genuinely level for all, 25 member states.

There are different types of harmonisation. One can have minimum or maximum harmonisation. Minimum harmonisation involves a minimum level of harmonisation, but member states can add to that over time. This proposal, however, is for maximum harmonisation, which means that member states are not free to add on bits and pieces to suit themselves. There is a bit of an exception to that which I will come to later, but that is the basic principle and one can see the reason for it. If businesses are to be free to comply with one set of rules it is very important that those rules are genuinely equivalent to the rules of all the other countries, otherwise consumers will be disadvantaged in certain places.

Since this proposal emerged in the summer of 2003 there have been many meetings of the Council working group under the Italian Presidency and now under the Irish Presidency, in the course of which much detailed work on the text is occurring. By and large the changes are of a technical nature, and I suggest that the committee should retain the focus on the original proposal.

We have copies of a paper that was discussed at a working group last week but that in turn will be changed also so it is a bit of a moving target. However, there was one notable development, and this is an exception to the maximum harmonisation idea. There was concern about how this directive would impact on consumer protection in regard to financial products, and a number of countries including ourselves had some anxieties about that.

There is now on the table the idea - and this is a Presidency compromise - that member states should be permitted to add to the maximum level of harmonisation. This is a significant change and one that we welcome. That occurred only last week and we have copies of the latest text if the committee wishes to see it.

We can be fairly clear about the Irish position. We welcome the proposal. Obviously that welcome is subject to ongoing detailed scrutiny. One issue has arisen where we have taken a very definite position. Some member states have asked that the proposal should apply, not only to business-to-consumer transactions but to business-to-business transactions. We feel that brings one into the area of competition policy and we think that is not appropriate for this consumer protection measure. We feel that, if it is mixed in with competition, we could be at this for years. We are in the majority on that point. The number of countries still seeking extension of this to business-to-business is very much in the minority and we expect that our view will prevail in that regard.

I mentioned particularly the importance of clarity. It is said that the devil is in the detail and that is certainly the case with this. Even though it is several months since this came out, we are still examining this carefully. We are getting legal advice and going through it case by case. That will continue right along the process. Our welcome is clearly tempered by that.

I would add that we have an extensive domestic consultation process under way that goes back to last summer. We held a big event in Government Buildings in December. We are preparing a further paper, which hopefully will be sent out during the next week and which we will obviously also make available to the committee. We are keen to get views on this from all interested economic and social groups so that the Irish position reflects all Irish interests.

Generally we are happy with the way it is going and we welcome it. There is still a fair bit of work to be done but that is the present position. I will now hand over to my colleague, Ms Mary Barrett.

Ms Mary Barrett

I propose to speak briefly about the proposal for a regulation on consumer protection co-operation and to do so under the following three headings: the background to the proposal, the current status of the proposal at EU level and the Irish perspective on and implications of the proposal.

Under the background heading, I will outline the key purpose of the proposal and why it came about. The key purpose is that it aims to create a network of national consumer protection authorities throughout the internal market for dealing with cross-border infringements of laws protecting consumers' collective economic interests. Under the proposals bodies such as our Office of the Director of Consumer Affairs, ODCA, would have a legal framework of mutual assistance, rights and obligations to use to take effective, timely and co-ordinated action against the most serious cross-border rogue traders. We are focusing on cross-border rogue traders.

The key features of the regulation are to have formal co-operation through a network of public enforcement bodies on intra-community infringements and to have a minimum level of enforcement powers for these bodies. There would be requirements to provide mutual assistance for the exchange of information and co-operation on cross-border cases. There will be a single liaison body in each state to facilitate this co-operation and the Commission will have a co-ordinating and supporting role, including information and education projects. An advisory committee will be established to assist the Commission in implementing the practical procedures for the operation of the regulation.

The proposal came about because the Commission drew up a Green Paper on EU consumer protection in 2001 and then issued a follow-on communication. This was then built on. There were governmental responses to this last May at an informal ministerial meeting in Eretria, Greece. All this confirmed the need for cross-border consumer co-operation. In addition, the internal market strategy for 2002 to 2006 argued that better enforcement was needed to ensure consumer confidence in the internal market and it identified this proposal as a priority action.

On the international stage, the OECD has highlighted the need for cross-border co-operation. It issued guidelines in 2003 on protecting consumers from cross-border fraudulent and deceptive commercial practices.

At the EU level, there is already recognition of the need for enforcement co-operation in the field of customs, competition, financial services and food and product safety. If all this were not enough evidence of the need for co-operation, at this point there is the widespread development of e-commerce, the arrival of euro notes and coins, and also a wider use of common languages. This is leading to an increase in cross-border shopping where, increasingly, the retailer and the advertiser are in a different jurisdiction to the consumer.

There have been some initiatives at EU level. An injunctions directive was brought in whereby national authorities could seek injunctions in courts in other member states against rogue traders. In addition, there is an international consumer protection enforcement network which meets regularly. It tries to promote co-operation on enforcement and the ODCA would be a member of that network. However, the ODCA has indicated that because they are not formal or legally binding, these fora, while effective within their given boundaries, do not tackle the real barriers to co-operation, that is, the ability to share information and to act on behalf of foreign consumers.

The ODCA has been informally co-operating in the investigation of a number of scams. Some of these have been directed at Irish consumers and some have been directed by Irish-based operators at consumers in other countries. Cases have included an Irish lottery company, an Irish company targeting UK and Canadian consumers with new inventions and EU holiday club scams.

It is felt that, if they had a legal framework within which to operate, they could tackle these more effectively. The problems include the fact that, despite the injunctions directive, there is the formidable hurdle of bringing an application in a foreign jurisdiction under law with which the body might not be familiar. In addition, there is a lack of public enforcement bodies in some countries. For example, the Netherlands, Germany, Austria and Luxembourg do not have offices equivalent to our ODCA. It is difficult to co-operate when there is no equivalent body in the country concerned with which to liaise and exchange information. For that reason it has been decided at EU level that there is not a legal framework for co-operation and that there is a need for one so that member states are linked through reciprocal rights and obligations. This will overcome the legal barriers to co-operation that have been identified.

The present position at EU level is as follows. A quick first reading of the proposal was undertaken under the Italian Presidency. A first policy debate was held at the Employment, Social Policy, Health and Consumer Affairs Council in December 2003. A more detailed reading has been undertaken under our Presidency and this led to a Presidency compromise document being considered at the 18 February working party meeting by officials like myself. As Mr. Carey mentioned earlier, this Presidency compromise document is being worked on continuously. That is why today we are focusing on the original proposal.

The European Parliament's Committee on Legal Affairs and the Internal Market had a public hearing on the proposal on 19 February. This was very positive, with participants welcoming the proposal.

The Commission had initially hoped that the proposal could enter into force in 2005 and our Presidency is hoping to bring a progress report on the dossier to the Competitiveness Council on 11 March and to reach political agreement for the council in May.

On the Irish position on this directive, as Mr. Carey mentioned we have undergone a consultation process and we still welcome observations on the proposal. The ODCA has indicated from the outset that, in principle, it is in support of the proposal. Similarly at working party level, we in the Department have indicated our support in principle and, for example, the Advertising Standards Authority of Ireland has indicated that it believes the regulation represents a correct policy response to many of the issues identified by the European Commission under Mr. Carey's unfair commercial practices proposal.

Looking at the implications for Ireland, the proposal is limited to cross-border infringements. Therefore, it will not change our arrangements for domestic infringements. We outlined the main implications for Ireland in our information note to the committee in August 2003 and they have not changed. The only issue I would point out is that, at point 16 of our information note, we made reference——

We ask those making submissions to confine themselves to between ten and 12 minutes. How long more is needed?

Ms Barrett

I am about to finish.

I do not wish to intervene. Ms Barrett is in full flight and it is very impressive, but we just want a summary.

Ms Barrett

I will sum up now. Originally the Commission said it would come into effect within 20 days of publication but it has now indicated that this will not be the case in respect of this proposal because all member states must be given time to introduce measures to bring the regulation into operation. We sought advice from the Office of the Attorney General on how to transpose the regulation and the implications of the envisaged widening of powers to public bodies. Some non-disclosure provisions exist in Irish legislation with which we must deal to exchange information with the bodies in other countries. The practical measures will designate competent authorities and a single liaison body to oversee it. That will most likely be the Office of the Director of Consumer Affairs. We have liaised with other likely competent authorities, such as the Irish Financial Services Regulatory Authority, the Broadcasting Commission, the Irish Medicines Board, the Office of the Data Protection Commissioner and the Food Safety Authority.

I welcome Mr. Delaney and invite him to make his presentation now.

Mr. Patrick Delaney

I will deal with COM (2003) 356 on unfair practices and my colleague will deal with enforcement issues. Our understanding of the background to this proposal is that the aim of the directive is to establish an EU-wide general clause on standards for business in consumer commercial practices and to harmonise the underlying principles of consumer protection across the EU. The directive does not cover business-to-business transactions, contract law, or any matters of taste, decency, health or safety of products. It will establish rules for determining whether a commercial practice is unfair, contrary to the requirements of professional diligence, or materially distorts or is likely to distort the economic behaviour of an average consumer. The European Court of Justice defines the average consumer as reasonably well-informed, observant and circumspect.

There are two main categories of transgression: the misleading category which omits essential information such as the main characteristics of the product price, additional taxes and the need for additional parts or service which the consumer needs to make an informed decision; and a category of aggressive harassment, coercion, excessive influence over the buyer that impairs freedom of choice or is likely to cause impulse decisions. Businesses must comply with the requirements of the country of origin when selling to consumers across the EU. The directive is based on the maximum harmonisation whereby national transposition laws will not be able to depart from the directive provisions. It enables use of country of origin and mutual recognition principles. European consumer organisations are strongly supportive, and business endorsed the drive for the simplification of rules but wants more targeted measures to avoid major differences in interpretation in member states.

The Small Firms Association attaches great importance to consumer protection and welcomes initiatives that address rogue traders whose practices undermine healthy competition and deceive consumers. It is equally important for business and consumers to ensure a simple and clear regulatory regime which is applied, interpreted and enforced by national enforcers and judiciaries in the same fashion. The SFA is disappointed that, despite its length, the consultation process was not objective. The choices for dealing with these issues through regulation by way of a framework directive were set in stone from the outset while other options were not fully assessed. Similarly, the extended impact assessment was inadequate. It did not cover all possible policy options, a review of existing rules or the use of specified sectoral rules, or take sufficient account of non-policy induced factors such as language, taxes, geographical circumstances etc., and did not involve representatives of the EU-wide stakeholders. It focused on the potential benefits of the draft directive but made no attempt to identify potential disadvantages or adjustments to the situation.

The case for a directive is insufficiently established. It lacks robust evidence on its ability to improve the internal market. In terms of reducing the regulatory burden, it will partially amend only three directives. In effect, it will add to the existing regulatory framework. The SFA is therefore calling for a clear and transparent methodology for impact assessment that meets minimum standards.

Notwithstanding these weaknesses, the SFA endorses the general objectives of reducing regulatory burdens, securing a high level of consumer protection and improving enforcement of consumer protection rules throughout the EU. Key elements in the directive for the business community include the need to ensure legal certainty through a sufficiently high level of harmonisation. Thus, the SFA believes that substantial changes are required to ensure that it does not simply complicate the existing regulatory regime. It relies on a vague general clause and a broad notion that will apply at EU level and leaves much scope for wide national interpretation. The SFA considers it essential that the key definitions, for example, professional diligence, average consumer and code of conduct are clarified. Professional diligence is not a common concept at EU level and is a key for even implementation of the directive. It is not clear what reference point will be used for that.

The general clause is limited to target misleading and aggressive practices, is too vague and will be subject to divergent national interpretation by enforcers and national judges. It should take account of the duty of care of consumers when trading. It is fair to ask a consumer to observe minimum care when engaging in commercial transactions, do some basic research and make explicit any special intentions he or she might have for the product or service. The list of misleading activities should be streamlined as laid down in articles 6 and 7, in particular the provisions of codes of conduct. The SFA does not see the reason or justification for enshrining in a legal instrument, and thereby attaching legal consequences to, self-commitment by traders. The purpose of most codes is to set out good trading practices for consumers which exceed legal requirements. They reflect a competitive marketplace and attaching legal consequences to such codes would be a disincentive to companies to use self-regulatory mechanisms.

The blacklist in annex 1 to the directive should be exhaustive and subject to amendment only through revision of the directive. Member states should not be empowered to add other practices at national level. The SFA has specific concerns about the content of the list. The provision about language for after-sales service is disproportionate and burdensome for small businesses in particular. Unwanted solicitations are already regulated in the directive on privacy and electronic communications. The provision for, cases of misfortune and serious illness have practical difficulties for legitimate businesses, in particular in the undertaking sector. The provision for marketing to children on the basis of acceptance by a peer is too relative a concept. Such issues are more effectively addressed in recognised codes and guidelines such as the International Code of Advertising Practice.

Further guidance on the directive's relationship with existing sectoral directives and other areas of law, for example, contract law, should be developed before this directive becomes operational. Issues requiring clarification include, how the Commission will ensure that member states refrain from using existing minimum harmonisation consumer protection rules, which allow for national regulatory discrepancies. How will the directive fit in with long-standing case law on unfair commercial practices, especially at national level, in so far as it reflects legal, economic and societal regimes which are often different? The SFA is concerned that years of court judgments and frequent recourse to the European Court of Justice for higher advice will be necessitated, which is undesirable for companies and consumers alike. How does the directive interact with other existing areas of law, for example, contract law? Breaches of the directive could have an impact on contract or commercial law. What is the relationship between new proposals in preparation on consumer credit, sales promotion, or health claims?

The SFA reiterates that the success of the directive will be closely linked to its consistent interpretation and effective enforcement, and urges this committee and the Department to lobby the Commission to provide the necessary means to guarantee reasonably unified implementation of this directive across Europe. My colleague, Ms Patricia Callan will deal with the enforcement issue.

Ms Patricia Callan

We broadly welcome the goal of the proposed regulation on enforcement co-operation of improving the functioning of the internal market through better enforcement of consumer protection rules in the context of cross-border infringements and in particular instances of scams and rogue traders. We are seriously concerned about the practical implementation and functioning of the proposed network and, more particularly, the proportionality and justification of some of the extensive powers set out in this regulation concerning the new competent authorities.

We have issues on both the justification for the regulation and its content. While we agree with the need for cross-border co-operation in such circumstances, we are concerned that, prior to the creation of new structures, a detailed analysis should have been made to assess the feasibility and impact of the proposed enforcement system on the existing national regimes. More particularly, the obligation on all member states to designate public enforcement authorities raises concerns in so far as it could undermine existing enforcement and structures at national level which often include non-public bodies.

The SFA also believes that, as is agreed in the EU, all these regulations should have been preceded by regulatory impact assessments, which were not carried out in this case. The SFA believes the regulation provides disproportionate powers to the authorities going even further than those of the most stringent consumer protection regimes in Europe and also beyond what is provided for in the field of competition rules. It is unquestionable that authorities ensuring and enforcing consumer protection regulation should have necessary and appropriate means and resources to exercise their powers correctly. However and equally importantly, companies, as the main parties affected by the investigation and surveillance powers, should enjoy adequate safeguards for the protection of basic rightsvis-à-vis the powers given to these authorities.

It is critical to have recognition in the text of the regulation that national laws regulating the right of defence and the respect of confidentiality and professional secrecy are fully respected. This is not contained in the text at the moment. In particular, the powers granted regarding access to documents and information and on-site inspections represent considerable changes to current regimes and will have significant implications for any company falling within their remit. There is a clause which allows authorities to have access to all documents. We would like this provision to relate only to those documents directly relevant to the investigation in hand and that, as appropriate, legal privilege will apply. All documents should also be officially logged and there should be an audit trail.

We would like much greater restrictions on what the authorities can do during on-site visits. In particular there should be a requirement to obtain judicial orders prior to any such visits. There should be a restriction on the right of search of the enterprise versus the private homes of employees. There should be a right for the enterprise to have assistance from lawyers immediately and before any inspection or seizure commences. There should be a right for the enterprise to keep copies of its documents and IT systems where these have been removed by the authorities. There should be comprehensive written procedures governing on-site visits so that companies clearly know the standard practice and the minimum rights of those involved. These exist currently in competition law but are not mentioned in this regulation.

We would like to see a number of additional items included in the articles relating to the use and exchange of information to protect company confidentiality, including deletion of information once it is no longer relevant or in excess of a fixed time limit if the authorities have not moved against a company within a fixed timeframe. There should also be restrictions on making information available to third parties, including consumer organisations.

Regarding the articles that provide for the creation of a database, we believe that this should be explicit, that the information stored and processed on the electronic database should only relate to cross-border infringements and that a clear distinction should be made in this database between complaints and proven infringements, again to protect companies when cases are ill-founded.

On the proposal for a standing committee, through its European representative, the SFA is seeking further clarification on what this committee will do and what will be the role of business stakeholders in it. So far that has not been forthcoming. The regulation only refers toad hoc invitations to the meetings of the committee for qualified entities. Our major concern and what makes it particularly important is that, given that far too much of the critical detail concerning procedures and investigative and enforcement powers is to be left to the committee and is not spelt out in the regulation, it is critical that business stakeholders in particular be represented on the committee.

Is the Director of Consumer Affairs happy with the contents of this proposed directive? Is the director happy with the blacklist of consumer practices? Would any additions to the blacklist be desirable?

As a result of a change in the scheduling of the meeting, neither the director nor a representative from her office is here. The original plan was for this meeting to be held tomorrow. Representatives from ODCA had planned to be here.

We will begin going to the regions on Thursday, which explains why our usual Wednesday meeting is not happening this week.

While we cannot speak for the director, we have good relations with that office, representatives of which are present at all the meetings in Brussels. The ODCA is broadly on the same wavelength as, ourselves and is generally happy with the two proposals. However, I believe it, would say many technical details need to be sorted out, especially those relating to linking to existing domestic law. From my discussions with representatives of the ODCA, they have not raised any major problems with annex 1, the so-called blacklist. I assume they are broadly happy with that in its current form.

Is the Office of the Director of Consumer Affairs happy with the general prohibition provisions of the proposed directive?

Yes, I believe that is their position.

I welcome the idea of co-operation to address cross-border fraudsters. Is Article 13 on penalties somewhat weak? Who will determine whether member states' penalties are effective and proportionate? Should there be an element of harmonisation in those penalties? Who will be the administrative authority in Ireland for the purpose of this directive? How extensive will the revision of existing legislation be arising from these proposed directives?

These questions concern the directive COM (2003) 356.

I welcome both delegations and thank them for their presentations. The proposed directive deals with the concerns businesses have about different national regulations. However businesses have the same level of concern about the need to comply with tax requirements. Will agreeing this directive bring additional pressure to harmonise tax requirements and, if so, what areas will be affected?

The SFA has considerable reservations and I would like to hear the response from the Department officials. If the officials are not in a position to respond now, they could send us a note on the various items raised.

Does Mr. Carey want to comment on the questions and the points of Mr. Delaney and Ms Callan?

I have one further question. Will the directive have any influence in trying to harmonise VAT rates in the Community?

I will start with the tax questions. Our understanding is that this will not affect taxation matters. This purely relates to consumer protection and the Single Market. We do not believe there should be any impact——

Will there be pressure?

I do not know about that. We can only work with what is on the table and there is nothing about tax there at the moment. One Deputy asked about Article 13, which concerns penalties. As we read that, it is left to member states to decide on the level of penalties for infringements. We have not yet given it much thought. We are still working on the main features of the proposal. As a general working principle we would look at the current level of penalties for our existing domestic consumer arrangements to see how they are doing. It might be that the Director of Consumer Affairs in some cases feels that the penalties are on the low side. This is an opportunity to review the whole situation. The Commission would expect Ireland and other member states to have penalties sufficient to ensure that businesses comply with the regulations. We will look at that in due course.

We would like to comment on the SFA comments. Many points have been raised by, the Small Firms Association. We very much welcome all representations and observations and have received a considerable amount of material. We have already forwarded to the committee what we had received at the time we were asked and we received material subsequently which we will leave with the committee, as well as the latest text of the current compromise. We would be happy to make that available to the Small Firms Association as well.

It would take too much time to go through this in great detail but we would have some sympathy with some of what the Small Firms Association is saying. There is a risk of divergent interpretations. Many member states are raising that issue. One can never get perfectly identical interpretations. As we know from our own national legislation, any two people looking at the same text will form different views. We must be practical. We must try to get to what is the best workable level of uniformity and consistency and to avoid wide divergence. The Commission is very alive to that. With all the work that is going on in Brussels hacking out all these changes, which the committee will see from the revised text, there is a lot of clarity coming into the picture. We will be happy to make that available to the Small Firms Association as well.

As I said in my intervention earlier, we are preparing a new consultation document of our own which will be based on the latest working of the proposal. We intend to make that public and invite a fresh round of observations on the latest draft of the proposal. That will be another opportunity to iron out glitches and problems in the regulation. It is almost certain that we will be talking about an amended proposal at some point. The committee will obviously have another opportunity to come back to this subject when we have a formal amended proposal from the Commission, which will occur at some point in the future.

All the other points raised by the SFA are quite detailed ones. It would take quite some time to go through them. I would suggest to the SFA that if it looks at the latest text in particular and at our consultation paper seeking views on that, that might be the best way forward. We are happy to have a dialogue with the SFA and convey observations back to the committee in writing if necessary as soon as possible. That might be the best way of proceeding.

There was a question about codes of conduct. I understand that codes of conduct are voluntary. However, we do not want to see them used as a legal yardstick. Has Mr. Carey any comment on that?

Codes of conduct are dealt with in Article 10 particularly. It provides that the directive does not exclude codes of conduct if those are in addition to the enforcement of this measure. Codes of conduct represent self-regulation, which we want to encourage. We do not want to take from that. There was an argument as to whether codes of conduct should substitute for the provisions of this regulation. There is general disagreement with that. That would be handing over regulation to the private sector and is not on. The Commission would not be prepared to run with that. At the same, we can have it both ways. Codes of conduct are very useful. In so far as they lead to higher standards, they make a contribution to compliance with these standards. We would encourage codes of conduct.

Are there any codes of conduct in place in Ireland that would be relevant to this directive? Are there any relevant codes of conduct in place on an EU-wide basis?

Yes. There are both. The one that comes to mind particularly here would be the advertising industry's code of conduct, which is quite an influential one. There are others as well. There are also European-wide codes of conduct. I think our consultation document may list the codes of conduct in Ireland.

Are there codes of conduct among the media in other EU states? I know there are codes of conduct in advertising and so on, but there seems to be an urgent and pressing problem facing us and that the media should have a code of conduct. Are there any other member states that have codes of conduct that we do not have?

We are into the area of press and media matters.

I was speaking about the press in general.

I think first of all that the directive would not bear very much on that area. I know from the media merger function we have that there are press councils of the kind found in Britain.

In other member states?

Yes. There is much activity going on here at the moment. The Minister for Justice, Equality and Law Reform is considering a statutory press council. This directive deals only with the economic interests of consumers. It would be true to say that press issues, generally speaking, are outside the scope of this directive. There is a particular exclusion for matters of taste, decency, and so on. It is only on economic interests, where the consumer is hit in the pocket, as it were, that these two proposals impact. The press is generally outside the ambit of this.

The worrying factor for most people is that speculation is now the order of the day or perceived to be the order of the day. That could be quite damaging for the consumer, for manufacturing, for family and small businesses. It is something we must bear in mind and be very vigilant on. I thank Mr. Carey and his officials for coming here today. I also thank Mr. Delaney and Ms Callan who have been most helpful. I look forward to working with them for the next three years and to their help and assistance in making better legislation.

We now will deal with another directive, COM (2003) 46. I welcome Ms Anne Coleman-Dunne and Mr. John Rutledge from the Department of Enterprise, Trade and Employment to the meeting. They will brief us on direction COM (2003) 46. This is a proposal to harmonise national laws on the enforcement of intellectual property rights in the EU. A further objective of the proposal is to establish a general framework for the exchange of information between the responsible national authorities.

I remind the delegation that it is usual to allow ten to 12 minutes for the submission. Members should bear in mind that it is intended to conclude by 4 p.m.

Ms Anne Coleman-Dunne

I thank the committee for giving us this opportunity to address it. I will make a general introduction and outline the proposal, what it involves and what we are doing with it. I am accompanied by one of the distinguished authors of the Copyright and Related Rights Act, John Rutledge, who has a great deal of expertise in the copyright area.

There is a great deal of history to the proposal, which dates back to 1998 with the Commission's publication of a Green Paper to assess the situation and the economic impact of piracy and anti-counterfeiting activities in the Single Market. A widespread consultation process emanated from that original process and in November 2000 the Commission drew up an action plan in which it announced its intention to bring forward a proposal for a directive. It finally did so in January 2003. The proposal is, therefore, a year old.

Why is the protection of intellectual property important? It is an essential element for the success of the internal market. Protection of intellectual property is important not only for promoting innovation and creativity but also for developing employment and improving competitiveness within the Single Market. Until now, action at Union level in the field of intellectual property has mainly focused on completing the Single Market by providing a standard level of legal protection across the territory of the EU. Therefore, certain national rights such as trademarks, designs and certain aspects of copyright have already been harmonised at a national level. The Union has taken unitary action to provide protection in the form of the Community trademark or the Community design. Discussions are still ongoing on a Community patent.

This gradual harmonisation of the substantive law on intellectual property has promoted the free movement of goods and services between members states, which is an integral part of completing the internal market. However, there are still major disparities in member states as regards the means of enforcing those intellectual property rights. For example, arrangements for applying for provisional measures before the courts, which are used in particular to safeguard evidence or in the calculation of damages or the arrangements for applying for injunctions, vary widely from one member state to another.

Counterfeiting and piracy are phenomena which spread by exploiting the differences between legislation in different member states. These differences lead to a weakening to the substantive law on intellectual property and to a fragmentation, therefore, of the internal market. This directive represents the Commission's response to close off the loophole.

In a note prepared for the committee, I mention the detrimental effects of piracy and counterfeiting. What will it mean to our everyday lives if such activities continue? According to the counterfeiting intelligence bureau, established by the International Chamber of Commerce, counterfeiting accounts for between 5% and 7% of world trade in value terms. The US copyright industry places its losses on an annual basis at between $12 billion and $15 billion. The industries hardest hit by this global level of piracy and counterfeiting would be the software industry at 35%, the audio-visual industry at 25%, the toy industry and the perfume industry.

In western Europe, the rate of software piracy declined by 17% in the eight-year period from 1994 to 2002 to a level of 37%. In the Irish context, piracy levels in the software sector vastly improved during the same period from a disturbingly high level of 74% in 1994 to 42% in 2002. The decline in software piracy in general is attributable to a growing awareness of the problem within businesses and increasing emphasis on the importance of corporate governance in a number of European countries. That is the backdrop against which the directive was proposed.

The objective behind the directive is to create a level playing field in respect of the means by which rights holders can enforce their intellectual property rights on a homogenous basis throughout the Union. It is necessary to ensure that a consistent approach is adopted throughout the EU in terms of enabling access to justice in order that rights holders will not be faced with different schema or methods in different countries. In drawing together the directive's provisions, the Commission looked at existing best practice in member states.

What does the directive require us to do? The general obligation imposed on member states is to ensure that fair, equitable and dissuasive penalties or remedies are in place to enable the effective enforcement of intellectual property rights. I will now provide an outline of some of the directive's main provisions which we are required to implement.

There are provisions, for example, on evidence, which is obviously an element of paramount importance for establishing infringement of intellectual property. Member states are required to ensure that under certain conditions a court order can be obtained for the production of evidence under the control of an opposing party, providing there are sufficient safeguards in respect of the protection of confidential information. Furthermore, in instances where such activities are carried out on a commercial scale - obviously for the economic benefit of the infringer - the court may order the communication of banking, financial or commercial documentation under the control of the opposing party, subject to the safeguards on protecting confidential information.

Article 8 of the directive contains a provision for evidence protection measures, which would include the seizure of goods. This can be applied even before the merits of a case are established. If there is even a suspicion that acts of infringement are occurring, such a provisional measure can be sought. Such an order can be granted without the other party having been heard, particularly in a case where there is a concern that the evidence may be destroyed in circumstances where the other party knew about the case in advance.

A right of information is established in article 9. This was a contentious element because it applies where infringement is alleged and is being contested in a case before the courts. In effect, it will allow the courts to order the alleged infringer and any other person who was found to have infringing goods in their possession or who was trading them to provide information on the source of such goods and also on the distribution network. The idea is to discover the source of the transaction chain. Sometimes a small part of this is revealed, although not its entirety.

Provisional measures such as interlocutory injunctions, to which we in this country are no strangers, are also included. They would be available to prevent impending infringing acts or to stop the continuance of such acts. Equally, in the case of infringing acts carried out on a commercial scale, the courts may impose an order enabling the seizure of assets of the alleged infringer, including the blocking of his bank accounts and other assets. This would also be available in the Moreva type injunction. In cases where infringement has been positively determined by the courts, the type of corrective measures available under the directive would include the imposition of injunctions aimed at preventing the continuation of the infringement, an order to recall the infringing goods from the channels of trade or an order for destruction of the goods.

Article 17 contains a provision relating to the payment of damages to the aggrieved rights holders. The idea behind the directive is that a rights holder who has been impacted upon by an act of infringement should be able to obtain recompense in respect of such an act.

The proposal is at quite a developed stage. I wanted to bring to the committee's attention two main provisions, one of which relates to criminal sanctions. In the original article 20, the Commission proposed that in the case of serious infringements of intellectual property rights, such infringements should be treated as criminal offences. This issue became deadlocked in discussions at Council, particularly in the sense that member states were strongly of the opinion that this is an internal market measure in respect of which criminal sanctions cannot be imposed. The legal base would not be sufficient to sustain that. Criminal sanctions are a feature of third pillar or justice and home affairs type——

Like Scotland?

Ms Coleman-Dunne

Indeed. It was not appropriate to do it in this forum.

The Commission has acquiesced on that matter. However, in its legislative programme for 2004 it has listed a provision for a framework decision under the justice and home affairs portfolio, which, presumably, will include criminal sanctions for enforcement.

The other issue, which changed from the original Commission proposal is that relating to the scope of the directive. Originally the Commission proposed that the directive should be directed only at infringements which were perpetrated either for commercial purposes or which caused significant harm to the rights holder. In discussions at Council and in the European Parliament - it is a 50-50, co-decision measure - it was felt that this gave out the wrong signal, namely, that some level of infringement is tolerable. That is not the case. Many member states would have a purist view of this matter and think that we cannot indicate that any level of infringement is acceptable. The scope of the directive has consequently been broadened to include any potential infringement of intellectual property. However, some provisions have had to be tempered in order to make the punishment fit the crime in the first instance.

What impact will the directive have in the Irish context? To a greater or lesser extent, we already have many of the civil remedies proposed in the directive in our copyright and trademark legislation. Said legislation also contains criminal sanctions and, therefore, it goes beyond the extent of the directive as it stands. We also have interlocutory injunctions, evidence protection measures, etc. The one added-value element would be that relating to the right of information, which is not specifically set down in Irish law at present.

Time is against us. Will Ms Coleman-Dunne summarise the rest of her contribution?

Ms Coleman-Dunne

I am almost finished. The real added value is to be gained at Union level with the creation throughout the territory of the EU of a homogenous and consistent approach to the means by which intellectual property rights are enforced.

As already stated, the proposal is approximately one year old. The Italian Presidency was extremely active on the dossier and there were many meetings and a number of technical readings thereon. At the end of last year, as the incoming President of the EU, Ireland was approached by representatives of the European Parliament to see if we would engage with it in informal trilateral discussions with a view to having the measure put through before the Parliament expires in the coming months. We have done that. At present, we have agreement at COREPER level on a text of a proposal to form the basis of agreement with the Parliament on first reading. The European Parliament is due to vote on this measure on 19 March next. It will be only then that it will become apparent whether we have the possibility of first reading agreement in respect of this measure. If that is the case, after finalisation by legal linguists, it will go before a forthcoming Council for adoption in the near future. That is the current position.

I thank Ms Coleman-Dunne. Does Mr. Rutledge wish to comment? His reputation in the area of intellectual copyright precedes him and we are pleased that he is in attendance.

Mr. John Rutledge

I thank the Chairman for his introduction. We know each other of old.

Prior to any questions Members may wish to ask, the only comment I would make would support that of my colleague about the fact that Irish intellectual property law is largely in line with the proposed directive in its current form. The area of patents is a minor issue here. We are really concerned with copyright, trademarks and intellectual designs. As the Chairman is aware, from his interest in this matter——

I must disclose that I am a publisher and I have a great deal of experience in this field. Members will be pleased to hear that. When I was a Member of Seanad Éireann I contributed to the copyright legislation. Ireland is one of the most attractive countries for people, particularly those who own copyright in the computer industry, etc. Mr. Rutledge, Ms Coleman-Dunne and others have given us a considerable advantage over our competitors in this field.

Mr. Rutledge

We have state of the art trademark, copyright and industrial designs laws. These are the three main areas affected by the directive. As it has emerged from committee and headed towards COREPER, under the auspices of my colleague who chairs the group dealing with it, we must remember that we are dealing with something that is capable of administering appreciable added value at European level. However, it will not impose particular difficulties on Ireland because we are largely already there. That is my comment on the matter.

I thank Mr. Rutledge. I wish to ask one question before handing over to colleagues. The deadline for concluding our deliberations is 4 p.m.

The penalties measure in Article 4 seems to be a standard EU provision. Who will decide on the penalties and on whether they are sufficiently effective and whether, proportionately, they will be a deterrent? As everyone knows, the rewards are extremely high, particularly in terms of duplication in the audio-visual field. As Ms Coleman-Dunne stated, 25% of all fraud occurs in that area. From that point of view, we can only deter people from engaging in such fraud by ensuring that there are sufficient penalties.

Counterfeiting and piracy impose a major toll on business. Some studies have shown that they result in huge losses of revenue for the Government and 170,000 jobs are lost annually in the EU. Should the directive provide, in a similar manner to COM (2003) 443 which deals with the enforcement of consumer protection laws, for the establishment of the contact committee? In what circumstances, if any, will criminal sanctions be considered appropriate?

Whose task will it be to develop codes of conduct under Article 23? How many such codes are desirable? Article 24 covers national correspondents. Will the staff involved, in this regard be provided by the Department? If not, from where will they come?

Will it be only the enforcement provisions of the Patents Act, the Trademarks Act, the Copyright and Related Rights Act and the Industrial Act that will be affected by the proposal or will other Acts or parts thereof be affected? Will the creative commons licence concept arise in considering infringements against copyright?

Ms Coleman-Dunne

A generic provision of EU legislation requires that penalties be effective, dissuasive and proportionate. That is all that member states will sign up to in terms of the competence issue. After that, there is the issue of subsidiarity and the discretion of member states to apply, in their own best legal traditions, the particular penalties which are appropriate. To answer the Chairman's questions, therefore, that would be down to a matter of national discretion to be decided by the judiciaries in individual member states.

The question on establishing the contact committee links with the subsequent question on Article 24. There is no reason that a contact committee could not be established, as was the case in respect of consumer protection. Article 24 embodies the concept of establishing national correspondents. The idea is to promote exchange of information and contact at governmental level between member states. The Deputy inquired about who would be involved in that regard. That is yet to be decided. We would probably feel that somebody involved in the area of customs might be the most appropriate contact individual. However, that may not be the case. We may decide that the those responsible for implementing the legislation should be involved. It may, therefore, be our equivalent in other member states. That is still to be decided.

Our own legislation and that of many member states includes a provision for criminal sanctions in regard to serious infringements. It does not appear in this text purely because the community does not have competence. We have these provisions under copyright and trade mark law. There is the possibility of imposing criminal sanctions and imprisonment for serious infringements. It is not just a monetary fine. The courts are probably the best judges of this, and to my knowledge monetary fines have been applied. It is for the courts to decide when that is applicable.

On the code of conduct and whose responsibility that is, this is a matter of self regulation for the industry itself. The audio-visual industry in particular is very hot on a particular code of conduct which it wants to bring forward for the industry as a whole. The requirement on the member states is to encourage that. It is not for us to devise it but it is for us to encourage sectors of the industries to make that happen. The European Parliament was very conscious of having an acknowledgement of this kind of issue in the directive and of making it known that member states have an obligation in terms of awareness and encouraging the development of these kinds of codes. However, it really would be up to the industries themselves to regulate.

Would they be EU-wide?

Ms Coleman-Dunne

The idea is that it would be EU-wide. The only code I am aware of at this point is in the US, where the industry has a particular SID code in regard to CDs. There was another question about whether this only included patents, trade marks and so on. It includes a broad set of intellectual properties, including slightly obscure matters like plant varieties. The problem normally relates to the area of trade marks and copyright because that is where one sees the penetration of counterfeiting and piracy. It does not tend to be an issue in terms of patents, and it is evident to a much lesser extent with industrial designs. However, it is right to say that the scope extends to a wider variety of intellectual property rights.

My real concern would be that something for the good of humanity, such as certain types of plants, would be patented and reserved. I know this is not specific to what we are doing but it is a side issue, and this is something we all have to watch out for, whether it is the human genome or anything else that is obviously for the benefit of all mankind and is freely given. We must always be careful in that respect. Ms Coleman-Dunne specifically mentioned plants, and I have huge difficulties with the idea of certain types of plants being patented or whatever because any animal husbandry is a natural undertaking. I have difficulty in seeing how this could apply to Monsanto or organisations like that and this is an area in which we must tread very carefully and of which I would ask the Department officials to be conscious.

That view can be taken very much on board by the witnesses. I thank the witnesses very much for coming before the committee. Having accompanied the Minister of State, Deputy M. Ahern, on a trip to South Africa and having also visited Canada and America with the Tánaiste, I can see that the whole future of our country rests in knowledge-based industry. Intellectual property rights that have been set up by the Department of Enterprise, Trade and Employment have safeguarded the intellectual property of the creators, generators and owners of intellectual property. As a nation we are one of the leaders in the field, and this has been of considerable advantage to us not only in Europe but throughout the world, where we are being looked upon as people who really appreciate, protect and respect the intellectual property of the creator.

The way forward for us as a nation and as a Government - and I know that other officials at a very senior level in the Department share this view - is to protect the intellectual property rights of science students. Up to now it has been the case that the universities would be the owners of the intellectual property and that in some cases the person who creates the intellectual property could lease or licence it back at some future date for a limited number of years. My experience of visiting Waterloo University in Canada has shown the opposite. In an area that was not known for its prosperity or industry, they put together a few students and said they were in time going to build their own campus. They came across the blueberry technology which every leading figure in the world of commerce and government is now using. They ensure that the intellectual property is left in the hands of the creator, and the top brains in the world will naturally be attracted to such destinations.

Ireland should look towards this model in the future, and I intend to pursue this matter with the Tánaiste and the Minister of State, Deputy M. Ahern, in considering future Government thinking on how we can attract people to areas like Athlone, Sligo or anywhere else we have a third level institution. This is an area of massive potential growth, and we could encourage the whole creative process of generating employment in the intellectual field. I have known John Rutledge for a long time, and it is nice to have him assist the committee. Ms Coleman-Dunne is also most welcome, and we look forward to working closely with both of you for the next three years.

We will prepare draft reports of our deliberations and discussions today. We will go into private session for the remaining few minutes.

The joint committee went into private session and adjourned at 4 p.m. until 9.30 a.m. Wednesday, 10 March 2004.