Critical Assessment of European Agenda for the Collaborative Economy

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* Report: Critical Assessment of European Agenda for the Collaborative Economy. In-Depth Analysis for the IMCOM Committee. Guido Smorto. European Parliament. DIRECTORATE GENERAL FOR INTERNAL POLICIES. POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY, 2017



"The research paper describes the main legal challenges for regulating the collaborative economy and evaluates the definition of, and elucidates how the existing body of EU law applies to collaborative economy business models. In the last part, the paper elaborates on how a regulatory framework for nonprofessional provision of services and prosumers should look like and makes a few concrete proposals for future policies.

This paper was commissioned by the Policy Department A for Economic, Scientific and Quality of Life Policies upon request of the European Parliament´s Committee on the Internal Market and Consumer Protection."

Executive Summary

Guido Smorto:

Introduction and legal challenges

"The expression “collaborative economy” and its equivalents all refer to those business models for the provision of services that enable peer-to-peer transactions via online platforms, and describes the possibility for non-professionals to offer goods and services traditionally provided by professionals.

The economic actors involved in peer-to-peer transactions are:

(i) service providers;

(ii) users of these; and

(iii) intermediaries that connect — via an online platform — providers with users.

There is a large degree of confusion surrounding regulatory rights and obligations on the part of participants in the collaborative economy.

With regard to the distinction between peers and professionals, rules designed to regulate sales of goods and provisions of services by professionals are often inadequate when these activities are carried out by non-professionals. While there are no fixed criteria to distinguish between peers and professionals, some circumstances may point into one direction or the opposite.

With regard to collaborative platforms, some of these platforms may be deemed as service providers with new employment models, others as “digital marketplaces” connecting peers, while many may be understood as firm-market hybrids. Their business models constitute a wide spectrum, ranging from marketplaces to hierarchies, each in need of a different sets of rules.

As a first rule of thumb, when an online platform exerts a high level of control and influence over the peers, it may be identified as a provider of the underlying service. On the contrary, when the platform limits its activity to the matching of demand and supply, even if offering ancillary services, the peer should be deemed as the only service provider.

The Single Market

It is crucial to scrutinise the great diversity of regulatory regimes across the single market and to review the existing legal framework in the light of the emergence of the collaborative economy, in order to debate the most appropriate forms of regulation.

EU platforms face several barriers to their development, compared to platforms operating in the US: beside cultural and linguistic differences, they are constrained by a more fragmented regulatory environment.

In assessing how existing EU law should be applied to the collaborative economy, three pieces of legislation are especially relevant: Services directive; e-Commerce directive; consumer and marketing law.

In application of Services directive, restrictions on peer-to-peer services are permitted only if: equally applicable to the national and the foreign; justified by some legitimate public interest objective; proportionate to that objective. Accordingly, Member States are required to reassess the proportionality of restrictions for private individuals providing services on occasional basis, pointing towards a less restrictive legal discipline. While a lighter regime for peers is strongly desirable, at the same time there is an urgent need to simplify procedures and formalities for professionals.

In accordance with e-Commerce directive, a case-to-case assessment on collaborative platforms is required for determining their legal regime: if deemed as service providers, collaborative platforms would be subject to those market access requirements generally applied to providers, and to the relevant sector-specific regulation, including business authorisation and licensing requirements; while none of these rules would be applied to “information society services”.

The content of this case-by-case assessment deserves to be further highlighted and additional reflections are desirable on the appropriateness of criteria laid down by the Commission to assess the degree of control exerted by collaborative platforms on peer-topeer transactions. Besides, a potential tension may arise between liability exemption for technical, automatic, passive, conduct by the platform and the goal of encouraging responsible behaviour. For these reasons, further reflections are desirable on the opportunity to maintain the framework provided by the e-Commerce directive in order to assess the nature and the resulting legal regime of collaborative platforms.

EU consumer and marketing legislation is based on the distinction between “trader” and “consumer”, as EU consumer law applies only to those who qualify as “trader” and engage in “commercial practices” vis-à-vis consumers. If neither the collaborative platform nor the peer service provider qualifies as a “trader”, the transaction falls outside the scope of consumer legislation, bringing to the central question of protecting consumers in the collaborative economy.

While traditional rules laid down for the professional provision of services are too burdensome and thus clearly inadequate to regulate the supply of goods and services by peers, the dismissal of professional rules and the lack of a legal discipline for peer-to-peer activities raise a manifest problem of protection of users. A lighter legal regime for those people who, occasionally and non-professionally, provide services via online platforms, is strongly desirable; at the same time, it is vital to give customers of the collaborative economy a legal protection comparable to business-to-consumer transactions.

A new regulatory framework

Collaborative platforms usually enjoy a significant degree of control over economic agents and they can help reducing market failures in many significant ways. For these reasons, it is recommendable to leverage platforms’ self-governing capacity and explore non-regulatory alternatives offered by private entities.

Even so, external regulation is still needed and a significant part of the regulatory and enforcement process should be retained by the public for those market failures that platforms cannot solve and/or have no interest to address. The persisting need of external regulation is reinforced if, in addition to correcting market failures, other aspects are taken into account: namely distributive consequences of peer-to-peer services and the protection of specific values.

A combination of strict rules and principles is suggested: strict rules are usually preferable for delimiting the scope of application of professional rules and for defining the nonprofessional status of peers; principles are better suited to address safety concerns and consumer protection issues. Member States should adopt flexible standards in both regulation and enforcement.

A complex strategy is suggested to encourage the flourishing of peer-to-peer activities while tackling the highlighted risks.

It is recommendable to explore these non-regulatory alternatives offered by private entities, and formal and informal systems of regulation and enforcement should be put in place. In this perspective, collaborative platforms should be seen as both ruler and enforcer of such a self-regulatory regime, thus leveraging their self-governing capacity.

While public regulation should be considered as a last resort, a significant part of the regulatory and enforcement process is still for the government, for those critical aspects that platforms cannot solve and/or have no interest to address. In all cases, a flexible approach with regard to both regulation and enforcement is strongly encouraged."

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