The proposed regulation, to be voted through the European parliament next month, will mean that companies which sell products across borders will have to deal with customer complaints under the different legal systems of all 27 EU countries.

In a written plea to the EU industry commissioner Günter Verheugen, the British Retail Consortium (BRC) and the CBI warned that the cost burden could stop businesses, especially smaller enterprises, from trading in EU markets.

They criticised the European Commission for ploughing ahead with the proposal without properly assessing its impact.

The Rome I regulation aims to give an existing 1980 Rome convention between EU countries a more robust legal basis.

However, concern has arisen about new provisions in the regulation’s Article 5, which introduces the idea that any business-to-consumer contract will fall under the law of the country in which the consumer is resident.

Alisdair Gray, the consortium’s Brussels director, explained that the article’s wording meant that businesses engaging in cross-border trade would have to undertake a “financially onerous study” of the legal requirements in other EU member states.

“The sheer cost and uncertainty inherent in such a scenario is so high, that it is simply not credible to assume that companies, and small ones in particular, could engage in such trade,” he said.

For example, companies trading abroad would have to go through cumbersome background checks to determine whether they have to register officially in all the countries they sell to. This creates a “lawyer’s feast”, where foreign courts could take action against a company for not complying with every aspect of local laws.

His concerns were backed by Emel Yavuz from Brussels-based Emota, the association for distance selling. “Companies will choose not to sell to other EU member states. It’s a backwards step and it cuts consumer choice,” she said.

Emota figures show that EU online sales stood at €36 billion (£24 billion) in 2005 — representing nearly half of all goods sold at a distance and a 50 per cent rise on 2004. Online has become the dominant distance-selling channel in Britain, the Netherlands and France, approaching 70 per cent of all sales.

Andrew Cave, a senior adviser at the Federation of Small Businesses, said companies were very concerned about the impact of Article 5. “This could prevent small businesses from leveraging the benefits of e-business. It could nip in the bud the further growth of online trading.”

But such fears were criticised by the European consumer-rights group BEUC, which said that, with 27 different legal systems, consumers might be deterred from buying from abroad if they were not protected.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• BA chief waives bonus after T5 fiasco
• Prospects of cheaper loans hit as Libor soars
• Rice price dives as US and Japan set to unlock grain pact