The law, dubbed the Brussels I regulation, will come into effect next March. It states that where there is a dispute between a consumer in one EU country and an online retailer in another, the consumer will be able to sue in a court in his own country.
The justice ministers and the European Commission, which drafted the regulation, argue that this focus on the consumer is essential to help get electronic commerce off the ground in Europe.
"A lack of consumer confidence is the main thing holding up the development of e-commerce here," said Leonello Gabrici, spokesman on judicial matters for the Commission.
He said that by handing jurisdiction of such cross-border disputes to the courts in the consumers' country, the regulation will be encouraging consumers to purchase online.
But industry representatives in this debate argue that this approach will create legal uncertainty for small companies using the internet.
"For large companies it isn't a problem, because they have offices and lawyers in all EU countries. The SMEs would be burdened with substantial legal and insurance costs if they took protection against litigation from outside their home market," said Wim Mijs, vice president of EU affairs at Dutch bank ABN Amro. "As a result, venture capitalists might be a little more cautious about investing in a European Web venture."
The implications of this regulation for business-to-consumer online trading are enormous, said Mike Pullen, a Brussels-based lawyer with UK law firm Dibb Lupton Alsop.
"It means we will still have 15 separate markets in the EU, rather than one unified internal market, which I thought was the aim."
The Commission, the EU's executive body, said Thursday that the text agreed by justice ministers is a compromise solution, addressing the concerns of consumers and e-commerce practitioners alike.
"It is a compromise because it states clearly what court has jurisdiction in cases of conflicts arising from e-commerce," said justice and home affairs commissioner Antonio Vitorino.
But even some justice ministers disagreed. One described the regulation as "a lawyers charter", because it creates so much uncertainty, according to an official who witnessed the ministers' closed-door debate.
The regulation pre-empts the signing of a global charter on the question of jurisdiction in cross-border online disputes, under discussion at a forum called the Hague Convention.
The Hague Convention also aims to protect consumers in online transactions. The current wording of a document, which will be debated by representatives of all the major trading blocks early next year, says that the courts in the consumer's country should have jurisdiction only when a Web site is specifically targeting that country, said Pullen.
The Brussels I regulation states that if the Web site does not specify a country, then it should be assumed that the online trader is targeting all countries.
Vitorino denied there is a contradiction between this European approach and the global one being debated in the Hague Convention. "There is no contradiction here because we are mandated to represent the EU in the Hague Convention negotiations," he said.
He stressed that the Brussels I regulation goes much further than the Hague Convention, in that it applies to all cross-border disputes, not just online cases.
"It is unfortunate that the justice ministers decided to go ahead with this regulation before the Hague process is concluded. We were asking for a delay until then," said Angle Mills, EU affairs manager with the Internet Advertising Bureau.
She added that the new regulation also contradicts existing EU legislation by focusing on the court in the consumer's country. An e-commerce directive which is in the process of being transposed into the national statutes of the 15 EU countries says that a Web site should be able to sell its goods and services according to one set of rules -- those of the country where the Web site is based.
"It's a fudge. There is no legal certainty at all," she said.