The European Commission (EC) has issued a set of recommendations to ensure those involved in the design or operation of technology using smart chips respect the individual's fundamental right to privacy and data protection.
The recommendations follow a public consultation launched in 2006, on the development and use of smart chips (or Radio Frequency Identification technologies). Based on this, it then adopted a Communication in March 2007, showing that further action was expected by the public in terms of privacy and data protection. The EC says the recommendations respond to these expectations and seek to create a level-playing field for the European industry, while respecting individuals privacy.
The EC notes that smart chips can, and already do, have a huge impact on business tasks, public services and consumer products, making everyday life simpler. Indeed, it says, there are already over 6 billion smart chips using radio frequency identification (RFID) technology, that can be integrated into a variety of everyday objects from fridges to bus passes. The chips can process data automatically when brought close to readers that activate them, pick up their radio signal and exchange data with them.
There is clear economic potential in using small, smart chips to allow communication between objects, says Viviane Reding, EU Commissioner for Information Society and Media. But Europeans must never be taken unawares by the new technology. This is why the Commission (has) issued strong recommendations to the industry. European consumers must be confident that if and when their personal data is involved, their privacy will be impregnable also in a changing technological environment. The Commission therefore wants RFID technology to empower consumers to control their data security, which is the best way to make sure it is an economic success.
The Commission's principles include: 

• Consumers should be in control whether products they buy in shops use smart chips or not. When consumers buy products with smart chips, these should be deactivated automatically, immediately and free-of-charge at the point of sale, unless the consumer explicitly opts-in by asking to keep the chip operational. Exceptions can be granted to avoid unnecessary burden on retailers, for example, but only after an assessment of the chip's impact on privacy.
• Companies or public authorities using smart chips should give consumers clear and simple information so that they understand if their personal data will be used, the type of collected data (such as name, address or date of birth) and for what purpose. They should also provide clear labelling to identify the devices that read the information stored in smart chips, and provide a contact point for citizens to obtain more information.
• Retail associations and organisations should promote consumer awareness on products containing smart chips through a common European sign to indicate whenever a smart chip is used by a product.
• Companies and public authorities should conduct privacy and data protection impact assessments before using smart chips. These assessments, reviewed by national data protection authorities, should ensure that personal data is secure and well protected.

We asked Jonathan Bass, Managing Director of mobile agency Incentivated, and a font of all knowledge on all things mobile, for his reaction to the ECs plans. He told us:
My first thought is, does Oyster comply? The part about consumers being in control whether products they buy in shops use smart chips or not makes no sense to me. The product with the embedded chip wont come with private data installed; you have to add your data to it! So I dont see this as an issue. Bullets 2 and 3 are very sensible, but bullet 4 means more EU bureaucracy and cost.”
Member states now have two years to inform the Commission on the steps they intend to take to make sure that the objectives of the Recommendation are met. Within three years, the Commission will report on the recommendation's implementation, including an analysis of its impact on companies and public authorities using smart chips, as well as its impact on citizens.
Some 2.2 billion RFID tags, such as the ones used at toll booths or to identify shipping containers, were sold worldwide in 2008, roughly a third of these in Europe. The worldwide market value for RFID tags is estimated to be 4 billion (3.6 billion) in 2008 and to grow to about 20 billion by 2018.
You can read the recommendation here.