BRUSSELS (Reuters) - The European Commission signed a voluntary agreement on Wednesday with companies that make or use smart tags, establishing privacy guidelines over the rapidly growing use of the identification chips.
Smart tags are unique identifiers found in mobile phones, bus passes and an increasing number of everyday devices. They raise privacy concerns because they contain data that can be read remotely through radio signals.
The new voluntary rules, to take effect before the end of the year, require companies to conduct a privacy risk assessment before putting a smart tag product on the market.
"I'm pleased that industry is working with consumers, privacy watchdogs and others to address legitimate concerns over data privacy and security related to the use of these smart tags," Neelie Kroes, the EU Commissioner dealing with issues surrounding digital technology, said in a statement.
"This sets a good example for other industries and technologies to address privacy concerns in Europe in a practical way."
Industry group BITKOM, which represents chipmakers such as Germany-based Infineon and Dutch NXP Semiconductors N.V., signed up, along with Oracle Corp. which makes products to help manage and monitor tag data.
Retailers Carrefour of France and Germany's Metro AG, which use smart tags for tracking stock, were also among those agreeing to the code.
About 1 billion smart tags -- also called radio frequency identification devices or RFIDs -- are expected to be used in Europe this year. The number of smart tags used worldwide is predicted to rise to 50 billion by 2020 from an estimated 2.8 billion this year, according to industry forecasts.
The chips are used in some clothing tags, but have yet to be integrated into consumer products in a big way. Their use in passports and hospital patient wristbands have raised some concerns that they could make theft of private data easier.
Risk assessments would have to take into account the possible damage from personal data falling into the wrong hands, as well as suggest steps to prevent or mitigate any impact.
Editing by Rex Merrifield and Sophie Hares