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  Francisco Balsemão
  Chairman, EPC
  Chairman and CEO,
  f.balsemao@epceurope.org
  Impresa S.G.P.S.
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  Angela Mills Wade
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FACTSHEET: DUTY TO TRADE FAIRLY
May 2002

The issue:

Commissioner Byrne produced a Green Paper on Consumer Protection in October 2001 ­ which is expected to lead to a proposal for a directive to improve an apparent lack of consumer confidence in cross-border trading in goods and services, online or through traditional methods. For more information visit:
http://europa.eu.int/comm/consumers/policy/developments/fair_comm_pract/fair_comm_greenpap_en.pdf

Before proceeding with a Directive, the Green Paper will be followed up with a Communication which is due to be presented to the Internal Market Council of Ministers before the summer break. Meanwhile the European Parliament has yet to give its opinion on the original Green Paper although Rapporteurs have been appointed and work has just begun. EPC wrote to the President of the Parliament suggesting he request a standstill until Parliament had given its opinion, but he concurred with the view of Commissioner Byrne that the delay wasn't important as MEPs would have plenty of time to give views on the draft legislation itself!

There were several important presumptions running through the paper including:

  • there are two markets: one for consumers and one for marketers;
  • the existing "internal market" approach has not delivered a consumer market; country of origin control helps business but does not give consumers confidence;
  • business has failed to provide sufficient opportunities for consumers to trade across borders and/or online;
  • consumers who do trade online or outside their home country are not as confident as they might be because they are not clear about their rights;
  • a legally-defined and enforceable "duty to trade fairly" would give these consumers the confidence they need;
  • certain forms of advertising are inherently unfair, like marketing to children etc.

The Green Paper also discussed the opportunities for more flexible regulatory models including:

  • co-regulation (where regulators define the public interest objectives and identify the stakeholders who should thereafter negotiate a code)
    and
  • self-regulation (which they believe must be based on European level codes of practice, backed up by legal sanctions)

Latest state of play:

A (leaked) draft of the Communication on consumer protection which follows up the consultation on the Green Paper on a Duty to Trade Fairly makes the case strongly for a harmonizing directive and claims that there is overwhelming support for such an approach. Commissioner Byrne is intending to present his ideas to the Internal Market Council on 21 May 2002.

The Commission states:

  • A majority of respondents accept the case for reform of EU consumer protection legislation. The current status quo is holding back the internal market for consumers and for business
  • A majority of respondents would like reform to proceed on the basis of a framework directive on fair commercial practices. This should be accompanied by the development of EU-wide self-regulation and other mechanisms to provide legal certainty and adaptability.
  • A large majority endorses the Commission's idea of developing a legal instrument for cooperation between national enforcement bodies responsible for consumer protection.

On self-regulation the response was, not surprisingly, mixed:

  • A majority of businesses were against the idea of making voluntary commitments binding. However, some supported the idea, with or without reservations. The role of nationally based codes raised many questions, especially from the UK, where codes are more established. There was support for the Green Paper line that self-regulation should remain genuinely voluntary but some argued in favour of Commission endorsement of codes. Some concerns were expressed about making code-owners responsible for their codes.
  • Consumer groups and other respondents were cautiously positive, being more strongly in favour of making commitments binding. The idea of defining non-compliance with a commitment as unfair was a critical pre-condition for their support for self-regulation.
  • The Member States were mainly supportive of the use of self-regulation in general. France called for further consultation. The Netherlands and the UK supported the idea of self-regulation in consumer protection in general. The UK argued strongly in favour of public endorsement of codes. Belgium, Denmark, Sweden and France favour more public involvement in the negotiation of codes.

Under the proposed framework directive (see below), self-regulation could be defined in terms of voluntary commitments made public by companies addressing business-consumer commercial practices. These commitments could be adopted collectively by an industry sector or an association of companies or an individual company. A code-owner would need to be defined as the body responsible for the development of the code (e.g. an association or the company itself in the case of an individual code). The decision to join a code would also be voluntary. Further consultation is needed on whether the framework directive should include an option for the endorsement of codes by public authorities.

There is also a section on "non-binding guidance" which elaborates the various options which were contained in the original green paper (also known as co-regulation). Rules for "stakeholder participation" are also set out.

The case for Harmonization

The case for Harmonization is based on a general clause, which could consist of two core elements: the unfairness of the practice; and a "consumer detriment test" (developed in the annex). The general clause would have to be substantiated by a number of specific rules (the "fairness/unfairness categories") concerning different stages of the business to consumer relationship. In order to illustrate and develop further the general clause and categories, a non-exhaustive list of examples would be drawn up.

The framework directive, in more detail:

  • The response to the questionnaire gives a sufficiently clear mandate to the Commission to pursue the mixed approach and develop a proposal for a framework directive. There is a strong case for further consultation on the detail of a framework directive. Elements of a possible framework directive are set out in the annex as a basis for consultation.

In the Commission's view, a framework directive should bring about:

  • maximum harmonization with a high level of consumer protection
  • simplification and, where possible, deregulation of existing provisions should be prioritized
  • a balance between legal certainty and adaptability to market circumstances. For the former, it is essential that the legislation provides a sufficient level of detail both to genuinely harmonize, and to provide certainty for business and consumers. It should be clearly drafted to ensure that questions of interpretation are kept to a minimum. On the other hand, the legislation should be as 'time-proof' and technology-neutral as possible.
  • the scope of the legislation should be based on the concept 'fair commercial practices' rather than the narrower concept of 'misleading practices'. It should also be phrased in terms of actions that are unfair ­ in other words an obligation not to trade unfairly, rather than a duty to trade fairly
  • a framework directive should be based on a general clause, which could consist of two core elements: the unfairness of the practice; and a "consumer detriment test" (developed in the annex). The general clause would have to be substantiated by a number of specific rules (the "fairness/unfairness categories") concerning different stages of the business to consumer relationship. In order to further illustrate the general clause and categories, a non-exhaustive list of examples would be drawn up
  • Possible elements of fairness categories include:
    ­ A prohibition on business from engaging in commercial practices that are misleading or likely to mislead the consumer;
    ­ A duty to disclose to the consumer all material information which is likely to affect the consumer¹s decision;
    ­ A prohibition on the use of physical force, harassment, coercion or undue influence by business;
    ­ Effective information disclosure and complaint-handling in the after-sales period.

The Commission states that the primary focus should be on unfair practices that cause detriment to the interests of consumers as a whole, rather than individual cases. The legislation should provide that injunctions could be taken to ensure such unfair practices are withdrawn rapidly. The legislation would also be linked to the Injunctions Directive.

On the question of country of origin and mutual recognition, the document says that if an adequate level of harmonisation was achieved, the principles of mutual recognition and country of origin could also be enshrined in the framework directive, with the consequence that the Member States would be prevented from prohibiting commercial practices from other Member States.

The document we¹ve seen includes the draft directive in annex and suggests that further consultation on the questions that remain open should proceed on the basis of working documents during the rest of the year. This document is still subject to consultation internally within the Commission. Not surprisingly some DGs are challenging some of the research findings as well as the concepts.

Timing:

The Communication, which will allow for further consultation on a number of key issues which emerged during consultation on the Green Paper is expected to be published before the Summer break and is likely to include the text of a draft directive.

A final outcome of the consultation phase is not expected until the first half of 2003 when Greece takes over the EU Presidency.

EPC Position:

The EPC argues that the Commission provides no evidence to indicate poor consumer confidence and insists that current regulatory frameworks provide the best consumer protection. Read the letter to Commissioner Byrne, 10 October 2023.

The EPC says that the Commission has not established a convincing case to move to a new way of regulating advertising, marketing and business practices at European level based on a common "duty to trade fairly". The proposal suggests that widespread self-regulation in the advertising and communications sectors would be replaced by a new form of legislation.

The EPC questions
i) lack of evidence to support the Commission's claims
ii) lack of clarity of definitions about what shape any new-style legislation would take

The Green Paper implies that self-regulation can only be effective if pan-European, although it fails to back up this assertion with evidence to show that the current system of national self-regulation of both advertising and editorial content isn't working. For information on self-regulation, go to http://www.easa-alliance.org.

The EPC is calling on the Commission to adopt specific measures designed to address specific problems, combined with an ongoing system of existing self-regulation to deal with fraud, "rogue" traders and non-fulfilment of contracts. The EPC would oppose the adoption of a framework directive based on a general duty to trade fairly which would be disproportionate to the problems identified under the current regulatory system. The EPC favours an internal market approach founded on mutual recognition of national law to best serve consumers and businesses alike.

In brief, the EPC's main concerns are as follows:

  • Advertising: will this lead to further restrictions on advertising to children ­ or on alcohol or car advertising?
  • Self-regulation: will the push towards co-regulation undermine existing systems of self-regulation; particularly in the advertising field, but also in content regulation in general which might affect editorial
  • Harmonization: The EPC does not believe that a harmonized approach is necessary and refutes the hypothesis that consumers are not being given opportunities to trade across borders
  • Evidence: The Commission has produced no evidence to support its assumptions.
  • Coalition: The EPC has joined an adhoc coalition to voice its concerns on this proposal
  • EPC Position papers are available on request from info@epceurope.org

Key players:

  • Commissioner Byrne
  • DG SANCO ­ Corina Thornblom and David Mair
  • DG Markt ­ Jean Bergevin
  • European Parliament Rapporteur: Aileen McCarthy, MEP

Further links:

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