Duty to trade fairly fact sheet

April 2003

Background to 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.

http://europa.eu.int/comm/consumers/policy/developments/fair_comm_pract/fair_comm_greenpap_en.pdf

Before proceeding with a Directive, the Green Paper has been followed up with a Communication published 11 June 2002. 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 it’s 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 original green 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:

Follow-up Communication to the Green Paper on EU Consumer Protection

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 harmonising directive and claims that there is overwhelming support for such an approach.

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 businesses.
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 Harmonisation 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 harmonisation with a high level of consumer protection.
Simplification and, where possible, deregulation of existing provisions should be prioritised.
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 harmonise, 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 consumer’s 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 we’ve 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.

A final outcome of the consultation phase is expected in the first half of 2003 when Greece takes over the EU Presidency. Greece has highlighted the Duty to Trade Fairly framework document as one of its consumer issue priorities during its presidency.

EPC position:

The Commission states in the Communication that there is majority support from the Member States for a framework directive based on maximum harmonisation. The fact that Member States are apparently prepared to undertake a radical overhaul of extensive national consumer protection legislation could lead to a considerably simpler legal framework in which consumers and business would operate. This we would support so long as this process was ultimately de-regulatory as we would not wish to see the imposition of an additional tier of regulation as the result of a new framework directive. Many of the existing rules, which masquerade as consumer protection, merely serve to reinforce various levels of national protectionism rather than delivering genuine protection for consumers. An important part of a framework directive would be to remove these.

Our initial support in principle for a general framework directive, based on maximum harmonisation would be contingent upon the following:

That it includes a mutual recognition clause so that publishers may continue to operate according to the rules of their country of origin.
A radical overhaul of national provisions leads to some de-regulation and simplification of rules and not further complication and restriction on businesses’ ability to trade.
Advertising self-regulation should be recognised as a central part of delivering a fair trading environment.
That existing systems of advertising self-regulation may continue to operate under the auspices of national self-regulatory organisations, coordinated at the European level through EASA, based primarily on the global International Chamber of Commerce (ICC) Codes of Practice.
That there is no mandatory endorsement procedure for codes of practice.
In the field of advertising, backstop legal powers should be limited to ‘misleadingness’.
There should be no attempt to legislate on taste and decency in advertising.
The directive does not increase the overall level of statutory advertising restrictions which already apply to advertisers and the media or which are well covered by self-regulatory rules. In particular in the areas of advertising to children and advertising of particular product categories, for example alcohol or over the counter medicines.
The consumer detriment test should be limited to economic detriment and should not be applied in such a way as to justify severe restrictions or a total ban on advertising for any product category, or marketing to any target group.
That lists of categories defining fairness/unfairness are strictly limited.
The directive does not impose additional liability on publishers for advertising content that already exists under the eCommerce directive and national laws and self-regulatory systems.
That classified advertising and business-to-business advertising are excluded from the scope of a framework directive.
That comitology is very strictly limited and completely transparent. In particular we oppose the establishment of a group which had delegated powers to embellish rules in the framework directive or elaborate additional rules (such as the “Article 29” Committee set up under the 1995 Data Protection Directive).

The EPC has joined an ad hoc coalition to voice its concerns on this proposal.

EPC Position papers available on request from angela.mills@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:

Consumer Policy Strategy (2002-2006)

http://europa.eu.int/comm/consumers/policy/intro/consumer_policy_strategy_de.pdf

Responses to the Discussion document "Ideas for a Consumer Policy Strategy"

http://europa.eu.int/comm/consumers/policy/intro/responses/index_en.html

Fair Commercial Practices

- Responses to the Green Paper on Consumer Protection (updated)

http://europa.eu.int/comm/consumers/policy/developments/fair_comm_pract/responses/responses_en.html

For further information

FOR JOURNALISTS on this or other topics, please contact Heidi Lambert Communications on Tel: +44 1245 476 265 or heidilambert@hlcltd.demon.co.uk.

FOR EPC MEMBERS AND GENERAL ENQUIRIES please contact Angela Mills Wade on Tel: +44 1865 310 732 or angela.mills@epceurope.org.