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Unfair Commercial Practices (Formerly, Duty to Trade Fairly)

June 2004

Latest developments:

The draft directive on Unfair Commercial Practices, designed to improve an apparent lack of consumer confidence in cross-border trading in goods and services by stamping out rogue trading and unfair practices including misleading advertising reached a critical phase last month and saw Commissioner Byrne make huge concessions to consumer groups. The long fought-for “Country of Origin” principle - which means that it is the laws and regulations of the country from where the goods or services are delivered that apply in any legal action, was undermined by a last minute addition to the Irish compromise. New article 3.3 states that the Directive is “without prejudice to international private law rules”. If combined with article 5.1 of the Rome II proposals on applicable law the Internal Market clause will be destroyed and rendered completely meaningless by making companies potentially liable under legislation in 25 countries.

This marks a complete turnaround in the position of the Commission, leaving businesses facing legal uncertainty – something which the directive set out to avoid from the outset. The Common Position provides a “permanent derogation” from the principle of country of origin and allows Member States to introduce stricter, new rules on consumer health grounds. This wide remit means that harmonisation is impossible and makes a mockery of the internal market.

Supporters of Country of Origin included the UK, Luxembourg, Estonia, Slovenia and the Netherlands.

The Common Position will go to the new European Parliament for its Second Reading after the elections.

EPC position:

The European Publishers Council has always said that it will only support this directive, which will impact advertising regulation to a great extent, if it is based on internal market objectives and includes the country of origin principle. The latest change to the text marks a complete change in the legislation that would make businesses trading across EU borders potentially liable to 25 different legal frameworks.

What happens next?

European Parliament Second Reading – after EP elections

Background:

Commissioner Byrne produced a Green Paper on Consumer Protection in October 2001 – which led 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.

Click here to download the green paper.

There were several important presumptions running through the original green paper including:

1. There are two markets: one for consumers and one for marketers;

2. The existing “internal market” approach has not delivered a consumer market; country of origin control helps business but does not give consumers confidence;

3. Business has failed to provide sufficient opportunities for consumers to trade across borders and/or online;

4. 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;

5. A legally-defined and enforceable “duty to trade fairly” would give these consumers the confidence they need;

6. 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).

Following consultation, the Commission stated:

• 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 endorsed the Commission’s idea of developing a legal instrument for co-operation between national enforcement bodies responsible for consumer protection.

The original framework directive:

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 were to be 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.

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)
   
• Responses to the Discussion document "Ideas for a Consumer Policy Strategy"
   
• Fair Commercial Practices - Responses to the Green Paper on Consumer Protection (updated)

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 on Tel: +44 1865 310 732 or angela.mills@epceurope.org.

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