The UK Government must step up its efforts to find a practical solution to the Common European Sales Law (CESL) proposal, which is currently before the European Parliament. Small and medium-sized businesses are the backbone of the British economy and require all the necessary tools to help meet the demands of government to grow us out of recession.
There are compelling economic arguments for a pan-European contract law system, which consumers and business can opt in to. However, we remain concerned that current opinions are too academic without realising the practical benefits cross-border trade will have on business growth. We worry that the UK Government will simply reject the text without championing British business and the consumer.
Compared to other global economic markets, the European Single Market is hindered by regulatory fragmentation. Currently the Commission is addressing this major trade barrier with CESL. We welcome this initiative as it will harmonise consumer rights and offer businesses the option to use one contract to trade throughout the EU. This will make it easier for local businesses to target and access the single market.
Currently one in five businesses exports goods and services and Europe is our biggest market. Complicated and varying national legal systems add barriers to accessing these markets and many small businesses would prefer to stay in the UK rather than operate across Europe with exposure to many different foreign laws all at once.1 This does not give confidence to markets already sensitive to the economic downturn
Full harmonisation of consumer law has failed under the Consumer Rights Directive (CRD) as it only harmonises three areas of sales law: pre-contractual information, the right of withdrawal and risk management. The CRD also contains minimum harmonisation clauses, which allow member states to create or maintain national rules. The net result is a quasi harmonisation of consumer law across the EU, meaning there will be no unified law under which (for example, internet) sales can be made in Europe. Therefore, there is an economic argument to have an instrument such as CESL.
In addition to the three areas of sales law in the CRD, the CESL harmonises 10 areas of sales law. CESL is a comprehensive set of rules, covering almost all aspects of a cross-border (online) sales transaction. A 2009 Commission report suggested that up to 60 per cent of EU cross-border e-commerce contracts failed. This is unacceptable for UK online business struggling to grow us out of recession.
CESL has the potential to boost growth and give businesses the option to comply with one set of rules, avoiding the added legal costs associated with local markets. We believe the cost of the existing diversity is greater than the cost of the new regime. Differences between national laws are maintained through the minimum harmonisation clauses in various pieces of legislation - the body of law businesses currently have to deal with, multiplied by the number of member states they export to. For example, the CRD offers the possibility to maintain or introduce national rules on sales contracts (recitals 13, 51), on termination or unenforceability of a contract (recitals 42, 48, 52), and on remedies (recital 53). CESL would harmonise these areas of law.
We are aware of other solutions and softer measures that have been put forward, for example model contracts. We would accept that model contracts can be useful, but these would need to have a common legal base, which CESL would establish. Without the legal base, model contracts will fall back on the existing acquis and this will not solve the regulatory fragmentation.
CESL would advantage both business and consumer, potentially leading to diversification, wider availability and lower prices of products.
We also welcome the inclusion of business-to-business (B2B) contractual relationships in CESL. In professional relationships, small businesses would benefit from lower legal costs. There is major potential for economic gain thanks to the simplification of negotiations between businesses.
The UK Government wants British business to grow through exports, which means finding new markets, using contracts, broadening consumer choice, and benefiting from the Single (Digital) Market. Yet, the Government does not actively support an instrument that combines all these things. We find it short-sighted that the Government will deny (small) businesses an export instrument when growth through export is essential. We urge the Government to embrace CESL in principle and work constructively with the European Parliament and other member states to make CESL an easy to use, off-the-shelve tool for new and existing exporters of British businesses.
We need your help!
Are you a small or medium-sized business trying to do business online across Europe? Would a pan European standard contract law system help your business reach out to new markets and more consumers?
Please get in touch (or comment below) as we'd like to hear from you...