Unfair commercial practices, proposed EU directive

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Unfair trade practices within the food supply chain remain an unresolved problem to this day. After years of consultation and solicitation, the proposed directive adopted on 12.4.18 by the European Commission.

Unfair trade practices, the background

Unfair trade practices have been considered-until now-only at the final stage of the supply chain, for the protection of the end consumer. (1) Neglecting the more serious problems, instead caused by the severe imbalance of bargaining power between the production chain-in the food sector fragmented into a plethora of micro-enterprises-and the distribution chain. Beyond just payment terms in commercial transactions, to which Directive 2011/7/EU (implemented in Italy by Legislative Decree 192/12) has finally put a limit.




Over the years




successive European Commissions have organized a ‘High Level Forum for a Better Functioning Food Supply Chain




.




With the aim – still far off, unfortunately – of addressing the problems mentioned above.

The obvious imbalance in contractual relations between primary agricultural producers and processors on the one hand and the distribution giants on the other, however, has not been resolved. Beyond hypothetical best practices that are themselves unsuitable to solve the problem.

In Italy, a step forward seemed to have been taken with the fateful Article 62 of law 27/12, to which the writer devoted aspecial monograph.. But beyond good intentions, the exclusive entrusting of the enforcement of the aforementioned legislation to the sole care of the Competition Authority (Antitrust) effectively ruled out its concrete effectiveness. (2)

Unfair trade practices, the outline of the directive

European Agriculture Commissioner Phil Hogan, given both the persistence of the problem and the impossibility of solving it with soft law tools such as voluntarily enforceable codes of conduct, (3) finally adopted a proposal for a directive. (4)

The directive outline UTPs (Unfair Trade Practices) is precisely referred to unfair trade practices in relations B2B (business-to-business) in the food supply chain. Better late than never in the face of a series of European Parliament resolutions-in 2010,

2011



, 2012



, 2016 (5) – and the public consultations ordered by Brussels back in 2013

. (6)

Fundamental rights in Europe-crystallized in the CFR, Charter of Fundamental Rights of the European Union, after all-include the possibility of exercising enterprise. (7) Therefore, the protection of businesses against the overwhelming power of their contractors is also incumbent in this respect. As well as to ensure a fair standard of living for farmers, as required by the TFEU (Treaty on the Functioning of the European Union). (8)

Indeed, the Common Agricultural Policy (CAP) should ensure the livelihood of farming communities, increase productivity and stabilize markets, ensure the availability of commodities, and guarantee reasonable prices for consumers. But its budget, already downsized significantly over the past several decades, will suffer further reductions due to Brexit.

Unfair trade practices, proposed rules

The directive applies to certain unfair trade practices-an example of which is given-in connection with sales of food products by SMEs (9) to EU-based business buyers who are not SMEs (Article 1).

Prohibited business practices. Member states must prohibit the following practices:

Payment of perishable goods (10) beyond 30 days after invoice or delivery,

order cancellation of perishable foods on such short notice ‘that a supplier cannot reasonably expect to find an alternative to market or use these products.’

Unilateral and retroactive change, by the buyer, of the ‘conditions of the supply contract relating to the frequency, timing or volume of supply or delivery, quality standards or prices of food products‘,

– Charging the supplier for the cost of food waste, not attributable to its fault, occurring on the buyer’s premises.

Practices ‘under scrutiny’. Member states shall ensure that the following business practices are prohibited, ‘unless they are agreed upon in clear and unambiguous terms at the conclusion of the supply contract.’

Returns of unsold food products,


listing fee
(‘a buyer charges a payment to the supplier as a condition of storing, displaying, or listing the supplier’s food products’)

promotional contributions. ‘Before a promotion and if such a promotion is initiated by the buyer, the buyer must specify the period of the promotion and the expected quantity of food products to be ordered

Member states will have to transpose the above into mandatory rules of law for the specific purpose of prohibiting the relevant prohibitions and conditions from being circumvented through contractual clauses (Article 3).

Procedures to protect SMEs

Producer organizations and their associations, in addition to individuals, will be able to appeal to the authority designated in each country to the implementation of the directive in terms of supervision and sanctions.

Absolute confidentiality about the identity of the complainant, if requested, should be maintained by the enforcement authority. To prevent the risk of commercial or other retaliation. The complainant will in any case have the right to be informed of the outcome of the procedure, even if the authority decides not to proceed (Art. 5).

The designated authority must come to be recognized with the powers of:

– Activate and conduct investigations, either on its own initiative or as a result of a complaint,

– require buyers and suppliers to provide all information necessary to carry out investigations of prohibited business practices,

– Make decisions affirming the violation of prohibitions and order the immediate cessation of prohibited practices,

– refrain, conversely, from making such decisions if doing so would entail the risk ‘of revealing the identity of a complainant or disclosing any other information in relation to which the complainant believes disclosure would be harmful to his or her interests.’

– Impose financial penalties on offenders. ‘The sanction must be effective, proportionate and dissuasive taking into account the nature, duration and seriousnessof the infringement.’

– Publish the above decisions,

-publish annual reports on its activities (number of complaints received and investigations carried out. In relation to each investigation, summary description of the matter and result). (Article 6).

Effective international cooperation will have to be ensured, among designated authorities in different member states, with duties of mutual assistance in investigations with a ‘cross-border dimension‘. Annual meetings will be established for updates to which the Commission itself should provide on a dedicated website (Art. 7).

Member states may introduce national rules additional to the rules laid down in the directive, provided they are compatible with the rules on the functioning of the internal market’ (Art. 8). Italy could therefore correct the fateful Article 62 by giving the Guardia di Finanza the powers of initiative, control and sanction. The Antitrust Authority has done nothing in six years, thus completely nullifying a regulation that was developed with appreciable criterion.

The elephant and the mouse

The metaphor of the pachyderm alongside the small rodent recurs throughout the story. The elephant in Brussels has given birth to a mouse, a handkerchief so microscopic that any behemoth can go around it and continue to squeeze the rights of guinea pigs.

The list of prohibited practices is certainly useful, but it must be much broader. Above all, the list should be understood as an open list, of illustrative rather than exhaustive value.

And it is curious to note the bipolarity of this Commission that while it offers crumbs to local sorcinos, it invites nutrias and beavers from other continents to join the banquet. The lyophants of global distribution will have extra reasons to source agricultural raw materials and food.

Global distribution elephants will have more reasons to source agricultural commodities and food in North America thanks to CETA e in South America with MerCoSur. In addition to that 50 or so

of countries whose goods gain duty-free access to our market, because of the EBA system (




Everything But Arms




) to date without clauses to safeguard our supply chains, Italian rice




first and foremost




.

Dario Dongo

Notes

(1) See dir. 2005/29/EC, transposed in Italy by d.lgs. 145/07 and d.lgs. 146/07(Consumer Code). Hints of unfair practices in relations between economic operators can also be found in dir. 2006/114/EC, within the narrow limits, however, of misleading and comparative advertising



(2) See the various articles published at




http://www.ilfattoalimentare.it/?s=Articolo+62




(3) Initiatives along these lines have also been taken in England



and in Ireland

. At the European level, we report the


Voluntary Supply Chain initiative (





http://www.supplychaininitiative.eu/




), which is unnecessary precisely because it is voluntary and lacks sanction mechanisms



(4) The text of the proposed directive ‘




on unfair trading practices in business-to-business relationships in the food supply chain




‘ and other related documents are available, for now only in English, at




https://ec.europa.eu/info/publications/key-documents-unfair-trade-practices_en


(5) The latest resolution on unfair trade practices in the food supply chain was adopted by the Strasbourg Assembly on 7.6.16. Cf. http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P8-TA-2016-0250

(6) Even in 2016, in spite of all evidence about the seriousness of the problem, the European Commission had persisted in not adopting any regulatory proposals. See previous article https://www.foodagriculturerequirements.com/news_1/commissione-europea-una-legislazione-sulle-pratiche-commerciali-sleali-non-necessaria-al-momento

(7) See CFR, Articles 16, 51, 52.

(8) Cf. TFEU, Article 39

(9) SMEs are ‘enterprises which employ fewer than 250 persons, have either an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million‘ (Communication 361/2003/EC, Art. 2.1)

(10) NB: Perishable goods, in the proposed directive, are ‘all foodstuffs that will become unfit for human consumption unless stored, processed, packaged or otherwise preserved to prevent’ this (Art. 2.1.e)

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Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.