Last reviewed 5 March 2013
The European Commission has adopted a Green Paper on unfair trading practices in the business-to-business food and non-food supply chain, and has set out an associated European Retail Action Plan. Eric Davies reports.
The Single Market
Announcing a European Commission initiative on unfair trading practices in the business-to-business food and non-food supply chain, the Commissioner for Internal Market and Services, Michel Barnier, said: “Retailers play an important role in bringing the Single Market to EU consumers. However, barriers to the creation of an efficient and competitive single market in retail remain. This Action Plan sets out a strategy to improve the competitiveness of the retail sector and to enhance the sector’s economic, environmental and social performance.”
B2B supply chain
Comprising producers, processors and distributors, the business-to-business (B2B) supply chain moves products and services from suppliers to consumers.
In the last 20 years or so, this supply chain has undergone significant changes, with increasing concentration and vertical integration seeing the rise of international retail buying alliances, and an increasing number of own brands. This can mean that some retailers are competing with their own suppliers.
Concerns have been raised that changes in the B2B supply chain could lead to unfair practices, with businesses, including SMEs, consequently seeing their ability to invest and innovate adversely affected.
Unfair trading practices
Unfair trading practices (UTPs) are defined by the Commission in its Green Paper as practices that “grossly deviate from good commercial conduct and are contrary to good faith and fair dealing” and which are “typically imposed in a situation of imbalance by a stronger party on a weaker one — which is often not in a position to abandon the unfair relationship and switch to another business partner due to the costs implied by such change or to the lack of alternatives to the contractant.”
Types of UTPs highlighted by the Commission are:
ambiguous contract terms
lack of written contracts
retroactive contract changes
unfair transfer of commercial risk
unfair use of information
unfair termination of a commercial relationship
territorial supply constraints.
The Commission notes that the imbalance can exist from any side of the B2B relationship, with both retailers and suppliers potentially being victims of UTPs. A common characteristic of UTPs is, says the Commission, “the transfer of costs incurred and the shift of entrepreneurial risk to the weaker party in the relationship”, adding that the resulting “excessive pressure, inability to carry out proper business planning and lack of clarity as to the real content of the contract all hamper optimal decision making, leading to squeezed margins potentially reducing companies’ capacity to invest and innovate."
Although many EU Member States have taken action against UTPs, national measures vary and there is no EU-wide approach. By improving the functioning of the supply chain, the Commission aims to promote greater economic integration and to address significant problems in the Single Market caused by unfair trading practices and the various national rules intended to combat them.
The Green Paper itself provides a preliminary assessment of issues associated with UTPs in B2B food and non-food supply chain relationships. The publication of the Green Paper signalled the launch of a three-month public consultation to gather information from interested parties. Specific questions on various aspects of UTPs, including the definition of the term, are set out in the Green Paper. The deadline for responses is 30 April 2013. On the basis of those responses, the Commission is expected to announce its next steps by the middle of the year.
The Green Paper on unfair trading practices in the business-to-business food and non-food supply chain in Europe (COM (2013) 37) is available on the European Commission’s Retail services website, together with associated materials.