The European Commission has adopted a European Retail Action Plan and a Green Paper on unfair trading practices in the business-to-business food and non-food supply chain. The retail and wholesale services sector is seen as one of the most important in the EU economy and should play an important part in stimulating growth and job creation under the Europe 2020 strategy. It accounts for 11% of EU GDP and 29% of European SMEs and employs nearly 33 million people, offering job opportunities in particular for young people, women and people with lower skill levels or qualifications. However, a number of barriers remain that hinder the smooth functioning of cross-border sourcing, consumer access to cross-border retail services and market entry for retailers.
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What are the existing challenges in the retail sector?
Retailers are faced with various challenges that differ according to the size of the business concerned and its specific sector of activity. Global phenomena, such as the financial crisis and its impact on consumers’ purchasing power, rising commodity prices, demographic trends, in particular the aging of the EU population and the drive for sustainability, all represent significant challenges for existing retail business models and processes. The development of e-commerce is also putting pressure on the retail sector to reinvent its business models. Moreover, there are various regulatory barriers that hinder the proper functioning of the Single Market in Retail, and obstruct processes such as cross-border sourcing, consumer access to cross-border retail services, and even market entry by retailers themselves.
Why is the Commission proposing a European Retail Action Plan?
Numerous barriers to the Single Market in Retail were identified in the Commission’s Retail Market Monitoring Report (1), the European Parliament’s Report “Towards a more efficient and fair retail sector” (2) and the Country Specific recommendations issued by the Council in 2012. Two major challenges exist in the EU retail sector: (i) restrictions on establishment; and more generally, (ii) lack of competitiveness in the retail sector, in particular in some Member States, and a need to reduce barriers and operational restrictions.
Last spring, the Commission held a series of three workshops to bring together interested parties to discuss the future of retail services in Europe, the need for a European Retail Action Plan and the actions that should be part of it.
This Action Plan aims to address the key obstacles identified by setting out a strategy to improve the competitiveness of the retail sector and enhance its economic, environmental and social performance. The obstacles often concern various different policy areas and cannot be addressed in isolation. The Action Plan forms a coherent European strategy by putting forward eleven concrete actions that have a direct impact on retail and address the issues identified.
What are the main elements of the Action Plan?
The actions suggested by the European Retail Action Plan relate to five key priorities:
Empowering consumers: the actions are aimed at:
1. Developing, through dialogue with stakeholders, good-practice guidelines and/or codes of conduct to facilitate consumer access to transparent and reliable information, making it easier to compare prices, quality and sustainability of goods and services. In particular, the inclusion of cross-border offers by comparison websites is important for consumers to be able to take full advantage of the Single Market
2. Proposing European methodologies for measuring and communicating the overall environmental footprint of products and organisations.
Improving accessibility to retail services: the actions foreseen include the promotion of an exchange of good practices between Member States on commercial and spatial planning rules, in parallel with a performance check of existing national rules in this area. Proper and consistent enforcement of EU law will be guaranteed by applying a zero-tolerance policy for restrictions which clearly infringe EU rules.
Fairer and more sustainable trading relationships along the food and non-food supply chain: a Green Paper addressing the issue of unfair Business-to-business trading practices in the food and non-food supply chain is being adopted simultaneously with the Action Plan (see below for more information). In addition, two actions are foreseen that are aimed at reducing food waste and making the supply chains more sustainable through minimising energy consumption of retail outlets.
Ensuring a better link between retail and innovation: Here three actions are foreseen:
1. Launching a retail innovation initiative in 2013 whereby the Commission, with the help of high-level experts, will explore how to ensure that the retail sector can contribute to, and benefit from, innovative products, services and technologies;
2. Examining the feasibility of setting up a dedicated database containing all EU and domestic food labelling rules and providing a simple way of identifying labelling requirements per product;
3. Taking measures to ensure better market integration for card, Internet and mobile payments.
Creating a better work environment, for example by better matching the needs of employers and staff skills, particularly by identifying and anticipating skills needs through an EU Sectoral Skills Council and by improving retailers’ training and reskilling policies.
Which stakeholders will benefit from the Action Plan?
Consumers will have improved access to high-quality retail services and products and more competitive prices. They will also be able to make better choices through improved access to information.
Businesses, both retailers and their suppliers, especially SMEs, would benefit more fully from the Single Market through the development of a clearer legal environment, enabling them to deliver greater value throughout the supply chain. Similarly, by addressing unfairness in the supply chain, upstream and downstream players would benefit from more sustainable relationships and would be encouraged to increase both innovation and investment. Further development of e-commerce will be beneficial to retailers by providing them with broader opportunities and new markets.
Employees will have access to better job opportunities and improved working conditions in the retail sector, leading to better job satisfaction. Improving employee training should in particular bring benefit to young and less-qualified workers.
How will the proposed actions be implemented?
Different Directorates-General of the Commission are responsible for the different actions and they will work on them together with their experts. The results of their work will be discussed in the framework of the Group on Retail Competitiveness that would provide for a global overview of all the actions.
How will the implementation of the Action Plan be monitored?
The Commission will monitor developments and report on the progress in implementing this Action Plan by issuing a report in 2015. This monitoring will be done on the basis of the on-going discussions within the EU institutions, with Member States, and with representatives of the retail sector and other relevant stakeholders through the Group on Retail Competitiveness.
Green paper on unfair trading practices
What exactly are business-to-business unfair trading practices?
Unfair trading practices (UTPs) are practices that grossly deviate from good commercial conduct and are contrary to good faith and fair dealing. Freedom of contract is a cornerstone of any business-to-business (B2B) relationship in the market economy. However, in some cases where one of the contracting parties has a stronger bargaining position, it may unilaterally impose terms on the weaker counterpart. In such situations, the weaker party may not be in a position to reject such unilaterally imposed unfavourable conditions due to a fear of not concluding the contract or even being driven out of business.
Such practices include failure to provide sufficient information about contract terms, demanding payments for goods or services that are of no value to the contractor such as demanding from suppliers certain excessive investments in new outlets, unilateral or retroactive changes of contract terms, as well as payments for fictitious services, preventing contractors from sourcing from other Member States leading to territorial partitioning of the Single Market.
UTPs can occur at any stage of the B2B relationship and retailers as well as suppliers can be the victims of such practices.
What are the potential effects of the business-to-business unfair trading practices covered by the Green Paper?
UTPs may have detrimental effects on the EU economy and for the B2B food and non-food supply chain in particular. Such practices may affect companies’ capacity to invest and innovate. The existence of fragmented national rules may constitute an additional obstacle to engaging in cross-border sourcing and distribution in the Single Market.
Has the Commission previously addressed the problem of business-to-business unfair trading practices?
At EU level, UTPs were first discussed in the EU food sector in 2009 when consumer prices rose against the background of the agricultural price spikes. This triggered the need to analyse the way in which the food supply chain works. It was concluded that consumers were not offered sufficiently fair deals in terms of product range and prices and that intermediaries / food processing industrials / retailers squeezed the margins of agricultural producers.
In 2010, the Commission published the Retail Market Monitoring Report, which identified the lack of rules addressing B2B UTPs or the insufficient enforcement of such rules as one of the major problems of the retail sector. In the Single Market Act I, the Commission expressed its intention to launch an initiative to combat UTPs in business relations.
What is the link between the Green Paper and the High Level Forum for a Better Functioning Food Supply Chain?
In the specific case of food, an Expert Platform on B2B Contractual Practices within the High Level Forum for a Better Functioning Food Supply Chain was set up in 2010 to work on providing a solution to the issue of UTPs. In 2011, the Expert Platform delivered a set of principles and examples of fair and unfair practices in vertical relations in the food supply chain signed by eleven organisations representing different interests across the European food supply chain. In 2012, the Platform worked on an enforcement mechanism. Despite the common effort, the proposed framework did not gain the support of representatives of the entire supply chain at the time of the third meeting of the High Level Forum on 5 December 2012 (see IP/12/1314). Eight of the eleven organisations announced their intention to launch the implementation of the principles of fair practice on a voluntary basis in early 2013.
During the meeting of the High Level Forum, the “twin-track approach” to address the problem was also announced. In parallel to the self-regulatory implementation of the principles of fair practice, the Commission is publishing this Green Paper, in order to launch a consultation with stakeholders on its analysis of the B2B UTP phenomenon, to gather information and, where appropriate, to identify possible next steps to address this issue. In addition, the Commission will launch an Impact Assessment analysing several possible options to tackle B2B UTPs that range from self-regulation to legislation.
Why does the Green Paper focus on the business-to-business food and non-food supply chain in Europe?
The Green Paper addresses the issue of B2B UTPs in the food and non-food supply chain, i.e., the chain of transactions between businesses or between businesses and public authorities that leads to the delivery of goods destined mainly for the general public for personal or household consumption or use. The supply chain is composed of a number of actors (producers/processors/distributors) who all have an impact on the final price paid by the consumer.
UTPs may occur not only in the food sector but in non-food sectors as well. The food and non-food retail sectors have evolved towards a ‘mixed’ format, whereby the vast majority of retailers supply ranges of food, household goods and other products under the same management and under the same terms and conditions. The fact that some of the largest manufacturers produce food as well as other types of goods such as detergents, cosmetics, hygiene products, etc. combined with the importance of some brands may also affect the supplier/retailer relationship.
The Commission’s Retail Market Monitoring Report mentioned the presence of UTPs in various retail sectors. The European Parliament has also acknowledged the need to go beyond the agro-food industry and urged the Commission to take action in this regard in its 2011 Resolution on a more efficient and fairer retail market.
What are the current rules applicable to business-to-business unfair trading practices?
Over the years, unfair practices in relationships between suppliers and buyers have increasingly been seen by public authorities as an important political issue. As a result, many Member States have taken actions to address the issue of UTPs but have done so in different ways. This has led to a high degree of divergence in terms of the level, nature and legal form of protection provided against UTPs at national level. Some national frameworks are statutory while others are self-regulatory, some are sector-specific while other apply across the board, some address certain UTPs while other don’t.
The consultation launched by the Green Paper will help the Commission in the assessment of the national rules applicable to UTPs.
What will be the follow-up of the Green Paper on unfair trading practices in the business-to-business food and non-food supply chain in Europe?
All interested parties are invited to submit their views in response to the questions raised in the Green Paper by 30 April 2013. As a follow-up to this Green Paper and on the basis of the responses received, the Commission will announce the next steps by mid-2013.
Notes
1 : Retail market monitoring report, ‘Towards more efficient and fairer retail services in the internal market for 2020’ (COM (2010) 355 final, of 5 July 2010)
2 : European Parliament resolution of 5 July 2011 on a more efficient and fairer retail market (2010/2109(INI)
Source: European Commission
