Common sales law for the European Union – future benefits for consumers and entrepreneurs

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The European Parliament and the European Council have made a suggestion to adopt a regulation establishing a voluntary normative framework of common European sales law which could be implemented directly in the Member States. Upon adopting the regulation, every Member State will have its current contract law provisions in parallel with the common framework of European sales law; the Member State consumers and entrepreneurs will be able to apply the latter in cross-border transactions if they so wish. There will be no changes in the domestic law and the common framework of European sales law will provide only additional value to those entrepreneurs and consumers who participate in cross-border transactions. The regulation has not been adopted yet, but it will probably happen within year 2012 (1).What is the common EU sales law?

The normative framework of common European sales law has been developed for the purpose of simplifying cross-border trade. Particularly, the new normative framework will make it easier and less expensive for Member State entrepreneurs to expand their cross-border trade and will increase the trust of consumers for making cross-border purchases. It is a detailed normative framework which deals with the entire process of signing and performing a contract, including legal protection means for cases of violating a cross-border contract. The parties will have to sign an agreement between each other, stating that the normative framework of the common European sales law will be applied to the transaction between them.

In future it will be possible to apply the normative framework of the common European sales law to cross-border goods sales contracts, digital information content handover contracts (e.g. digital games, software, incl. music and movies downloadable from the Internet, etc.) and to contracts for sales-related services dealing with e.g. installation, maintenance or repairs of goods. The normative framework of the common European sales law can be applied to transactions between a trader and a consumer and to transactions between traders, if one of the enterprises is small or medium size (2). The normative framework of the common sales law cannot be applied to transactions between private persons. Additionally, the transaction must be cross-border to apply the normative framework, i.e. the main places of activities of the parties must be in different countries, at least one of them being a Member State of the EU. Upon agreement between the parties, the normative framework of the Europe sales law can be applied also to transactions where a consumer or a small or medium enterprise of a Member State enters into a transaction with a contract party active in a third country.

Although the regulation provides the Member States with the option of extending the area of application of the normative framework to domestic transactions and to contracts between all entrepreneurs regardless of the size of the enterprise, it is as of yet not known whether Estonia will use that option.

Why is this necessary?

Currently all 27 Member States of the European Union have different contract law applied in them, and this makes cross-border trade complex and expensive, particularly for small and medium size entrepreneurs. If the law of a foreign country is applied to a transaction, then it brings about additional expenses for determining the provisions of the foreign contract law, for use of legal aid, and for adjusting contracts to the consumer protection provisions in case of transactions between an entrepreneur and a consumer. Namely, an Estonian entrepreneur, having its economic activities orientated towards consumers in a foreign country, must take into account that even if the parties have chosen to apply the law of some other country than the consumer’s Member State to the contract, the consumer protection provisions of the consumer’s Member State must apply to the relationships between the parties, if those provisions prescribe higher level of protection to the consumer when compared to the law being applied to the contract. Thus, the trader first has to determine whether the law of the Member State of the consumer’s habitual place of residence provides more comprehensive consumer protection and has to make the contract comply with such provisions. Thus, the expenses related to contract law can make it disproportionally expensive for a small or medium size entrepreneur to sign cross-border transactions, when compared to the value of the transaction.

What are the benefits for entrepreneurs?

For entrepreneurs, the normative framework of the common European sales law will make it less expensive to sign cross-border transactions, thus the future regulation will help small and medium size entrepreneurs to expand their economic activities to new cross-border markets.

While the current situation requires entrepreneurs to familiarise themselves with the contract law of 27 different countries in order to trade in the entire EU, the future situation would be such that the applying of the normative framework of the common European sales law will require the entrepreneurs to make only one-time expense for familiarising themselves with the normative framework. As the normative framework for the common sales law includes fully harmonised compulsory norms of consumer protection, this field will have no differences of law between Member States if the parties decide to apply the normative framework of the common European sales law. Thus the entrepreneur is not required to determine beforehand whether the law of the Member State of the consumer’s habitual place of residence provides more comprehensive consumer protection than the law being applied to the contract.

The regulation will also provide the additional benefit of simplifying negotiations. Namely, an agreement between the parties maybe easier to achieve if the negotiations are held over a neutral law which is equally available to both parties in their own language.

What are the benefits for consumers?

As the normative framework of the common European sales law makes cross-border trade simpler and less expensive, it will probably increase the number of goods and services offered. If entrepreneurs compete in a wider market, the consumers have a wider selection of goods and lower prices. Some markets are currently being avoided by entrepreneurs due to the legal complexity of the contract law there or due to the smallness of the market making it unfeasible to make the large expenses on entering those markets, but in the future the consumers of those markets will also benefit from more providers of goods and services.

As the normative framework of the common European sales law grants a high level of protection of consumer rights, the new normative framework will allow reducing the current uncertainty of consumers and to increase their trust towards making cross-border purchases. For example, if a purchased product turns out to be defective, the normative framework of the common European sales law grants the consumer the right to choose whether to terminate the contract and request all of the money to be returned, to let the defective product be replaced, repaired or to demand a discount. Such a wide choice of consumer’s legal remedies is granted currently only in few Member States.

(1) Viviane Reding. The optional Common European Sales Law – Seizing the opportunity; Conference on European Tort Law, Warsaw, 10 November 2011. Available over Internet: http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/11/742&format=HTML&aged=0&language=EN&guiLanguage=en (21.02.2012).

(2) According to the proposal for a regulation of the European Parliament and the Council [Brussels, 11.10.2011, COM (2011) 635 final, 2011/0284 (COD)], Article 7, a small land medium size entrepreneur is a trader with a) number of employees less than 250 and b) annual turnover not exceeding 50 million euros or annual balance sheet volume not exceeding 43 million euros. Available over Internet: http://ec.europa.eu/justice/contract/files/common_sales_law/regulation_sales_law_en.pdf (22.02.2012).

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