Documents considered by the Committee on 16 January 2019 Contents

4Unfair trading practices in the food supply chain

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested; but scrutiny waiver granted; drawn to the attention of the Environment, Food and Rural Affairs Committee and the Business, Energy and Industrial Strategy Committee

Document details

Proposal for a Directive of the European Parliament and of the Council on unfair trading practices in business-to-business relationships in the food supply chain.

Legal base

Article 43(2) TFEU, QMV, Ordinary legislative procedure

Department

Environment, Food and Rural Affairs

Document Number

(39625), 7809/18 + ADDs 1–3, COM(18) 173

Summary and Committee’s conclusions

4.1With the aim of improving farmers’ and other small and medium sized enterprises’ (SMEs) position in the food supply chain, the European Commission proposed new legislation on unfair trading practices (UTPs), which are business-to-business practices that deviate from good commercial conduct and are contrary to good faith and fair dealing.

4.2At our meeting of 12 December 2018, we waived the proposal from scrutiny to allow the Government to signal its support at the 17–18 December 2018 Council meeting. The Committee sought particular clarification on the agreements relating to scope, territorial scope and the transposition period. The Parliamentary Under Secretary of State for Food and Animal Welfare (David Rutley MP) has written22 to explain the outcome of discussions in December.

4.3He explains that there was no discussion at the 17–18 December Council meeting but that political agreement was reached between the European Parliament and Council on 19 December. A date for the Council vote is yet to be confirmed, but it is possible that this will take place on 21 or 28 January. The Minister gives no indication of the Government’s likely voting intention.

4.4On the question of scope, the original proposal was to regulate the relationship between SMEs23 and buyers (“large” companies). The European Parliament had pushed for it to be extended to cover any actor involved in the agri-food supply chain, regardless of size and role, meaning that it could apply to the relationship between two “large” companies. As a compromise, the Minister confirms that the institutions agreed a “dynamic” approach, whereby any micro, small, medium or mid-range supplier would be protected by the Directive in any of their dealings with a larger supplier as well as their dealings with “large” buyers. The final threshold for the “mid-range” business category has been agreed at €350 million (£315 million) annual turnover. The various sub-categories below that are divided into businesses with respective turnovers of: less than €2 million (£1.8 million); between €2–10 million (£1.8–9 million); €10–50 million (£9–45 million); €50–150 million (£45–135 million); and €150–350 million (£135–315 million).

4.5The Government considers the agreed approach on scope to be a sensible one and the upper limit to be acceptable. Other like-minded Member States also consider this outcome to be a positive compromise.

4.6As regards the territorial scope of the Directive, it was agreed to amend the text so that the Directive would apply also to relationships where a buyer is established outside of the EU and trades with a seller established inside the EU. Exactly how third country enforcement is expected to operate is still unclear, says the Minister, and the timeline for provision of further clarification from the Commission is uncertain. The UK will need to wait until further detail is available before any detailed planning can be undertaken.

4.7The extension in the territorial scope of the Directive does create long-term implications for the UK, notes the Minister. The UK’s 12 largest retailers are already regulated by the Groceries Supply Code of Practice in their dealings with EU-based suppliers, so the applicability of this Directive to buyers beyond the borders of the EU introduces an additional (and different) set of laws.

4.8Concerning the transposition period, the compromise text retained the deadlines of 24 months for transposition and publication of laws and 30 months for those laws to take legal effect. If the current timetable for the general Brexit Implementation Period remains as planned, this will mean the UK will not be required to implement this Directive under the same obligations as EU Member States.

4.9The Minister acknowledges that, even as a third country, there may nevertheless be some requirement for the UK to undertake enforcement activities. He states that the new statutory codes of practice, to be introduced under powers in the Agriculture Bill, will also require an enforcement regime and body. Decisions on whether this is an existing body (such as the Rural Payments Agency) or a new body will be influenced by the scale and nature of the statutory codes to be introduced, which will be subject to consultation. It is likely that the same body would also undertake enforcement of any requirements resulting from the Directive on Unfair Trading Practices. The Minister assures the Committee that the Government will conduct a full assessment of the requirements and costs of enforcement should any result from the Directive. This includes consideration of the most appropriate enforcement body.

4.10We note with some concern the continued uncertainties about the impact of this Directive on the UK and the potential enforcement challenges. This concern is more acute than previously now that the institutions have agreed to extend the territorial scope of the Directive to include relationships between EU suppliers and third country (including the UK post-Brexit) buyers.

4.11The Minister notes that clarification is awaited from the Commission on how third country enforcement is expected to operate, but that the timeline for provision of this clarification from the Commission is uncertain. Until such time as the information has been received, the Minister explains, no detailed planning can be undertaken. We expect the UK—working with other affected third countries—to take a robust position, demanding clarity on what is expected.

4.12The Minister refers to the provisions in the Agriculture Bill on new statutory codes of practice promoting fair contractual dealing by the first purchasers of agricultural products. We note that a “producer” for the purpose of the Bill can be outside the UK. To that extent, as he says, the enforcement regime and body established by the Bill may well provide the basis to implement the requirements of the Directive. That said, the Directive goes much further in its scope than the Bill. In particular, it regulates relationships throughout the food supply chain.

4.13On Brexit-related matters, we note the agreed extended transposition period, which means that the UK would only be required to implement the Directive in a manner equivalent to that of an EU Member State if the post-Brexit implementation period were extended beyond autumn 2021. Under the terms of the proposed withdrawal agreement, the implementation period may be extended until 31 December 2022. At this stage, therefore, it is impossible to know what the transposition requirements on the UK will be—uncertainty which may endure until mid-2020. We therefore caution the Minister against making any assumptions in that regard and urge him to proceed on the basis that the UK may be required to transpose the Directive.

4.14In conclusion, it appears that—under all scenarios—the UK will be obliged to make provision for this legislation. The intensity of that obligation is dependent on the nature of the UK’s continued obligations under EU law which may be unclear for some time.

4.15In the light of the continuing uncertainties over the impact of this legislation on the UK, we are unable to clear the document from scrutiny. We waive the scrutiny reserve, however, in order that the Government may support the Directive should such support be considered to be in the national interest. We invite the Minister to report back to us on the stance taken by the UK and on progress in seeking clarification about third country enforcement requirements. We also invite the Minister to set out the UK’s intended strategy towards implementation (both full transposition and implementation of third country requirements), noting the ongoing uncertainties.

4.16We draw this chapter to the attention of both the Environment, Food and Rural Affairs Committee and the Business, Energy and Industrial Strategy Committee.

Full details of the documents:

Proposal for a Directive of the European Parliament and of the Council on unfair trading practices in business-to-business relationships in the food supply chain: (39625), 7809/18 + ADDs 1–3, COM(18) 173.

Previous Committee Reports

Forty-eighth Report HC 301–xlvii (2017–19), chapter 3 (12 December 2018); Thirty-ninth Report HC 301–xxxviii (2017–19), chapter 3 (10 October 2018); Thirty-third Report HC 301–xxxii (2017–19), chapter 4 (27 June 2018); Twenty-eighth Report HC 301–xxvii (2017–19), chapter 1 (16 May 2018).


22 Letter from David Rutley MP to Sir William Cash dated 8 January 2019.

23 Defined as a business employing fewer than 250 persons and with an annual turnover not exceeding €50 million (£44.5 million) and/or an annual balance sheet not exceeding €43 million (£38.3 million).




Published: 22 January 2019