Documents considered by the Committee on 12 December 2018 Contents

3Unfair 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

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

3.1With 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.

3.2We last reported this proposal to the House at our meeting of 10 October 2018, when we noted that the Council position included a 30-month transposition period—rather than the originally proposed 12 months—which we considered particularly notable in the light of the UK’s withdrawal from the EU. We reiterated our observation that, regardless of UK application, the legislation would remain salient to UK producers supplying non-UK buyers.

3.3Since then, the Parliamentary Under Secretary of State for Food and Animal Welfare (David Rutley) has written twice. In his letter of 16 November, he told us that there had been no signal that the European Parliament had concerns with the proposed change to the transposition period. He also emphasised that UK officials were actively engaging in the proposal.

3.4Most recently, he has written23 to update the Committee on the latest developments, explaining that negotiations with the European Parliament are progressing swiftly and that a compromise deal may be considered by the 17–18 December Agriculture and Fisheries Council. He therefore asks that the Committee considers clearing the proposal from scrutiny in order that the UK may support the compromise providing that the Government secures the UK’s interests in the areas which remain outstanding. Those are: transposition timeline; scope; and geographical coverage.

3.5Regarding the transposition timeline, the UK has secured a substantial extension from the original proposition of six months for transposition and a further six months for application. The UK would not support a final text where the deadline for adoption and publication of the implementing legislation falls below 24 months. Such a deadline would mean that the UK would not be obliged to transpose the Directive unless the post-Brexit implementation period is extended beyond 31 December 2020. Given that the decision on extending the implementation period need only be taken by 1 July 2020, however, the Government may still need to work on the assumption that it would apply the legislation.

3.6On the scope, the original proposal was to regulate the relationship between SMEs24 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. An emerging compromise is to apply 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 threshold between “mid-range” and “large” businesses is yet to be agreed, but the Government will not support any threshold higher than a €1 billion (£0.89 billion) turnover. This is akin to the UK’s own domestic arrangements, where the Groceries Code Adjudicator (GCA) covers the direct relationships between suppliers and retailers with a UK annual groceries (food and non-food) turnover of more than £1 billion.

3.7Regarding the geographical scope, there has been some discussion about extending its scope beyond the boundaries of the EU so that it would offer protection to operators outside the European Union, where they are supplying to, or buying from, operators inside the EU. The UK has expressed some concerns about this, but nevertheless believes that the burden of compliance for third country coverage as proposed would be manageable. The Minister notes that third country suppliers may already lodge complaints against those buyers covered by the UK’s GCA. He adds that the provision would allow UK suppliers to claim against EU buyers post-Brexit. While the UK will continue to argue against extension of the scope to third countries in negotiations, the Minister does not propose that inclusion of such an extension should prevent the UK supporting the Directive.

3.8We welcome the clear summary of outstanding issues set out by the Minister and can support the approach that the Government intends to take to any vote in Council on 17–18 December. As set out below, we have a number of outstanding queries and so we retain the document under scrutiny while waiving the scrutiny reserve in order that the Government may support an appropriate compromise at Council.

3.9On the question of the scope, we look forward to confirmation as to the agreed threshold for “large” businesses. We would also welcome clarification on any definitions of the distinct types of smaller company (micro, small, medium and mid-range).

3.10Concerning the territorial scope of the proposal, the Minister appears relaxed as to the extension to cover third countries. Our understanding of the original proposal was that it would in any case cover third country suppliers to EU buyers. More significant, we consider, is the potential for EU suppliers to seek redress against UK buyers based on this Directive post-Brexit. The dynamic approach means that a “small” EU supplier to a “medium” UK buyer could expect to instigate proceedings under this legislation. This would clearly go beyond the terms of current UK arrangements. Should the scope be expanded to include third countries, we look forward to a clear explanation of the provisions and an assessment of their impact upon the UK post-Brexit.

3.11Regarding the transposition period, we note that the deadline would fall outside the post-Brexit implementation period if a minimum of 24 months is indeed agreed. It is also the case, however, that it may not be clear until mid-2020 whether the implementation period will be extended beyond 31 December 2020. That being the case, we ask the Minister to confirm whether the Department will undertake preparatory work on implementation.

3.12We look forward to responses to our queries following the Council meeting. We draw this chapter to the attention of the Environment, Food and Rural Affairs 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

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).


23 Letter from David Rutley to Sir William Cash, dated 6 December 2018.

24 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: 18 December 2018