Implementation
65. The Directive presupposes
that Member States' laws will have two sale of goods regimes,
broadly speaking one for commercial transactions and one for consumer
contracts. CA did not think this would create any problems in
the United Kingdom, there already being two regimes consequent
upon the Unfair Contract Terms Act 1977 and the Unfair Contract
Terms Directive (p 45). However, it would not, as Professor
Reynolds said, be possible to repeal the existing Sale of Goods
legislation in respect of consumer sales and use the Directive
as a modern "Consumer Sales Act". The Directive was
not sufficiently comprehensive. Professor Reynolds did not underestimate
the difficulties of incorporating the Directive, especially the
provisions on remedies, into our domestic law. He was not worried
about different regimes existing for commercial and consumer sales:
"I would be more concerned about two, or one and a half,
consumer regimes" (p 198).
66. There was, in the
view of the consumer bodies, a risk that whilst bringing some
benefits the implementation of the Directive into UK law might
result in a weakening of domestic consumer protection law. Article
7(2) provides that Member States may adopt or maintain in force
"more stringent provisions". The draft Directive proposes
only minimum harmonisation. The Commission's Explanatory Memorandum
said: "the national margin of discretion will be very wide"
(Appendix 3). CA said "there is the real danger that
the Directive may present an opportunity for industry to apply
pressure which may lead to the weakening of UK law about the sale
of consumer goods" (p 51). The NCC also feared a weakening
of consumers' rights: "Business lobbies regularly state that
they cannot support legislation beyond the minimum because it
would make their goods and services uncompetitive" (p 53).
However, for the DTI, Mr Salvidge said: "If the Directive
is agreed, there will be no question of diluting the protection
of our law which we think is flexible, pragmatic and has stood
the test of time". Moreover, before consumers' rights could
be withdrawn or reduced primary legislation would be necessary
(QQ 359-61).
The extent of any harmonisation
67. As mentioned in
the previous paragraph Article 7(2) makes clear that the proposal
is a "minimum" one. The proposal, the Commission accepted,
would only bring about a partial harmonisation of sales laws and
even if it meant that in some respects there would be differences
in the laws of Member States the minimum protection given by the
Directive would be better than not having that protection. The
consumer would not be expected to know where, for example, some
Member States went beyond the Directive. The Commission only expected
consumers to know their "minimum rights" (QQ 307,
309). A number of witnesses recognised that the Directive would,
nevertheless, cause changes, and bring benefits to consumers,
in a number of other Member States. The Director General of Fair
Trading (the Director General) said: "from many countries'
perspectives the Directive will be a major step forward"
(Q 83). Article 3(1) would, for example, make a substantial
difference to the consumer in Germany where a restrictive six-month
rule presently applies (p 137). CDC said that the Directive
would improve the consumer's rights under Italian law (p 151).
68. LACOTS, however,
said that while, in theory, the introduction of common rules should
be a significant advance "the lack of detail in the Directive
and the level of discretion given to Member States will ensure
that significant differences remain" (p 177). Article
7(1) expressly indicates that the rights given by the Directive
can be exercised without prejudice to national rules governing
contractual and non-contractual liability. The proposal only seeks
to harmonise certain aspects of consumer sales law and leaves
intact other national rights and remedies. It does not, for example,
regulate the formation of the contract or liability for possible
direct or indirect damage caused by any lack of conformity. AMDEA
concluded: "One certain effect of this proposal will be to
change every Member State's laws whilst ensuring that every Member
State's law remains different from everyone else's" (p 73).
69. A number of witnesses
expressed regret that the Directive did not contain proposals
developed from those which had been included in the Green Paper
and which would have improved access to justice by a consumer
who had bought defective goods in another Member State. Professor
Beale said: "the real problem in our minds about cross-border
shopping is not the rights you have against the retailer, it is
what you do when you get back home and you find the goods will
not work" (Q 72). The Directive says nothing about who
shall bear the costs of returning the goods. CA said that the
Directive should make this clear and that the seller should be
responsible for them (p 49). Nor did the Directive do anything
to assist the enforcement of legal rights cross-border. As Professor
Goode noted, a consumer from the United Kingdom who makes a cash
purchase abroad will usually fall outside the scope of Article
13 of the Brussels Convention on Jurisdiction and Enforcement
of Judgments,[26]
and so will not be able to sue in this country. In most cases
the consumer will have to pursue his or her legal remedies in
the seller's country, "an even more daunting prospect than
suing here" (p 172). The Green Paper had raised the
possibility of the producer being made responsible for defects
and, as Professor Beale told the Committee, an early draft of
the Directive proposed that there should be "network liability"
whereby the consumer could, if need be, enforce his or her rights
against the producer's authorised dealer in the area where he
or she lived. Witnesses representing consumers regretted this
omission from the final version of the Commission's proposal (Q 180).
BEUC considered that the limitation of the proposal to the seller-consumer
relationship in cross-border transactions was a major weakness
of the Directive and strongly urged the amendment of Article 3
to provide for joint liability of the manufacturer (and other
members of the chain of distribution) and the seller (p 145).
Costs
70. The Commission's
Impact Statement argued that the compliance costs associated with
the Directive would be negligible. It recognised that there might
be a small increase in costs associated with handling defective
products but stated that these could be assessed perfectly in
advance on the basis of the products' reliability record (Appendix 3).
The CBI rejected the Commission's view that the proposal would
not result in appreciable costs: "it would involve additional
costs for business e.g. increasing obligatory product exchanges
when a repair could have been effected, implementing additional
compliance programmes and training staff" (p 79). FSB
said that the Directive would certainly increase retail costs
and cause the closure of many small retailers (pp 166-7).
Both the BRC and the BSSA drew attention to cost implications
of the system of remedies proposed, the likelihood being that
consumers would opt for a refund or replacement rather than a
repair (p 74, p 142). Mr Vestey, of Sony, said: "We
believe that the majority of consumers will select either refund
or replacement, and these are the two things that will drive up
the cost" (Q 202). Mr Brotherton, representing the John
Lewis Partnership, did not accept that the Directive only reflected
current best practice: "I do not think that retailers generally,
even the better retailers, give an automatic right of choice to
the consumer of a replacement if they have a problem with an item.
What we will generally do will be to respond in the most appropriate
way in accordance with the circumstances" (Q 204). Mr
Round, for RETRA, described how the Directive might bear more
heavily on smaller retailers (QQ 208-211). This point was
also raised by the British Hardware Federation (p 141). British
Furniture Manufacturers (BFM) said that the cost of this "double
supply" would be high (p 140). MOTA said that manufacturing
costs would increase "as disproportionately larger efforts
are applied to quality inspection and durability" (p 188).
71. The British Radio
& Electronic Equipment Manufacturers' Association (BREMA)
estimated that "suppliers could be faced with an increase
in their guarantee costs of up to three times their current levels.
These costs will eventually work through to the consumer in price
increases of as much as 4 per cent; and/or reduced choice"
(p 76). In relation to personal computers, the PCA said the
increase in costs could be much higher, 50-75 per cent (p 194).
Mr Budd, representing BRC, said: "we have to recognise that
perhaps at the other end of the spectrum, for non-technical products,
the cost of providing additional consumer protection of the level
proposed would be modest, but we have discussed this and we regard
an average overall increase in costs of two per cent as not being
an exaggeration" (Q 194). Mr Carver, representing AMDEA,
saw a considerable increase in manufacturers' costs: "We
are still working on our compliance cost sums, but between two
and six per cent of sell-in value is round about where we think
we will end up" (Q 200). On the other hand, LACOTS considered
that the business burden might have been overstated and the cost
implications needed further consideration (p 177). BEUC believed
that there was little hard evidence that costs-and corresponding
prices-would increase if the Directive became law. Manufacturers
and retailers supplying goods of a reasonable quality had little
to fear from an increase in consumer protection in this area (p 149).
72. As regards the burden
of any increased costs as between manufacturers and retailers,
witnesses indicated that this might depend on factors such as
the nature of the product and the strength of the negotiating
position as between a buyer and seller (QQ 195, 196, 200,
203). There was, however, general agreement among those representing
manufacturers and retailers that in the end the additional costs
would likely be borne by consumers (p 72, p 76, p 79,
p 142, p 162). Panasonic said that because of the extreme
competitiveness of the UK market there was insufficient margin
for the cost to be borne by suppliers and that the additional
costs would have to be funded either by increased charges to retailers/consumers
or reduced product range and/or R & D (p 190). Mr Vestey,
of Sony, said: "There is not sufficient profit in our business
to be able just to absorb these sums with equanimity". Consumers
might see a slow down in the rate of price reduction in real terms
year on year (Q 201). Mr Carver (AMDEA) said that it was
a matter of current debate as to whether the consumer would bear
the increased costs in higher prices of domestic appliances or
in higher charging for their servicing (Q 200). In relation
to motor cars Mr Pallister, of Ford, said: "Any increase
in nearly-new product which is coming back will significantly
affect the residual value of new product in general, therefore
it is quite possible that the customer not only will have to pay
increased prices because of the increased costs of actually standing
behind this level of guarantee, but will also suffer because the
product he buys will depreciate faster" (Q 203).
73. The DTI's initial
reaction was to dispute the Commission's analysis: it was possible
that there could be significant compliance costs associated with
the Directive (pp 116-117). However, the DTI, Miss Gane said,
was re-examining the issue in the light of developments and changes
in its own understanding of the Directive, especially of the likely
effects of Article 3(1) and (4): "we believe that the compliance
cost would be significantly lower than our provisional estimate"
(QQ 370-1). Particular attention would be given to the impact
of the proposal on small businesses (QQ 375, 387).
74. The Commission has,
following a preliminary discussion of the proposal with the Member
States last autumn, invited tenders for a study of the economic
impact of the proposed Directive.[27]
The Commission explained that the study was intended to deepen
understanding of the economic impact of the proposal (Q 275).
Mr Budd, for the CBI and BRC, said: "We think it is a matter
for regret that this was not done before the proposals were published"
(Q 193).
Competition and Competitiveness
75. The Commission's
Impact Statement suggested that the proposal would encourage competitiveness
by stimulating cross-border shopping and removing barriers to
trade and the artificial compartmentalisation of markets forcing
firms to be more competitive and to establish appropriate quality
control systems and better working relations (Appendix 3).
The CBI did not accept the Commission's argument that the proposal
would enhance competition. Harmonisation of the legal rights in
question would, in the CBI's view, adversely affect competition:
the range of goods available to consumers might be reduced (p 78).
The FSB also drew attention to the possibility that there would
be less choice in the high street: "Small retailers in their
anxiety to ensure that the goods they promote are brand goods
with a long track record will be reluctant to experiment with
new and innovative products. This will, of course, be disadvantageous
to innovation and to new entrants in the market place" (p 167).
The GCCNI's Report, however, contended that cross-border shopping
brought potential benefits: wider consumer choice, greater market
efficiency and better living standards. It encouraged competition:
"It can stimulate retailers in the home market to match the
highest standards offered elsewhere in order to retain their customers,
and it can encourage companies to consider ways of distributing
their products beyond their traditional markets".[28]
BEUC also argued that giving consumers a minimum corpus of rights
throughout the Community could encourage efficiency (p 150).
76. As regards the international
competitiveness of EC firms, this, the CBI said, would be reduced
because of the additional costs which the Directive would impose
(p 78). This view was supported by UNICE (p 216). Mr
Carver, for AMDEA, said: "This Directive is going to do nothing
to improve the quality of the manufacturers' performance ... that
was not the job that the author of the Directive was given"
(Q 213). The PCA pointed out that in an industry such as
personal computers where most of the components originated outside
the EC and were made for a global market, UK and other EC based
trade distributors of those components would have to bear a disproportionate
part of the costs of faulty products: "Global distribution
based outside the EC would enjoy the economies of scale and increased
market share, to the detriment of the EC distributors" (p 194).
Environmental implications
77. The Commission believed
that the proposal would have beneficial effects on the environment
by reducing over exploitation of natural resources and waste (Appendix 3).
Both the BRC and the CBI contradicted the Commission's view that
the Directive would have positive environmental effects. Giving
the consumer the choice of remedies, especially the option to
demand a replacement or refund even where repair was viable and
appropriate, would create unnecessary waste (pp 75-6, p 79).
There would, as AMDEA said, be an environmental cost to pay: "`Returned
product' is often scrapped" (p 72). If repaired goods
cannot be placed on some form of second hand market, Mr Vestey
said, "you will have a great number of otherwise serviceable
products entering the waste stream prematurely and conflicting
with current concerns about end-of-life product recycling which
is currently being discussed in Europe and elsewhere" (Q 240).
DMA had similar concerns about the build up of unwanted goods
(p 158). MOTA said that more products would have to be manufactured
(p 187). The amount of freight transportation would also
increase (p 79). The consumer bodies did not accept this.
NCC said: "In reality if retailers offer a very speedy repair,
in appropriate circumstances, we do not expect consumers to demand
replacement" (p 53). The DTI said that, as regards the
use of resources, there was no evidence that the Directive would
affect the durability of goods in such a way as to reduce significantly
the rate of production of goods or demands for raw materials.
As regards waste, the Directive might, because replacements could
increase, lead to a rise in the number of goods needing to be
disposed of. If so, firms' reactions would be likely to vary considerably
according to the nature and value of the goods and the nature
of the defect. The DTI did not believe that the Directive would
have a significant impact on the environment (p 123, Q 372).
Employment
78. The Commission's
Impact Study suggested that the Directive was capable of having
a positive impact on employment by increasing the demand for maintenance
and quality control services which by definition were labour-intensive
(Appendix 3). A number of witnesses said that the Directive
could have adverse effects for employment. Again the cause was
the proposal that the consumer should have the option to have
a refund or replacement rather than the retailer having the opportunity
first to repair the goods. The CBI rejected the Commission's assertion
that the proposal would have positive effects on employment: "There
is no evidence for this assertion, and it may even have the reverse
effect by, for example, reducing demand for repair services"
(p 79). The BRC and the DMA also pointed to a likely negative
impact on service engineers' employment and the repair industry
(p 74, p 158). Mr Vestey, of Sony, explained that the
vast majority of repairs of faulty brown goods were carried out
by local repair operators operating on very tight margins. These
might have to be closed down and be replaced by manufacturers'
central repair facilities working more efficiently and employing
fewer people (QQ 240, 243). The CBI and BRC estimated that
in the brown and white goods sector there were some 50,000 people
employed as repairers. A reduction of up to 20 per cent was, they
said, considered to be realistic (p 96). The DTI, however,
having looked in particular at employment in repair services,
did not believe that the Directive would have a significant impact
(Q 372).
Legal base
79. The Commission has
put forward its proposal on the basis of Article 100a of the EC
Treaty. This, according to the Commission's Explanatory Memorandum,
would be consistent with Article 129a of the Treaty, which deals
with the Community's Consumer Protection policy. Under that Article,
the object of the Community's policy is defined as being to contribute
to the attainment of a high level of consumer protection through
measures taken under Article 100a in the context of the completion
of the Single Market or specific action which supports and supplements
Member States' consumer protection policies.
80. Consumer bodies,
in particular BEUC, CA and CDC, said that reference should also
be made to Article 129a in order to give the consumer policy objective
its proper basis (p 45, p 144, p 152). BEUC said:
"the text of the Directive presents the minimum harmonisation
of guarantees merely as a useful measure for the implementation
of the Internal Market, under Article 100a. By making no reference
to Article 129a the Commission emphasises the functioning of the
internal market objective of the proposal, and seems to make the
consumer policy objective a secondary one" (p 144).
The Law Society also thought that the Directive should contain
a reference to Article 129a (p 182). The Commission, however,
was clear that the proposal belonged in the context of the internal
market and that Article 100a was the correct and a sufficient
legal base. Article 129a had not been forgotten: that Article
referred to Article 100a. A reference to Article 129a was, therefore,
implicit in the present proposal (QQ 275, 290). The DTI agreed
that Article 100a was the appropriate legal base and that a reference
to Article 129a was not necessary (Q 390).
Subsidiarity
81. The Commission's
Explanatory Memorandum seeks to justify the proposal in the light
of the principle of subsidiarity on the grounds that the measure
concerns an area where the Community has sole jurisdiction, namely
the creation and operation of the Single Market; that the objective
can only be achieved by laying down minimum (legal) rules; and
that the Directive is strictly limited to the essential aspects
concerning legal and commercial guarantees (Appendix 3).
The Commission, Mr Pappas explained, had considered and rejected
the idea that the objective could be achieved by "soft law"
(e.g. code of conduct). Nor did the Commission consider
it sufficient to try to persuade individual Member States (where
consumer protection might be weaker than, for example, in the
United Kingdom) to improve their laws. Mr Pappas said: "the
rôle of the Commission is to deal with problems justified
at European level. This is, in a way, also the meaning of subsidiarity.
The concern here was to create an internal market ... giving the
confidence to consumers [to shop abroad] ... harmonisation here
was indispensable for the Commission" (QQ 285, 289).
The DTI, however, had doubts about whether the Directive passed
the subsidiarity test under the Edinburgh guidelines but recognised
that other Member States might have a different view on the question
(QQ 388, 391).
26
Given effect in the United Kingdom by the Civil Jurisdiction and
Judgments Act 1982. Back
27
1996 OJ C359/20. The invitation to tender provides: "This
contract has 3 aims:
- first of all it will be advisable
to assess the financial impact the directive proposal is likely
to have on professional environments and consumers,
- then it will need to determine what
advantages the directive proposal will have on these same economic
environments and compare them with the possible costs of the previous
point. When assessing the advantages, the following could be
taken into account: customer satisfaction and loyalty, product
durability, competitiveness, as well as repercussions that the
use of the directive proposal could have,
- finally, as regards determining
by product sector what effects the directive proposal is likely
to have on the economic relation between the distributor and producer,
especially in the application of Article 3(5) of the proposal". Back
28
Cross Border Shopping in the Island of Ireland, Extending Consumer
Choice, page 10. Back
