House of Lords - EU Consumer Rights Directive: getting it right

EU Consumer Rights Directive: getting it right - European Union Committee Contents

CHAPTER 3: Full harmonisation

43. In this chapter, we consider views on the principle of full harmonisation, which underpins the proposed Directive and has proved controversial. As the principle pertains to the whole of the Directive, we refer out of necessity to some concepts that are explored more comprehensively later in the report.

Contents of the proposal

44. The principle of full harmonisation is laid down in Article 4 of the draft Directive. It states that, "Member States may not maintain or introduce, in their national law, provisions diverging from those laid down in this Directive, including more or less stringent provisions to ensure a different level of consumer protection."

45. In justifying the use of the principle, Recital 8 of the draft Directive indicates that "full harmonisation of some key regulatory aspects will considerably increase legal certainty for both consumers and business", the effect of which it concludes "will be to eliminate the barriers stemming from the fragmentation of the rules and to complete the internal market in this area."

46. The policy of applying a full, rather than minimum, harmonisation model is not unprecedented in EU consumer law. It was evident in both the 2005 Unfair Commercial Practices Directive[20] and in the 2008 Timeshare Directive.[21] Interestingly, the principle of full harmonisation is recited to be "without prejudice to the application of the Rome I Regulation" (see Box 2). However, in reality full harmonisation could reduce the protection available for consumers in some countries while increasing it in others.

BOX 2

Rome I

Choice of law for contracts including consumer contracts is regulated by Regulation (EC) 593/2008 on the law applicable to contractual obligations (otherwise known as "Rome I"). The general principle behind the Regulation is party autonomy to choose the applicable law. However, in the case of certain types of consumer contracts the law of the country where the consumer has his habitual residence applies. This is the case so long as the professional either (i) pursues his commercial or professional activities in that country, or (ii) by any means directs such activities to that country or to several countries including that country (e.g. direct mail shots, internet sites).

The trader and consumer can choose another applicable law as long as this would not deprive the consumer of the mandatory consumer protection rules available under the consumer's "home law". In practice, if a consumer travels to another Member State of his own volition, the applicable law would tend to be that of the seller's Member State, but if the seller targets a consumer from another Member State, the applicable law would generally be that of the consumer's Member State.

The principle of full harmonisation

47. Explaining the principle of full harmonisation, Commissioner Kuneva described it as "a horizontal safety net, a basic and good ground for further development". She recognised that it did not amount to a full harmonisation of consumer law but to full harmonisation of certain concepts in a limited number of areas. As she said, "even a long journey starts with the first step. We keep walking" (Q 229).

48. Our other witnesses were split on the merits of full harmonisation. The business community from which we heard was broadly supportive of the principle. The Association of British Insurers (ABI) believed that full harmonisation would go "a substantial way to decreasing the fragmented and inconsistent framework of consumer protection rules operating across Europe" (p 132). Both the ABI and the British Retail Consortium (BRC) emphasised that the benefits of full harmonisation would outweigh any costs (pp 132, 156). EuroCommerce noted that the shift to full harmonisation would prevent Member States from "gold plating"[22] EU consumer legislation (p 56). The CBI argued that full harmonisation must be adopted if the Directive was to work from a business perspective. Full harmonisation would be good for consumers as it would deliver consumer choice and competitive pricing (QQ 365, 393).

49. The BRC's support stemmed also from the view that the principle of full harmonisation would reduce the negative effects of Rome I (see Box 2) for business without undermining the claimed benefits of Rome I for consumer protection (p 156). EuroCommerce was highly critical of Rome I, noting that no assessment of its impact had been undertaken and that the introduction of full harmonisation in the proposed Directive represented the Commission's way of overcoming perceived problems relating to Rome I (Q 137). Malcolm Harbour pointed to the Commission's acknowledgement in the Impact Assessment that Rome I had caused problems for business in determining the appropriate level of consumer protection that needed to be respected in each transaction (Q 168).

50. Other witnesses were more guarded in their support for the Directive, taking a favourable approach in principle but with some reservations. The United Kingdom's Office of Fair Trading (OFT) supported full harmonisation as an overall goal, but contended that the Commission proposal would not only reduce consumer protection but that it would, in some cases, reduce consumer protection to a level lower than currently provided in the minimum harmonisation Directives (Q 285). The United Kingdom's Trading Standards Institute (TSI) declared that full harmonisation was, in principle "the way forward" but argued that the proposal as drafted would drag consumer protection down to the lowest common denominator (Q 296, p 104).

51. The European People's Party believed that full harmonisation would overcome the legal barriers that have been encountered as long as it was "at the correct and balanced level" (p 68). The Bar Council described the aims of maximum harmonisation as "laudable" but asserted that it should not be applied too widely as it risked harming both consumer protection and business confidence. It was questionable whether full harmonisation would be sufficiently responsive to cope with the need for rapid reform (p 151).

52. A number of witnesses referred to the Unfair Commercial Practices Directive (UCPD) as a first example of the application of the full harmonisation principle. The OFT and Malcolm Harbour commended the UCPD, acknowledging that it had created a good level of consumer protection in an area that was previously either poorly regulated or not regulated at all and that it was well understood by consumers and businesses (QQ 168, 291).

53. On the other hand, the French government warned that recent European Court of Justice case law (see Box 3) on implementation of the UCPD demonstrated that "the potential of full harmonisation, if you are not clear exactly what it is you are covering, can be very serious and very dangerous" (Q 84). The European Commission noted that the Belgian rule found to be incompatible with the UCPD had already been the focus of attention in Belgium but accepted that there was a challenge with full harmonisation "to make the language as clear as possible" (QQ 244-46). The French government pointed out that some of the lessons of the UCPD informed the negotiation of the Timeshare Directive, and that the result was the inclusion of a high level of detail in the Recitals of that Directive (Q 122).

Full harmonisation case law[23]

BOX 3

On 23 April 2009, the European Court of Justice found that a Belgian law prohibiting "combined offers" (i.e. making the acquisition of one product or service conditional on the acquisition of another product or service, even if both are identical) was incompatible with the Unfair Commercial Practices Directive as such offers constituted permissible commercial practices within the meaning of the Directive. It was concluded that Member States may not adopt measures that are more restrictive than those defined in the Directive, even in order to ensure a higher level of consumer protection.

54. A third group of witnesses was highly critical of the full harmonisation principle, arguing that its impact would be to reduce consumer rights. BEUC, representing consumers across the EU, commented: "full harmonisation as such is not necessarily an instrument in favour of consumers if it is not at a high level of consumer protection" (Q 265). Consumer Focus took the view that full harmonisation was inappropriate, particularly for sections covering unfair contract terms and consumer remedies. It would lead to the loss for United Kingdom consumers of the right to reject faulty goods, which was a recurring concern among our United Kingdom witnesses and is explored comprehensively in chapter seven (Q 45). Which? believed that most of the Directive's objectives could be achieved with minimum harmonisation at a high level. Such an approach would both deliver a high level of consumer protection and maintain flexibility to adjust to unforeseen circumstances (Q 51). The German government was also concerned that full harmonisation would result in a loss of flexibility (Q 86).

55. With reference to the U.S. approach to consumer law, Professor James P. Nehf, Professor of Law at Indiana University, argued that full harmonisation was neither necessary nor desirable. He explained that consumer legislation in the U.S. varied across the states and, while there were occasional calls for uniformity or a more national and harmonised approach, these had not gained widespread support. The consensus among consumer representatives was that a state-by-state approach was preferred unless there was a strong need for uniformity in a particular area of commerce. This, he argued, allowed for a healthy degree of experimentation and an evolutionary approach to consumer protection nationwide. State legislatures had been able to react more quickly to emerging consumer problems than the U.S. Congress. In most areas of commerce, the differences among state consumer laws created few obstacles to cross-border transactions (pp 182-83).

56. In response to the argument that the Directive would reduce consumer rights, the CBI and the BRC both argued that it was in the commercial interests of traders to offer a high level of consumer protection that went well beyond the law. The CBI stated that "a commitment to customer-friendly policies was a significant part of their [companies'] brand value and they will wish to continue to retain existing, high levels of protection". If they did not deliver customer satisfaction, they would not survive very long, and it was only likely to be "the rogue end of the operation" which acted in that way. Furthermore, the possibility of gaining commercial advantage would be lost from the introduction of a very high level of consumer protection applicable to all businesses (p 135, QQ 386, 394, 396).

57. Commissioner Kuneva was keen to explain how United Kingdom and other consumers would derive benefit from the principle of full harmonisation. She drew the Committee's attention to a number of benefits, including: the 14-day withdrawal period (see chapter 6); improved information for consumers (see chapter 5); the tackling of "pressure selling" in face-to-face transactions away from business premises (see chapter 6); and specific information requirements for intermediaries (see chapter 5) (Q 218).

Alternatives to full harmonisation

58. The political imperative of establishing an alternative to full harmonisation was put to us starkly by a number of witnesses. The Czech government noted that many Member States had gone beyond the levels of protection laid down in the current minimum harmonisation Directives and would therefore be obliged to decrease the level of protection in some fields. As a result, the negotiations would be "complicated" and "lively" (Q 76). BEUC noted that it would be politically challenging to remove rights from consumers, an analysis accepted by the Portuguese government (QQ 273, 98).

59. A number of witnesses favoured differentiated harmonisation or alternatively "targeted full harmonisation" or "non-exhaustive full harmonisation". The French government, for example, supported full harmonisation which was unambiguous, targeted at areas of agreement among Member States and which would deliver a high level of consumer protection (Q 84). A similar approach was adopted by other Member State representatives, with a particular focus on ensuring that the sales chapter did not result in a reduction of consumer protection. The United Kingdom Minister, Gareth Thomas MP, would like to "push for as much harmonisation as possible", but he acknowledged that it would be difficult to get agreement and that the United Kingdom itself was treating the protection of the right to reject faulty goods[24] as a red line (QQ 319, 322, 345). The Portuguese government emphasised that it would not accept the lowering of standards in relation to guarantees (Q 92).

60. Acknowledging the differentiated harmonisation debate, the German government suggested that areas that might be included within full harmonisation would be the right of withdrawal and information duties, a view shared by Dr Twigg-Flesner (QQ 91, 27). BEUC agreed that the rules on the right of withdrawal might usefully be harmonised and added that common definitions would also be useful (Q 265). More specifically, Consumer Focus and Which? pointed to definitions of terms such as "consumer", "trader", "good" and "service" (QQ 48-49). The Minister, Gareth Thomas MP, concurred that a common understanding of the meaning of key terms would be useful (Q 315). BEUC was cautious about the application of full harmonisation to the information provisions because of the obligation on Member States to repeal their existing legislation on the delivery of information to consumers, and was firm that the provisions on sales (including the right to reject) and on unfair contract terms should not be subject to full harmonisation (QQ 265, 279).

61. It was suggested that problems raised by application of full harmonisation could be tackled by recourse to national contract law. Speaking in the European Parliament on 4 May 2009, Commissioner Kuneva indicated that, under the proposal, Member States would be able to retain general contract law provisions, such as remedies for faulty goods, "provided that the legal requirements which apply to the remedies differ from the requirements which apply to the remedies regulated in the proposal".[25] This would mean, she stated, that the United Kingdom "right to reject" and the French guarantee for latent defect system could be maintained. On the other hand, she recognised that the interaction between the proposal and national general contract law could be clearer and stated that she would also be prepared to integrate some of the national provisions into the proposal. Diana Wallis was of a similar opinion and thought that the link between the Directive and national contract law was not at all clear at present (Q 180).[26] Consumer Focus criticised the suggestion that problems identified in the proposal could be tackled by recourse to national contract law, asking "If that is the case then what are we achieving?" (Q 48)

62. Other witnesses supported the so-called "blue button" approach, under which an optional European law on consumer transactions would be offered as an alternative to national law. Dr Christian Twigg-Flesner considered this idea attractive because "you could almost avoid having to further harmonise national laws purely applicable to national transactions because it would create a proper European alternative." In his view, it would thus allow for one coherent set of rules available to those who wished to shop across borders, whereas the vast majority of national and local transactions need not be affected (Q 19). Diana Wallis described the approach as developing a "28th regime" (on top of the systems of the 27 Member States), which would over time become an attractive option for consumers (Q 191). She considered that the Common Frame of Reference (see paragraph 5) could serve as a useful basis for the development of such a 28th regime which would be less invasive of national contract law (Q 178).

63. The Minister, Gareth Thomas MP, acknowledged that the "blue button" approach appeared attractive but he considered the practical problems associated with it to be "considerable". He recalled that businesses and consumers alike would still need to know the different sets of rules (QQ 320-321). Responding to Diana Wallis' suggestion that the Common Frame of Reference should serve as a basis for the future development of work in consumer law, Malcolm Harbour warned that work on the CFR had developed slowly thus far and therefore efforts should be made "to move forward as quickly as we can here but not close any avenues for the Common Frame of Reference to be integrated into this at a later date" (Q 179).

64. Some witnesses were categorical in rejecting any derogations, opt-outs or recourse to general contract law. The BRC rejected calls for opt-outs and derogations and the ABI described the Directive as a "package" from which it should not be possible to "cherry pick bits". It was a package that the CBI considered to be "a fair outcome" (p 156, QQ 365, 391). The CBI explained that it was very opposed to the Commission's suggestion that national contract law remedies might be retained alongside those provided by the Directive, describing it as "a fudge in order to get the Directive to the endpoint" (Q 424).

Conclusions and recommendations

65. We note that the principle of full harmonisation has already been applied in European Union consumer protection legislation—namely in the Unfair Commercial Practices Directive and in the recent Timeshare Directive. One notable lesson to be learned from the former is the need for clarity in the Directive about the extent of full harmonisation.

66. On that basis, and like many of our witnesses, we acknowledge that full harmonisation, where justified, could increase legal certainty for both consumers and business. But further work is required to clarify the benefits of full harmonisation, taking into account concerns that consumer protection could be reduced but also the view of the business community that profitable businesses will in any case seek to deliver a high level of consumer protection.

67. Full harmonisation as proposed by the Commission is likely to be politically impossible for Member States and the European Parliament to support, but we also detect little enthusiasm to abandon the full harmonisation principle entirely. In that case, we consider that a "differentiated harmonisation" model may be workable, harmonising aspects such as definitions, the right of withdrawal and the provision of information but allowing Member States room for manoeuvre in other areas. Such flexibility could facilitate swift responses to future challenges.

68. The relationship between the relevant provisions contained in national law and those in the Directive is unclear and if there is a conflict between them, which of them takes priority. It is also unclear as to how national contract law might impact on the way in which the proposed Directive will take effect, once it has been transposed. We urge the Commission to clarify these matters. Our preference would be to see the relationship between the Directive and national contract law resolved in the text of the Directive itself. We fear that, otherwise, confusion will reign.

69. We note the "blue button" optional instrument suggestion, allowing Member States to retain their own models of consumer protection based on national contract law but allowing consumers to opt into a harmonised system. We recognise some theoretical benefits may be offered by this option but we are concerned that such a system may be excessively complex for the consumer and trader alike. Further work might usefully be done to assess its practicality.

20 Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market. Back

21 Directive 2008/122/EC on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts. Back

22 "Gold plating" refers to the practice of introducing national laws which go beyond the requirements of an EU Directive. Back

23 Joined Cases C-261/07 and C-299/07 VTB-VAB NV v Total Belgium NV and Galatea BVBA v Sanoma Magazines Belgium NV, 23 April 2009 Back

24 Under United Kingdom law, where there is a breach of the implied conditions that goods comply with their description and be of satisfactory quality or fitness for purpose, the goods can be rejected and the contract brought to an end. See also paragraphs 161-164. Back

25 Oral question with debate O-0076/09; Debate: CRE 04/05/2009 - 24. Back