Cross-border trade made easy

Business people engaging in cross-border trade across Europe could possibly shortly be able to avail themselves of an option which ought to facilitate matters for all contractual parties involved in the business dealing. The Legal Affairs Committee of the European Parliament recently gave its backing to some of the options relating to contract law put forward by the Commission last year, with the objective of easing matters for those traders who operate across EU borders and hence often need to enter into complex contracts in order to formalise their business relationship.

Contracts are a necessary evil which have to be availed of in order to conduct trade. They are a way of formalising an agreement between parties and often cover a broad range of matters, ranging from conditions relating to the actual sale of goods to associated services such as repairs and maintenance. Companies engaging in cross border trade use a wide variety of contracts which are governed by different national contract laws depending on the country where the other party is situated.

By way of a concrete example, in a business-to-consumer contract where an English consumer buys a camera from a Maltese retailer, English contract law would apply if the Maltese retailer has designed his website for English consumers. The applicability of different national rules often gives rise to a lot of hurdles and barriers which serve as an obstacle to the free flow of trade within the EU’s single market. Additional transaction costs such as those costs spent on the translation of certain national rules for the benefit of the other contracting party have to be taken into consideration when conducting a cross border business deal. Businesses and consumers alike are also faced with legal uncertainty, often leading to a lack of consumer confidence in the deal and sometimes to a loss of a business opportunity to the detriment of the trader.

In July 2010, the European Commission sought to rectify the situation by proposing a number of options for an EU-wide coherent approach to contract law. The options that were put forward for consideration by stakeholders included the publication on the web of (non-binding) model contract rules which could be used within Europe as well as the adoption of an optional European Contract Law which could be chosen freely by consumers and businesses in their contractual relations.

This optional law would serve as an alternative to the existing national contract laws and would be available in all languages. It would apply in cross-border contracts only, or in both cross-border and domestic contracts and would ensure a high level of consumer protection and legal certainty throughout the life cycle of a contract.

The European Parliament’s Legal Affairs Committee too, now seems to have adopted a favourable stance towards the adoption of such an optional European Contract Law. It seems therefore that the way has been paved for further progress towards the adoption of an innovative approach for the regulation of contracts.

According to recent statistics only nine per cent of consumers buy online from another member state. Around 78 per cent of retailers refuse to sell to other EU countries. Such figures come as no surprise considering the fact that most EU businesses are small and medium-sized companies which often lack the necessary financial and human resources to take on board additional costs and regulatory barriers.

Innovative as it might be, we might yet be surprised to see that the creation of an optional European contract law which co-exists together with national rules could, in the future, be the right solution to enhancing the free flow of trade within a borderless Europe.

mariosa@vellacardona.com

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a member of the National Commission for the Promotion of Equality.