Competition – Does the law on abusive and restrictive practices need to be reformed?

The 28 June 2018

The laws on abusive and restrictive practices are particularly developed in France. Title IV of Book IV of the Commercial Code contains over 20 provisions automatically sanctioning certain behaviors even if they have no effect on the market. As much as there is a need for a reform of the positive law pertaining to anticompetitive practices without any immediate plan for an overall reform, the law of abusive and restrictive practice is currently the subject of such reform both at the initiative of the European regulator and the national legislator.

I Reform by European regulator: very little impact in France

1. Proposal for a European directive on unfair trading practices. On 12 April 2018 the Commission published a proposal for a directive aimed at prohibiting unfair trading practices (UTPs) in the food supply chain (COM(2018)173 final). The proposed approach is a minimal harmonization directive to allow Member States to maintain or implement more protective measures. The proposal sets out a minimal list of per se prohibitions i.e. paying a supplier for perishable food products later than 30 calendar days after the receipt of the supplier’s invoice or the date of delivery, cancelling orders of perishable food products at very short notice where the supplier cannot reasonably be expected to find an alternative, unilaterally and retroactively changing the terms of the supply agreement concerning the frequency, timing or volume of the supply or delivery, the quality standards or the prices of the food products; or adding charges for the wastage of food products that occurs on the buyer’s premises and that is not caused by the negligence or fault of the supplier. Four additional practices are prohibited where they have not been agreed in clear and unambiguous terms: the returning by the buyer of unsold food products to the supplier, charging a supplier payment as a condition for the stocking, displaying or listing of its products, or charging the supplier for the promotion and marketing of products sold by the buyer.

2. Limited impact in French law. French law already provides for specific measures or general provisions which often go further than the proposal. Any changes for the French national market will therefore not necessarily be particularly significant. On the other hand, all the Member States’ internal laws do not go as far. Companies will therefore have to be attentive to those obligations in the context of business on the markets of other Member States.

II French draft bill for a balance in trade relations: a major reform surrounded by much controversy

3. Necessary reform. Legal commentators are unanimous about the need to reform the law of restrictive and abusive practices. Many working papers have advocated a restructuring of Title IV of Book IV of the Commercial Code of (reports by the AFEC and the Club des juristes). After the French National Food Conference (Etats Généraux de l’Alimentation – EGA), a draft bill “for a balance in trade relations in the agriculture and food sector and healthy and sustainable food” was tabled in the National Assembly on 1 February 2018 and debates began on 22 May. A number of elements of the reform are known and focus on very specific points, including – relative to foodstuffs – raising the resale below cost (RBC) threshold by 10% and regulating promotional discounts for a period of 2 years, for which the government will be authorized to issue an Ordinance within six months of the enactment of the Law; other aspects are not so clear since the government will be authorized to take all measures within nine months of the enactment of the Law in respect of a set of rules which are much more general, in particular the rules relating to invoices, general terms and conditions of sale, the single commercial agreement and abusive practices under Article L. 442-6. Parliamentary initiatives can also disrupt the rules of the French Commercial Code. Our comments will be limited to the most important provisions likely to be subject of reform.

4. The raising of the resale below cost threshold by 10 % for foodstuffs resold “as is”. This is the most emblematic of the provisions intended to restore purchasing power to farmers by avoiding a price war between distributors subsidized by the demand for prices reductions from the agricultural sector. The government has estimated the additional cost of the RBC increase at EUR 828 million per year or EUR 1 per month per citizen; the ANIA (Association Nationale des Industries Alimentaires – French food industries association) estimates the annual cost at EUR 391 million or 50 centimes per month per citizen; UFC, the French consumer association gives a figure of EUR 5 billion however.

A study carried out by the Analysis Group agency group funded by the Leclerc hypermarket group believes that if prices increase by 10%, volumes will drop due to the elasticity of demand and farmers will gain nothing, with the effect of the law on the contrary having the effect of increasing the price of certain foodstuffs to the detriment of the purchasing power of consumers and lowering the purchase price of certain products by reducing farmers’ profit margins. Finally, the legality of the provision is subject to debate in some quarters considering European full harmonization Directive No 2005/29 on unfair commercial practices; supporters of the measure stress in contrast its conformity with the directive insofar as the draft is aimed at protecting businesses, not consumers. It is however far from certain that an increase of the RBC threshold will benefit French farmers and that its negative effects will not outweigh any such benefit.

5. Regulating promotions. The government will be authorized to regulate in value and volume promotional operations on the sales of foodstuffs to consumers.

6. Termination of established commercial relationships. The bill aims to simplify and clarify “specifically sudden terminations”. The best outcome would be for the termination notice period to be capped, for example, at one year, that account be taken of the conversion of the terminated party and compensation be based on actual harm suffered i.e. on the margin on avoided costs not on a lump sum indemnity based on gross margin unrelated to the actual loss.

7. Single commercial agreements. Ideally, the simplified single commercial agreement which now governs relations between suppliers and wholesalers should become part of the general law and the more onerous single commercial agreement pursuant to Article L. 441-7 of the Commercial Code will be reserved for relations between large scale retailers and their suppliers.

8. Significant imbalance. The law on significant imbalance requires regulation particularly in terms of preventing the control over the price agreed between the parties under the pretext of checking for contractual imbalances, as such control is prohibited in relations between traders and consumers.


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