For the Purposes of This Regulation ... : Denying Protection to the Small Business Through the Application of the CESL

I. INTRODUCTIONAt the request of the European Commission, the Gallup Organization surveyed businesses throughout the European Union to determine if companies are deterred from engaging in cross-border transactions due to the varying contract laws of the Member States.1 The survey found that companies not engaged in cross-border transactions consider different contract laws to be a significant obstacle.2 Of the companies surveyed, microenterprises (companies of nine or fewer employees) are more likely to be deterred from cross-border trading than larger companies by the complexities of navigating different contract laws.3 The companies surveyed responded favorably to the proposal of a common European sales law, and over seventy percent of those surveyed indicated they would likely apply the proposed common law to facilitate cross- border transactions.4Concerned about the internal market and based on the Gallup survey and others, the European Commission (the "Commission") published the Proposal for a Regulation on the Common European Sales Law (the "CESL") in October 2011.5 The Commission drafted the CESL to alleviate the complex decision-making process that businesses must undergo to conduct business in multiple jurisdictions,6 which the Commission believes is particularly cumbersome for small and medium enterprises ("SMEs").7 SMEs often have the weaker bargaining position when engaging in trade with larger companies, and the expense of navigating different contract laws is significant for SMEs with limited resources.8 Thus, SMEs generally must use the preferred law of the larger company when engaging in cross-border trade.9The Commission explained that existing efforts to harmonize or create an international legal contract regime, such as through the DraftCommon Frame of Reference ("DCFR"), do not serve to ease the complexity of cross-border transactions.10 To address the difficulty and cost of cross-border transactions and improve the economy, the Commission-with the backing of the European Parliament-drafted the CESL as an optional instrument.11 As explained below, once adopted, the CESL will apply to cross-border transactions in either a business-to-business ("B2B") transaction or a business-to-consumer ("B2C") transaction.12 The CESL will serve as a second contract regime in each Member State, and if one contracting party is from a Member State and either a SME or a consumer, the parties can agree to use the CESL as the governing law of the contract.13 As a second contract regime for contracting parties, the CESL is designed to fulfill the Commission's goal of promoting cross-border transactions by reducing the complexity of navigating twenty-seven disjointed contract laws.14The CESL was proposed in the wake of the economic crisis, and after over two decades of debate about harmonizing European contract law.15 The debate continues with the introduction of the CESL, and scholars question the form and structure of the CESL. Some scholars believe that the opt-in provision of the CESL defeats the purpose of harmonizing the laws, and it only results in the twenty-eighth contract law that businesses have to consider in crossborder trading.16 Other scholars focus on provisions enhancing consumer protection in B2C transactions,17 the uncertainty the CESL may create,18 or how the CESL compares to other contract law regimes.19 Despite criticism, many scholars believe that the CESL has great potential to serve as a cross-border contract regime.20 What have not been thoroughly addressed, however, are the provisions governing B2B transactions and the protection, or lack thereof, of SMEs in transactions governed by the CESL.As written,21 the CESL deregulates the protections offered in B2B transactions. The narrow definition of "consumer" provided in the CESL effectively eliminates national regulations that are in place to protect SMEs dealing as consumers.22 This deregulation of protection offered to SMEs may lead to larger companies preferring and selecting the CESL as the governing law to the detriment of the SMEs. …