Opinion of the Economic and Social Committee on the "Proposal for a European Parliament and Council Regulation concerning sales promotions in the Internal Market"

(COM(2001) 546 final - 2001/0227 (COD))

(2002/C 221/17)

On 30 January 2002 the Council decided to consult the Economic and Social Committee, under the first paragraph of Article 95 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for the Internal Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 8 May 2002. The rapporteur was Mr Dimitriadis.

At its 391st plenary session (meeting of 29 May 2002), the Economic and Social Committee adopted the following opinion by 64 votes to 18 with 9 abstentions.

1. General comment on the communication and the proposal for a regulation

1.1. The Communication from the Commission on sales promotions in the internal market analyses the problems arising in this area across Europe, and looks at the relevant legislative and statutory measures taken since 1996. The initial legislative steps, together with the findings of expert groups, have now created the right conditions for launching a substantial debate which will lead to common action in this area.

1.2. The Commission's Proposal for a regulation concerning sales promotions in the Internal Market, addressed to the European Parliament and the Council, is the first meaningful attempt to fill the legal gap which exists in the regulatory framework for the efficient cross-border use and commercial communication of sales promotions in the EU, consistently reflecting the Lisbon European Council's strategic goal for the Union to become the most competitive and dynamic knowledge-based economy in the world.

1.3. At the same time, the Commission has published a Green Paper on European Union consumer protection, the purpose of which is to launch an extensive public consultation on the future direction of EU consumer protection in the area of commercial practices and, more specifically, opportunities for improving the functioning of the single market in terms of business-consumer relations ("B2C")(1).

1.4. These two documents represent a determined attempt (i) to halt the excessive multiplicity of restrictions on sales promotion methods, which give rise to very serious problems on the single market, and (ii) to ensure consumers are adequately protected against unfair and illegal sales promotion practices(2).

It must be recognised that there is a lack of policy coordination by the Commission, as the Proposal for a Regulation has been submitted before the end of the debate on the Green Paper on European Union consumer protection, which addresses - inter alia - commercial practices.

The proposal regulates most commercial practices, for which the Green Paper proposes approximation by means of the "general fairness clause".

1.5. The communication defines sales promotions as the priority area in the Commission's commercial communication policy, laying particular emphasis on their importance as a fundamental tool for the development of cross-border trade in goods and services, and represents a generalised attempt to remove many of the identified internal market barriers to the use of sales promotions between Member States. It also pinpoints those areas requiring harmonisation while specifying provisions aimed at harmonising and updating existing national ones, to the appropriate extent, in order to create a practical, modern and legally certain regulatory environment, simultaneously offering guarantees for consumer protection, protection of minors and protection of public health.

1.6. The definitions under examination in the text of the draft regulation, together with the general wording and thrust of the communication and regulation, clearly show that sales promotions are of specific and transitory duration, involving a purely temporary offer. The legal basis for the proposal is Article 95(1) of the EC Treaty, which seeks the establishment of the single internal market and the assurance of a high level of consumer protection and public health.

2. Introduction

2.1. The Commission first engaged with the need for a policy for commercial communications in its 1996 green paper(3), putting the policy into place with its communication in 1998(4). The Expert Group, comprising experts from the Member States, was set up in 1998 in order to consider the barriers and restrictions affecting cross-border communications and sales promotions in recognised problem areas of the internal market, focusing on the necessity of Community action based on a mix of targeted harmonisation and mutual recognition.

3. General points concerning the communication

3.1. The need for Community action is based primarily on the fact that analysis of the Expert Group's regulatory tables revealed that:

i. if a company cannot effectively communicate across the borders of the country where it is established and attract customers' awareness to its products or services throughout the European market, it loses the benefit of the internal market, in turn reducing consumer choice;

ii. the impact of divergences in national regulations was far greater than the Commission had initially estimated, and a limited set of measures and practices creates multiple barriers to a wide range of business activities. More specifically:

a) a broad spectrum of service businesses is affected in the way they operate, apart from those directly involved in designing sales promotions and advertising, such as the mass media, direct marketing and public relations agencies, etc.;

b) a multiplicity of internal market barriers persists, mostly affecting freedom of establishment, import and export of services, distortions in competition, free movement of goods, complexity of regulations and issues of legal redress. Particular attention is drawn to the impact of these barriers on SMEs which, under the present system, are disproportionately disadvantaged in sales promotions terms compared with larger businesses.

3.2. The types of sales promotions examined by the communication and considered to be of significance are:

i. simple price reductions;

ii. quantity discounts;

iii. coupons and vouchers;

iv. free gifts;

v. premiums considered to be offers other than discounts which are provided to the consumer once the latter has ordered or bought the promoted product or service;

vi. promotional contests;

vii. promotional contests/games (with or without obligation to purchase).

3.3. The communication lays down three types of provision which are needed to remove internal market barriers:

i. harmonisation of certain provisions concerning the use and communication of sales promotions;

ii. replacement of certain restrictions;

iii. application of mutual recognition.

3.4. Restrictions requiring harmonisation include:

i. transparency provisions relating to discounts, premiums, promotional contests and games;

ii. information requirements for sales below cost;

iii. protection of children and minors;

iv. facilitating extra-judicial redress.

3.5. Restrictions that the communication proposes replacing with less restrictive measures include:

i. Bans on sales promotions

- Bans on premiums

- Bans on sales below cost

- Bans on making participation in promotional games subject to purchase

- Bans on the communication of sales promotions

ii. Limitations on the value of sales promotions

- Limitations on the level of discounts

- Limitations on the value of free gifts

- Limitations on the value of premiums

- Limitations on the value of prizes in promotional contests and games of chance

iii. Limitations on discounts preceding seasonal sales periods

iv. Prior authorisation for sales promotions or any other requirement having equivalent effect.

3.6. Restrictions requiring the application of mutual recognition may be maintained at national level insofar, of course, as they are not applied in order to restrict sales promotions from other Member States. They must also be subject to the principle of mutual recognition.

This concerns restrictions:

i. resulting from the application of a general clause on good market behaviour;

ii. on value limits of sales promotions offered to minors;

iii. on the use of sales promotions to promote media;

iv. regarding the use of sales promotions for non-prescribed pharmaceutical products;

v. relating to other sectors.

4. General comments

4.1. The EESC agrees with the points the communication makes regarding limitations on:

a) the level of discounts (3.5.ii.1);

b) the value of premiums (3.5.ii.3);

c) the value of free gifts (3.5.ii.2);

d) the value of prizes in promotional contests and games of chance (3.5.ii.4).

4.2. In all these areas, the EESC believes that transparency and accurate information constitute the most effective form of consumer protection.

The EESC agrees that:

a) transparency measures must be harmonised in such a way as to avoid legal uncertainty resulting from reliance on general or non-detailed terms, and that:

b) transparency measures must not be open to national interpretation.

4.3. The EESC believes that use of the euro will bring significant changes in consumer behaviour in the eurozone countries: consumers are now easily able to compare prices and identify the most advantageous offers. This possibility must be safeguarded against any non-transparent or misleading sales promotion methods.

4.4. The EESC considers that the communication (a) provides enough elements to form an assessment (b) takes adequate account of the experts' reports and of all the other necessary factors relating to sales promotion issues in cross-border trade, and (c) contains careful analysis of data.

4.5. The EESC feels that the communication does not take sufficient account of local and national sales promotion practices which have been tried and judged successful.

4.6. The EESC endorses the need for a regulation on sales promotions in the internal market, as uniform measures are required in this area following the introduction of the euro, provided agreement is reached on the issues under discussion.

4.7. The EESC would voice some reservations concerning the distinction made between actions requiring:

i. harmonisation;

ii. updating and replacement of existing national provisions; and

iii. mutual recognition.

4.8. The EESC feels that examination of the question and publication of the communication have been late in coming, and that the communication fails to reflect adequately the urgency of the difficulties facing SMEs in cross-border commercial communications.

4.9. The EESC, aware that a wide range of commercial activities and services provided by SMEs will be affected by the implementation of the regulation, calls on the Commission immediately to compile and publish more detailed economic information on the economic and commercial impact it will have on cross-border trade.

4.10. The EESC is doubtful about the effectiveness of the Member States' control mechanisms with regard to transparency conditions relating to discounts, premiums, promotional contests and games.

4.11. The EESC has serious reservations regarding the effectiveness of consumer information arrangements for sales below cost.

4.12. The EESC has reservations concerning the definition of the factors establishing the existence of sales below cost and the abuse of dominant position at national level.

4.13. The EESC considers the general thrust of the provisions for the protection of children and minors to be appropriate but insufficient.

4.14. The EESC is opposed to the adoption of a mechanism based on the principle of mutual recognition for restrictions which may be maintained at national level provided that they do not restrict the import of services. There is an urgent need here to clarify which national legal provisions might be affected. Applying this principle must not provoke, in return, discrimination against companies operating in a Member State with restrictive regulations on sales promotions.

4.15. In the EESC's view, the list of forms of sales promotion examined by the communication covers a large proportion of such practices but not all, and cannot include the new forms which are constantly emerging.

5. Specific recommendations

5.1. Premiums

5.1.1. The EESC recognises that premiums are in practice an important sales promotion instrument, especially for SMEs.

5.1.2. The EESC does not fully agree with the Commission's proposal to remove all bans on price reductions prior to sales periods for the relevant products. The EESC proposes that Member States be able to retain measures aimed at ensuring that announced price reductions during sales periods are genuine, for example by requiring sellers offering discounts to display on the article in question the price charged during a specified period (e.g. one month) preceding the sales period.

5.1.3. Similarly, in order to prevent consumers from being deliberately misled by premiums, the following information should be provided:

- initial shop price;

- price of premium.

5.1.4. In this area, there must be legislative and supervisory coordination between the Member States, and transparency in order to protect consumers and SMEs.

5.2. Sales below cost

5.2.1. Greater account must be taken of the efforts of large wholesalers and retailers to drive SMEs from the market, SMEs being unable to match such practices.

5.2.2. The EESC is in complete disagreement with the conclusion that small, specialist businesses can use sales below cost to launch new products or create brand products.

5.2.3. In the EESC's view, the statement in the communication that the objective of sales below cost is to incite potential customers to try out a retail service at a certain moment in time is not logical. Since, for each product or service, an opportunity for substantial discounts or premiums is provided during a specific period, the reason for such strong measures is not clear.

5.2.4. The EESC disagrees completely with the communication's assertion that retailers selling below cost always do so with well-identified, innovative or branded products.

5.2.5. The EESC disagrees with the communication's position that as long as sales below cost are transparent, any risk of abuse of a dominant position should be dealt with by efficient application of competition rules: it is clear that on account of their size and financial resources, SMEs are unable to have recourse to law or the competent bodies in order to ensure that the competition rules are applied to larger companies.

6. Specific comments on the explanatory memorandum and the proposal for a regulation

6.1. Provided its comments on sales below cost [points 5.2-6.4-7.2.a)] are accepted, the EESC agrees with a regulation on sales promotions in the internal market on account of the need to:

i. establish uniform rules on very targeted issues;

ii. ensure price transparency and strengthen legal security;

iii. respond to the urgency for uniform rules as a result of the introduction of the euro;

iv. secure consistency with the Commission's new approach to better regulation.

In case the Commission does not accept the above mentioned comments, the Committee suggests that a directive be adopted instead of a regulation.

6.2. Article 1 - Objective

6.2.1. The EESC endorses the objective of the draft regulation.

6.2.1.1. Comment 1: the EESC agrees with the object of the draft regulation, provided that all the necessary measures are taken to protect consumers, minors, and SMEs which are competing in a difficult European environment, lacking both up-to-date knowledge and capital.

6.3. Article 2 - Definitions

6.3.1. The Committee believes that the definitions should be redrafted to distinguish between business to business communications and those between business and consumers. In particular, one-to-one communications from one business to another single business should be expressly excluded.

6.4. Article 3 - The use and commercial communication of sales promotions

6.4.1. The EESC agrees with the prohibition of general restrictions on the use or communication of any one or combination of types of sales promotions, but completely rejects the provision allowing, for the first time, sales below cost: it considers that this would be particularly damaging to SMEs, who are unable to apply such practices because of their size and financial resources.

6.4.1.1. Comment 1: the EESC urges the Commission to entirely remove any possibility of sales below cost from Article 3. The EESC would point out that sales below cost are already used - both legally and illegally - in a number of Member States by large retailers and wholesalers, the result being to drive SMEs off the market. The practice has already had a visible impact in many EU countries, particularly in the more remote areas, where thousands of small - primarily family-run - businesses have either gone under or contracted, unable to sustain sales below cost. Retail chains in particular - situated between producers and final consumers - pursue this promotion policy, but only ever for selected goods in specific branches. Although they account for only a small part of all products, the impression is created that all goods of the particular branch are equally low-priced, leading to confusion for the average consumer.

6.4.1.2. Comment 2: the EESC would point out that sales below cost are prejudicial not only to commercial SMEs, but also to non-brand agricultural, craft and industrial producers, since large chains can bring huge pressure to bear on producers to make them agree to such sales.

6.4.1.3. The Committee regrets that, with regard to advertising and promotions that may affect public health, approval of the Proposal for a Regulation may reduce the level of consumer protection and create inconsistencies in Community legislation. There must be a clear and unequivocal ban on promoting tobacco products and prescription medicines.

6.5. General information to be provided

6.5.1. Comment 1: the EESC considers Article 4 to be particularly important for consumer protection, since consumers can only make appropriate choices when full and reliable information is available.

6.5.2. In the view of the Committee the requirement to give an "indication of a sale below cost" should be deleted. Such information serves no consumer protection function and could be misleading. Furthermore, it would be extremely difficult to determine when it applied in many cases and such a requirement would place an unjustified burden on suppliers particularly prejudicing small and medium enterprises.

6.6. Protection of children and adolescents

6.6.1. Comment 1: the EESC agrees entirely with the measures taken to protect children and adolescents which are set out in detail in Article 5 of the draft regulation.

6.6.2. Comment 2: the EESC considers the protection of personal data to be an issue of the greatest importance, especially since the new technologies, and new electronic sales promotion techniques, now entail the use of such information. More specifically, the EESC calls for minors to be completely and absolutely protected from the collection of such data.

6.6.3. Comment 3: the EESC considers that Article 5(2) should be expanded to include gifts or premiums that could be damaging to their psychological, as well as physical, health. This might include, for example, gifts containing immoral material, or premiums intended to exert a psychological influence.

6.6.3.1. Any participation by a child in a promotional game or contest must be subject to the prior consent of the child's legal guardian.

6.6.4. Comment 4: the EESC views Article 5(3), completely prohibiting the use of alcoholic drinks for individuals under the age of 18, as necessary. The EESC also urges the Council to monitor regularly the impact of its recommendation on the drinking of alcohol by children and adolescents(5) and to progress rapidly to more binding legislative initiatives.

6.7. Redress

6.7.1. Comment 1: the EESC is in full agreement with the experts on the lack of affordable judicial redress providing adequate, full legal protection for consumers. The EESC therefore advocates the introduction of non-judicial forms of redress, with which consumer organisations, professional associations and chambers of commerce might be associated.

6.7.2. Comment 2: the EESC agrees with the obligation for promoters to bear the burden of proof, since they have all the requisite information at their disposal. However, this obligation should not become an excessive burden, in particular for SMEs.

6.7.3. Comment 3: A promoter shall at the request of a court or administrative authority, provide evidence as to the accuracy of the information in respect of sales promotion referred to in Article 4, up to six months after the end of the commercial communication.

7. Recommendations

7.1. The EESC recommends that the Commission completely revise the Proposal for a Regulation in line with this Opinion and, in particular, the results of the public debate on the Green Paper on consumer protection, while safeguarding the consistency of the various Community policies.

7.2. However, if the Commission decides to proceed with its legislative proposal, the EESC recommends that:

a) the possibility of sales below cost be entirely removed from the draft regulation, and that no other opportunity for such sales exist;

b) rigorous and specific measures be taken to protect consumers by banning the commercial promotion of pharmaceutical products and tobacco products. With regard to adolescents and minors, protection measures must be taken to prevent an increase in the consumption of alcoholic beverages;

c) children be comprehensively shielded against collection without consent of personal data;

d) the present communication mark the outset of regular supervision of these issues and of the presence of a permanent means of intervention when required by changing internal market conditions;

e) every effort be made to ensure that SMEs, which have the means and prospects, understand they must be present on the European and international market, using sales promotions and new technologies to this end;

f) the Commission give careful consideration in its future activities to legislative coordination and the availability of effective supervisory machinery in the Member States, which will guarantee that fair competition rules apply in the internal market;

g) the fundamental information obligations set out in the annex be codified and incorporated into the regulation. A distinction must also be made in the way information is to be provided between retail sales mostly made in commercial establishments, and those through other channels (such as television, e-commerce, etc.);

h) the provisions of the directive apply to sales promotions by both private businesses and those broadly defined as belonging to the public sector.

Brussels, 29 May 2002.

The President

of the Economic and Social Committee

Göke Frerichs

(1) Green Paper on European Union consumer protection (COM(2001) 531 final).

(2) EESC Opinion on the Green Paper on European Union consumer protection - OJ C 125, 27.5.2002, p. 1 (rapporteur: Ms Davison).

(3) COM(96) 192 final.

(4) COM(98) 121 final.

(5) COM(2000) 736.

APPENDIX

to the Opinion of the Economic and Social Committee

The following amendments, which received at least one quarter of the votes cast, were rejected during the discussions:

Point 5.2

Replace by the following. "The EESC regards the proposed obligation to supply information regarding sales below cost as unnecessary and inappropriate. There are no grounds for the authorities to interfere in a company's pricing or to require it to indicate to competitors and customers how prices are calculated. In cases where 'sales below costs' are a reflection of a company abusing its dominant position, the situation should be dealt with under competition law."

Reason

Rules which place a general ban on "sales below cost" are inappropriate for many different reasons, e.g.:

- As a principle it is unacceptable in a market economy for authorities to be able to interfere in a firm's pricing. In cases where "sales below cost" are a reflection of a firm abusing its dominant position through price cutting, this should be tackled through competition law.

- To prevent firms from adjusting their pricing to the market situation and introducing themselves and new products on markets through "promotional offers" both hinders the consumer from making an advantageous purchase and restricts the capacity of firms - perhaps particularly small firms - to establish themselves on markets.

- Where markets are not just small local markets, it can be hard to implement rules banning prices below cost in a reasonable manner since a firm's cost price for supplying a product may vary significantly - due to major differences in purchase and transport costs etc. - from one market area to another. A retailer operating on several national markets who wishes, in connection with a marketing campaign, to apply a uniform extra price (in euro) can be prevented from doing so because the lowest price cut necessary to make any impact on one part of the market - e.g. in Belgium - can mean that the price is below the firm's cost price for the product in southern Germany. A provision banning sales under cost could therefore run counter to the key aim of the Commission's proposal on sales promotions, viz. to reduce fragmentation on the single market.

Result of the vote

For: 31, against: 53, abstentions: 7.

The following Section opinion texts were rejected in favour of amendments adopted by the assembly:

Point 6.2.1

"The EESC endorses the requirements and objective the draft regulation sets out to meet, i.e. to ensure the proper functioning of the internal market by eliminating restrictions on the free provision of services and guaranteeing the freedom of establishment."

Result of the vote

For: 39, against: 40, abstentions: 6.

Point 6.6.2

"Comment 2: the EESC disagrees with the blanket obligation for promoters to bear the burden of proof, since this category often includes SMEs which do not have the financial ability to conduct protracted legal disputes or to provide the mandatory information set out in the annex. More specifically, it should be left up to judges to decide who should bear the burden of proof, in line with the relevant circumstances."

Result of the vote

For: 27, against: 48, abstentions: 8.