John Walker, National Chairman of the Federation of Small Businesses, said:
“An optional EU-wide system of contracts is clearly the only way to solve the legal barriers small businesses face when selling within the EU. Currently, a small business that sells to customers in Germany could have to spend thousands of pounds on legal advice to get to grips with the local law. Small businesses cannot afford this and could end up simply trading exclusively in the UK, which will not support the Government’s plans for an export-led recovery.
“While the Government continues to promote the Single European Market, it must consider an optional contractual instrument that small firms can choose to use in order to make cross-border trade much easier and realise that growth.
“In addition, the Government is encouraging small businesses to make more use of contracts, in particular to prevent late payment. However, many small firms do not use contracts and are put off by the red tape – particularly when trading overseas – so a new contractual instrument that would help small firms to expand their markets, would be very welcome.
“We believe that the Government’s position to oppose the optional instrument is wrong and contradictory to its aims to promote ‘made in the UK’. Therefore, we strongly call on the Government to revise its position in order to allow small businesses to really share in the benefits of the Single Market.”
Viviane Reding, European Justice Commissioner, is in the UK to discuss the concept of optional contract law. She said:
“European consumers want better deals and businesses want to sell products in more countries. That’s the simple rationale for an optional European contract law initiative. To be successful, the optional instrument would be a set of contract law rules that could be used voluntarily in cross-border transactions across the EU. This would reduce the transaction costs for cross-border trade and help businesses expand into more countries.
Many companies decide that it’s simply not worth the expense and trouble to sell in small and medium-sized EU countries. The Federation of Small Business reported that it costs firms around £8,000 in legal and translation costs for every Member State they trade with. For example, a micro-company in the UK with six employees and an average annual turnover of £133,000 has a successful product and wants to sell across Europe. They could face transaction costs of around £243,000 for hiring contract law experts to take into account the laws of the other 26 countries. This should be changed by any European contract law initiative.
An optional instrument would mean that a business would have to pay just once for a lawyer to expand across Europe. More trade would lead to more imports, more competition in the domestic market and therefore more choices and lower prices for consumers.
In a vote on 7 June, the European Parliament called for an optional European contract law instrument, which could be chosen voluntarily. I am also considering this option. My goal is that SMEs and consumers should benefit from a user-friendly contract law instrument, especially when it comes to cross-border transactions in the Single Market."
Notes to Editors
1. The FSB is the UK's leading business organisation with over 205,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk
2. The FSB believes that there is evidence to indicate that a change to EU Contract Law would help to open up the single market to small businesses. Transaction costs (such as adapting contractual terms or obtaining a translation of the rules) and the legal uncertainty involved in dealing with foreign contract laws can make it hard for small businesses to expand within the single market. If businesses can choose to use an EU-wide opt-in contract when trading within other member states, this will save them time and money. Provided that this EU-wide contract is adequate and straightforward in its use for businesses and consumers, businesses would only have to familiarise themselves with it once, instead of having to find out about the contract law of different member states. Furthermore, we believe that an optional law is a solution for the problems caused for small businesses by article 6 of Rome I (business to consumer).
3. On Wednesday, June 8, the European Parliament adopted Diana Wallis’ own initiative report on contract law, with 521 MEPs voting for it, showing that the Commission has the backing of a large part of the Parliament to develop a contract law that can exist throughout the EU alongside each national law.
4. The contract law the FSB is supportive of would be optional and would not supersede all individual national laws, including common law.
Matthew Newman, spokesperson for EU Justice Commissioner Viviane Reding:
+322 296 2406 / +32 498 962 406 firstname.lastname@example.org
Homepage of Vice-President Viviane Reding: http://ec.europa.eu/reding
Federation of Small Businesses
Andrew Cave, Chief Spokesperson: 07917 628991
Sophie Kummer: 020 7592 8128/ 07917 628998 email@example.com
Prue Watson: 020 7592 8121 / 07825 125 695 firstname.lastname@example.org
Sara Lee: 020 7592 8113/ 07595 067068 email@example.com
For regional FSB contacts please go to www.fsb.org.uk/regions
For more information, please contact the London press office on 020 7973 1971.
Please note: all amounts expressed in sterling are for information purposes only.