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Federation of Small Businesses supports Europe-wide legal contracts for small firms that trade within the single market
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The FSB is calling for the Government to support plans for a Europe-wide law that small firms can put in place when drawing up contracts within the EU.

According to the FSB, Government plans to boost an export-led recovery will falter unless it changes its contradictory position on complex contract law for small firms doing business in Europe.

The Government is currently encouraging business expansion into the European single market, with figures showing that if all barriers to trade within the EU were withdrawn, UK GDP would increase by more than seven per cent(1).

Small businesses will play a key role in this export-led recovery, but the FSB is concerned that this messaging from the Government is contradictory when the rhetoric is compared with action:

Businesses that currently trade across the EU and sell online have to be aware of and use 27 different types of contract law in the different countries they trade in.

One third (31%) of businesses trying to trade across the EU still encounter legal or regulatory barriers(2) while half of small firms (51%) have said they would expand their business activities if they could apply a single European contract law for cross-border transactions(3). Further, 76 per cent of businesses say they would expect to save costs if they could use a single European contract law across the EU, rather than having to use different laws when trading in different countries(4).

The FSB supports the Government’s development of the Single Market but calls on the Government to reduce the burden of having to use different laws across 27 member states and to consider an optional single, more simple, contract law for small firms doing business in Europe, in order to facilitate cross-border trade.

The European Commission will consider optional contract law in the autumn and the FSB urges the UK Government to support an optional EU-wide law for small businesses drawing up contracts when they trade within Europe.

(1)BIS Economic Paper No.11. The economic consequences for the UK and the EU of completing the Single Market, February 2011
(2)UKTI International Business Strategies, Barriers and Awareness Survey, OMB, 2010
(3)European Business Test Panel, European Contract Law, November 2010. Responses from micros: 42 per cent; small and medium: 39 per cent; big business: 19 per cent
(4)ibid

    (left to right) Tina Sommer, EU and International Affairs Chairman for the FSB, Sietske de Groot Senior Advisor EU and International Affairs, Commissioner Reding and John Walker, National Chairman of the Federation of Small Businesses

    (left to right) Tina Sommer, EU and International Affairs Chairman for the FSB, Sietske de Groot Senior Advisor EU and International Affairs, Commissioner Reding and John Walker, National Chairman of the Federation of Small Businesses

    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.

    Contact

    European Commission

    Matthew Newman, spokesperson for EU Justice Commissioner Viviane Reding:

    +322 296 2406 / +32 498 962 406 matthew.newman@ec.europa.eu

    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 sophie.kummer@fsb.org.uk

    Prue Watson: 020 7592 8121 / 07825 125 695 prue.watson@fsb.org.uk  

    Sara Lee: 020 7592 8113/ 07595 067068 sara.lee@fsb.org.uk

    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.

    Last update: 21/06/2011  |Top