Competitive fight for the European buyer: what should the Ukrainian business know about the competition legislation in the European Union?

11/ 09/ 2019

Victoria Polischuk

BSK Instructor. Victoria works on MBA, Master of GBM, Mini MBA, author of the courses “Legal environment for doing business”, “International law” and others. She is a content leader in the BSK Enterprise Research Lab.

Competition is the main mechanism of the market economy motivating the companies to sell goods and provide services, requested by the consumers. This encourages innovations and decreases prices. The European Commission asserts: for the effective functioning of the market, competition needs suppliers, which are independent of each other and have competitive influence on the side of other suppliers. Competition is beneficial for both the consumers and the suppliers.

The consumers obtain better goods and services, decrease of prices, wide range of goods and services, as well as general information about price forming mechanism. For example, Directive No. 98/6/EU on consumer protection in the indication of prices for products offered to consumers, requires the seller to use the unified methods for the calculation of cost of goods. The Directive also determines the obligation of the seller to indicate the price with VAT and other taxes.

In accordance with the member of Bergen Center for Competition Law and Economics Ignacio Herrera Anchustegui, the competition has a significant influence on the welfare of the consumers. Consumer in the countries of the European Union differs from the consumers of other countries by his/her influence on the market. There are many legislative acts, which protect the consumer in different practical situations. These legislative acts include Directive No. 1999/44/EU on certain aspects of the sale of consumer goods and related guarantees, Directive No. 93/13/EU on unfair terms in consumer contracts, Directive No. 2006/123/EU on services in the internal market, Directive No. 2011/83/EU on the rights of consumers and others. For example, Directive No. 1999/44/EU on certain aspects of the sale of consumer goods and related guarantees obliges the seller to deliver goods, compliant with the agreement and the following requirements:

  • the description of goods matches their appearance;
  • the goods are suitable for the objective of the consumer, if the seller was aware of this objective at the time of concluding agreement;
  • the goods correspond to the objectives, for which the goods are usually sold;
  • the goods are in compliance with the quality requirements to the same or similar group of goods.

The seller is responsible to the consumer for any incompliance at the moment of delivering the goods. The Directive introduces hierarchy of protection means, accessible to the consumer due to incompliances. Firstly, the consumer might demand from the seller to repair or change the goods free of charge. Secondly, the consumer has the right to terminate the agreement or, at his/her choice, demand corresponding decrease of price. However, the consumer is not entitled to withdraw from the agreement, in case if the deficiencies of goods are inconsiderable. The Directive establishes several rules regarding the guarantees for the goods, sold to the consumers. The guarantees shall be provided in written form or by means of other information media on request of consumer. Member states might determine that such written document should be prepared in one or several official languages of the corresponding member state.

Also, the suppliers of products in the countries of the European Union shall be aware of the fact that in 2012 the European Commission accepted the Consumer Agenda determining key measures, necessary for the extension of opportunities for the consumers and their presence on the market. Agenda underlines the strategic vision of the consumer policy for the long-term perspective. The document consists of 62 actions divided into 4 groups: promoting consumer safety, enhancing knowledge of consumer rights, supporting consumer rights and integrating consumer interests into the branches of economy and into the politics. Also, the EU countries work on the extension of opportunities for the consumers: accessibility of any information, related to the goods and services, as well as acceptance of effective ways for the compensation of losses. Consumer in the EU countries has, indeed, strong influence on the suppliers and this influence determines the price, choice, quality and innovativeness of goods and services.

The competition motivates the suppliers to be more effective, ensure the safety and quality of products and use innovations in their activities. American magazine Forbes provides excellent example of the influence of competition on the business development in the world. In 1990, not many people used mobile phones. When the development of the goods started (due to Nokia), the sales level began its increase. Later Apple came with the solution to launch the sensor phones. IPhone created tremendous demand on the smartphone market and this market was captured by Samsung. They concentrated on the modernization of a product and continued to launch new products every month.  In its turn, Apple took similar actions and as of now, we have wide choice of any smartphones with different prices. 

The EU countries not only select a policy, directed at the protection of consumer rights, but also a policy, enhancing or supporting the level of competition on the market. Such policy includes measures, which directly influence the behavior of enterprises and structure of industry. The aim of the competitive policy in part of supplier activities is to increase economic effectiveness and economic development of the European Union. The legislative base in relation to competition protects small and medium companies, provides state assistance on non-discrimination grounds, prohibits agreements or practices, which limit the free trade and business competition, and controls the merger and acquisition process of large corporations, including some joint ventures. Directive No. 2005/29/EU concerning unfair business-to-consumer commercial practices in the internal market contains general prohibition of unfair commercial practice in relation to the consumers. To determine fairness of the commercial practice, the Directive applies the system of three different types of analysis. On the most general level, the commercial practice is considered to be unfair, in case of both – being incompliant with the legislative requirements and influencing the economic behavior of the consumer. On the second level, the Directive shall establish whether the commercial practice is deceptive or aggressive.  On the last level, annex to the Directive shall be analyzed with the list of practices, being deceptive or unfair in any circumstances.

Besides, the new tendencies in the regulation of competition are being established in the European Union at present:

  1. Regulation of competition in the digital world. The European Commission collects data on the strengths of large digital companies.
  2. The state assistance and optimization of taxes. The European Commission conducts investigations about the non-proportionate tax benefits, provided to the transnational companies, as well as verifies the attraction of investments. In accordance with the data of the European Commission, for the time being, approximately 700 companies, which received state assistance from the EU, undergo verification. The European Commission has already taken decision against Ireland (Apple), the Netherlands (Starbucks), Luxemburg (Fiat and Amazon) and Belgium (35 companies). There are other investigations regarding the EU state assistance in connection with the tax schemes in Luxemburg (for example, Engie and McDonald’s), in the Netherlands (IKEA) and Great Britain (foreign companies). This confirms the constant interest of the European Commission to state tax assistance.
  3. Investigation of fake news stories and misinformation in the Internet, which harm the suppliers and mislead the consumers. Recently the European Commission has started public consultation for the collection of opinions from all the parties, which are interested in solving the problem of fake news stories in the EU.
  4. The new order for the protection of such consumers in the EU dated May 25, 2018. General Data Protection Regulation enhances the personal data protection and introduces new concepts, rights and requirements for the companies, owning such data.

Practical seminar “European Law for the Ukrainian Entrepreneurs” from BSK – KROK Business School, accessible in the open and corporate formats, will help you to learn more about the procedures of managing and organizing business in the EU countries and allow you to bring this knowledge and skills into your Company.

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