What Could the European Union’s Unfair Trading Practices Directive Mean for Companies in Serbia?

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In April 2019, the European Parliament adopted the Directive 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain (“Directive”). The Directive aims to iron out the asymmetry in bargaining power between suppliers and buyers of agricultural and food products that often leads to unfair trading practices (so called UTPs) being imposed by larger and more powerful trading partners on their weaker contracting parties. In case of such imbalances, suppliers are often de facto forced to accept the imposed unfair practice so they can continue to sell their products and not lose a valuable commercial partner which is why the European Parliament found it necessary to institute protections for less powerful suppliers.

Could Serbian companies active in the agriculture and food sectors be affected by the Directive?

We revisit this issue as the deadline for the Directive’s transposition into the Member States’ national legislation is around the corner – 1 May 2021, with the adopted national measures becoming enforceable from 1 November 2021 the latest.

The Directive Basics

While national legislations of Member States usually already have certain UTP rules, their general aim is not necessarily to protect weaker suppliers and there is hence no mechanism to assess the relative power balance within the supply relationship. The purpose of the Directive is precisely that – to shield suppliers of food products against unfair behaviour of economically stronger buyers. This relative weakness/strength is assessed based on a comparison of group turnover figures of the supplier and the buyer.

The Directive applies to relationships that meet one of the following five turnover thresholds:

suppliers with an annual turnover of less than EUR 2m are protected against buyers with an annual turnover above EUR 2m;
suppliers with an annual turnover between EUR 2m and EUR 10m are protected against buyers with an annual turnover above EUR 10m;
suppliers with an annual turnover between EUR 10m and EUR 50m are protected against buyers with an annual turnover above EUR 50m;
suppliers with an annual turnover between EUR 50m and EUR 150m are protected against buyers with an annual turnover of more than EUR 150m;
suppliers with an annual turnover between EUR 150m and EUR 350m are protected against buyers with an annual turnover of more than EUR 350m.

In case of buyers that are public authorities there is only a general protection of suppliers with an annual turnover below EUR 350m.

The Directive identifies 15 specific UTPs as the gravest ones and divides them into two categories: UTPs prohibited per se irrespective of the circumstances, and UTPs prohibited unless the supplier and the buyer agreed on them beforehand in clear and unambiguous terms.

UTPs prohibited irrespective of the circumstances are:

late payments (later than 30 days after the end of the agreed delivery period or the date on which the payment is due for perishable products, or later than 60 days for non-perishable products);
last-minute order cancellations (cancellation notice of less than 30 days shall always be considered a short, last-minute notice);
unilaterally changing the supply agreement terms regulating frequency, method, place, timing or volume of the supply or delivery, the quality standards, the terms of payment or the prices;
requiring from the supplier payments not related to the sale of the products;
requiring the supplier to pay for the deterioration or loss of the products on the buyer’s premises or after ownership has been transferred to the buyer when there is no negligence or fault on the supplier’s part;
refusing to enter into a written agreement;
unlawfully acquiring or using the supplier’s trade secrets;
(viii)(threatening to) carrying out acts of commercial retaliation; and
requiring compensation from the supplier for the cost of investigating customer complaints when there is no negligence or fault on the supplier’s part.

UTPs that will be prohibited unless the parties agreed on them beforehand in clear and unambiguous terms:

returning unsold products to the supplier without paying for the products and/or their disposal;
charging fees as a condition for stocking, displaying or listing the supplier’s products;
requiring the supplier to bear all or part of the costs of discounts on products sold by the buyer as part of a promotion (unless the buyer, prior to the promotion, specifies the period of promotion and the expected quantity of products to be ordered at the discounted price);
requiring the supplier to pay for the buyer’s advertising;
requiring the supplier to pay for the buyer’s marketing; and
charging the supplier for staff for fitting-out premises used for the sale of the products.

The Directive is supposed to introduce a minimum standard of protection against UTPs but Member States could also adopt or maintain national rules which go beyond the UTPs listed in the Directive.

In line with the Directive, new supply agreements concluded after the date of the application of the national measures would have to be entirely aligned with them. Existing supply agreements (concluded before the date of publication of the national measures) will need to be subsequently aligned with the new measures, within a year from their publication.

Each Member State shall designate an enforcement authority in charge of enforcing national UTP rules. Sanctions (fines, other penalties, interim measures etc.) for engaging in UTPs will be handled at the national level too.

Application to Serbian Companies

The Directive applies to sales where either the supplier or the buyer, or both, are established in the European Union. This means it is sufficient for only one party to the agreement to be established in a Member State for the Directive rules to apply. Therefore, suppliers from non-EU countries are also protected by the Directive when selling to EU buyers and vice versa – non-EU buyers will have to abide by the UTP rules when buying from weaker EU suppliers.

National measures transposing the Directive rules are supposed to constitute overriding mandatory provisions applicable to any situation falling within the Directive’s scope, irrespective of the law that would otherwise be governing the agreement between the supplier and the buyer.

In practice, considering the Serbian agricultural and food producing and exporting capacities and the turnover thresholds set by the Directive, it is more likely that local companies would find themselves in the role of suppliers to more powerful EU buyers thus seeking protection against UTPs, than the other way around.

It is also reasonable to expect that stronger Serbian retailers could be subject to the national rules stemming from the Directive, especially considering the goods they are buying from the neighbouring EU countries (eg, Croatia, Hungary, Slovenia).

In the former scenario, local suppliers should know that, subject to the turnover threshold criterion being met, they will have the possibility to (i) invoke the Directive (ie, the national rules adopted on that basis) in their negotiations with the relevant EU buyer in case they wish to impose some of the prohibited UTPs, and (ii) may also address complaints to the enforcement authority of the Member State in which the buyer that is suspected to have engaged in a prohibited trading practice is established.

In the opposite case in which a stronger Serbian company buys from a weaker EU supplier, Serbian buyers should be careful to avoid the prohibited UTPs, especially as EU suppliers are more likely to be familiar with the protections they are entitled to under the Directive and any potential complaints to the enforcement authority would naturally occur on the supplier’s home turf.

TO DOs

Serbian companies active on different levels of the agricultural and food supply chain that do business with buyers and/or suppliers located in the EU should, preliminary, assess the relative power balance within their supply relationships. If, based on the Directive’s turnover thresholds, national rules transposing the Directive are (likely to be) applicable to their relationships, they should familiarize themselves with the Directive and follow its implementation in the relevant Member States from May 2021 onwards so they can exercise their rights properly and/or ensure compliance.