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French food pricing legislation could be contrary to EU law

Date: Jul 31, 2018

Originally published at www.foodnavigator.com on 18 May 2018

The government of president Emmanuel Macron is proposing new legislation further restricting resale at loss. Katia Merten-Lentz, partner at Keller and Heckman, warns this legislation might be contrary to EU Directive and to the jurisprudence of the European Court of Justice.

Resale at loss

France is one of the few European countries to prohibit the resale at a loss: the code of commerce prohibits reselling a product below its actual purchase price. Any trader reselling or even announcing such resale at loss can be fined, with a punitive fine up to 75,000 euro.

This prohibition was issued through a 1986 Ordinance from the Ministry of Economy. The so-called Galland’s Law (1996) defined the “effective purchase price” as the net unit price. Since then, it has been modified several times, most significantly by the Chatel’s law in 2008, with the aim of integrating back margins and thus lower the selling price for the final consumer. Hereafter, the effective purchase price is defined as the net unit price shown on the purchase invoice, minus the total financial benefits granted by the seller, plus taxes on turnover, transport costs and specific taxes.

This legislation is enforced by the French authority (DGCCRF), which recently launched an investigation against the supermarket chain Intermarché following a well-publicised promotion, when the group lowered the price of the well-known spread Nutella by 70%. This promotion caused massive crowds and disturbances at supermarkets, with the fall-out dubbed “Nutella riots”.

New legislation

In order to further restricting such resale at loss, especially during promotions campaigns like the “Nutella riots”, the French government presented on 31 January draft legislation that aims to deliver “fair commercial relations in the agricultural and food sector”.

The general purpose of this new legislation is to end the so-called “price wars” between retailers which prevent, according to the government, the fair distribution of profits between all the players in the food production chain and especially the fair numeration of farmers.

Apart for restricting the possibilities of promotions, the proposed law will increase the threshold of the resale price for food products by 10%, which means that supermarket chains are obliged to sell food products for at least 110% of the purchase price, instead of at least 100%.

The new legislation is to be adopted by way of Ordinance. Once adopted, the Government plans to implement it with executive measures by the end of the year to strengthen the French farmers in their negotiations with the food industry and retailers.

Critics raised concerns about the final costs of the new legislation for consumers, which could easily add up to €5bn in price increases of food products.

Contrary to EU Law

Resale at loss is an attractive marketing tool to consumers and thus part of an operator’s commercial strategy of promotion and sales development. As such, it is not considered as “unfair” commercial practices under EU legislation.

EU Directive (2005/29/EC) on unfair commercial practices sets the rules for unfair business-to-consumer practices in the internal market. In order to maximize harmonization within the European Union, Member States may not adopt stricter measures than those provided for in this Directive.

The European Court of Justice recently examined the compatibility of a resale at loss prohibition with the Unfair Commercial Practices Directive. In October 2017, it ruled that “a national provisionwhich contains a general prohibition on offering for sale or selling goods at a loss” was not compatible, because this measure was stricter than those provided for in the Directive.

This decision is also remarkable because the particular case concerned a business-to-business transaction: the Spanish local government fined a wholesaler who sold its products to retailers below purchase price. And although no consumers were involved, the European Court of Justice ruled that as the national provision also “seeks to protect consumers” and the fact that “sales by wholesalers to small retailersaffect the consumer”, this provision was contrary to the Directive setting the rules for unfair business-to-consumer practices.

Given the various objectives of the new French Legislation, combined with the extensive interpretation of the scope of EU Directive of unfair commercials practices by the European Court of Justice, it is entirely possible that the legislation proposed by the French Government will be contrary to EU Law.