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Simplify EU contract law for exporters, says FSB

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The Government should give its backing to plans for a single European-wide contract law that applies to small firms wishing to export to the EU.

The call has come from the Federation of Small Businesses (FSB).

A reform to the law would simplify the process of drawing up contracts for trade right across the EU, the FSB maintained, and, in making it easier for small UK firms to export goods and services, would help boost the recovery.

At the moment, each of the EU’s 27 member states has its own contract legislation. That means businesses that export to the EU or trade online with Europe have to be aware of and use 27 different types of contract law that apply in the different countries with which they have dealings.

But a single, uniform set of contractual regulations would change all that and reduce the costs involved in exporting.

The FSB argued that if all barriers to trade within the single European market were withdrawn, UK GDP would increase by more than seven per cent.

Research has shown that 31 per cent of businesses trying to trade across the EU still encounter legal or regulatory barriers.

A half of small firms (51 per cent) have said they would expand their business activities if they could apply a single European contract law for cross-border transactions.

Meanwhile, 76 per cent of businesses believe 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.

The European Commission is due to consider optional contract law this autumn.

Viviane Reding, European Justice Commissioner, has 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. 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.”

The FSB wants the UK Government to give its backing to any plans.

John Walker, the FSB’s national chairman, commented: “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, small businesses could have to spend thousands of pounds on legal advice to get to grips with local laws and they clearly cannot afford this. It could mean that they 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.

“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.”