Unfair business-to-business trading practices in the Romanian agricultural and food supply chain and its multi-sectorial impact

Wednesday, 18 May 2022

by Ana-Maria Baciu, Partner, and Ana-Maria Corugă, Managing Associate Simion&Baciu

Since 2009, the subject of the imbalance in negotiating powers within the food supply chain has been a constant concern at the European Union level, considering that existing asymmetries in this regard may lead to buyers using unfair trading practices to the detriment of suppliers.

With the stated aim of devising a solution to the issue under discussion, on 17 April 2019, the European Parliament and the Council of the European Union adopted Directive (EU) 2019/633 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain (UTP Directive).

The UTP Directive thus aims to ensure a minimum harmonisation in the regulation of unfair trading practices between economic operators acting in the agricultural and food supply chain.

The procedure for transposing the UTP Directive into national law has incorporated a surprise element, the Romanian law-makers opting for a more demanding and stricter national legislation, going beyond the minimum standard of harmonisation required by the UTP Directive by adopting a list of unfair trading practices (and therefore prohibited in any situation) that is significantly extended in comparison to the regulation applicable at European level.

Consequently, Law no. 81/2022 on unfair trading practices between undertakings in the agricultural and food supply chain (‘UTP Law) regulates a list of unfair trading practices, prohibited in any situation, incorporating  both trading practices permitted by the UTP Directive, provided that precisely determined conditions are cumulatively met, as well as trading practices that the European law-makers  did not consider necessary to bring under binding rules, considering it appropriate to maintain them under the aegis of the parties’ freedom of contract.

The impact produced by the UTP Law is a multisectoral one, the provisions of the UTP Law being taken into account by any economic operators that conclude commercial contracts having as object the sale of agricultural and food products, regardless of their object of activity or the value of the concluded contracts, as long as the turnover criterion regulated by the normative act is fulfilled.

The UTP law will thus be applied also to economic operators in the gambling sector, with a turnover of more than 2 million euros (which will be calculated by taking in consideration the turnover of the company group to which they belong, as the case may be) by referencing to any purchase of agricultural and / or food products from suppliers with a lower turnover.

From a territorial point of view, the law regulates the commercial relations between suppliers and buyers within the supply chain, with regard to unfair trading practices committed in connection with the sale of agricultural and / or food products, when sales are made on the territory of Romania, as well as when sales are made outside the territory of the country, that produce effects on the territory of Romania.

The UTP Law came into force and began to produce effects as of April 15, 2022.

According to the provisions of the UTP Law, the provisions of the normative act apply to commercial contracts concluded after the date of its entry into force, and as for those concluded before its entry into force, the parties have the obligation to bring them into line with the provisions of the new legal framework until December 31, 2022. Of course, the transitional provisions of the normative act will not apply to those provisions of immediate application between the parties, regardless of the agreed provisions of a contract in force.

Thus, in addition to the practices totally prohibited by the UTP Directive (i.e. exceeding the payment terms, cancelling orders with a short notice period, unilaterally modifying the terms  of a supply agreement by the buyer, under certain conditions;  claiming payments that are not related to the sale of the supplier’s agricultural and food products or for damage to or loss of agricultural and food products, or for both, when occurring on the premises of the buyer or after ownership has been transferred to the buyer, where such damage or loss has not occurred due to the negligence or fault of the supplier;  the buyer’s refusal to confirm in writing the terms of a supply agreement in respect of which the supplier has requested written confirmation;  the unlawful acquisition, use or disclosure by the buyer of the supplier’s trade secrets;  threatening the supplier by  the buyer to carry out or retaliate commercially if the supplier exercises its legal or contractual rights;  or the request by the buyer to the supplier to compensate the costs related to the examination of customer complaints regarding the sale of the supplier’s products, despite the absence of negligent conduct or fault on the part of the supplier), which  the UTP Law took over as unfair practices, the Romanian law-makers chose, starting with April 15, 2022, to prohibit a number of other practices, some of which are favorable to the supplier himself, in certain circumstances, and which are part of the usual contracting process in the field of agricultural and food products.

Thus, the UTP Law prohibits the buyer from an extensive series of other practices, automatically considered unfair, independently of a possible negotiation and express acceptance by the parties to the supply agreement:

  • setting of a period of notice of less than 60 days for the delisting of a manufacturer’s privately branded product for the categories of products that include the marketing of a shop’s own brand;
  • to collect from the supplier the costs related to the expansion of the buyer’s distribution network, the arrangement of the trader’s sales premises and the events promoting the buyer’s activity and image;
  • to use self-invoicing for agricultural and / or food products, except for the cases provided for in Article 320 of the Fiscal Code;
  • to apply financial and commercial discounts in the form of rebates (”rabaturi”), with the exception of off-invoice discount (”remize” și ”risturne”, as regulated by Romanian legislation), the cumulated value of which is not more than 20 %, applied on the basis of the value invoiced between the buyer and the supplier, for agricultural and/or food products;
  • return the unsold agricultural and/or food products to the supplier;
  • delay the receipt and preparation of documents for the receipt of agricultural products and foodstuffs;
  • to invoice the value of the advertising, marketing, secondary placement or discount services for the products sold by the buyer for promotional purposes, in excess of the amount of 5% of the value received by the supplier under the contract concluded between the parties;
  • purchase and market food products without checking their traceability if the purchase price is lower than the average cost of production on the relevant market during the buying-in period;
  • impose a payment on the supplier for the listing of his agricultural and food products and for their display for sale;
  • impose goods and services on the supplier, directly or indirectly, to buy or sell from a third party;
  • to charge the supplier for taxes, which obliges the supplier to artificially inflate the billing price;
  • delist, threaten to delist or withdraw from displaying one or more agricultural and/or food products in order to put pressure on or retaliate against the supplier for the acceptance of contract terms unfavorable to them;
  • list and display on the shelf only the buyer’s own brand, so that the offer includes at least one private brand of a competing manufacturer, by product category;
  • apply different commercial conditions for manufacturers’ privately branded products compared to the trader’s own-branded products, for listing/displaying on the shelf;
  • refuse to list an agricultural and/or food product registered under national and/or European quality schemes offered by a supplier on the grounds of its lack of volumes and seasonality;
  • offer or sell agricultural and/or food products at a loss, except as provided for in the legislation in force;
  • to take over the commercial conditions agreed with the supplier for the purchase of products related to the retail channel and to apply them with regard to the purchases of products from the supplier related to the wholesale channel.

In addition, disclosure of the terms and conditions of the commercial contract for the purchase of agricultural and / or food products, unless it is necessary for the fulfillment of the obligations assumed towards that supplier or compliance with legal provisions, both by the supplier and by the buyer, is also a prohibited unfair practice.

Committing trading practices qualified as unfair is sanctioned with fines ranging from RON 250,000 to RON 600,000.

Moreover, the repeated commission of unfair trading practices is punishable by a fine in the amount of 1% of the total turnover achieved in the previous financial year by the infringer.

In the context of this new legal framework in the field of trading practices within the agricultural and food supply chain, which also establishes a severe sanctioning regime, including by establishing mechanisms for the application of fines in relation to the turnover of economic operators subject to possible surveillance and control actions, the way in which the competent authorities with the implementation and application of the law, namely the Ministry of Agriculture and Rural Development and the Competition Council, will choose to exercise their duties will be essential for the economic realities of Romania after the entry into force of the law.

Although the field of gambling is today subject to a very strict regulatory framework in the main field of activity as well as from a fiscal point of view and of the requirements for the prevention and combating of money laundering, the task of ensuring full compliance with the applicable legislation becomes more and more difficult in the conditions of an adjacent legal framework that produces an significant impact on the sector,  including as regards the procurement of agricultural and/or food products, the protection of personal data and the long-awaited national legal framework for the transposition of the Omnibus Directive.

Author: Editor

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