How can producers and suppliers from developing countries make use
of voluntary UTP dispute resolution in the EU?
Considerations by 11.11.11, Fair Trade Belgium, Oxfam Wereldwinkels and Vredeseilanden
Brussels, 30 June 2015
Context:
In 2014 the Coalition of the North-South Movement in Flanders, 11.11.11, campaigned for more
efforts to reduce food waste. One issue often linked to food waste are unfair trading practices, in
particular last minute unilateral cancellations of orders and arbitrary rejections of deliveries allegedly
because of failure to meet cosmetic standards.
Testimonies of such practices were collected during a field trip of 11.11.11 to Kenya accompanied by
food waste expert Tristram Stuart.
In March 2015 11.11.11 and its members Oxfam Wereldwinkels and Vredeseilanden met with
representatives of the Belgian agro-food supply chain: the farmers union Boerenbond, the
supermarket association COMEOS and the food-processing industry association FEVIA, to discuss if
and how suppliers from third countries could make use of the voluntary code for fair trading
practices adopted by the Belgian supply chain partners.
The supply chain partners informed that their code had been fully integrated into the EU Supply
Chain Initiative (CSI) and the Framework for the implementation and enforcement of its Principles of
Good Practice. They also indicated that under the Framework companies based outside the EU may
in principle resort to its dispute resolution options. They invited 11.11.11 and members to make
proposals as to how companies based outside the EU could make use of this provision.
Formulating such proposals may inform the further development of the SCI as the Framework states
(in Section II, 1) that: “These procedures are described in the chapter regarding the operational
framework and will be complemented by implementation guidelines elaborated by the signatories of
this document in due Course”.
This note presents the results of our discussions and consultations. It has two parts:
- What possibilities does the Supply Chain Initiative offer; what gaps are there; what changes need to
be made?
- What do producers and suppliers from developing countries need; what rules and tools need to be
offered?
1. The possibilities and challenges of the Supply Chain Initiative
1.1. Geographical scope
Section II, 2 of the SCI’s Framework “Geographical scope” reads :
“This framework covers all the EU Member States.
Registered companies are expected to implement the principles throughout their
organisations independently of the geographical origin of their business counterpart provided
that the obligations under the contract are to be performed in the EU.
Small and medium-sized companies based outside the EU may resort to the dispute
resolution options covered by this framework in their relations with counterparts that have
registered, as long as the obligations under the contract are to be performed in the EU”.
This part of the Framework confirms that in principle companies based outside the EU may resort to
the dispute resolution options covered by it.
This possibility is conditioned in three ways:
- it applies for “small and medium-sized companies” only
- in their relations with counterparts that “have registered”
- “as long as the obligations under the contract are to be performed in the EU”.
Remarks:
- It is unclear what is meant with “the obligations under the contract are to be performed in the EU”.
- It is unclear why the possibility to resort to the dispute resolution would be limited to SME only
(and what definition of SME would be used). While SME are often in a weaker position in commercial
transactions and our concerns are indeed mainly with SME, fair trading practices should be applied to
all actors and all should have access to dispute resolution.
- Since the Principles and the Framework only imply obligations for the companies that have
endorsed them, it seems logic that dispute settlement is limited to the EU companies that have
joined the SCI (see however next point).
Recommendations:
- “The obligations under the contract are to be performed in the EU” should be clarified in order to
allow for greater certainty about the rights of non-EU counterparts in their relations with EU
companies registered under the SCI.
- The possibility to resort to the dispute resolution should not be limited to SME
1.2. Dispute resolution limited to suppliers of registered companies
The Principles and the Framework are voluntary, so that the commitments that they include only
bind the companies that have registered.
According to the first report by the SCI published this year, many actors in the agro-food chain have
not yet signed up to the SCI.
Remark:
- A large part of the agro-food chain is not covered, which reduces the possibilities for third country
suppliers to have access to dispute settlement resolution
- Even if a more important share of the sector would register, third country suppliers may not find
redress under the SCI
Recommendation:
The voluntary nature of the SCI remains a critical element in the set up of the SCI. For greater
certainty and access to dispute resolution a public initiative should complement the SCI in order to
ensure access to dispute resolution for all suppliers.
1.3. Buyers and their suppliers
The Framework binds registered companies in their relations with their direct business partners. The
Framework obliges registered companies to inform their business partners of the fact that they have
endorsed the Principles and Framework. Section III, Pillar 2 of the SCI’s Framework reads:
Registered companies are required to inform business partners of their participation in the
framework. Companies are free to choose the means by which this is done (e.g. through a
mention in contracts, written notice in negotiation meeting rooms).
Remark:
Related to the above remark -that the SCI only binds registered companies- it should be noted that
the adherence to the SCI of the primary buyer would not suffice, but that also intermediary
companies need to be registered to allow the primary supplier to have recourse to dispute
resolution.
When an EU retailer, for instances, places an order with an EU importer that buys from an African
exporter that sources vegetables from African producers, it requires at least the registration of the
European importer with the SCI for the scope of the code to extend across the EU border.
Recommendation:
- Registered EU companies should not just inform their business partners of their registration with
the SCI, they should also make respect for the Principles binding upon their business partners by way
of contract.
- They should choose business partners that have registered with the SCI.
- However when the EU importer in the above example is a cooperative, or a joint venture or a
shareholder company in which a registered retailer has a stake, than that retailer is responsible for
the respect of the Principles and the Framework by that importer so that a third country supplier of
the importer must have resort to the dispute resolution.
1.4. Individual disputes
According to the Framework (Section III, pillar 3, I, 1), for individual disputes complainants can
choose between:
- bringing the matter to the attention of a higher management level within the buying company
(“commercial track”);
- using the internal dispute resolution of the buying company (“Internal dispute resolution”):
- using the dispute resolution foreseen in the contract (“contract options”);
- mediation and arbitration;
- taking the matter to court (“jurisdictional methods”).
Remark:
All of these options except the first two are already generally available to business partners and none
of these options allow for anonymity of the complainant. While a satisfactory outcome for the
alleged victim of unfair trading practices is not guaranteed, the recourse to any of these four options
can mean the end of the business relation.
Recommendation:
- In view of the well-known fear factor companies that are the victim of unfair trading partners
should have access to confidential procedures.
- This will require a public initiative to complement the SCI to ensure confidentiality and protection
for the victims.
1.5. Aggregate disputes
According to the Framework ((Section III, pillar 3, I, 2 ) complaints implicating several members of
the SCI can be brought to the attention of one member of the Governance Group of the SCI; who can
present this to the group, which can than issue guidance to avoid the malpractice in the future.
Remarks:
- Complainants have to reveal themselves to a governance group member.
- In the EU context a complainant may contact and trust a Governance Group member that
represents his sector. In the case of a non-EU complainant this relationship and trust may not be
present.
- What happens when the guidance issued does not change the practice?
Recommendations:
- In order to maintain confidentiality and to represent a case brought forward by a third country
complainant, a neutral instance or person should be available for third country complainants. This
again requires the involvement of a public actor.
- Further steps need to be foreseen to ensure implementation of guidance issued.
1.6. Enforcement
A part from respect for the Principles, members of the SCI are required to fulfil procedural
obligations: they need to have an internal contact person and an internal dispute resolution
procedure; they need to train staff; make public their adherence to the Principles, etc. In case of noncompliance with these procedural obligations they can be sanctioned by the Governance Groups by
suspension or exclusion from the SCI.
Remarks
While its remains to be seen whether suspension and exclusion from the SCI will have an effect,
these measures can only be taken in case of breaches of the procedures, but not in case of breaches
of the principles or in case of non-compliance with guidance issued by the Governance Group.
Recommendation:
- Suspension and exclusion should also be foreseen in case of breaches of the Principles or of
guidance issued by the Governance Group.
- In view of the fact that breaches of the Principles can only lead to the issuance of non-enforceable
guidance, a public initiative will be required to enforce fair trading practices.
2. What do producers and suppliers from developing countries need to be able to deal with unfair
trading practices? What rules and tools need to be offered?
2.1. How can they be informed about possible dispute resolution in Europe?
- It is important that non-EU suppliers know of the existence of the voluntary SCI or any voluntary or
publicly enforceable code in the EU. Embassies of EU member states and the EU delegations
exporters in EU partner countries should inform national ministries and national federations of
producers, processors and exporters. They should post this information and contact details on their
websites.
- In countries with significant exports to the EU, the EU delegation could also use (targeted) media to
inform potential exporters.
- When the non-EU supplier is a direct business partner of an EU company that is registered with the
SCI, this EU company is required to inform its (non-EU) business partner of the Principles and the
Framework. When doing so the registered company should also provide the partner of the contact
details of the SCI Governance Group.
- Publically enforceable codes should also require EU companies to inform their non-EU business
partners of the existence of this code and of the contact details of the governance bodies.
2.2. How can they make complaints in EU about UTP by EU companies?
- In the case the EU buyers are SCI registered companies, non-EU suppliers can make use of the
individual dispute resolution methods provided by the SCI Framework (with all their limitations
mentioned above). As these cases need to be presented in the EU these options may be beyond
reach for small and medium non-EU companies.
- Aggregated cases however can be brought to the attention of the Governance Group of the SCI by
correspondence. For the sake of confidentiality these cases could be presented by non-EU
associations of producers, processors and exporters.
- In the case of publically enforceable codes of EU member states or the EU, EU member state
embassies and the EU delegation should foresee confidential contact points.
2.3. How can they make complaints in EU about UTP by local exporters or buyers who work for EU
companies?
Often EU buyers place their orders with EU importers that work with non-EU export companies that
source their products from local producers and traders. In order to be able to supply the quantities
and qualities required, EU importers tend to order or forecast more then they strictly need and so do
non-EU exporters and non-EU traders that supply the exporter. Once they necessary quantities are
delivered the forecasts are reduced or the surplus orders cancelled. In this way risk is transferred
down the value chain to the weakest link: the producers and their workers.
A large part of this problem can be dealt with if the non-EU exporter can undertake steps against
such cancellations by the EU importer (see point 2.2). But the non-EU exporter may not feel the need
to do so if he can more easily pass on the risk to his suppliers.
To address this issue from the EU, public and voluntary EU codes of fair trading practices should
make it compulsory for EU importers to require adherence to fair trading principles by their non-EU
suppliers.
2.4. Improving forecast accuracy and spreading the risk of demand fluctuations
On the next page we reproduce some recommendations from a recent report form Tristram Stuart’s
organisation Feedback:
>FEEDBACK (Edd Colbert and Tristram Stuart), Food waste in Kenya. Uncovering food waste in the
horticultural export supply chain. London, April 2015, p.34-35: