CBI Warns On Likely Impact Of Rome 1 Proposals

by Robin Pilgrim, LawAndTax-News.com, London

24 January 2007

The Confederation for British Industry (CBI) warned on Monday that new cross-border trade laws proposed by the European Commission will bog companies down in a legal quagmire, damage online businesses and undermine the UK's financial services sector.

CBI Deputy Director-General, John Cridland called on EU policy-makers to urgently review the contract legislation, known as Rome I, before it goes to the European Parliament for debate this week.

The CBI argued that :

"Under the proposals a UK firm selling its goods and services to consumers across the EU would no longer be secure in the knowledge that it is broadly governed by English law. Instead it would have to navigate a minefield of up to 27 different, often conflicting legal regimes - or, more likely, opt not to do business outside the UK."

"Financial and legal services firms will be particularly affected because they will lose the right to decide which country's law applies to a contract with a foreign company. In the event of a dispute a court could over-ride the companies' choice and rule that a different legal system applies."

"To avoid exposure to these legal risks and uncertainties, firms which currently use the City of London and English law as their preferred business location and legal option, might opt to do legal business outside the EU instead, for example in New York."

Currently, firms operate under international legal principles agreed in 1980 and the European Commission claims to be simply formalising the existing process. But the CBI and other business groups argue that it is attempting to bring in major new legislation without an examination of the costs and potential complications.

Mr Cridland argued that:

"The proposed legislation was sold as a simple legal tidying-up exercise when the European Commission embarked on the process but has turned into a major operation. It will produce substantive new law and turn accepted cross-border trade principles on their head."

"Yet the Commission has not carried out any regulatory impact assessment and, despite serious concerns by business, shows no indication of doing so. The practical impact is likely to be immense for firms who trade across the EU."

"Businesses will have three choices: spend time and money getting to grips with the varied and conflicting legal regimes of each member state they trade with; chance their arm that their processes will meet the required standards; or, most worryingly, stop trading with some countries altogether."

He concluded:

"These proposals will have worrying consequences for the financial services sector. Legal firms will no longer be able to give their clients 'clean advice' when it comes to contracts."

"This will place both lawyers and their clients at a disadvantage to firms operating without the complicated burdens of this legislation, causing many firms to think about relocating operations elsewhere."

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