EU Member States propose approach to eliminate territorial supply constraints

Constraints hinder entrepreneurs such as (online) retailers in sourcing products from the member state of their choice at the best possible market conditions. Territorial supply constraints (TSCs) cause different prices within the EU for identical products and could spill over into higher consumer prices, a lower profit margin for retailers and a more limited product range for consumers to choose from. At the initiative of Minister Micky Adriaansens (Economic Affairs and Climate), the Netherlands and seven other EU Member States (Belgium, Czechia, Denmark, Greece, Croatia, Luxembourg and Slovakia) now propose an approach to eliminate this through an EU ban on 'discrimination based on the place of establishment' in B2B-relations.

EU ministers will discuss the TSCs’ issue for the first time during the EU Competitiveness Council in Brussels on Friday, May 24. The 8 Member States involved published a joint position paper which is an agenda item for this Council. The recently published report on the future of the EU Single Market, by former Italian Prime Minister Letta on behalf of the European Council and European Commission, also explicitly mentions that action should be taken If these price differences are attributable to TSCs.

Minister Micky Adriaansens (Economic Affairs and Climate Policy) of the Netherlands: “Together with seven other EU Member States we have been able to develop an aimed approach following the recent research of my Ministry into tackling TSCs. Removing trade barriers should be a key priority for the Single Market. This helps in keeping consumer retail prices for food and non-food products fair. Something which is especially important in times of high consumer prices.”

The minister continues: “The 8 Member States proposing a concrete way forward towards an EU ban on TSCs by amending existing or new common EU rules or instruments. Discussions with other fellow ministers show that even more EU Member States recognize the issue. So I am confident that the upcoming, new European Commission will be able to follow up swiftly to solve this urgent internal market issue.”

Address TSCs by adjusting or expanding EU law

Already TSCs are prohibited through EU competition law, provided that there’s evidence ex-post that there has been abuse of a dominant position. However, this requires a long and extensive investigation per specific case (research per product market and company). The burden of proof rests primarily with the customer, such as a retailer.

This legislation must be maintained. Through adjusting or new common EU rules or instruments it is possible to prohibit unfair practices in B2B relations which discriminate a retailer on the basis of its place of establishment. In that case the issue of TSCs can be regulated ex-ante as well and the burden of proof shifts from the customer, such as a retailer, to the producer or wholesaler.

Examination of opportunities of digital labelling

Even if TCSs are banned, the EU requirement that a label must be available in a European (national) language will prevent selling a product from one member state in another. Relabeling is possible, but is time-consuming and expensive. Research shows that digital labelling such as a QR code is preferred by both manufacturers and supermarkets. The disadvantage is that not every consumer has a smartphone yet.

Which information should be on a label is regulated globally (FAO-WHO). This year technological developments in the field of labeling such as providing information through QR codes are also on the agenda. This also offers an opportunity to use the opportunities offered by digital labelling.

Research: TSCs occur for up to 1 in 25 products and increase purchasing prices

Last autumn, the Ministry of Economic Affairs and Climate of the Netherlands published an independent research showing that entrepreneurs such as retailers experienced TSCs for up to 1 in 25 products they purchase (2-4%). For this group of products, this can lead to a purchasing price that is on average 10% higher including some significantly higher peaks. TSCs occur in different product markets such as Hardware Stores, Home Improvement Stores, supermarkets and online platforms, according to their professional buyers.

The European Commission presented a study on TSCs in the EU retail sector in 2020. This showed that if retailers were able to purchase their products without constraints, consumers in the sixteen EU Member States studied would potentially save € 14.1 billion annually.