Market and regulation

RBE Europe, Question #1

Harmonization has played an important role in the balance between free market and regulation. Member States of the European Union currently enjoy enhanced economic prosperity, as this new regime has broadened economic possibilities such as trade and employment. This economic success has been attributed to the formation of a uniform code of contract law, which has served as a foundation for the removal of obstacles to growth. By harmonizing new laws with those of potential trade partners, Member States have facilitated business development and encouraged trade. However, this recent success has not come without a price. On closer examination, the harmonization of contract law in Europe has essentially stripped Member States of their legislative sovereignty and their ability to employ certain legal mechanisms to protect their domestic economies.

The European Union derives it legislative powers from specific treaty provisions which authorize it to make laws in designated fields. As a formal agreement between two or more states, the legal effect of an ordinary treaty depends on the rule of domestic constitutional law within the contracting nations. Hence, without a uniformed system of interpretation, legal systems of contracting states may differ on the question whether treaties take precedence over national law. To avoid this problematic relationship between treaty and domestic law of Member States, the European Court of Justice was designated the highest court responsible for interpreting the Treaties of the European Union. As the central court, the Court of Justice determines whether a Member State has fulfilled its obligations under Community law. If the Court finds that an obligation has not been fulfilled, the Member State concerned must terminate the breach immediately. Accordingly, the judicial system fosters a great sense of legitimateness and stability to the international legal environment of Member States. While Treaties of the European Union have helped facilitate a strong commitment by Member States to fulfill their international obligations, there has been some difficulty in enacting new treaties to further harmonize the private law. Consequently, treaties have the disadvantage of being difficult to conclude and bind only the parties that voluntarily accept the new proposals.

Uniform Laws and Directives provide various means of achieving harmonization among the Member States of the European Community. The implementation of the appropriate legal mechanism depends on the result to be achieved, the time available to achieve that result, and the legally binding effect of the instrument. Directives have been significant as instruments for the harmonization of national laws, where disparities between the rules applicable in different Member States threaten to jeopardize the proper functioning of the common market. A directive is a legislative act of the European Union which is binding on all addressed Member States to achieve a particular result by a specified date. The unique feature of a directive is that it leaves to national authorities "the choice of form and methods" to achieve the compulsory result. Thus, a directive may be preferred to other legal harmonizing instruments where it is considered necessary for Member States to be allowed to accommodate their national traditions in achieving the objectives in view. This flexible characteristic has the benefit of promoting national sovereignty while giving effect to the objectives of the European Union Treaties. However, there also certain disadvantage to implementing directives. Given that the same directive may be addressed to all 27 Member States, there is the possibility that the wording of the instrument can be broader in light of their national provisions than is useful for the result to be achieved. There is also the possibility that the implementing measures by the adopted by the Member State are inadequate to satisfy the requirement of the directives by the given deadline. The failure by any Member State to adhere to the directive can seriously destabilize the functioning of the European Economic Community.

The purpose of uniform laws throughout Europe is to facilitate commerce and reduce transaction costs in cross-border transactions. The creation of common rules in the different legal systems has fostered the principle of legal certainty, which has further promoted certainty and predictability in the law governing sales transactions. Uniform laws give Europe industries an advantage over foreign industries since consumers can rely on equal amounts of protection. However, uniform laws also have the disadvantage of the domestic laws of Member States and infringing the national sovereignty of the country. Domestic courts will be bound to follow the uniform laws, forcing them to ignore long standing legal precedent in their jurisdiction. For example, the culture norms and traditions of the Member State may be incompatible with the new uniform law codification.

The harmonization process of contract law has that essentially eliminated the diversity of contractual regimes, which had improved efficiency within the single market. For example, new concepts of contract theory were added to the legal systems of Member States by the adoption of the Law of Obligations Act. One of new mandatory provision required parties to contract in good faith, which was intended to ensure that parties enter into business relations for proper purposes and negotiate without malicious intentions. As a consequence, where a contract has binding force, parties will not be able to neglect obligations due to inconvenience. By mandating parties to act in accordance with good faith and fair dealing, the economic freedoms of a market economy are undermined.

Whether to fulfill a contractual obligation should be determined through an economic analysis and not a legal analysis of the potential consequences of a breach. The standards of business practice may vary from one Member State to another, so depending on the culture norms of a given country this principle may cause a competitive advantage in the market. Furthermore, the doctrine of good faith also governs the rights and obligations of parties during precontractual negotiations, which may cause greater inefficiencies in the market place. Since "good faith" is a concept subject to broad interpretation, a clear violation of good faith under one legal system may be considered an acceptable business practice under another jurisdiction.

The harmonization process of contract law has also increased discretion of judges to decide the unfairness of the terms, which has limited the autonomy of private parties to achieve an efficient solution. As an incidental product of the CISG, the European Parliament and the Council issued the "Consumer Sales Directive." The purpose of the Directive was "the creation of a common set of minimum rules of consumer law, valid no matter where the goods are purchased within the Community, [which] will strengthen consumer confidence and enable consumers to make the most of the internal market."

Under the Directive, it is the duty of a professional seller to deliver to the consumer "goods which are in conformity with the contract of sale" and it grants the consumer a choice of four remedies in case of lack of conformity. The four remedies include the right to require the seller to repair the goods or to replace them free of charge and, if these two options are left unfulfilled, the right to require an appropriate price reduction or to terminate the contract. The uniform application of buyer friendly terms may diminish the overall market efficiency. Judges may wrongfully apply the unconscionability doctrine or compulsory warranties in an attempt to correct the perceived unequal bargaining power of the consumer. This overly friendly consumer contract law ignores that the aggregate preference of buyers is intended to decide equity in a free market and not the courts.

Please be aware that the free essay that you were just reading was not written by us. This essay, and all of the others available to view on the website, were provided to us by students in exchange for services that we offer. This relationship helps our students to get an even better deal while also contributing to the biggest free essay resource in the UK!