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This study was produced by Lex Fori for Health & Consumer Protection DG and represents the contractant's views. These views have not been adopted or in any way approved by the Commission and should not be relied upon as a statement of the Commission's or Health & Consumer Protection DG's views. The European Commission does not guarantee the accuracy of the data included in this study, nor does it accept responsibility for any use made thereof.

Study to identify best practice in the use of soft law and to analyse how this best practice can be made to work for consumers in the European Union

SUMMARY

There have been various responses to the crisis of the State: some tend to limit the activities of the State to its purely law-making functions, while others seek to make the activities of the State more effective but do not limit them.

It is as part of the search for solutions (especially alternative ways of solving conflicts1) that the drafting of rules by private individuals has been encouraged, especially in the area of consumer affairs.

Rules of this kind, commonly called "soft law", are designed to address the unsuitability or non-existence of State rules. Accordingly, certain sectors are ill-suited to State law-making because of the speed at which they develop (e.g. the Internet).

Two difficulties emerge from the start: first, there is no precise definition of the concept of soft law and, second, this phenomenon actually covers different situations, depending on the country and the sector of activity concerned and the instruments used.

Once these difficulties have been overcome, it is possible to establish the conditions for effective development of these rules in general and in services of common interest in particular.

I/ Soft law in practice

I.1 The state of the law

There are several characteristics of the state of the law concerning soft law: first, the lack of a commonly accepted definition, second, the large number of regulation instruments and, last, the diversity of national practices.

I.1.1 The lack of a commonly accepted definition

There is as yet no consensus on what is covered by the terms and instruments referred to as soft law. Accordingly, the expressions "self-regulation", "voluntary regulation", "co-regulation" or "quasi-regulation" are commonly used, often with different meanings.

From a theoretical standpoint, several objectives are assigned to soft law, ranging from a "supplement" to legislation, through "added value" to legislation to the replacement of legislation (Fair Trading Act in the United Kingdom, consumer affairs policies in Australia and New Zealand).

The approaches and definitions in the area of soft law vary from one country to another (self-regulation in Australia, soft law and self-regulation, voluntary agreements and a multidisciplinary approach in Canada, self-regulation in France, etc.).

It is essential to have a prior definition of the terms used in the area of soft law.

This is because it is impossible to have a constructive debate without a precise vocabulary that is used by all concerned.

There are two possible definitions:

In a broad sense, all rules other than laws, regulations and contracts may be referred to as soft law;

In a stricter sense, soft law, drawn up by professionals on their own initiative or in cooperation with consumers or the State, or on the basis of a State authorisation, is a set of instruments applied on a consensual basis; in general, it does not have legal force.2

I.1.2 Numerous instruments that everyone needs to know about

  • Classification of instruments
  • Soft law instruments are characterised by their extreme diversity. In order to ascertain the extent of this diversity, various classifications have been drawn up that are worth mentioning.

    Accordingly, the National Consumer Council (United Kingdom) has identified eight main types of instrument (unilateral codes of conduct, consumers' charters, unilateral codes by sector, negotiated codes, negotiated codes approved by a State body, recognised codes, official codes, statutory codes).

    In the same spirit, Margot Priest, a Canadian researcher, has identified five categories of instrument (voluntary codes of conduct, self-regulation provided for by the statutes or self-regulation laid down by law, internal rules of businesses, self-regulation supervised or monitored by government agencies, self-management based on regulations).

    The European Commission (DG SANCO), in its desire to simplify and clarify the situation, has divided up these various instruments into two categories: self-regulation (legal rules drawn up by and for an enterprise) and voluntary regulation (rules encouraged by decision-makers and drawn up in cooperation with the players concerned). It also uses a classification into three categories of self-regulation, voluntary agreements and co-regulation.

    It was decided to distinguish, on the basis of the extent to which the law is legally binding and the way in which it is adopted, between self-regulation (individual or by sectors) and negotiated regulation (private, approved by a public body, given official recognition or even incorporated into positive law).

  • Assessment of the instruments
  • Self-regulation has been discredited by certain clumsy or unambitious initiatives. This bad reputation generally encourages the State authorities to prefer co-regulation or voluntary agreements. However, it would be wrong to rule out self-regulation from the process of reflection on state policy in the area of soft law. It should not be forgotten that self-regulation contains some of the best examples of soft law (advertising in many countries, Better Business Bureau in North America, for example).

    There are certain disadvantages to co-regulation and voluntary agreements, especially the cumbersome nature of the negotiating process (disputes concerning representativeness etc.) and the fact that businesses do not have a sense of owning systems that they have not developed themselves.

    Rather than adopting a somewhat dogmatic attitude (blanket rejection of self-regulation), it is preferable to adopt a pragmatic approach: the whole range of soft law may be used, provided that the instrument or the method of soft regulation3 chosen is appropriate for its area of application (structuring and organising the market and consumers, in particular).

    In the same spirit, certain attitudes should be outlawed: on the one hand, leaving all initiative to industry and expecting miracles, only to conclude that soft law is ineffective and, on the other hand, insisting on imposing negotiation in all situations, whereas success in the area of soft law depends on the motivation of the players themselves (producers, consumers).

    I.1.3 Diversity of national practices

    Each country has its own approach to soft law, and these approaches differ on many points (role of the authorities, ideology, level of awareness of soft law, legal context).

    The Europe of soft law suffers from a basic imbalance between the Anglo-Saxon countries and the others. Continental Europe communicates very little on this subject. Many potential players in the area of soft law have neither the vocabulary nor the concepts, which limits the scope and development of any process of reflection.

  • Diversity of national practices
  • While most Anglo-Saxon countries have been practising soft law for longer than the countries of continental Europe, there are nevertheless differences between them.

    The Anglo-Saxon countries

    The United Kingdom is without doubt the country that has conducted the fullest studies of soft law. In Europe, it has a virtual monopoly on the analysis of, and reflection on, soft law. The concept of soft law, the related vocabulary and the reports of various bodies are highly developed there. And yet, specialists consider that these experiments have produced mixed results.4

    Australia is also very active in the area of soft law, using a clever combination of self-regulation and co-regulation. The assessment given by the Australian authorities is more positive. It seems that soft law has made it possible to improve trading practices and provide better services to consumers. For many countries, Australia is an example to be followed in this area (especially for Canada).

    The United States of America differs from the two previous countries by the lack of thought given to the theory of soft law. Self-regulation is carried out in a pragmatic way and is limited to certain sectors (undertakers, alcoholic drinks, the Internet). Canada, on the other hand, has a overall vision of soft law and a multidisciplinary approach, as reflected in the specialised committee of the Federal Office of Consumer Affairs.

    The countries of continental Europe

    The countries of continental Europe differ in their practice of and experience with soft law. By way of example, it is possible to contrast two countries: on the one hand, Germany, which has conducted a limited experiment in self-regulation in the area of advertising and, on the other, the Netherlands, which has developed a high level of self-regulation, especially in all areas of consumer affairs law, including the establishment of disputes committees with the participation of consumers. The Scandinavian countries tend to practise negotiation between the authorities (ombudsman) and professionals, in other words a form of co-regulation. France does not even know the term "soft law" (little theoretical thought and few publications on this subject), but practises this form of regulation (in the French sense of the term) without referring to it as such (advertising). With the exception of one or two specialists, few economic players in continental Europe know about soft law as a concept. Often soft law exists but has a low profile.

    I.2 The conditions for the success of soft law: adaptation, evaluation and effectiveness of soft law

    Everyone agrees that the objective that must be pursued by any rules, whether or not they come from the State, is effectiveness.

    In order to be effective, rules must have a number of characteristics: they must be clear, appropriate, and must be able to be monitored and enforced, among other things following consumer initiatives. Certain conditions for the effectiveness of the rules relate to the context for their development, while others concern the method followed by the promoters of soft law.

    The question of the criteria of effectiveness is fundamental, and yet it is the poor relation of the practice of soft law. The measurement instruments are comparatively undeveloped, and there is a need to encourage research in this area. The measurement of effectiveness cannot be limited to an inventory of the breaches of existing soft law. As well as considering such breaches, it is necessary to take account of progress accomplished in consumer protection.

    In other words, the only question that needs to be answered is whether more consumers are now protected. The higher the number of consumers who are really protected, the more soft law shows its effectiveness.

    I.2.1 Need for a propitious environment

    The best instruments have been developed in a context characterised by four factors: a cultural environment that is favourable to soft law, the existence of well-organised partners, substantial State involvement and, lastly, the determination of entrepreneurs to defend their corporate image.

    The Anglo-Saxon countries have a favourable environment for the development of soft law, in particular because of their legal system, the strength of the protagonists in civil society (trade unions, consumers' associations) and the deregulation policies conducted in the 1980s (USA and United Kingdom).

    By contrast, notably because of the role assigned to the law and the weakness and low level of organisation of the protagonists of civil society (low level of trade union membership, fragmentation of trade unions and consumers' and users' associations), the Roman Law countries are less receptive to soft law.

    Contrary to certain generally accepted ideas, the State plays an indispensable role in the development of soft law by contributing to its incorporation into the domestic legal order and providing legislative support (for example, the Australian Corporation and Financial Services Commission), especially concerning the mechanisms for monitoring the application of soft law (including the imposition of sanctions).

    Directors of enterprises also have a key role to play in the development of this soft law. Experience has shown that the most propitious areas are the sectors with a bad image (mail order, direct selling, managing agents of blocks of flats), those that wish to allow their members to distinguish themselves from other occupations or from less-qualified competitors (the independent professions), those that are under strong pressure from consumers and the new sectors (Internet, new technologies).

    The participation of consumers and their representatives is always desirable but is not always easy to organise (negative attitude to soft law, lack of resources, lack of representativeness, weakness of structures, etc.).

    I.2.2 Essential factors for success

    The factors for success can be divided up into two groups:

    three key elements: drafting and definition, monitoring, sanctions and means of redress;
    three principles to be followed: information, independence and participation.
  • Known and recognised soft law
  • In order to ensure that soft law is effective, it must be drawn up with the involvement of all concerned (enterprises, consumers, independent individuals). Once it has been drawn up, it must be disseminated as widely as possible.

    Information:

    It is necessary to inform consumers (and the professionals themselves) of the actual existence of the soft law in each of the sectors concerned. In order to ensure that the soft law is applied more widely, advertising (publication of an annual activity report, advertising of the charter or code) of the soft law mechanisms is essential (e.g. annual report of the Irish Banking Ombudsman, television advertising of the ASA in the United Kingdom, inclusion of the direct selling code with each parcel in France).

    Independence:

    The involvement of independent individuals in the drafting of soft law increases consumer confidence (e.g. the case of estate agents in Ontario).

    Participation:

    Soft law must be drawn up in a pragmatic, concerted fashion, with the involvement of consumers, governments and consumer affairs agencies (e.g. New Zealand code of banking practice, French contract for improving the quality of "multiservice" repair services in France).

  • Monitored soft law
  • The success of soft law depends largely on the monitoring of its application by those concerned. To this end, independent monitoring mechanisms need to be put in place.

    Information

    The existence of mechanisms for monitoring the application of soft law must be made widely known among consumers (e.g. hotline of the Australian supermarkets code).

    Independence

    In order to ensure that the soft law is effective, provision must be made for its application to be monitored by a specially appointed group (professional code for mail-order in France or the convention on the sound administration obligation of Swiss banks). It is preferable to use monitoring bodies that are independent of the drafters of the soft law (Australian code of manufacturers of pharmaceutical products, provisions of the European direct selling code).

    Participation

    If the monitoring is to be effective, all concerned must be involved. It must be possible for checks to be carried out not just as a matter of course but also at the initiative of consumers or competitors (Australian Code of Conduct for Fruit Juice Producers).

  • Soft law with sanctions
  • Consumers must have effective means of redress at their disposal in order to ensure that infringements are punished. These may take the form of mediation, arbitration or the examination of the dispute by a committee set up for this purpose (Market Ethics Council (MER) in Sweden).

    To this end, the principles established by the Australian ministry of trade (accessibility, independence, fairness, responsibility, effectiveness, efficiency) or by the European Commission 5 (independence, transparency, possibility of involvement for all sides, effectiveness, legality, freedom, representation) are exemplary. In the same way, the mechanisms involving ombudsmen have proved to be effective (Canadian, Irish and UK banking ombudsmen, SNCF mediator). If there are no effective mechanisms of sanctions and means of redress, there is a risk that consumers will rapidly lose confidence in soft law.

    Information

    The effectiveness of the system can also be enhanced by informing all concerned that, in the event of infringements of existing soft law, it is possible to use means of redress (mention in Australian insurance policies of the possibility of referring a matter to Insurance Enquiries and Complaints ltd. (IEC)) and to have dissuasive sanctions imposed of a psychological/financial nature (IPC system for postal services) or a disciplinary nature (system of the professional code of conduct for mail order in France). Information provision may also take the form of advertising the sanctions imposed ("name and shame" policy of the OFTEL Office of Telecommunications, and the website of the ASA in the United Kingdom).

    Independence

    The bodies which examine claims and impose sanctions, regardless of the method chosen to settle disputes (arbitration, appeals committee, ombudsman), must be independent of both producers and consumers (life insurance ombudsman in the Netherlands, EASA (advertising) Europe).

    Participation

    The actual use of appeal procedures by consumers is essential to ensure the credibility of the mechanism for settling disputes (the ASA in the United Kingdom receives about ten thousand complaints every year).

    I.3 Example of best practices

    I.3.1. The most favourable sectors:

    A pragmatic analysis shows that certain sectors have developed soft law mechanisms that have proved their worth.

    Certain sectors, such as the financial sector (financial markets, banks, insurance) or sales (advertising, very strongly established throughout the world, EASA, European structure including, among others, the BVP in France, the ASA in the United Kingdom or the Jury d'Ethique Populaire (People's ethics jury) in Belgium), are choice areas for soft law. The same is true of the Internet, where the principle of self-regulation enjoys a certain popularity, even though it lacks effectiveness.

    Conversely, almost all experts and specialists agree that soft law seems ill-suited to matters relating to consumer health and safety, which must be governed by State rules.

    I.3.2. Definition of the favourable sectors

    Following the study, the sectors that are favourable for the development of soft law may be described as follows:

    - The markets in which the costs of dysfunctions are borne largely by other enterprises in the sector, which has the effect of encouraging enterprises to adopt new forms of behaviour in order to reduce dysfunctioning (advertising, different forms of sales outside shops, the independent professions);

    - Competitive and well-organised markets with homogeneous products (banks, financial institutions, insurance);

    - The markets in which there are many conflicts between consumers and professionals (insurance, travel agencies);

    - The markets which have reached a sufficient degree of maturity for the players to be organised and take account of the concerns of consumers;

    - The markets in which the product is not essential to consumer health and safety.

    I.3.3. The most effective instruments

    Some soft law instruments produce better results than others. This is true of co-regulation, in the broad sense, which involves the State authorities as well as professionals and consumers.

    On the other hand, the practice of self-regulation, with a few notable exceptions (advertising), proves to be disappointing in the vast majority of cases because it is often limited to a list of good intentions.

    The most effective soft law instruments include:

    - The mechanisms for settling disputes (advertising, Better Business Bureau) in general; the Better Business Bureau operates as an agency for protecting consumers while at the same time being an offshoot of the enterprises that belong to it.

    - The ombudsmen (Canadian banks ombudsman), and the mediators in particular;

    - Certain codes of good conduct (out-of-shop sales, ethics of the independent professions, organisation of the financial markets).

    In addition, it would seem that soft law instruments are all the more effective in a given sector when they are combined (code of conduct + mechanism for settling disputes + sanctions). Here, instruments that are of limited scope but have a single, specific objective are more effective than more ambitious instruments (code of good conduct) that are difficult to implement (Australian supermarkets code, codes of fruit juice producers).

    It emerges from the practices observed in the first part of the report that soft law has the best chance of being effective if it is devised as a complement to traditional State regulation, since the State is no longer in a position to take account of all problems and solve them in everyone's interests. This assumes, however, that the law fixes the area of intervention of soft law, with soft law then providing added value in relation to the law.

    It is only in very exceptional cases that soft law will be able to take the place of the law (especially where there is no realistic prospect of effective legislation, for example for certain aspects of the Internet).

    Soft law is better accepted in areas such as consumer fraud, advertising and the financial sector, and when physical safety and health are not the main concerns.

    II. Soft law in decentralised environments and the role of the European Union

    II.1 Soft law in decentralised environments

    The presence of a decentralised environment (Belgium, Australia, United States, Spain, Canada) does not generally have a noticeable direct or indirect effect on the development of soft law. It is rare to find two levels of soft law in the same sector, for example regional soft law forming part of national soft law.

    In the countries mentioned above, soft law is most often applied at national or federal level, rather than at regional or federal State level. The constitutional delegation of powers to the local level can promote the creation of local soft law mechanisms (sale of motor vehicles in Ontario, residential building guarantee in Quebec).

    However, the crucial criterion for the scope of soft law is not linked to the existence of a decentralised or federalist system. The existence of a market to be regulated seems to be the crucial criterion for the development of soft law.

    Markets in countries with a federal system are usually of a national - or even transnational - nature. That is why, in general, soft law instruments tend to be developed at national level.

    II.2 A role for the European Union as a provider of incentives

    Given the diversity of national situations, the European Union could encourage and support this process.

    In order to play this role to the full, Europe has to overcome many obstacles: psychological obstacles (reticence of national administrations, consumers, and even enterprises), legal obstacles (incorporation techniques, interaction between European law and national law), cultural obstacles (diversity of legal and economic cultures, diversity of structures, organisations and concepts of representativeness) and material obstacles (geographical scope, inadequacy of human and financial resources to tackle the many sectors and projects).

    While it would appear to be useful to distinguish the purely European dimension of a policy to encourage soft law from its national dimension, these dimensions naturally continue to complement each other.

    In order to exercise the European dimension of this policy, the European institutions must adopt a proper methodology based on strictness, selectiveness and flexibility. The choice of projects to be encouraged will be crucial. The European State authorities will have to adapt and combine the various functions that they can exercise, viz.:

    catalyser (impetus, launching of initiatives)

    facilitator (provision of equipment, moderator of discussions)

    supporter (moral support, labels, approval of projects)

    organiser (establishment of permanent structures for meetings, assistance to consumers' organisations, reform of the method of representation)

    negotiator (participation as party to European agreements)

    legislator (establishment of frameworks for European soft law - general frameworks for soft law techniques and specific frameworks for each sector, Eurocodes).

    As far as encouraging national policies is concerned, the role played by the European institutions could take three main forms.

    The law-making function (transposition of directives by soft law, recommendations, directives on soft law).

    The laboratory of ideas (encouraging reflection among future players, research, decompartmentalisation, definition, discussion, information/promotion).

    We suggest several concrete measures (data base, user's guide, consultation process, soft law institute, measures to reduce asymmetrical information provision, establishment of a European Better Business Bureau).

    Protector (combating anti-competition practices and supervision of supervision).

    A soft law policy for Europe will necessarily have to take several forms and be flexible. Soft law is, by essence, consensual and diverse. Although this policy takes several forms on the ground, it will nevertheless have to flow from a certain degree of shared direction in the form of a clear definition of the concepts and vocabulary, and a central point of reference in the form of a set of experiments and declared methodological principles.

    Moreover, the main objective of such a policy must not be the production of soft law as a matter of principle, "simply for the sake of it", but rather that the State authorities, professionals and consumers' representatives consider the possibility of employing soft law, where this is appropriate. In other words, the aim of a soft law policy is for decision-makers to consider the possible use of soft law whenever they examine a regulatory response to a given problem.

    Once the framework has been strictly defined, it will be necessary to talk about it as much as possible and to organise numerous exchanges and experiments.

    III/ The application of soft law to services of general interest

    As a rule, there has been very little development of soft law in services of general interest.

    Before examining the role that could be assigned to the European Commission, it is necessary to present the factors that are conducive or unconducive to the development of soft law in services of general interest.

    III.1 The unconducive factors

    The various services of general interest are very heterogeneous and employ very different techniques in markets that have reached different stages of development and liberalisation, with major national variations.

    Accordingly, certain sectors are more familiar with soft law (audiovisual, telecommunications, postal services) than others (water, transport, energy).

    It would therefore be unrealistic to seek to develop the same mechanism of soft law in each of these sectors.

    Overall, soft law instruments are not very widespread or developed, especially in Europe. Where they exist, they are often fairly "primitive" (in comparison with best practices in other sectors):

    - complaints management service, satisfaction surveys, performance indicators, benchmarks (RENFE (Spanish Railways); satisfaction survey, electricity, Spain; benchmarks, water, Netherlands);

    - service charter, code of conduct, code of ethics (OFTEL, United Kingdom, obligation of a service quality code for telecommunications operators; users' charter, water, Spain/United Kingdom, France Telecom's customers' charter, sports advertising, "Evin" code, France; code of audiovisual ethics in various countries);

    - ombudsman, mediator, settlement of disputes (energy ombudsman, Victoria, Australia; EDF mediator, France; RATP/SNCF mediator, transport, France; postal services mediator, France; disputes committee, water, Netherlands, proposal for a directive on postal services, May 2000; Telecoms ombudsman, Australia);

    - more rarely, organised systems of soft law (cable television in Canada, Telecoms Act in Australia).

    Moreover, the question of the representativeness of consumers' associations in services of general interest could also hinder the development of soft law.

    It has also been shown that national approaches to soft law vary very widely even within the European Union (differences in legal culture).

    The considerable development of national regulating bodies (agencies, independent administrative authorities, specialised committees) in the area of services of general interest (especially telecommunications, the audiovisual sector and water) could also prove to be a major hindrance to the development of soft law. This is because the development of soft law will probably be to the detriment of these new institutions, which will not immediately agree to have their powers reduced.

    In most Member States, there is insufficient information and documentation on soft law (especially in the Roman-Law countries). In certain cases, the lack of information is accompanied by consumers' mistrust of the phenomenon itself (especially self-regulation).

    However, services of general interest have a number of features that could be conducive to the development of soft law.

    III.2 The conducive factors

    The sectors which are described as being services of general interest are those with a high degree of economic concentration. In each of the Member States of the European Union, and sometimes even in the Union as a whole, there is only a limited number of operators (especially in the water sector). There are many users and they are comparatively organised.

    These sectors are in the process of liberalisation, are shifting and are constantly developing. Soft law could prove to be a more suitable form of regulation than State regulation.

    What is more, services of general interest are governed by a number of common principles (continuity, equal access, adaptability), which could be specified and put into practice in each of the sectors concerned by means of soft law.

    To this end, it is possible to draw on the experience gained in the other sectors and propose a unique corpus of recommendations, which can then be adapted to the specific characteristics of the sectors concerned.

    In order to be a success, soft law will have to be combined with mechanisms for ensuring the supervision of soft law and imposing sanctions for any infringements. Otherwise, the soft law will not enjoy the confidence of consumers.

    We believe that the European Union has a role to play at several levels:

    - as well as organising an information network, it could analyse which systems work well in which countries, and group them together in an administrative cooperation structure;

    - act as a disseminator of soft law governing principles, leaving it up to the regulatory authorities to adapt and interpret this soft law as effectively as possible depending on the local market conditions;

    - consult and inform; 6

    - check regularly that the soft law mechanisms operate correctly. For verification of this kind to be possible, there should be an obligation to provide information, to be paid for by operators. This obligation could be useful for other markets and would foster transparency.

    The state of the law in Europe concerning services of general interest is not particularly conducive to the development of voluntary rules, with national governments and the new regulators being unwilling, as a rule, to delegate part of their powers to soft law mechanisms.

    However, there is no insurmountable obstacle to the development of soft law. Once the movement has been launched, soft law could develop very rapidly, and possibly more rapidly than in other sectors. Soft law has an important role to play for consumer protection and in sectors of general interest.


    Footnotes

    1 Alternative ways of solving conflicts are a form of soft justice but do not constitute soft law. BACK

    2 However, contrary to a widely held opinion, soft law is compulsory for those who subscribe to it. BACK

    3 Regulation is used here in the French sense of the term. BACK

    4 See the reports of the Office of Fair Trading, the National Consumer Council, the Better Regulation Task Force, etc. BACK

    5 Recommendation on out-of-court settlement of consumer disputes (98/257/EC) BACK

    6 In its Communication on services of general interest, the Commission advocates "maintaining a step-by-step approach based on evaluation of reform and consultation with the various parties concerned" and mentions the publication of green papers, accompanied by public consultation (COM (2000) 580 final, p. 23). BACK


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