Warranties: The Barter Charter

?The customer is omnipotent? could become the beleaguered PC dealer?s motto if current EC proposals on consumer guarantees are made law. Andrew Charlesworth reports

If you are a dealer or a retailer who sells PCs to private individuals as well as businesses, then the European Commission?s proposals on consumer guarantees could have a profound effect on your business.

Currently, most PCs come with a one-, two- or three-year warranty and the normal statutory rights granted for consumers under the Sale of Goods Act apply. So, if a machine goes wrong because it was built or configured incorrectly, then it is up to the vendor to fix it or replace it under the terms of the warranty while the warranty is valid.

But the EC has recently issued the proposal for a European Parliament and Council directive on the sale of consumer goods and associated guarantees. Under this grandiose title, the Commission proposes that the guarantees on all consumer goods be extended in scope and duration and the burden of proof be reversed from the customer to the vendor.

Reversing the burden of proof means that, instead of the customer having to show that a machine is faulty before the vendor takes action, he can claim his statutory rights for replacement, repair or refund and the vendor must prove that the machine is not faulty.

To prove a machine is not faulty it will have to be tested completely ? a time consuming activity in any case, but particularly so for complicated systems with bundled software ? and if the customer insists, customer and vendor could end up thrashing out the dispute in court. Dealers who have been there will know that English small claims courts have a habit of finding in favour of the customer.

In addition, the EC has proposed that consumer guarantees be extended to two years. In the first year, the customer may demand a full refund, replacement, free repair or discount if an alleged fault is found. In the second year the customer would be eligible for a retrospective discount on any fault. Although the proposal covers all consumer goods, it has greatest impact on computer vendors because of the complexity of the products they supply, their almost infinite permutations of configurability and the speed at which PC prices fall. Imagine the effect on your business if, nearly a year after selling a #2,000 PC to a customer, he claims it has developed a fault and demands a full refund.

The proposals have been dubbed ?a cheats? charter? by Dixons chairman Stanley Kalms, who believes dishonest customers will be tempted to use the new laws as a way of upgrading to new equipment each year, free of charge.

The commissioners have already thought of this and, in the consultancy documents which were issued so that industry could make its comments about the proposals, they say that there is no reason to fear that consumers will abuse their right to reject goods and fraudulently demand a full refund.

But vendors can already relate stories of how they have replaced a supposedly faulty dual-speed CD-Rom drive with an eight-speed device because they don?t have the time to examine the fault and finding a direct replacement isn?t worth the time it takes. And that?s now, when the burden of proof lies with the the customer.

?We are all aware of customers who seize on minor faults or their own inadequacies as users to demand service and support way beyond what is reasonable,? says Keith Warburton, executive director of the Personal Computer Association (PCA), a trade body formed to represent UK PC vendors. ?With this proposed legislation there is the potential to make the situation unimaginably worse.?

Industry analysts estimate that the price of consumer goods will rise by five per cent overall if the proposals are implemented unamended, but that the PC industry will suffer price hikes of up to 50 per cent if the proposals become law.

So, why is the EC proposing these outlandish changes to the laws governing consumer purchases? The reason stems from the Commission?s avowed intent to foster free trade within the Community by easing the passage of goods and services across the borders of member states. So it has embarked on a programme of ?harmonisation? ? a good thing, according to Europhiles; more like ethnic cleansing, say Eurosceptics.

Harmonisation means establishing common trading legislation in the member states so that customers can buy from, and vendors sell to, any member state without falling foul of an individual country?s peculiar trading laws before, during or after the transaction.

Hence the harmonisation of product safety standards as embodied in the CE mark now adorning most consumer goods available in Europe. And hence harmonised guarantees which would apply whichever European country a PC was bought or sold in.

But as the UK industry sees it, in the field of consumer guarantees, the Commission is going beyond its harmonisation remit. Instead of finding a common denominator for consumer legislation, the EC has proposed much more stringent laws, raising the standard for all countries, and far from fostering trade in the name of consumer protection, damaging it.

At the PCA AGM last August, Geoffrey Budd, Dixons company secretary, warned the audience of 150 delegates of the effects of the proposed laws. He estimated that it would cost Dixons #310 million a year and a further #30 million to administer. The result would be huge price increases which would obviously harm PC consumers far more than the new laws would help them.

?This is an unnecessary and unwanted intrusion by unelected bureaucrats,? says Budd. ?There?s going to be a price tag and retailers won?t bear the pain alone. Manufacturers will be expected to bear the lion?s share.?

Unlike the EC directive on electromagnetic compatibility, which became law with little input from the computer industry, the DTI has received plenty of consultation on the proposals for consumer guarantees from a variety of trade bodies, including the PCA.

The draft proposal was issued in September and the consultation period ran into November. Last month, the sub-committee of the House of Lords select committee set up to examine the proposals heard the last submission of oral evidence from the appointed consultees (PC Dealer, 29 January). The sub-committee is debating the issue over two days in February and a day in early March, and will present the results of these deliberations to the select committee.

Parliamentary sources are expecting the Select Committee to publish a report mid-March, reviewing the evidence it has heard and reporting on the commercial and legal implications of the proposal. It is also expected that, because of the significant impact of legislation resulting from the proposals, the select committee?s report will recommend to the government that the issue be debated in the House of Commons.

With a general election now only weeks away, whether the debate will be heard in this session of Parliament, or indeed by the current government, remains to be seen. Once the issue is debated, it is up to the government ministers responsible to negotiate the UK?s position with Brussels.

The present Government is sympathetic to industry?s criticisms of the proposals, because it, too, considers them potentially damaging to trade.

Of course, the last thing the government needs now is another opportunity for Europhiles and Eurosceptics to argue in public, giving Brussels the impression that the Brits are whinging again.

The Commission has drawn up the proposals assuming that disharmony over consumer guarantees is frustrating cross-border transactions between member states. But it has only anecdotal evidence that this is the case and no figures to show how often a guarantee-related problem occurs.

?Out of the billions of consumer transactions carried out in Europe every year, how many hit problems because consumer warranty laws differ in each country?? asks Warburton. ?The commissioners don?t know. It would have to be a pretty significant proportion to justify such drastic legislation.?

This lack of real statistics and the degree of direct feedback which the Commission has already had from concerned European bodies, has led it to tender for consultancies to research further the commercial impact of the proposals. This is an entirely separate project from the feedback its expects from the conventional consultation periods from each member state. Although a report on these findings is unlikely to appear before the second half of this year, a full report from the Commission could be out by the year end. A full directive is thus unlikely to be issued until well into 1998, and then member states have two years in which to put the directive on their own statute books and enforce it. So the passage of these rules from EC proposal to directive to UK law is slower than other proposals have been.

?Hopefully, that will allow enough time for discussion about how the proposals should be amended to meet the needs of consumers without wreaking such devastating effects on the industry,? says Warburton. ?But there is still a danger that the proposal will become law without any major amendments.?

The fact that this time consultation has taken place and the computer industry has had its say does not mean that everything is going to work out OK. Trade bodies like the PCA are only as strong as their membership. If members or potential members are apathetic, then ill-considered proposals will end up as harmful legislation.

Nor can the UK decide to opt out, as it might or might not do with monetary union or the Social Charter. Once EC directives are issued, the member states are bound to make them law and then enforce them. Furthermore, consumer interest groups will make very sure that consumers are aware of their new rights when the new laws are passed.

As well as catastrophic price increases, the PCA believes that, if the proposal goes through unamended, it will have a huge impact on the way consumer ? and eventually business ? PCs are sold.

Most consumer electronics items, such as VCRs, are sold as sealed boxes. If you open the box or otherwise tamper with the item, the manufacturer?s warranty becomes void. PCs, however, are meant to be reconfigured and tampered with. Indeed, a whole industry exists for adding functionality to PCs. Selling shrink-wrapped software would never be the same if these proposals were to become law, let alone selling add-in cards.

If vendors were forced to implement guarantees as the EC proposes them, then PCs would have to be sold to consumers on the understanding that they could be upgraded only by the vendor or an approved agent. Otherwise the guarantee would be void.

For most consumers, this would be unacceptable and they would probably prefer to waive their statutory rights than submit their PC for upgrade every time they wanted to add a new item of software. It calls into question whether consumers would be able even to download software from remote sites, such as the Web, without breaking the terms of the guarantee.

The proposals might well mean a very distinctive split between PCs bound for the consumer and those intended for sale to business users, resulting in manufacturers and vendors producing two types of stock and having to support two types of administration.

But this two-tier situation would be unlikely to last for long. Commercial guarantees will gradually reflect consumer legislation. The costs of supporting such a system would be handed back up the supply chain, from dealer to distributor to manufacturer to component supplier.

PC Dealer will keep you up to date with the developments of the EC guarantees issue at each major stage of its progress.