Parliamentarians voted overwhelmingly to establish a '28th regime' for contracts, a contract law which would apply as well as of the 27 EU member states' contract laws when buyers and sellers chose to opt in to it.
The European Parliament's endorsement follows a recommendation by its Legal Affairs Committee earlier this year that the Parliament should back European Commission plans to develop a new law.
"I welcome [the] vote by the European Parliament to back an optional European contract law," Viviane Reding, Vice President of the European Commision said in a statement.
"I am looking closely at all the possibilities to ease cross-border transactions, and I believe the option favoured by the European Parliament could be a very good choice," Reding said.
"It would give Europe's 500 million consumers more opportunities to shop across borders while cutting transaction costs for small businesses – the backbone of our economy. I will work closely with the European Parliament and all Member States to see how to turn today's vote into an attractive legal reality," Reding said.
The '28th regime' of contracts could cover everything from the sale of goods and services, insurance, digital rights and beneficial ownership, which is where a person owns an asset for the benefit of another.
Differing national rules make it difficult for companies to draw up cross-border contracts in Europe, the Commission statement said.
"The 27 different sets of national rules can lead to additional transaction costs, increased legal uncertainty for businesses and lack of consumer confidence," the statement said. "These can act as a deterrent for both consumers and businesses to shopping and trading across EU borders. Small and medium-sized companies are particularly affected by higher transaction costs."
A new contract law would reduce the cost for businesses if they wanted to trade abroad, the European Commission said.
"An optional European contract law could be chosen freely by consumers and businesses in their contractual relations as an alternative to the existing national contract laws when they want to buy or sell goods across a national border," the Commission said in its statement.
"It could save a small online business wishing to trade in Europe an estimated €9,000 in legal and translation fees per market – or over €230,000 if they wanted to take their business EU-wide," the statement said.
In a statement issued prior to the European Parliament vote Diana Wallis MEP, who reported to the European Parliament's Legal Affairs Committee in April on the issue of a European contract law, said an optional element within the law would stimulate economic growth.
"It has to be the right optional instrument; we have to get it right," Wallis said in a statement.
"In this case 'right' means a high level of consumer protection (indeed higher than in many Member States) an easy and user-friendly system for SMEs to incorporate in their business model as a badge of good practice and service and most importantly no adverse effects on national law. Those are the criteria we have set out for the Commission," the Liberal MEP said.
In April the Parliament's Legal Affairs Committee voted to approve a report initiated by Wallis into the creation of a new pan-EU contract law.
At the time the Committee said the new contracts should be voluntary to use, available in all EU languages and contain standardised terms and conditions.
"At the moment, businesses, in particular small and medium-sized ones, are discouraged from engaging in cross-border trade because of the divergences in national contract law," Diana Wallis said in April.
"[The Legal Affairs Committee's] vote was an important step towards introducing a simplified and flexible optional instrument which will enlarge the choice of parties when drawing up contracts, provide legal certainty across borders and can be put in place relatively quickly," Diana Wallis said.
"Retailers and consumers alike will be able to benefit from a flexible European contract law option. It is important now to ensure that any new rules created are simple, comprehensible and ready for use", Wallis said.
In May a study conducted by lawyers, former judges and academics at the request of the European Commission, investigated the feasibility of a future European contract law.
The study outlines how EU-wide contracts could be created, the terms of those contracts and how they could be applied in practice. It also includes proposals for the rules for when a contract is considered as being offered and when it is considered to be accepted.
The rights to withdraw from a contract, legal rights for faulty goods and rules governing unfair contract terms are among the other aspects of law detailed in the study.
The Commission is currently analysising the study to see if it can form the basis for more concrete proposals on European contract law, the Commission said in its statement.
The Commission is expected to announce proposals for the new contract law in the autumn.
