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法国
France: control by the supplier of online resales by its distributors
2020年12月31日
- 分销协议
Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
加拿大 
波兰 
巴西 
沙特阿拉伯 
埃及 
写信给 Christophe
International debt recovery: risk prevention and best practices
2020年12月7日
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西班牙
- 分销协议
- 诉讼
Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
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RCEP – The largest Free Trade Agreement
2020年11月19日
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Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
写信给 Federico
France – Terms of payment in an international agreement
2020年11月2日
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法国
- 公司法
- 分销协议
Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
写信给 Christophe
China – Internet Frauds and online Scams
2020年8月25日
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中国
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Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
写信给 Roberto
P2B Regulation – How to adapt Platform services and Search Engines
2020年8月2日
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欧洲
- 非诉讼解决机制
- 分销协议
- 电子商务
Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
写信给 Benedikt
France – ECJ extends the protection of commercial agents and their right to termination indemnity
2020年7月25日
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法国
- 机构
- 分销协议
Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
写信给 Christophe
The importance of Mediation in Distribution Contracts
2020年7月14日
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西班牙
- 非诉讼解决机制
- 分销协议
Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
写信给 Ignacio
Germany – Distribution, Franchise Agreements and Goodwill Indemnity at Termination
2020年2月24日
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德国
- 分销协议
Eventually, after more than 30 years of negotiations, the world is now looking at the first pan-African trade agreement, which entered into force in 2019: the African Continental Free Trade Area, or AfCFTA.
Africa, with its 55 countries and around 1.3 billion inhabitants, is the second largest continent in the world after Asia. The continent’s potential is huge: more than 50% of Africa’s population is under 20 years old and the population is growing at the fastest rate in the world. By 2050, one in four new-born babies is expected to be African. In addition, the continent is rich in fertile soil and raw materials.
For Western investors, Africa has become considerably more important in recent years. As a result, a considerable amount of international trade has emerged, not least promoted by the “Compact with Africa” initiative adopted by the G20 countries in 2017, also known as the “Marshall Plan with Africa”. Its focus is on expanding Africa’s economic cooperation with the G20 countries by strengthening private investment.
At the same time, however, intra-African trade has stagnated so far: partly still existing high intra-African tariffs, non-tariff barriers (NTBs), weak infrastructure, corruption, cumbersome bureaucracy, as well as non-transparent and inconsistent regulations, ensured that interregional exports could hardly develop and most recently accounted for only 17 % of the pan-African trade and only 0.36 % of world trade. It’s already been a long time since the African Union (AU) had put the creation of a common trade area on its agenda.
What is behind AfCFTA?
The establishment of a pan-African trade area was preceded by decades of negotiations, which finally resulted in the entry into force of the AfCFTA on 30 May 2019.
AfCFTA is a free trade area established by its members, which – with the exception of Eritrea – covers the entire African continent and is thus the largest free trade area in the world by number of member states after the World Trade Organisation (WTO).
How the common market was to be structured in detail was the subject of several individual negotiations, which were discussed in Phases I and II.
Phase I comprises the negotiations on three protocols and is almost completed.
The Protocol on Trade in Goods
This protocol provides for the elimination of 90 % of all intra-African tariffs in all product categories within five years of entry into force. Of these, up to 7 % of products can be classified as sensitive goods, which are subject to a tariff elimination period of ten years. For the least developed countries (LDCs), the preparation period is extended from five to ten years and for sensitive products from ten to thirteen years, provided they demonstrate their need. The remaining 3 % of tariffs are fully exempted from tariff dismantling.
A prerequisite for tariff dismantling is the clear delimitation of rules of origin. Otherwise, imports from third countries could benefit from the negotiated tariff advantages. Agreement has already been reached on most of the rules of origin.
The Protocol on Trade in Services
The AU General Assembly has so far agreed on five priority areas (transport, communications, tourism, financial and business services) and guidelines for the commitments applicable to them. 47 AU member states have so far submitted their offers for specific commitments and the review of 28 has been completed. In addition, negotiations, for example, on the recognition of professional qualifications, are still ongoing.
The Protocol on Dispute Settlement
With the Protocol on Rules and Procedures Governing the Dispute Settlement, the AfCFTA creates a dispute settlement system modelled on the WTO Dispute Settlement Understanding. Under this, the Dispute Settlement Body (DSB) administers the AfCFTA Dispute Settlement Protocol and establishes an Adjudicating Panel (Panel) and an Appellate Body (AB). The DSB is composed of a representative of each member state and intervenes as soon as there are differences of opinion between the contracting states on the interpretation and/or application of the agreement with regard to their rights and obligations.
For the remaining Phase II, negotiations are planned on investment and competition policy, intellectual property issues, online trade and women and youth in trade, the results of which will be reflected in further protocols.
The implementation of the AfCFTA
In principle, the implementation of trade under a trade agreement can only begin once the legal framework has been finally clarified. However, AU Heads of State and Government agreed in December 2020 that trade can begin for goods for which negotiations have been finalised. Under this “transitional arrangement“, after a pandemic-related postponement, the first AfCFTA trade settlement from Ghana to South Africa took place on 4 January 2021.
Building blocks of the AfCFTA
All 55 members of the AU were involved in the AfCFTA negotiations. Of these, 47 belong to at least one – and some to more than one – recognised Regional Economic Communities (RECs), which, according to the preamble of the AfCFTA agreement, are to continue as building blocks of the trade agreement. It was therefore they who acted as the voice of their respective members in the AfCFTA negotiations. The AfCFTA provides for RECs to retain their legal instruments, institutions and dispute settlement mechanisms.
Within the AU, there are eight recognised RECs, overlapping in some countries, which are either preferential trade agreements (Free Trade Agreements – FTAs) or customs unions.
Under the AfCFTA, the RECs have various responsibilities. These are in particular:
- coordinating negotiating positions and assisting member states in the implementation of the agreement.
- solution-oriented mediation in the event of disagreements between member states
- supporting member states in the harmonisation of tariffs and other border protection regulations
- promoting the use of the AfCFTA notification procedure to reduce NTBs
Outlook of the AfCFTA
The AfCFTA has the potential to facilitate Africa’s integration into the global economy and creates the real possibility of a realignment of international integration and cooperation patterns.
A trade agreement alone is no guarantee of economic success. For the agreement to achieve the predicted breakthrough, member states must have the political will to implement the new rules consistently and create the necessary capacity to do so. In particular, the short-term removal of trade barriers and the creation of a sustainable physical and digital infrastructure are likely to be crucial.
If you are interested in the AfCFTA, you can read an extended version of this article here.
The Legalmondo Africa Desk
We help companies invest and do business in Africa with our experts in Algeria, Tunisia, Morocco, Senegal, Sudan, Egypt, Ghana, Lybia, Côte d’Ivoire, Cameroon, and Malawi.
We can also assist foreign entities in African countries where we are not directly present with an office through our network of local partners.
How it works
- We set up a meeting (in person or online) with one of our experts to understand the client’s needs.
- Once we start working together, we follow the client with a dedicated counsel for all its legal needs (single cases, or ongoing legal assistance)
Get in touch to know more.
Summary
Political, environmental or health crises (like the Covid-19 outbreak and the attack of Ukraine by the Russian army) can cause an increase in the price of raw materials and components and generalized inflation. Both suppliers and distributors find themselves faced with problems related to the often sudden and very substantial increase in the price of their own supplies. French law lays down specific rules in that regard.
Two main situations can be distinguished: where the parties have just established a simple flow of orders and where the parties have concluded a framework agreement fixing firm prices for a fixed term.
Price increase in a business relationship
The situation is as follows: the parties have not concluded a framework agreement, each sales contract concluded (each order) is governed by the General T&Cs of the supplier; the latter has not undertaken to maintain the prices for a minimum period and applies the prices of the current tariff.
In principle, the supplier can modify its prices at any time by sending a new tariff. However, it must give written and reasonable notice in accordance with the provisions of Article L. 442-1.II of the Commercial Code, before the price increase comes into effect. Failure to respect sufficient notice, it could be accused of a sudden “partial” termination of commercial relations (and subject to damages).
A sudden termination following a price increase would be characterized when the following conditions are met:
- the commercial relationship must be established: broader concept than the simple contract, taking into account the duration but also the importance and the regularity of the exchanges between the parties;
- the price increase must be assimilated to a rupture: it is mainly the size of the price increase (+1%, 10% or 25%?) that will lead a judge to determine whether the increase constitutes a “partial” termination (in the event of a substantial modification of the relationship which is nevertheless maintained) or a total termination (if the increase is such that it involves a termination of the relationship) or if it does not constitute a termination (if the increase is minimal);
- the notice granted is insufficient by comparing the duration of the notice actually granted with that of the notice in accordance with Article L. 442-1.II, taking into account in particular the duration of the commercial relationship and the possible dependence of the victim of the termination with respect to the other party.
Article L. 442-1.II must be respected as soon as French law applies to the relation. In international business relations, to know how to deal with Article L.442-1.II and conflicts of laws and jurisdiction of competent courts, please see our previous article published on Legalmondo blog.
Price increase in a framework contract
If the parties have concluded a framework contract (such as supply, manufacturing, …) for several years and the supplier has committed to fixed prices, how, in this case, can it change these prices?
In addition to any indexation clause or renegotiation (hardship) clause which would be stipulated in the contract (and besides specific legal provisions applicable to special agreements as to their nature or economic sector), the supplier may seek to avail himself of the legal mechanism of “unforeseeability” provided for by article 1195 of the civil code.
Three prerequisites must be cumulatively met:
- an unforeseeable change in circumstances at the time of the conclusion of the contract (i.e.: the parties could not reasonably anticipate this upheaval);
- a performance of the contract that has become excessively onerous (i.e.: beyond the simple difficulty, the upheaval must cause a disproportionate imbalance);
- the absence of acceptance of these risks by the debtor of the obligation when concluding the contract.
The implementation of this mechanism must stick to the following steps:
- first, the party in difficulty must request the renegotiation of the contract from its co-contracting party;
- then, in the event of failure of the negotiation or refusal to negotiate by the other party, the parties can (i) agree together on the termination of the contract, on the date and under the conditions that they determine, or (ii) ask together the competent judge to adapt it;
- finally, in the absence of agreement between the parties on one of the two aforementioned options, within a reasonable time, the judge, seized by one of the parties, may revise the contract or terminate it, on the date and under the conditions that he will set.
The party wishing to implement this legal mechanism must also anticipate the following points:
- article 1195 of the Civil Code only applies to contracts concluded on or after October 1, 2016 (or renewed after this date). Judges do not have the power to adapt or rebalance contracts concluded before this date;
- this provision is not of public order. Therefore, the parties can exclude it or modify its conditions of application and/or implementation (the most common being the framework of the powers of the judge);
- during the renegotiation, the supplier must continue to sell at the initial price because, unlike force majeure, unforeseen circumstances do not lead to the suspension of compliance with the obligations.
Key takeaways:
- analyse carefully the framework of the commercial relationship before deciding to notify a price increase, in order to identify whether the prices are firm for a minimum period and the contractual levers for renegotiation;
- correctly anticipate the length of notice that must be given to the partner before the entry into force of the new pricing conditions, depending on the length of the relationship and the degree of dependence;
- document the causes of the price increase;
- check if and how the legal mechanism of unforeseeability has been amended or excluded by the framework contract or the General T&Cs;
- consider alternatives strategies, possibly based on stopping production/delivery justified by a force majeure event or on the significant imbalance of the contractual provisions.
Wine Market in Mexico 2020-2021
The wine market in Mexico has shown an annual growth of approximately 8% during the past 5 years.
Importations have increased during the past 10 years, increasing its value in 88%.
Mexico has the second highest consumption growth rate worldwide according to the International Organization of Vine and Wine (OIV).
Current Trends in Mexico
Mexican wines accounted for 29% of Mexico’s consumption, while the remaining 71% corresponds to imported wines.
Wine consumption is primarily concentrated in 3 cities, Mexico City, Monterrey, and Guadalajara, with a potential increase in touristic locations.
Due to the health contingency generated as a result of the COVID19, on-line sales of the various supermarkets have increased in 300% during 2020.
Digitalization of processes represents a huge potential in terms of sales’ increase, and are expected to grow in a 40% yearly.
Consumers in Mexico are under 45 years old, having a pretty good balance in terms of gender (55% male and 45 female).
Types of wine consumed (71% red, 11% white, 9% sparkling, and 9% rose and others).
Comparison of wine consumption per capita
Following we share the following available information to illustrate differences between specific countries on current wine consumption per capita.
| Country | Consumption per capita |
| France | 49.5 lts |
| Italy | 43.0 lts |
| Austria | 29.4 lts |
| Spain | 27.8 lts |
| United States | 10.14 lts |
| China | 1.7 lts |
| Brazil | 1.6 lts |
| Mexico | 1.34 lts |
For more information you can visit our country guide on wine distribution in Mexico and watch the following video
Summary
At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.
Resale prices maintenance on the internet is unlawful while ban on resale on third-party platforms seems to be a new lawful option
In a nutshell
On December 3, 2020 the French Competition Authority (the FCA) :
- reiterated clearly the illegality of behavior aimed at imposing resale prices, especially in e-commerce and then condemned Dammann Frères, a French manufacturer of premium teas, to a € 226,000 fine for imposing minimum online resale prices maintenance on its distributors
- extended the right of ban on resale on third-party platforms from selective distribution of luxury products to quite common commercial relations, and then rejected the alleged illegality of this ban.
Between “recommended” and “imposed” resale prices: a dangerous game to play
Article L 442-6 of French Commercial Code prohibits “imposing, directly or indirectly, a minimum character at the resale price of a good, at the price of a service or at a commercial margin”. The FCA has ruled that, under the pretext of communicating recommended prices to its distributors, Dammann Frères has in fact imposed resale prices on them, failure to comply with these prices being punishable by retaliations (removal or reduction of the amount of discounts granted to them, delay in deliveries, removal of their contact details from the list of distributors presented on its website, disruption of supply, or even termination of commercial relations).
The supplier justified – vainly – this practice by its will to preserve the image and the positioning of its products but above all to avoid excessive price differences between resales by distributors on the internet and those carried out by network stores (where dealers had more latitude in setting prices).
The restriction of competition resulting from resale price maintenance can be obvious when contractual stipulations directly fix the price; but it can be deduced from a set of indices which is characterized according to a method strictly applied by the FCA :
- the supplier communicates its (recommended) resale prices to distributors,
- the latter apply them significantly and,
- a “price policing” system is put in place to prevent the price agreement from being questioned by deviant distributors. This mechanism results in price monitoring by the supplier (or even by other distributors, etc.),
- this leads to pressure, or even retaliation, to force distributors to align their prices upwards, such as delivery delays, supply disruptions, removal of discounts, etc.
There is a fine line between a price surveillance mechanism and a price constraint mechanism. This legal insecurity has been criticized and the European Commission could provide, on the occasion of the upcoming reform of the European block exemption regulation on vertical restraints, additional advice on the circumstances in which recommended resale prices should be qualified as imposed resale prices. The reform expected in 2022 could even go further by highlighting the pro-competitive effects of resale price maintenance.
Ban on resale on third-party platforms: a serious option to consider
With regard to the ban on the resale of its products on third-party platforms, openly imposed by Dammann Frères, the FCA took a rather liberal and innovative approach by applying the rules of the Coty case law (ruling of 6 12 2017, Coty Germany GmbH, C 230/16) to decide ultimately that there is no need to prosecute and therefore to fine. If this approach is confirmed later on by French courts, it will have a considerable impact on suppliers ‘policy who seek to control and restrict the terms of resale of their products on third-party platforms such as Amazon or e-Bay.
In this case, the FCA noted that the tea manufacturer’s market share was less than 30% and that this restriction did not constitute a hardcore restriction. Indeed, the FCA noted that this practice (i) did not prohibit distributors from selling products online nor from marketing themselves through third party websites (advertising and use of search engines) and (ii) did not constitute a restriction on the number of distributors, as the prosecution file did not evidence the number of customers of these platforms amongst the group of online buyers.
The FCA’s decision is therefore extends the Coty case law according to which the supplier of a selective distribution network for luxury products can prohibit the resale of its products on third-party platforms in order to preserve the image of its products (see our comments Here).
The FCA had already extended the Coty case law to technical products in a decision of 24 October 2018 (n ° 18-D-23), concerning the practices of the company Stihl, leader in mechanized garden equipment (mainly confirmed on appeal, Paris court of appeal 17 10 19), where the FCA, in a premonitory manner, stated: “it is important to specify that the analysis carried out by the Court of justice in the Coty ruling for the online marketing of luxury products seems likely to be extended to other types of products ”(see our comments Here).
The FCA is now going even further because, even though Dammann Frères teas are “high-end” positioned, they are neither luxury products nor even distributed through a selective distribution network.
Key takeaway
As part of its relations with its distributors, the supplier must ensure:
- not to stipulate any express minimum resale price clause;
- not to implement a system, nor tolerate practices, of commercial retaliation against distributors deviating from the minimum “recommended” prices (or even threaten them to do so);
- not to prohibit them from selling the products online or from advertising online;
- carefully examine the possibility of prohibiting them from reselling its products on third-party platforms.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Under Vietnam’s presidency of the Association of South East Asian Nations (ASEAN), after eight years of negotiations, the ten ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam) on 15 November 2020 signed a groundbreaking free trade agreement (FTA) with China, Japan, South Korea, Australia and New Zealand, called Regional Comprehensive Economic Partnership (RCEP).
The ASEAN economic community is a free trade area kickstarted in 2015 among the above-mentioned ten members of the homonymous association, comprising an aggregate GDP of US$2.6 trillion and over 622 million people. ASEAN is China’s main trading partner, with the European Union now slipping into second place.
Unlike the EuroZone and the European Union, ASEAN does not have a single currency, nor common institutions, like the EU Commission, Parliament and Council. Similarly to what happens in the EU, though, a single member holds a rotational presidency.
Individual ASEAN Countries, like Vietnam and Singapore, have recently entered into free trade agreements with the European Union, whilst the entire ASEAN block had and still has in place the so-called “plus one” agreements with other regional Countries, namely The People’s Republic of China, Hong Kong, The Republic of Korea, India, Japan and Australia and New Zealand together.
With the exception of India, all the other Countries with “plus one” agreements with ASEAN are now part of the RCEP, which will gradually overtake individual FTAs through the harmonisation of rules, especially those related to origin.
RCEP negotiations accelerated with the United States of America’s decision to withdraw from the Trans-Pacific Partnership (TPP) upon the election of President Trump in 2016 (although it is worth noting that a large part of the US Democratic Party also opposed the TPP).
The TPP would have then been the largest free trade agreement ever and, as the name suggest, would have put together twelve nations on the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the USA. With the exclusion of the latter, the other eleven did indeed sign a similar agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The CPTPP has however been ratified only by seven of its signatories and clearly lacks the largest economy and most significant partner of all. At the same time, both the aborted TPP and the CPTPP evidently exclude China.
The RCEP’s weight is therefore self evidently heavier, as it encompasses 2.1 billion people, with its signatories accounting for around 30% of the world’s GDP. And the door for India’s 1.4 billion people and US$2.6 trillion GDP remains open, the other members stated.
Like most FTAs, RCEP’s aim is to lower tariffs, open up trade in goods and services and promote investments. It also briefly covers intellectual property, but makes no mention of environmental protections and labour rights. Its signatories include very advanced economies, like Singapore’s, and quite poor ones, like Cambodia’s.
RCEP’s significance is at this very moment probably more symbolic than tangible. Whilst it is estimated that around 90% of tariffs will be abolished, this will only occur over a period of twenty years after entry into force, which will happen only after ratification. Furthermore, the service industry and even more notably agriculture do not represent the core of the agreement and therefore will still be subject to barriers and domestic rules and restrictions. Nonetheless, it is estimated that, even in these times of pandemic, the RCEP will contribute some US$40billion more, annually, to the world’s GDP, than the CPTPP does (US$186billion vis-à-vis US$147billion) for ten consecutive years.
Its immediate impact is geopolitical. Whilst signatories are not exactly best friends with each other (think of territorial disputes over the South China Sea, for instance), the message is clear:
- The majority of this part of the world has tackled the Covid-19 pandemic remarkably well, but cannot afford to open its borders to Europeans and Americans any time soon, lest the virus spread again. Therefore, it has to try and iron out internal tensions, if it wants to see some positive signs within its economies given by private trade, in addition to (not always good) deficit spending by the State. Most of these Countries do rely heavily on Western talents, tourists, goods, services and even strategic and military support, but they are realistic about the fact that, unless the much touted vaccine works really well really soon, the West will struggle with this coronavirus for many months, if not years.
- Multilateralism is key and isolationism is dangerous. The ASEAN bloc and the Australia-New Zealand duo work exactly in this peaceful and pro-business direction.
The ASEAN’s official website (https://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership) is very clear in this regard and states, in fact that:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region, through:
- Recognition to ASEAN Centrality in the emerging regional economic architecture and the interests of ASEAN’s FTA partners in enhancing economic integration and strengthening economic cooperation among the participating countries;
- Facilitation of trade and investment and enhanced transparency in trade and investment relations between the participating countries, as well as facilitation of SMEs’ engagements in global and regional supply chains; and
- Broaden and deepen ASEAN’s economic engagements with its FTA partners.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation. SMEs (including micro-enterprises) make up more than 90% of business establishments across all RCEP participating countries and are important to every country’s endogenous development of their respective economy. At the same time, RCEP is committed to provide fair regional economic policies that mutually benefit both ASEAN and its FTA partners.
Still, the timing is right also for EU businesses. As mentioned, the EU has in place FTAs with Singapore, South Korea, Vietnam, an Economic Partnership Agreement with Japan, and is negotiating separately with both Australia and New Zealand.
Generally, all these agreements create common rules for all the players involved, thus making it is simpler for companies to trade in different territories. With caveats on entry into force and rules of origin, Countries that have signed both an FTA with the EU and the RCEP, notably Singapore, a major English speaking hub, that ranks first in East Asia in the Rule of Law index (third in the region after New Zealand and Australia and twelfth worldwide: https://worldjusticeproject.org/sites/default/files/documents/Singapore%20-%202020%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf), could bridge both regions and facilitate global trade even during these challenging times.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
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