25 Jan 2023
Emphasizing the vital role of commercial agencies sector and promoting their businesses
Ministry of Economy highlights new law commercial agency law and its role in propelling business environment in UAE
>> Al Saleh: The law gives UAE nationals the opportunity to take part in a wide range of agency operations. It further strengthens the UAE's position as a favored destination for leading regional and international investment.
Key provisions of the new law:
- The business of commercial agencies will be exclusive to UAE nationals only and the law will come into force on June 16, 2023.
- Public joint-stock companies with at least 51% of national capital contribution will be allowed to act as commercial agents.
- The law is based on the principle of autonomy/will and the contract is pacta sunt servanda protecting all parties.
- Any international company, under certain conditions and with the approval of the UAE Cabinet, will be allowed to act as a commercial agent for its own products as long there was/is no commercial agent.
- Determining instances for expiry of commercial agency contracts through a set of controls and provisions for the duration of notification and exit mechanisms.
- Introducing a new mechanism to settle disputes between the agent and client by resorting to arbitration upon agreement.
- The new law addresses the disruption of goods and services in the UAE markets in the case of dispute between the two parties. It grants the Ministry of Economy the authority to specify exclusive resources vis a vis entering products and services for a short term with extended indemnities to the commercial to hold the principle accountable against any liability defined by irrevocable court verdict .
- The termination provisions of the concurrent agency contract will not apply imminently regarding non renewal or early termination for convenience. However, the law provided either two years or 10 years for existing agencies been with the same agent for more than ten years or where the size of the agent's investment exceeded AED 100 million.
- Prohibiting practicing agency in the country, unless registered in the commercial agency’s records in the Ministry of Economy. Any non-registered agency is not counted.
- The formation of a commercial agency committee by the decision of the UAE Cabinet. The committee will be specialized in resolving the dispute between the registered agency parties.
- The law creates additional opportunities and fields for family businesses owning commercial agencies and supports their transformation into public joint-stock companies.
- The law ensures offering top products and commodities to consumers, fulfilling their ambitions to access competitive prices and high-level services.
- Per the recommendation of the Minister of Economy and in coordination with the specialized entities, the law allows the Cabinet to release any activities or materials from the agencies in accordance with the specific regulations.
His Excellency Abdulla Al Saleh, Under Secretary of the Foreign Trade and Industry at the UAE Ministry of Economy, emphasized that the UAE is determined to foster the attractiveness and competitiveness of the business environment in order to keep pace with the future economic trends.
The UAE further aims to offer a legislative framework that will enable companies that promote the new economic model, particularly the commercial agencies sector. With innovative projects and crucial commercial activities, this sector significantly contributed to the country's development during the past several years. This allowed for the availability of a variety of services and goods for local markets, which improved the reputation of the national economy.
This was stated by His Excellency during a press conference to introduce the Federal Law No. (3) of 2022 on regulating commercial agencies. “The new Law, which replaces the previous 40-year-long legislation, aims to accelerate the growth of commercial agencies in the nation by diversifying their activities, improving their economic performance, and increasing their contribution to the growth of the national GDP in accordance with the Principles of the 50 and the UAE Centennial 2071,” he said.
He added: “The Ministry of Economy has collaborated with all of its federal and local partners, the corporate sector, and other pertinent organizations over the recent time. Following the constitutional processes established after the enactment of the nation's federal legislation, they further discussed the revised law in the UAE Federal National Council. These initiatives attempt to ensure an optimum legislation that would best benefit the nation's economy, satisfy the goals of the current commercial agencies, encourage the nation's economy's flexibility, and support its openness to foreign markets.”
Al Saleh emphasized that the significance of the Federal Decree Law on regulating commercial agencies stems from its provisions, which are based on the principle of autonomy/will and that the contract is indeed a pacta sunt servanda. “This creates an environment that is favorable for investment and safeguards the rights of parties per their agreement,” he said, adding that the law would contribute to increasing national investments and DFI to the country. “The law will further allow the businesses of commercial agencies to grow and prosper, by diversifying their activities, thereby ensuring the best products and services for consumers, and fulfilling their ambitions for competitive prices and high-level services. The law will further offer guarantees and after-sale services as well as creating new job opportunities in the country,” His Excellency added.
Moreover, the new law allows the broad participation of UAE nationals as commercial agents, offering them an encouraging environment to establish new and innovative commercial and investment projects. The law will accordingly promote the flexibility of the national economy and enhance its international competitiveness, as well as consolidating the UAE’s position as a favored destination for top regional and international companies and trademarks.
H.E Al Saleh further highlighted key provisions of the new law, ensuring the proactive approach of the country as follows:
- The new law allows public joint-stock companies with at least 51% of national capital contribution to act as commercial agents, with the business of commercial agencies being exclusive to only UAE nationals in all kinds of agencies. This will contribute to creating new opportunities and fields for family companies owning commercial agencies, supporting their transformation to public joint-stock companies.
- The new law stipulates a clause to specify the length of the agency contract in the event that the agent is asked to develop exhibition structures, retail establishments for goods, or maintenance or repair facilities. The duration of the contract will be for five years, unless the parties agree otherwise.
- The law provides the UAE Cabinet with the authority to allow any international companies to act as agents for their own products, as long the products do not have/had an agent within the country.
- The law prohibits practicing agency in the country, unless registered in the commercial agencies’ records in the Ministry of Economy. Any non-registered agency is not counted.
- The new law determines specific termination clauses.. This benefits the national economy and ensures that consumers receive the best products and services at fair prices from current and prospective agents, such as national companies, who are anticipated to enter the market. The law also pushes representatives to improve their work in order to maintain the relationship.
- The law develops a set of controls and provisions for expiry of commercial agency and the duration of notification (a year or half of the remaining contract period, whichever is less, unless otherwise is agreed upon). The law further organizes the devolution of the commercial agency's assets, with recognition of the right to claim just compensation, per specific and clear terms.
- The new law addresses the disruption of goods and services in the case of dispute between the agent and the client, ensuring uninterrupted access of products and services to the country duringthe dispute. It also grants the Ministry of Economy the authority to assign specific resources for to enter products and services for interim period, with indemnities extended to the commercial agent for any compensation constructed with irrevocable court verdicts to his favor holding as well the principle accountable to collect the remedies..
- The formation of commercial agency committee by the decision of the UAE Cabinet. The committee will be specialized in resolving the dispute between the registered agency parties. Before presenting the matter to the Committee, it cannot be admitted in court.
- The law introduces a new mechanism to resolve disputes between parties by agreeing to go to arbitration, whenever agreed by the two parties.
- Per the recommendation of the Minister of Economy and in coordination with the specialized entities, the law allows the Cabinet to release any activities or materials from the agencies in accordance with the specific regulations, under the condition that the Cabinet will set a date to edit these activities or materials.
Moreover, His Excellency emphasized that the Federal Law on the regulation of commercial agencies targets various categories that will benefit from its provisions and outcomes, including national business owners, companies, and entrepreneurs, as well as local and international commercial agencies wishing to relocate their activities to the UAE, and local and foreign investors.
He also noted that the law comes into force six months after its proclamation in the official gazette, which kicks in June 16th, 2023. However, reiterating the termination provisions regarding the current agency contract in the instances respectively of non renewal, or termination for convenience will not imminently apply. However, it applies as the following:
- After two years for existing agency contracts.
- After ten years for contracts been already existing with the same agent for the past 10 years since they were registered or where the size of the agent's investment exceeded AED 100 million, thereby protecting stability and national investments in this vital sector.
Al Saleh concluded his statement by emphasizing that the law is a new landmark in the future legislative structure initiated by the country to increase national and foreign investments. The law further guarantees the best services for consumers, hence ensuring the sustainable development of the national economy and enhancing the country’s position as an attractive hub for future economic models.