On the first of February 2002, the Lebanese government began to apply the 10% Value Added Tax (VAT), which led to an increase in the prices of products and services. In order to soothe general resentment resulting form this new tax, the government proposed the cancellation of exclusive agencies to bring down prices. This project was ratified by the Council of Ministers on February 14, 2002.

Project-Law canceling exclusive agencies

This project-law entails the modification of the Decree No. 34/67 dated August 5, 1967 (known as the Law of Commercial Representation), whereby the clause of exclusive representation does not apply to a third party (i.e. merchants can import products without referring to the exclusive agent). The project-law gives exclusive agents the right to receive 5% of the value of exclusive goods and brands that are imported to Lebanon, before a third party obtains them. The time frame is set at a period of 5 years, effective from the date the law is put into action. The project-law also entrusts the Customs Administration to organize this operation and collect the 5% value for payment to the exclusive agents. The project law is expected to be operational three months after it is published in the Official Gazette.

Parliamentary Committees

The government sent this law to Parliament based on Decree No. 7484 dated February 25, 2002. However, the relevant parliamentary committees (Administration and Labor, Economy and Trade, Finance and Budget) did not proceed with the deliberations on the law until the end of September (seven months after its transfer). Finally, the Committee of Administration and Justice ratified it after introducing some major amendments including the following:

• Abolishing the 5% commission fee on exclusive agency products.
• Putting the law into action as of January 1, 2004.

This has opened up a new debate between the exclusive agents, who had asked for the postponement of this law for five years (until Jan.1, 2008) since they have been deprived of the 5% gain, and the consumer committees who protested the delay in the law taking effect as of January 2004.

Exclusive agencies

To restrict the commercial representation of a certain product or manufacturer, a statement must be issued by the Ministry of Economy and Trade and be registered in the Commercial Register. The exclusive agent must pay an annual fee of $330.

Exclusive agencies’ countries of origin

There are 145 exclusive agencies distributed according to county of origin including the following:

• American: 26
• French: 21
• Italian: 17
• German: 9
• Swiss: 7
• Spanish: 6
• British: 6
• Arab: 5
• Korean: 3
• Switzerland, Belgium, Taiwan, Denmark, Holland, Sweden and Russia: 2 each

 

In addition, there is also one company for each of the following countries: Greece, Sri Lanka, Slovakia, South Africa and Panama.

Goods under exclusivity

The exclusivity of the agencies includes the following goods: Sports clothes and equipment, other clothing, shoes, electrical appliances, cosmetics, watches and jewelry, TVs and videos, cars and spare parts, home and office furniture, fertilizers and agricultural pesticides, phones and mobiles, construction and tile materials, pharmaceutical products, oils and grease, hospital equipment, decorative tools, stationery, tires, utensils, cables and medicine.

Value of goods

There are no accurate figures on the value of annual goods imported to Lebanon that address the exclusivity of commercial representation. However, estimates put the figure at around 35% of overall imports, which reached close to $6 billion last year (the value of exclusive goods approximated at $ 2.1 billion).

Exclusivity and monopoly

There is no law for exclusive agencies regarding food, consumer and medical products. However, there are such agents for a number of those goods, which restricts import operations and creates de facto exclusivity. This scenario prohibits other merchants from importing those specific goods, creating a monopoly in the market. For example, there are 520 registered medical agencies in Lebanon owned by around 50 agents. These agents import 3,700 brands of medicine with an annual value reaching $400 million, resulting in de facto exclusivity.

Advantages and disadvantages of canceling exclusive agencies

Proponents of the move to cancel exclusive agencies believe that the major advantage lies in the reduction of prices and the creation of real competition between merchants, in order to offer the best quality goods at the lowest prices. In addition, they say that this process would allow an increase in the number of importers, as well as the entry of new brands into the market.

However, those who oppose the move say that the cancellation poses several concerns, mainly the guarantee of quality to the consumer. They declare that the introduction of goods without the agent will lead to the possibility of forgery and consumers’ loss of confidence in the products, while others counter that this function should be undertaken by the Lebanese Standards Institution (LIBNOR). Opponents also point out that certain goods (mainly equipment and tools) require the import of related spare parts and the training of workers on maintenance and repair, which may not be available in the case of cancellation of exclusivities. Moreover, some importers report their fear of the introduction of foreign companies to Lebanon that would take control of the import of many goods. This could pose a threat to Lebanese businessmen, especially if foreign agents represent the products in other large markets. Also, the advertising sector may be affected by the cancellation of exclusive agencies, as the absence of protection may lead local agents to refrain from advertising products that another merchant can import and market.

In view of moves in Europe to abolish exclusivities in the market for automobiles, it is time to consider whether Lebanon should face the same challenges or be left out of the liberalization process.