UPDATE ON UAE AGENCY AND COMPANY LAWS

UNCLAS ABU DHABI 002455 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ARP STATE PASS TO USTR FOR AUSTR DONNELLY AND DOUG BELL E.O. 12958: N/A TAGS: ETRD EINV ECON AE SUBJECT: UPDATE ON UAE AGENCY AND COMPANY LAWS ¶1. (SBU) Summary: The UAE's Federal Supreme Council(rulers of the seven emirates)is reviewing amendments to the UAE's law on Commercial Agencies (Agency Law). These amendments include: (1)requiring mutual consent to renew an agency agreement, (2)limiting an agency contract to a fixed time period, (3)eliminating the Ministry of Economy's Commercial Agencies Commission (which handles agency disputes),and (4) allowing the import of "liberalized goods" without the agent's approval. On June 12, Ministry of Economy Under Secretary Abdulla Al-Saleh tolf Econchief and Econoff that he SIPDIS expects the revised Agency law to be passed soon. Al-Saleh also told Econoffs that the Cabinet's Legislative Affairs Committee is reviewing amendments to the UAE's Commercial Companies Law, but he did not know when those amendments would be passed. End Summary. -------------- Agency Law -------------- ¶2. (SBU) A proposed amendment to the Agency law would limit the term of the agency agreement to the term of the contract and would require both parties to agree to extend an agreement. Currently, the Agency registration with the Ministry of Economy prevails over all contract terms and conditions, and the principal is not entitled to terminate an agency agreement at the end of a contract period. The agent may unilaterally renew his agency registration with the Ministry of Economy even if his contract with the principal has expired. Terminating an agency agreement requires the agreement of the agent, unless "there is a valid reason for termination." (Comment: Although the law "allows" for termination of a contract for a "valid reason," it is in actuality very difficult to terminate an agent.) ¶3. (SBU) Under the current law, if the principal decides to terminate an agency agreement and the agent alleges that non-renewal of the contract denies him an expected profit, the principal must pay the agent compensation for these "damages." (Comment: Emboffs are aware of several cases where U.S. companies have paid "damages" to terminate an agency contract even if the agent was not performing any service on behalf of the U.S. company. End comment.) ¶4. (SBU) Under the amended law, the Ministry of Economy will abolish its Commercial Agencies Commission, with the idea that disputes should be heard by the courts. On several occasions, the local Arabic media have reported that some businessmen in the UAE do not favor abolishing the Commission and worry that disputes taken to court may take years to decide. ¶5. (SBU) Currently, with some exceptions such as certain foodstuffs, an agent has the authority to block parallel imports of goods. The amendment spells out the ability of the cabinet to determine that a good is "liberalized," which would allow it to be brought in without the agent's approval. Press reports quoted Minister of Economy Sheikha Lubna Al Qasimi as saying, "This amendment is in conformity with the government's plan to liberalize any product seen as over-priced by its sole agents." -------------- Company Law -------------- ¶6. (SBU) During Econchief and Econoff June 12 meeting with Ministry of Economy Undersecretary Abdullah Al-Saleh, the Undersecretary said the revised Company Law is currently pending before the Cabinet's Legislative Affairs Committee, and suggested that it would still take time to pass this legislation. Over the past few months, several of the Arabic and English language dailies have reported on expected changes in the Company Law. One such change will reduce the required national owner percentage. Some press reports have stated that the national ownership requirement will be reduced from 51% to 30% and others have reported that the new Company Law would allow 100% foreign ownership of certain businesses in the UAE. Under the revised law, foreigners will be able to sit on the boards of joint stock companies. It will also be easier for family companies to convert to joint stock companies, allowing the family company to own 70% of the shares and float the remaining 30% for public subscription. SISON