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.

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Agency Law
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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."

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Company Law
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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