A business looking to buy or sell goods or services across international borders must consider not only the considerations relevant to any supply agreement, but also the rules governing international trade, and the local laws of the countries involved.
We provide a full range of services in respect of international trade arrangements, from advising experienced organisations participating in complex multi-level arrangements, to providing guidance to businesses considering buying or selling products across international borders for the first time.
We can advise on English law considerations and the key principles of international trade law relevant to your proposed arrangements, and as part of our membership to MSI we can coordinate referrals to foreign law specialists for advice on the legal requirements that apply in other territories.
The laws relevant to international trade are complex, and you should take legal advice before entering into such arrangements. You may also need advice from other professionals on matters such as tax and accounting, and import/export requirements, and we can support you in coordinating such advice.
Supply and Distribution
International trade arrangements take a wide range of forms – they may, for example, be one-off sales orders formed under the standard terms of one of the parties, or long-term agreements for the supply of goods or services, or they may relate to the appointment of an agent or distributor in a foreign territory. We can support you in drafting, reviewing and negotiating the full range of potential supply agreements.
For more information on potential models for international distribution and agency arrangements, please see our introductory guide to the different routes to market here, and our pages on Agency, Distribution and Reselling here.
And for information on our IT and Technology services, please visit our IT pages here.
For businesses that trade between the UK and Europe, the UK’s exit from the EU, and its withdrawal from the customs union and single market, has had a profound effect on operational and administrative arrangements, and the laws applicable to these trading arrangements.
These changes have affected, among other things:
- the tariffs applicable to products traded between the UK and EU member states, and the rules of origin which determine whether goods can be traded tariff-free between the UK and the EU under the terms of the UK-EU Trade and Co-operation Agreement;
- the customs checks that must be completed in connection with the import and export of goods between the UK and EU member states, and the licence and registration requirements for the business that import or export;
- product regulation and product markings, and the obligations of businesses that distribute products supplied from the UK to the EU and vice versa; and
- the treatment of intellectual property.
Our Brexit Hub contains a range of guides, resources and updates on how Brexit is likely to affect your business.
Breach of competition law can seriously impact a business, leading to agreements being void, fines based on global turnover, criminal prosecution for directors involved, third party actions for damages and reputational harm.
As such, compliance with competition law should be high up on the business agenda. There should be clear procedures in place to ensure employees understand and comply with the legal requirements. Businesses which hold dominant market positions should ensure their employees are properly trained on what behaviour will be considered abusive.
We have set out answers to some Frequently Asked Questions on competition law below. You can read more about how competition law issues affect commercial agreements and more about the implications for mergers & acquisitions.
We also recognise that disputes relating to international supply arrangements can result in complex legal proceedings. Our expert commercial litigation solicitors are able to provide sound strategic advice to assist you through such difficult times, and you can read more about the services they provide.
Recent examples of our work in this area include:
- advising and assisting a manufacturer of pheromones and insecticides, on its requirements to appoint a representative within the EU to comply with regulatory obligations and continue to market and supply products within EU Members States;
- drafting an exclusive supply agreement for a leading international supplier of healthcare products;
- advising a supplier of COVID 19 test kits on import and product labelling obligations and requirements;
- drafting an agreement governing the international supply of our client’s mobile phone accessories for onward distribution to customers;
- advising and assisting a customs software and service provider on its software as a service offering;
- acting for a variety of international clients that require the conversion and implementation of their commercial agreements and documents into English law-governed contracts, warranties and terms and conditions;
- advising a sleep apparel manufacturer and supplier on competition law in relation to its supply and distribution network (including on-premise retail outlets and online e-commerce sites);
- advising a prestigious golf brand on competition law in relation to its distribution and retail network.
What is the legal framework for the competition regime in the UK?
In the UK competition law is governed by the Competition Act 1998. If an agreement also affects trade between EU member states (and subject to the evolution of the independent UK competition regime created as a result of Brexit) the UK competition authorities will also apply EU law, namely Article 101 of the Treaty of the Functioning of the European Union.
What types of agreements are caught?
An agreement may be caught by Chapter 1 of the CA 98 if it is an agreement:
- between undertakings, decisions by associations of undertakings or concerted practices;
- which may affect trade within the UK; and
- which has as its object or effect the prevention, restriction or distortion of competition within the UK.
The competition regime applies to agreements, decisions or practices which:
- directly or indirectly fix purchase or selling prices;
- limit or control production, markets, technical development or investment;
- share markets or sources of supply;
- apply dissimilar conditions to equivalent transactions;
- make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which have no connection to the subject of the contract.
Types of common commercial agreements or clauses which should be considered carefully for anti-competitive features are:
- Agency agreements;
- Distribution agreements;
- Restrictive covenants;
- Franchise agreements;
- Exclusivity agreements;
- Supply contracts;
- Research and development agreements;
- Intellectual property licences and agreements;
- Agreements or practices where undertakings exchange or share information;
Further, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the UK (Chapter 2 of the Competition Act 1998). If trade between member states is also affected, EU law, namely Article 102 of the Treaty of the Functioning of the European Union, must also be considered.
For more detail on how these terms are defined, please see our pages on competition law issues affect commercial agreements here.
What activities constitute an abuse of dominance?
To assess dominance you first need to look at the relevant product market and the relevant geographical market.
Breach of competition law can have devastating effects including severe fines based on global turnover, criminal prosecution for the directors involved and serious reputational damage. Therefore, businesses which hold dominant market positions should ensure their employees are properly trained on what behaviour will be considered abusive.
Chapter 2 of the Competition Act 1998 sets out the following non-exhaustive list of activities that may constitute an abuse of dominance:
- Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
- Limiting production, markets or technical development to the prejudice of consumers;
- Applying dissimilar conditions to equivalent transactions with other trading parties, placing them at a competitive disadvantage;
- Making the conclusion of contracts subject to the acceptance of supplementary obligations which have no connection with the subject of the contracts.
Abusive behaviour to be aware of includes:
- Excessive high pricing;
- Predatory pricing;
- Output restrictions;
- Refusals to deal;
- Discriminatory pricing;
- Unfair contract terms favouring some customers over others;
- Tying; and
- Margin squeeze.
Are you dominant in your market?
The types of behaviour set out above will only fall foul of Chapter 2 if the company exercising such behaviour is dominant in the market which may be affected.
The classic definition for dominance laid down by European case law is an undertaking which is in “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors and ultimately of the consumers.”
To assess dominance you first need to look at the relevant product and geographical markets in which you operate.
Once the market has been defined, it should be assessed whether you have market power. Do you have the power to: behave independently of competitive pressures which allows you to charge higher prices than if you faced effective competition, to engage in anti-competitive conduct and exclude or deter competition from the market?
The following thresholds are considered in assessing dominance. Where a company has a market share:
- exceeding 50%, dominance is presumed;
- less than 40%, the company is usually not considered dominant but may be dominant dependent on the circumstances;
- 24% or less, it is presumed not to be dominant.
Dominance can also be collective where two or more undertakings are able to behave to an appreciable extent independently from their competitors. This can result from express agreements or licences between the relevant undertakings; the legal framework; or structural links.
Are there any exclusions?
Certain conduct will be excluded from Chapter 2, including:
- Mergers (a separate competition regime covers these);
- Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly insofar as the prohibition would obstruct the performance of the particular task assigned to it, for instance, postal services;
- conduct to comply with a legal requirement;
- conduct specified in an order of the Secretary of State to avoid conflict with international obligations; and
- conduct to comply with an order of the Secretary of the State where there are exceptional and compelling reasons of public policy.
Who regulates the competition regime in the UK?
The Competition and Markets Authority (CMA) (which replaced the OFT and Competition Commission) is responsible for ensuring compliance with competition law. Its responsibilities include:
- investigating mergers which could restrict competition;
- conducting market studies and investigations in markets where there may be competition and consumer problems;
- investigating where there may be breaches of UK or EU prohibitions against anti-competitive agreements and abuses of dominant positions;
- bringing criminal proceedings against individuals who commit cartel offences;
- enforcing consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice;
- co-operating with sector regulators and encouraging them to use their competition powers;
- considering regulatory references and appeals.
What are the potential penalties for breach of competition law?
If the Competition and Markets Authority finds that there has been a breach of competition law, depending on the offence committed:
- the agreement may be void and unenforceable;
- the undertaking may be ordered to cease or modify its conduct;
- the undertaking may be fined based on worldwide turnover;
- individuals involved (or those who ought to have known) may be disqualified as directors for up to 15 years; and
- individuals may be criminally prosecuted resulting in fines or imprisonment.
Third parties may also bring an action for damages in the high court or, in appropriate cases, an injunction may be sought.
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