Changes to Omani Commercial Agencies Law aim to increase market competition

On 22 July 2014, Royal Decree No 34/2014 (the “Decree”) came into force, amending various provisions of the Omani Commercial Agencies Law (No 26/1977) (the “Law”). The Decree brings about major changes to the commercial agency regime as previously in force in Oman.

The previous regime heavily favoured Omani commercial agencies, which are used as vehicles for importing the products and/or services of a foreign person or entity into Oman.

Many of the amendments brought into force by the Decree aim to create a more balanced relationship between the commercial agents and the foreign entity wishing to import into Oman, as well to avoid market dominance by foreign entities through use of local agents.

Amendments creating increased competition in the market

Significant changes relate to competition law; with restrictions being put in place on the number of commercial agreements a business can enter into with local agents if there are signs it has a market monopoly in relation to commodities or services. Such signs include where a foreign business has in place multiple commercial agreements that negatively impact upon supply and demand, and which could lead to an unreasonable rise in the price of the commodity/service. Although the practical impact of these amendments remains to be seen, businesses who own multiple commercial licences might have some of them suspended or even cancelled in order to restrict foreign businesses from gaining market dominance by appointing multiple agents.

The amendments have been implemented with the aim of allowing for enhanced competition through a liberal and transparent market that ensures the growth of the national economy. One of the amendments to the Law is the removal of powers granted to the Minister of Commerce and Industry to ban the importation of a foreign principal’s goods into Oman (Article 5 of the Law). Such a change seeks to encourage foreign importation and as a result, increase competition in the market.

Amendments affecting commercial agency agreements

Notable amendments which have come into force and which directly impact on the activities of Omani commercial agents include:

1. The removal of the prohibition against the sale of a foreign principal’s goods through a further and additional local commercial agent, thus removing the potential for Omani commercial agents to have a monopoly over particular goods/services (Article 7 of the Law).
2. The removal of commercial agents’ statutory right to claim damages for commission earned from the sale of a foreign principal’s goods by another local commercial agent (Article 7 of the Law).
3. The removal of provisions allowing for the automatic renewal of commercial agency agreements (Article 10(b) of the Law).

Comment

As yet, it remains to be seen how these amendments will work in practice and how the provisions of the Decree will be interpreted and applied by the Omani courts and the Ministry of Commerce. There is an expectation that commercial agents in Oman will seek to challenge the application of the Decree, however, whether such challenges would be successful remains to be seen.

If these amendments are upheld, Oman could become a more attractive country for foreign companies looking at expansion and business opportunities in the Middle East, now that powers to ban importation of foreign goods by the Minister of Commerce have been removed. Further, given the removal of Article 7 of the Commercial Agencies Law, those companies with an established presence already in the country will have an opportunity to re-organise their distribution networks and perhaps enter into more favourable commercial agreements with multiple commercial agents, provided that there are no signs of market dominance.

Of course, there will be the risk for some established businesses of losing commercial licences, should the Minister of Commerce and Industry decide a business has a monopoly over the relevant goods/services. The Council of Ministers can seek recommendations from relevant competition and anti-monopoly departments in order to decide on the number of commercial agents a business can retain. However, these new powers seek to increase fair competition; a market characteristic which is necessary to attract foreign investment.

It will be interesting to note the level of foreign activity and investment in the market over the coming months to see whether there are any new foreign businesses entering into the market given that the Ministers’ power to exclude foreign products has been removed. The previous regime made entering into the Omani market a risk should the goods/services fail to sell through the appointed agent as there would be little avenue for the foreign entity to terminate that particular agreement or find an alternative agent. This risk has been mitigated by the removal of unattractive characteristics of commercial agency agreements.

On the face of it, it may seem converse that the Council of Ministers has also been given the power to restrict the number of commercial agents which may be appointed by a foreign business. By limiting the number of commercial agents a foreign entity can appoint, foreign businesses are likely to expect more flexibility in who they are able to appoint and will want to have the choice to change their commercial agent should the relationship prove to be unsuccessful. The changes will mean that local agents will have to compete against each other to win work, to avoid the risk of foreign businesses appointing another agent. Such changes thereby create increased competition in the commercial agency market. The changes, viewed as a whole, have the aim of increasing market transparency and access to the Omani market.

These amendments coincide with the approval of a draft Competition Protection and Prevention of Monopoly law (which was approved on 2 July 2014) (click here to see Law-Now on this topic) which aims to prevent monopolies and to regularise the practice of commercial activities in a way that does not limit free competition. The idea is that these principles are achieved through a package of laws that regularise the market, such laws being, the Consumer Protection law and the Commercial Agencies law. It will be interesting to assess the level of foreign activity and investment in the market over the coming months to see if this package of laws has achieved its aims.