Ministry of Commerce to Maaal: Exclusivity in goods sale is a contractual matter between agent and principal, not mandated by current framework

By Wodian Salah

The Ministry of Commerce assured (Maaal) of its commitment to uphold market safety and protect consumer interests. It emphasised that the issue of exclusivity in the sale of goods is a contractual arrangement between agents and principals, allowing them the freedom to determine terms that best serve their commercial interests. Importantly, the current regulatory framework does not impose mandatory exclusivity nor prohibit it.

This statement follows consumer complaints regarding the exclusive sale of certain global products in the local market, which has led to restrictions on their importation from foreign stores. Consumers have raised concerns about monopolistic practices and inflated prices by agents within the Kingdom.

In response to an inquiry by (Maaal), the Ministry of Commerce clarified that agents act on behalf of principals within the country to conduct commercial activities, guided by commercial considerations beneficial to both parties. Each case is evaluated individually to ensure compliance with Ministry of Commerce regulations, thereby safeguarding against any potential violations.

The Ministry of Commerce added that freedom of contract is a fundamental cornerstone, aligned with international best practices, and underpinned by stringent procedures and controls governing goods and services offered to consumers. It highlighted the oversight role of the General Administration of Commercial Control in monitoring markets, sales outlets, and agencies to ensure adherence to Ministry regulations and uphold consumer rights. Furthermore, the Ministry underscored that provisions for maintenance and spare parts mandate agents to consistently provide essential spare parts at reasonable prices, meeting ongoing consumer demands effectively.

Lawyer Abdullah Al-Mansour, a prominent member of the Saudi Bar Association specialising in commercial law, highlighted the distinct legal frameworks governing trademark use contracts. According to Al-Mansour, such contracts typically fall into two categories: franchise agreements or commercial agency contracts. Al-Mansour explained that Saudi legislation specifically regulates franchise contracts within a structured franchise system. This type of contract involves a franchisor granting another party, known as the franchisee, the right to operate a business under the franchisor’s trade name or trademark. The franchise agreement confers all rights held by the franchisor to the franchisee. In contrast, a commercial agency contract involves the sale of products or the provision of services to consumers in exchange for financial consideration. In this arrangement, the commercial agent acts as a representative of the parent company that owns the trademark, and is therefore affiliated with the parent company.

Lawyer Al-Mansour highlighted two essential clauses common to both franchise and commercial agency contracts: the franchise area and the non-competition clause. The franchise area clause stipulates a specific geographical area for the franchisee or agent. This is a critical condition in both contracts, ensuring that the principal or franchisor cannot conduct commercial, service, logistical, or other activities within the agreed-upon geographical area. The non-competition clause is another fundamental condition in both contracts. Breaching this clause undermines the purpose of the franchise or commercial agency contract. It specifies that the principal or franchisor cannot compete with the franchisee or agent within the designated area, either directly or by granting franchise rights or agency contracts to others.

Al-Mansour added that when a consumer requests a product or service from the parent company, whether through the internet or other means of communication, and is redirected to the agent’s or franchisee’s website or communication channels, this occurs under a commercial agency or franchise contract, adhering to the contract’s terms and conditions. He further emphasised the importance of these contracts in enhancing the national economy, reducing unemployment rates, and improving international trade relations. He also highlighted their role in advancing the economic and commercial landscape, aligning with and developing commercial enterprises to achieve profitability.

Ahmed Al-Harbi shared that he used to order from an international store’s website instead of the local store due to the lower prices, which were more than 200 riyals cheaper than those at the agent. However, five months ago, the website began refusing to ship abroad. When he inquired about the reason for this issue, he was informed by the foreign store’s customer service that the restriction was due to export rules.

Shahd Mohammed mentioned that she made several attempts to order medical clothing, bags, and cosmetics from international stores, but her orders were refused to be shipped and redirected to the agents’ websites. She described this practice as a monopoly, noting that the agents’ prices were significantly higher than those of the foreign stores.