Local partner arrangements are the principal vehicle through which foreign principals access the Iraqi market for the supply of goods and services. The legal characterisation of the arrangement, and the consequent rights and obligations of the parties, is governed in Federal Iraq by the Commercial Agency Law No. 79 of 2017, which replaced the prior Commercial Agency Law No. 51 of 2000 with effect from its publication in the Official Gazette on 13 November 2017. Within the Kurdistan Region of Iraq, the Old Law No. 51 of 2000 continues to apply, together with the general provisions of the Iraqi Civil Code (Law No. 40 of 1951).
Scope of the Commercial Agency Law No. 79 of 2017
A material innovation of Law No. 79 of 2017, distinguishing it from the Old Law, is the breadth of its substantive scope. The New Law extends to:
- Commercial agency proper, in which the agent acts on behalf of and in the name of the principal
- Distribution arrangements, in which the distributor purchases goods from the principal and resells them on its own account
- Franchise arrangements, in which the franchisee operates under the principal’s commercial identity and system
The Old Law was confined to traditional agency relationships, with the consequence that distribution and franchise arrangements concluded prior to the New Law were governed principally by the general law of obligations. Operators with pre-existing arrangements should accordingly review their position against the New Law’s registration and substantive requirements.
Registration Requirement
Pursuant to Law No. 79 of 2017, goods imported for trading purposes shall be imported through a registered commercial agent. The agent is registered in the Commercial Agency Register maintained by the Ministry of Trade following submission of the prescribed application together with the underlying agency, distribution or franchise agreement and supporting documentation. The registration confers on the agent the right to act under the New Law and constitutes the precondition for the lawful importation of goods for trading purposes through the agent.
Conditions for the Commercial Agent
Law No. 79 of 2017 prescribes the conditions that must be satisfied by a person seeking registration as a commercial agent. The principal conditions include Iraqi nationality, full legal capacity, absence of any conviction for a felony or misdemeanour involving moral turpitude, the absence of any employment in the public service that would prevent the practice of commercial agency, and membership of a chamber of commerce. Where the agent is a corporate person, equivalent conditions apply to its authorised manager. The legislative purpose underlying the nationality and integrity conditions is to confine the practice of commercial agency to qualified Iraqi merchants.
Termination and Non-Renewal Protections
Law No. 79 of 2017 introduced enhanced protections for the registered commercial agent against unilateral termination by the foreign principal. The substantive position is that the principal may not terminate or refuse to renew the agency, distribution, or franchise contract except for serious cause, with the burden of establishing such cause falling on the principal. In the absence of serious cause, termination or non-renewal may give rise to compensation in favour of the agent. The amount of compensation is determined having regard to the duration of the relationship, the agent’s investment in the development of the market, and the loss occasioned by the termination. This represents a material departure from the position under the Old Law, in which the agency could be terminated at the principal’s discretion.
Distinguishing Agency from Other Arrangements
The characterisation of an arrangement as an agency, distribution, or franchise under Law No. 79 of 2017 is determined by the substance of the relationship rather than the form of the documentation. The distinguishing features include the basis on which the local party transacts (in its own name and on its own account, or on behalf of the principal), the manner of remuneration (margin, commission, or franchise fee), the allocation of inventory risk, the use of the principal’s trade marks and commercial identity, and the degree of operational control exercised by the principal. Mischaracterisation in the documentation does not preclude the application of Law No. 79 of 2017 where the substantive features are present.
Kurdistan Region Position
Within the KRI, Law No. 79 of 2017 has not been ratified by the Kurdistan Parliament and is accordingly not applied within the Region. The applicable framework comprises the Old Commercial Agency Law No. 51 of 2000, supplemented by the general provisions of the Iraqi Civil Code on agency (Articles 927 et seq.). Under the Old Law, the scope of regulated agency is narrower, the termination protections are more limited, and the registration requirements differ. Operators with cross-regional arrangements should structure separately for the Federal and KRI components and ensure that the documentation, registration, and operational practice are aligned with the applicable framework in each region.
Governing Law and Dispute Resolution
The Iraqi Civil Code recognises party autonomy in the choice of the governing law of contractual obligations, subject to the mandatory provisions of Iraqi law and Iraqi public policy. The mandatory provisions of Law No. 79 of 2017 governing registration, termination protections, and the conditions applicable to the commercial agent are, in general, to be regarded as overriding mandatory rules that apply notwithstanding a foreign governing law clause. Dispute resolution clauses should accordingly accommodate the prospect that the substantive provisions of Law No. 79 of 2017 will be applied by an Iraqi court or by an arbitral tribunal seated in Iraq.
Exclusivity Considerations
Exclusivity is not granted by force of registration under Law No. 79 of 2017. Where the principal wishes to confer exclusivity on its commercial agent, distributor, or franchisee, this should be expressly provided for in the contract, with attention to the territorial scope, the product scope, the duration, and the consequences of breach of the exclusivity undertaking. The principal should additionally consider its capacity to enforce exclusivity against parallel imports, which is materially affected by the prevailing trade and customs framework.
How We Can Help
Etihad Law Firm advises on local partner arrangements in Iraq, including the drafting and negotiation of commercial agency, distribution, and franchise agreements compliant with the Commercial Agency Law No. 79 of 2017, the registration of arrangements with the Ministry of Trade Commercial Agency Register, the structuring of cross-regional arrangements addressing both Federal Iraq and the KRI, the negotiation of termination and renewal protections, and the conduct of disputes arising under terminated or non-renewed arrangements.