The distribution of products and services in the French overseas departments (Guadeloupe, French Guiana, Reunion, Martinique and Mayotte) has many particularities. Different payment terms, a separate tax regime – including dock dues, which make imports more expensive – and the individual characteristics of each department make these markets distinct from metropolitan France with specific sales standards and criteria. The legal regime for exclusive distribution contracts concluded with distributors in those territories is very demanding and risky for suppliers, as it is in most of the other French overseas territories subject to a similar regime.

I. The legal regime of distribution in the French overseas departments (DOM).

1. The prohibition of exclusive import rights.

Under Article L. 420-2-1 of the French Commercial Code (resulting from the Law n° 2012-1210 of 20 Nov. 2012, known as the Lurel Law) “agreements or concerted practices having the object or effect of granting exclusive import rights to an undertaking or group of undertakings are prohibited in the collectivities covered by Article 73 of the Constitution [i.e., the overseas departments and regions] and in the overseas collectivities of Saint-Barthélemy, Saint Martin, Saint-Pierre-et-Miquelon and Wallis and Futuna”. The prohibition also applies to existing contracts; the parties had a period of four months from the promulgation of the Lurel Law to bring themselves into compliance. Such agreements may be exempted provided that their creators can justify that they are based on objective reasons of economic efficiency and reserve for consumers a fair share of the resulting benefit (Art. L. 420-4, III). The provision is difficult to apply by suppliers based in mainland France, who have a uniform exclusive distribution system for all French territories, and there have been a number of cases where the French Competition Authority (ADLC) has handed down sanctions. The Authority applies the prohibition very broadly: the mere entry of goods triggering the payment of taxes is sufficient to characterize an import (ADLC, 20 Feb. 2018, No. 18-D-03); the prohibition is not limited to consumer goods (ADLC, 20 Feb. 2018, aforementioned); violation of the text can lead to the sanctioning of both suppliers and wholesalers/importers (ADLC, 8 Oct. 2019, LawLex201900001194JBJ).

II Assessment of the legal regime relating to distribution in the French overseas departments (DOM).

1. Numerous disadvantages and perverse effects from a commercial point of view.

The prohibition of exclusive import rights implies the definition of a special system distribution for distribution in the overseas departments in relation to the general system if a company has chosen to distribute its products exclusively. It can lead to an increase in the number of contracts to be managed and therefore in transaction costs. Some brands prefer not to sell their products in the French overseas departments rather than having to manage several mini contracts. Distributors are not as efficient because they can no longer amortize their investments on all sales, while their sales potential is already limited, and are therefore discouraged from investing due to the lack of guaranteed exclusivity. Since many suppliers have undertaken to issue regular calls for tender, distributors, placed in a precarious situation, are even less motivated to invest, while they also lose the protection of the law on the termination of established commercial relations. It is therefore not at all certain that the economic and commercial results of the Lurel law are positive.

2. A potential conflict with EU law.

In many cases, commercial relations between suppliers and distributors in the French overseas departments are considered to have an appreciable effect on trade between Member States. In this case, under Regulation 1/2003, French competition law cannot prohibit an agreement that is exempted under European law. However, exclusive distribution agreements are automatically block exempted under the successive vertical block exemption regulations when the supplier and the distributor’s market share does not exceed 30%, which is very common in practice. The Lurel law, which was not subject to any derogation under article 349 TFEU, cannot therefore logically prohibit exclusive import contracts exempted by European competition law. This outright contradiction with European law is sometimes denied by reference to an obiter dictum contained in a recent decision of the Paris Court of Appeal (CA Paris, 9 June 2022, LawLex202200003117JBJ), which held that European law did not apply for lack of appreciable effect on trade between Member States and that in any case, the Lurel Law pursues another goal unrelated to competition, regarding the preservation of civil peace in the DOMs and could therefore disregard European competition law of. We do not share this position. The Lurel law on import bans is included in the provisions of the Commercial Code relating to competition law and falls within the competence of the French Competition Authority (ADLC) whose role is to enforce competition law. The preparatory works on the Lurel Law explicitly state that the text pursues a competition objective. Moreover, the prohibiting of exclusivities and the exempting of them forms the essence of competition law.

3. An attempt to apply the prohibition of exclusive rights in import agreements to qualitative and quantitative selective distribution contracts.

It has been argued that quantitative selective distribution agreements with one distributor per department in the French overseas departments could be equated with agreements granting exclusive importation rights. This is a misunderstanding. In a selective system, even with a quantitative limit of one distributor per department, each distributor in each department is subject to active and passive sales from all other selective distributors in the network and can itself sell actively and passively in the entire contract territory, which generally extends to the whole of the EEA. By definition, a qualitative and quantitative selective distribution contract cannot therefore be covered by the Lurel Law. A local commercial court has asked the French Competition Authority to render an opinion on these issues – which our firm is following -, which are of interest to all distribution networks operating in the French overseas departments (T. mixte com. Fort-de-France, 31 March 2021, RG 2021/2994).
The information contained in this correspondence does not constitute legal advice and cannot be used as a basis for legal action.