Bashar H Malkawi
email: bmalkawi@gmail.com

I Introduction

Bashar H Malkawi Is Dean

Digitalization of Trade in Free Trade Agreements with Reference to the WTO and the USMCA: A Closer Look

Digital trade offers economy-wide benefits. 1 The advancement of technology has aided international business. Millions of people worldwide use the Internet to do everything from research to purchasing products online. One of the many uses derived from the Internet is the development of digital trade. Digital trade lends itself to distinctive issues. World Trade Organization (WTO) members recognized the benefits digital trade offers and have developed a work program to facilitate the development of digital trade. However, WTO efforts to facilitate digital trade have stalled, leading to a slower than anticipated progress. The question this article addresses is how the WTO supports and deals with digital trade.

involves the largest economy in the world and the U.S. could use USMCA provisions as template for future trade agreements. 2

A. Development of the Internet

The rise of digital trade is based on the revolution of the Internet. The development of the Internet has evolved from a tool of communication to one of economic utility. The Internet facilitates electronic business transactions both nationally and internationally by permitting businesses to have easy access to large consumer bases at lower costs.

The modern structure of the Internet developed from a United States Army experiment more than thirty years ago. 3 The term Internet derived from the terms "interconnection" and "network." The term Internet meant the network formed by the cooperative interconnection of computing networks. 4 Today, the Internet exists in no physical realm. Instead, it is a giant network which interconnects innumerable smaller groups of linked computer networks. 5 This network is referred to as the World Wide Web (www). The Internet has the ability to disseminate information to a large number of people quickly and with minimum costs. 6 Because of the inexpensive nature of the Internet, the start-up cost to a company desiring to have a place on the Internet is minimal.

2 Earlier free trade agreements have included e-commerce chapters since the 2001 US-Jordan FTA. However, the e-commerce provisions can be limited to goods sold online. See Brian Bieron and Usman Ahmed, Regulating E-commerce through International Policy: Understanding the International Trade Law Issues of E-commerce, 46.3 Journal of World Trade 545, 551 (2012). See also Maria Ptashkina, Facilitation 2.0: E-Commerce and Trade in the Digital Age 7-8 (2018), available at <https://www.ictsd.org/sites/default/files/research/rta_exchange_-_ptashkina_-_facilitation_2.0_-_e-commerce_-_ptashkina_0.pdf>. 3 See 47 United States Code § 230(e)(1) (Supp. 1998). 4 Glee Harrah Cady and Pat McGregor, Mastering the Internet 5 (Sybex Inc: California, 2ed edition, 1996). 5 See Reno v. ACLU, 117 Supreme Court 2329, 2334 (1997). 6 See David M. Cielusniak, You Cannot Fight What you cannot See: Securities Regulation on the Internet, (1998) Fordham International Law Journal Vol 22, pp 612-616.

3

In its early inception, the Internet was used mainly as a tool for people to communicate with one another through e-mail or in chat rooms. Early utilization of the Internet for business focused mainly on direct business to consumer transactions. Some businesses, realizing the risk of surviving in the Internet environments, have moved away from consumer based transactions to the business to business (B2B) model which means the use of the Internet by one business to market his product to another business.7

B. Importance of Digital Trade in the Global Market

Digital trade can be defined as the use of the Internet to conduct business transactions nationally or internationally. 8 The Internet is profoundly affecting almost all businesses. The various uses of the Internet by business entities include the ability to advertise, generate, or otherwise perform regular business functions. Therefore, many firms are embracing the Internet for many of their activities.

Numbers can indicate the importance of the digital trade boom. In 2017, global digital trade was worth over $2090 billion.9 Around eighty percent of those transactions were between one business and another. The influence of digital trade stretches farther. It is used more as a trading system in which buyers and sellers could establish a genuine market price.

Traditional companies cannot ignore the importance of digital trade. Most companies must become e-firms if they are to survive. However, merely adding a website to an existing business is not enough. The whole business for companies needs to be redesigned around the cost-saving, communication-easing properties of the net. One impact for digital trade is thus to intensify competition and producing benefits to consumers in lower prices and more choices.

II. WTO and Digital Trade

Digital trade has developed after the creation of the WTO in 1994. Consequently, the WTO does not contain specific articles for digital trade. Nevertheless, there are several WTO agreements related to digital trade. These WTO agreements include the General Agreement on Trade in Services (GATS) and the Information Technology Agreement (ITA).

The GATS is of particular significance to digital trade for several reasons. First, the communication services which provide access to digital trade fall under the GATS. 10 Second, GATS covers many sectors and modes of delivery whether the mode is traditional or electronic. Indeed, it was determined that GATS was technologically neutral.

11 Third, the execution of an electronic transaction necessitates infrastructure services (distribution, payment, etc.) whose liberalization equally falls under the GATS.

In view of the acknowledged importance of telecommunication services, the access to public telecommunication networks was incorporated in a separate telecommunication annex. 12 Each WTO member agreed to liberalize specific service sectors. These commitments are included in schedules or lists of service commitments. These commitments range 11 See WTO Panel Report, US -Gambling, WT/DS285/R, para. 6.285. from liberalizing education, tourism, insurance, media, auditing, legal services, and other areas. In other words, what is covered and not covered a WTO member schedule of service depends on the particulars of that country. 13 Many service sectors can be delivered physically and more importantly electronically. Whenever unlimited market access commitments are undertaken, every means of delivery including remote supply should be allowed. 14 Article VI GATS authorizes the Council for Trade in Services to develop the necessary disciplines to ensure that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services. This language applies to digital trade. WTO members should not adopt policies or measures that are more burdensome than necessary to ensure quality of the service.

WTO members agreed to so-called Reference Paper. The Reference paper provides for rules that shall prevent anti-competitive behavior in the telecommunications sector. 15 The Reference Paper includes competition policy principles to ensure access to public telecommunication networks. WTO members considered that the Reference Paper might be applicable to digital services where Internet access providers qualify as major suppliers of basic telecommunications. 16 The EU was of the opinion that the principles of the Reference Paper are applicable to internet access and internet network services. 17

The Information Technology Agreement (ITA) is of a particular significance to digital trade. WTO members agreed to a common position with regard to trade in information technology (IT) goods. WTO members committed themselves to reduce their tariffs on IT-goods in four steps of twenty-five percent to reach a tariff-free policy by the year 2000. 18 This obligation pertains to a common list of IT-products covering wide range of some 180 information technology products in five major categories: computers and peripheral devices, semiconductors, printed circuit boards, telecommunications equipment (except satellites), and software. By the year 2015, the ITA covers ninety-five percent of the existing world trade in IT-goods. 19 Thus, the ITA brings advantages to a wide range of production activities. 18 See Charles Owen Verrill, Jr., Peter S. Jordan, Timothy C. Brightbill 'International Trade' (1998) International Lawyer Vol 32, pp 319-324, 1998. 19 See WTO, 20 Years of the Information Technology Agreement, available at < https://www.wto.org/english/res_e/booksp_e/ita20years_2017_chap2_e.pdf >. 20 Four WTO subsidiary bodies had been charged with examining e-commerce issues: the Goods Council, the Services Council, the TRIPS Council and the committee on Trade and Development. See WTO Secretariat, Development Implications of Electronic Commerce, WT/COMTD/w/51 (November 23, 1998).

the advertising and searching stage, the ordering and payment stage, and the delivery stage. Any or all of these stages may be carried out electronically and may therefore be covered by the concept of digital trade. In other words, a buyer may purchase a book via the Internet and to be delivered physically later on or he can purchase and download the book via the Internet. In either case, the purchase of the book could be said that it is conducted through digital trade means.

Despite the fact that the WTO Work Program on Electronic Commerce has been set up in 1998, very little progress has been achieved. The most important issue blocking progress on digital trade in the WTO agenda is the question of categorization. WTO members differ whether products which were usually sold as goods due to their link to a physical carrier and which can now be delivered online over the net (e.g. music or movies) shall be treated as goods under the General Agreement on Tariffs and Trade (GATT) or as services under the GATS. 21 For example, if a book is ordered online, but is delivered physically, for the purposes of WTO trade rules, it is a good. That makes it subject to the GATT. However, if the book is delivered electronically -downloaded onto the computer -it is unclear whether this digital product should be treated as a good or a service. If goods delivered online were considered goods, they would be subject to few trade restrictions under the GATT such as tariffs. 22 On the other hand, if goods delivered online were considered services, they would be subject to more trade restrictions under the GATS such as market access barriers and discriminatory domestic regulations. 23 For example, if the delivery of films and broadcasts on the Internet is considered services, countries apply their restrictive rules on the distribution and broadcast of audiovisual works to films and television programs transmitted over the Internet. Until the classification debate is resolved, WTO members decided not to impose tariffs on imported electronic transmissions.

There were numerous WTO meetings and seminars producing views and proposals which are reflected in the country statements or the final reports. 24 These meetings would include informal exchange of view-points than the achievement of agreements.

Therefore, the classification debate issue continues to be unresolved. 25 There have been no new digital trade relevant actions at the WTO until now.

A. WTO Case Law and Digital Trade

The first time the WTO addressed digital trade was its ruling on U.S. restrictions on cross-border Internet gambling services. Antigua and Barbuda initiated a dispute case against the U.S. claiming that U.S. Internet gambling restrictions, restrictions by U.S. credit card companies on payments to offshore gambling outlets, at both the federal and state levels violated the U.S. commitments under the GATS. Antigua claimed to have lost some $90 million over the period 2000-2004 as a result of the restrictions in the U.S., its 23 When an electronic transaction falls under the GATS one must also decide under what GATS mode the service is to be registered. The GATS describes several modes for service delivery. In the case of electronic transaction, it is a point at issue if it shall be under mode 1 (cross-border trade) where a service is exported from one member of the WTO to another member or mode 2 (consumption abroad) where the service is consumed in the country of origin of the service supplier but is consumed by a customer of a different nationality. 24 principal market, and reducing the number of Internet gambling enterprises in Antigua from 119 to 30 in the same period.

A WTO panel ruled that online gambling restrictions imposed by the U.S. at the federal and state levels violated its market access commitments under sub-sector 10.D (other recreational services) of its GATS schedule. 26 In specific, the WTO panel agreed with Antigua that U.S. market access commitments under Section 10.D of its GATS schedule covering "other recreational services" do include gambling services. The panel rejected the U.S. claim that it never intended to allow the cross-border supply of such services. The panel also maintained that the U.S. commitment to allow unrestricted market access on recreational services applies to all means of delivery, including the Internet. While the WTO panel agreed with the U.S. that the U.S. ban on cross-border gambling services may be justified under WTO rules to protect "public morals," it found that the ban was applied in a discriminatory manner since the U.S. permits remote gambling wagers through off-track betting under the 1978 Interstate Horseracing Act.

In China -Publications and Audiovisual Products, the WTO panel found that the scope of China's commitment in its GATS Schedule on "Sound recording distribution services" extends to sound recordings distributed in non-physical form through technologies such as the Internet. 27 In achieving this outcome, WTO panel relied on the principle of progressive liberalization which contemplates that WTO Members undertake 26 See Appellate Body Report, United States -Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R (April 7, 2005). 27 See China -Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products -Report of the Panel, para. 7.1209 (Aug. 12, 2009) (In examining the definitions in Article XXVIII(b) of the GATS, we note that 'the supply of a service' is defined as including the 'production, distribution, marketing, sale and delivery of a service' (emphasis added). This definition makes clear that the activity of 'distribution' is included within the notion of the supply of a service. Since a 'service' is intangible and not itself a good, this definition suggests that the supply of a service listed in a Member's Schedule, unless otherwise specified, can cover the distribution of non-physical products, such as sound recordings delivered over the Internet). specific commitments through successive rounds of multilateral negotiations with a view to liberalizing their services markets incrementally. 28 Thus, distribution covers both tangible and intangible products.

Prior to the WTO panel's findings in those disputes, neither WTO panel nor the Appellate Body has ever decided a digital trade case. The WTO's ruling would have important implications, notably in the relationship between the WTO and digital trade. Now, under the WTO jurisprudence digital trade is covered under the GATS.

III. The Digital Trade Provisions in the USMCA

The US-Mexico-Canada trade agreement (USMCA) FTA includes explicitly provisions concerning digital trade. 29 The digital trade provisions of the USMCA -which resemble the language in the Trans-Pacific Partnership (TPP) -apply to goods and services traded over the medium of the Internet. 30 The USMCA ensures that physical software and downloaded software are both treated the same.

The USMCA provides a definition for digital products. A digital product means a computer program, text, video, image, sound recording, or other product that is digitally encoded, produced for commercial sale or distribution, and that can be transmitted electronically. The USMCA provides illustrative examples of digitized products such as electronically traded software, books, and music.

The entire purpose of the FTA is to lower barriers to trade in all sectors, including digital trade; therefore, the U.S., Mexico, and Canada were in the position with digital trade to never even establish a tariff that would later need to be lowered and eliminated. 31 The FTA creates duty-free cyberspace. The USMCA requires parties not to impose customs duties on electronic transmissions. This language is based on the U.S. Internet Tax Freedom Act of 1998. 32 The customs duties standstill in the USMCA is not indefinite or permanent. The parties to the agreement are merely obliged to continue the customs duties standstill until further notice.

The continuing of the no-duty policy under the USMCA may result in negative economic impact because Mexico for example would not collect from digital transactions as it does from other transactions that actually result in the payment of tariffs. The other economic implication for no-duty policy under the trade agreement is that it could lead to trade-diversion because of the preferential treatment of a particular mode of delivery over other modes. The USMCA language is limited to tariffs but not domestic taxes whether direct or indirect. Therefore, the U.S. could impose taxes on seller's income based on his economic activity. Mexico or Canada can impose value added taxes on some transactions, especially for tangible goods above a certain value. However, any domestic taxation of digital trade could be limited and done in a way which ensures neutral treatment between supply modes.

The USMCA also requires that the parties do not establish unnecessary barriers on electronic transmissions. 33 The term "unnecessary" is not clearly understandable. In addition, the standard "unnecessary barriers" is subjective since each party will determine 31 Id. art. 19.3. 32 The act, which has the purpose of promoting universal access and less burdensome Internet tax policy, imposes a moratorium on all taxation of Internet access and on "multiple" or "discriminatory" taxes on ecommerce. The act also includes a declaration that the Internet should be free of tariffs, trade barriers, and other restrictions. Moreover, the act asks the U.S. President to pursue "international agreements" to ban such tariffs and other trade barriers. See Internet Tax Freedom Act of 1998, 47 United States Code §151 (2000). The moratorium begins on Oct. 1, 1998 andends on Nov. 1, 2003. 33 The USMCA is concerned with the delivery of services electronically. As such, the FTA not only covers trade in goods electronically but also trade in services. For instance, a supplier in the U.S. could deliver financial services, engineering plans, or legal services, to a client in Mexico through the Internet. However, in this instance it is unclear how the mode of the delivery could be classified, whether it is virtual cross-border supply or consumption abroad.

The USMCA does not require harmonization of digital trade laws and regulations of the U.S., Mexico, and Canada. The absence of such harmonization could pose problems for trading in products electronically when countries have different levels of laws and regulations. However, since the nature of the Internet and digital trade is global then an international approach is needed for regulating digital trade.

The USMCA contains several principles that deal with technological neutrality i.e., ensuring that basic trade concepts of non-discrimination, national treatment, and mostfavored-nation status apply to digital trade, and regulatory forbearance -i.e., avoiding government action that would restrict trade. The USMCA also covers the validity of electronic signatures. 34 The USMCA has yet to determine if digital products should be treated as goods, services, or something new altogether. Determining whether an e-product is a good or service is a crucial assessment. If an e-product is a good, then it will be subject to the national treatment rules of the trade agreements. In contrast, if an e-product is a service, then each party may impose restrictions on market access and national treatment.

Moreover, the digital trade provisions of the USMCA apply to digitized products traded only between the parties. However, considering the global nature of digital trade, it might be difficult to determine whether the product is of a U.S. or Mexican origin for purposes of the trade agreement.

The USMCA provides that no country is allowed to give less favorable treatment to digital products "created, produced, published, contracted for, commissioned or first made available on commercial terms in the territory of another party, or to digital products of which the author, performer, producer, developer or owner is a person of another party." 35 Also, the USMCA allows the parties to provide subsidies or grants to its own residents and businesses, including "government-supported loans, guarantees and insurance. 36 These USMCA provisions give the parties some policy space whereby they can favor their domestic cultural industries.

The USMCA has a requirement to maintain anti-spam rules and online consumer protection laws. 37 However, these rules do not contain any specificity. The same is true for personal information protection requirements, 38 which call for a legal framework to protect the personal information of users of digital trade, but buried in a footnote is an acknowledgment that merely enforcing voluntary undertakings of enterprises related to privacy is sufficient to meet the obligation. The USMCA information protection requirements do not establish a mandatory minimum of protection.

35 Id. art. 19.4.1. 36 Id. art. 19.4.2. 37 Id. art. 19.7. The consumer protection provisions apply online and do not help consumers enforce their rights across borders. 38 Id. art. 19.8. Paperless trade did not escape the attention of USMCA negotiators as it helps in facilitating trade. 39 Each party endeavors to accept a trade administration document submitted electronically as the legal equivalent of the paper version of that document.

Although the language used is not strong as it refers to "endeavors", but it is still important to include it to ensure faster movements of goods and services across borders.

The USMCA include targeted sections on computer facilities. 40 The purpose of such a provision is to prevent maintaining control over information processing and storage in a country. Thus, the parties to the USMCA would not make it a condition for conducting business that a company from a trading partner must use or locate a computing facility in their country. The USMCA does not provide for public policy objectives which may lead party to require the physical presence of computing facilities in certain circumstances.

The USMCA recognizes that there are different legal approaches to protecting personal information, including comprehensive privacy, personal information, or personal data protection laws; sector-specific laws covering privacy; or laws that provide for the enforcement of voluntary private sector undertakings. The U.S., Canada, and Mexico agreed to promote compatibility and exchange information on their respective mechanisms. The USMCA specifically identifies the APEC Cross-Border Privacy Rules system as a valid mechanism to facilitate cross-border information transfers while protecting personal information. 41 The USMCA includes provisions to break down data localization laws, which require that certain kinds of data remain within a country's borders. The USMCA bans 39 Id. art. 19.9. 40 Id. art. 19.12. 41 Id. art. 19.4. restrictions on data transfers across borders. 42 In contrast, the EU demands limits on data transfers. 43 The European model of data protection uses data transfer restrictions as a way to ensure that the information enjoys adequate legal protections.

The USMCA prevents countries from requiring the disclosure of source code. 44 In addition, the USMCA goes further to bar governments from requiring the disclosure of "algorithms" expressed in that source code unless that disclosure was required by a regulatory body for a specific investigation, inspection, examination enforcement action or proceeding.

The USMCA provides protection for Internet service providers modeled on the Digital Millennium Copyright Act. 45 The USMCA protects Internet service providers for copyright liability for the actions of their users. Internet platforms are not held civilly -but not criminally-liable for the actions of their users. However, there is no language in the USMCA that requiring a balanced approach to copyright which might have further empowered user rights.

The USMCA protects open government data provided in machine readable format. 46 The language used regarding open government date is not mandatory but rather best endeavors.

Conclusion

The Internet offers substantial opportunities to companies. The world has witnessed an explosion in digital trade in the past few years, with online shopping now doubling 42 Id. art. 19.11. 43

16

annually. Although the WTO did not contain explicit articles covering digital trade, it was seen that the WTO is well-fitted to advance digital trade because of the WTO principles of non-discrimination, transparency, and market openness. However, the WTO program on digital trade is stalled because WTO members could not agree on the socalled horizontal issues such as whether products delivered in digital form should be classified as goods or services under WTO rules.

The USMCA was thought as a breakthrough to the WTO deadlock in the sense that the FTA included explicit chapter concerning digital trade. A closer examination of the USMCA on digital trade revealed that the parties invent some specific rules needed for digital trade. For most of the digital trade provisions in the USMCA, the approach of the parties was based on the simple premise that digital trade is trade, that it is only the form by which the commercial transaction is performed which may be new, and not its substance; thus the parties relied on existing treaties or domestic laws. Thus, the USMCA does not require many legal changes to domestic laws.

The digital trade provisions in the USMCA showed the need to push the debate over digital trade forward. Future trade agreements should expand existing trade rules or draw up new rules. There is a host of digital trade issues that need to be addressed in future trade agreements. Among them are including new technologies such as block chain, classification of the content of certain electronic transmissions, the issue of "likeness" of e-goods; development-related issues, including access to infrastructure and technology; fiscal and revenue implications of digital trade, the relationship and possible substitution effects between digital trade and traditional forms of commerce., and whether dispute settlement mechanism covers digital trade in a way similar to any other provision in the

10

  See Taunya L. McLarty 'Liberalized Telecommunications Trade in the WTO: Implications for Universal Service Policy' (1998) Federal Communications Law Journal Vol 51, pp 1-7.

  Largely at the insistence of the U.S. at the WTO Ministerial Conference in 1998, WTO members decided to develop a work program covering digital trade. 20 According to the WTO Work Program on Electronic Commerce, digital trade is understood to mean the production, distribution, marketing, sale or delivery of goods and services by electronic means. The WTO divides digital trade transactions into three distinctive stages: 16 See WTO Council for Trade in Services, Work Programme on Electronic Commerce -Progress report to the General Council, Adopted by the Council for Trade in Services on 19 July 1999, S/L/74, 27 July 1999, para. 13. 17 See WTO Work Programme on Electronic Commerce, Communication from the European Communities and their Member States, S/C/W/183, 30 November 2000, para. 6.

21

  See Kristi L. Bergemann 'A Digital Free Trade Zone and Necessarily-Regulated Self-Governance for Electronic Commerce: The World Trade Organization, International Law, and Classical Liberalism in Cyberspace' (2002) Marshall Journal of Computer and Information Law Vol 20, pp 595-601. 22 The U.S. has been the primary advocate of the position that products delivered online should be classified as goods. The European Union counters that all products delivered electronically should be considered services. See Stewart A. Baker et al. 'E-Products and the WTO' (2001) 35 International Lawyer Vol 35, pp 5-7.

  See Committee on Trade and Development, Seminar on Electronic Commerce and Development, WT/COMTD/18 (March 23, 1999). 25 See Daniel Pruzin, U.S. Holds E-commerce Talks with WTO Partners, Covering Nature of Digital Products, International Trade Daily (Bureau of National Affairs) (June 13, 2001).

  what a necessary or unnecessary barrier is. An example of unnecessary barrier could be applying trade restrictive technology mandates and not using open and market-driven standards. Applying trade restrictive technology mandates could inhibit the growth of digital trade

  28 See China -Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products -AB-2009-3 -Report of the Appellate Body, paras. 392-394 (Dec. 21, 2009). 29 See Chapter 19 Digital Trade, The U.S.-Mexico-Canada Trade Agreement, available at < https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/19_Digital_Trade.pdf>.

30 Id. art. 19.4.2.

  See The U.S.-Mexico-Canada Trade Agreement, supra note 29, art. 19.2 & art. 19.5.

  See Shakila Bu-Pasha, Cross-Border Issues under EU Data Protection Law with regards to Personal Data Protection, 26 Information and Communication Technology Law 213, 216 (2017). 44 The U.S.-Mexico-Canada Trade Agreement, supra note 29, art. 19.16. 45 Id. art. 19.17. See also Emily M. Asp, Section 512 of the Digital Millennium Copyright Act: User Experience and User Frustration, 103 Iowa Law Review 751, 762-765 (2018). 46 Id. art. 19.18.

Digital trade and e-commerce can be used interchangeably. Both terms refer to the trade of goods and services using the Internet including the transmission of information and data across borders. However, digital trade has wider connotation such as big data, Internet of things, and clouding. Thus, "digital trade" will be utilized throughout the article.

See Barrett Schaefer 'International Taxation of Electronic Commerce Income: A proposal to utilize software agents for source-based taxation' (1999) Santa ClaraComputer and High Technology Law Journal Vol 16,

World Trade Organization, Study from WTO Secretariat highlights potential trade gains from electronic commerce, available at http://www.wto.org/english/newse/pres98 e/ pr96 e.htm(March 13, 1998).

See Global E-Commerce Trends and Statistics, available at < https://amasty.com/blog/global-ecommerce-trends-and-statistics-2017-2018/ >.

The Telecommunication Annex states that any service supplier of any other WTO member must be accorded access to and use of public telecommunication networks and services on reasonable and nondiscriminatory terms and according to conditions for the supply of a service included in the country schedule (Annex 5 a).

See Ruosi Zhang, Covered or Not Covered: That Is the Question -Services Classification and Its Implications for Specific Commitments under the GATS, (World Trade Organization 2015).

See Appellate Body Report, US -Gambling, WT/DS285/AB/R, para. 239.

The non-discriminatory, transparent access and interconnection with the public network or dominant supplier is obligatory. Even though each country has the right to maintain domestic regulations concerning universal service obligations, this right shall be used in a fair and non-discriminatory manner. The allocation of licenses but also the award of other scarce resources (numbers, frequencies, etc.) shall also be fair and non-discriminatory. The Reference Paper demands the establishment of an independent regulatory agency which must supervise the observance of the above principles and the telecom markets in general.

Id. art. 19.6.

free trade agreement. By expanding and developing rules for digital trade, parties to the USMCA can take maximum advantage of the vast opportunities that the technological revolution offers.


courses open to it. The foreign manufacturer could establish a branch or wholly-owned subsidiary in Jordan or enter into a licensing or joint venture agreement with a company doing business in Jordan. If it wants a less significant presence, however, it is left with the alternative of having a local commercial agent market and sells its products.

Commercial agency has taken an increasing share of domestic and international business. The number of agencies and percentage of total retail sales has grown rapidly, far outpacing economies as a whole. 1 Agents play essential role in promoting the sale of their principal's products and performing a multiplicity of other functions for their principals, ranging from the procurement of visas and customs clearances to providing support and assistance in contract negotiations and local government relations.

The law of commercial agency in Jordan is statutory. Agency is subject to dual regulation; civil and commercial codes. 2 A basic law also exists regulating agency legal relationships; Law of Commercial Agents and Intermediaries No. 28 of 2001. 3 In addition, international developments at the World Trade Organization (WTO) impact the future of commercial agencies laws in Jordan.

Given the high financial commitment of agency investments, and the time duration of most agency agreements, it is not surprising that the legal issues surrounding exclusivity and termination are among the most controversial in agency law. Clauses governing exclusivity and termination are likely the most important provisions in the agreement, as they limit what an agent may do.

The purpose of this article is to study certain aspects-exclusivity and termination-of commercial agency according to the Jordanian law. 4 The article is divided into four sections. Section two explains the general rules governing commercial agency in Jordan.

Section three analyzes exclusivity of commercial agents. This section introduces the WTO's General Agreement on Trade in Services (GATS), the basic instrument covering trade in services, and analyses the current commercial agencies regulation in Jordan and its relation to articles VIII and IX of GATS. Also, section two explores Jordan schedule of specific commitments under the GATS in order to shed light on the extent and limit of its obligations with regard to commercial agents. Section four discusses agency termination. Finally, the article concludes by summarizing the main issues discussed and provides recommendations to streamline agency law in Jordan.

3 See Law of Commercial Agents and Intermediaries No. 28 of 2001, Official Gazette No. 4496 (July 16, 2001). 4 The article examines mainly the agency laws of Jordan. Reference to laws of other Arab countries will be made when necessary. The agency laws in the countries discussed share similar characteristics. For example, in Egypt, Jordan, Kuwait, Saudi Arabia and the UAE, where private enterprise is encouraged, foreign suppliers must use agents in practically all instances. In general, these countries reserve agency activities to their own nationals. Agents are regulated by mandatory registration procedures, and they are protected against arbitrary termination by their foreign principals. See Sections II and IV infra.

II. What is an Agency?

The Law of Commercial Agents and Intermediaries No. 28 of 2001 defines a commercial agent broadly so that it covers commission agent, agent who distributes on his own behalf (distributor), and agent who distributes on behalf of a foreign company or a trader whose headquarter is located outside Jordan (commercial agent). 5 Moreover, the Commercial Code defines commercial agency as an agency related to commercial acts involving an agent who carries out his duties in the name of his principal. 6 The concepts of commercial agency and other intermediaries such as distributorship are not clearly distinguished in the Jordanian laws. 7 As a result, regulators and practitioners alike may suffer from uncertainty about the exact kinds of commercial arrangements intended to be regulated as agencies.

The Jordanian law should define a commercial agency, in a straightforward manner, as an independent individual or juristic person who is contractually controlled by a principal and assigned to promote, sell, distribute products and provide services in the name and on behalf of the principal for remuneration. 8 The distributor is an independent 5 A commercial middleman is defined as any person who carries on the profession of mediation with a view to concluding or facilitating the inclusion of commercial dealings and transactions, in return for a fee provided that such a person is not an employee or a deputy of either one of the two parties to such commercial transactions. contractor who buys and resells for his own account and is normally free to fix his own resale prices. 9 The distributor must generally pay the manufacturer regardless of whether or not he has been paid by his own customers. The distributor thus acts on his own behalf and assumes the risk of possible insolvency of the customers, which is not the case for the agent. 10 In contrast with a distributor, a commercial agent does not own the goods and thus must render the proceeds of his sales to the principal.

Agents in Jordan are only subject to certain nationality and registration requirements. 11 There is no age, experience in the agency's field of activity, or financial restrictions as requisites for registration. An individual agent should be a Jordanian national. 12 A company, acting as an agent, must also be Jordanian. 13 The Law of Commercial Agents and Intermediaries of 2001 does not set parameters for determining how a company could qualify as a Jordanian. Such parameters would have included majority of Jordanian ownership, having an office in Jordan, or majority of board of directors are of Jordanian nationality.

regularly entrusted to solicit business for an entrepreneur or conclude business in his name is deemed an employee. Whether someone is independent turns on the factual circumstances of each case; merely having an agreement declare independence or non-employee status may not suffice. 9 In the agency situation, the manufacturer retains an absolute control of the price at which his products will be sold in Jordan. 10 In practice, however, the contrast between an agent and a distributor is often not so marked. This is the case, for example, where the manufacturer participates in or follows closely the activities of the distributor, or where, for a variety of reasons, the distributor's gross profit upon his resale of the goods is not more than the commission which a sales agent would normally receive on such a sale. This is also the case where the distributor is granted payment terms by the manufacturer which exceed those the distributor normally grants to his own customers. In addition to the nationality condition, a commercial agent must be duly registered at the Commercial Agents Registry of the Ministry of Industry and Trade. 14 A person who desires to practice as a commercial agent must submit an application to the Registrar. The application contains personal information of the agent and the principal and a copy of the agency agreement. 15 The agency agreement may include many provisions, but the most crucial which ought to be included are territory, products, exclusivity, commission rate, effective term, just cause for termination, compliance with law, and governing law and dispute resolution.

Of course, nothing prevents the Registrar from requesting further documents or information as he deems necessary. The Registrar will have to issue his decision regarding the application within two weeks. 16 In the event of acceptance, a certificate will be issued by the Registrar after payment of the appropriate fees. 17 The agent must quote his registration number on all correspondence and commercial transactions. 18 Although not stated in the Law of Commercial Agents and Intermediaries of 2001, the agent ought to report any addition or amendment to the information required in the application for registration so as to keep the file up to date.

A commercial agent will be crossed off the Register in case of submitting incorrect information, termination of the agency agreement, or expiry of its term. 19 registration results in a fine. 20 Non-registration does not invalidate an unregistered commercial agent. Thus, a failure to register will not prevent a commercial agent from practicing as such. A commercial agent must be duly registered in order to qualify for the protection and enjoy the privileges of the law. 21 An agent will not be entitled to any indemnity upon termination if the agent is not duly registered with the commercial registrar at the time his contract is terminated by the principal. However, even if an agent were not so registered when he entered into the agency agreement and he so represented in the contract, he could probably under certain circumstances register after the signing of the sales agency contract, thus defeating any representation or undertaking not to register which he might have made in the sales agency contract.

An agent must have a direct relationship or link with his principal. 22 The direct relationship requirement is enforced through the registration process and the law does not grant any exceptions or discretion in this regard. The direct relationship requirement is intended to prohibit the use of sub-agents. Without the direct relationship requirement, a commercial agent would become sub-agent of foreign parties intervening between him and the producers or manufacturer. This type of intervention, if permitted, would defeat the requirement that the agent must be a Jordanian national. Another reason that may justify the requirement of direct relationship is to maintain prices of products low for consumers. Interference of many intermediaries could increase costs of production.

However, taking into consideration the continuous exorbitant prices of products in Jordan, as well as in other Arab countries, makes this reasoning a mere illusion. 23 Prices are inflated anyway and generally increased by commissions paid to hidden middlemen and brokers. The reasonable justification for the rule of direct relationship is to maintain the requirement of nationality and make commercial agency a closed circuit.

The importation of most products is allowed by both private and public entities.

Jordan only restricts the use of agents in armaments contracts. The law prohibits anyone acting as an agent from buying, importing, or selling arms, spare parts and ammunition. 24 The importation of armament and defense equipments must be channeled through government departments.

The Law of Commercial Agents and Intermediaries of 2001 does not address in details rights and obligations of parties to an agency contract. The Law of Commercial Agents and Intermediaries of 2001 states, in one article only, that an agent is under an obligation to keep sufficient quantities of spare parts for the products and offer facilities for after-sale services. 25 The bulk of the parties' rights and obligations are found in the Commercial and Civil Codes. The parties cannot modify these rights and obligations by agreement.

23 See Taking the Strain; Food Prices and Protest, The Economist (May 10, 2008) (As a result of food inflation, millions of people are being pushed into hunger and malnutrition-and 30-odd countries face social upheaval unless food policy improved. In the Middle East, the part of the world most dependent on food imports, there have been demonstrations and strikes in Egypt, Morocco and Jordan. But all three countries withstood more serious food riots in the late 1970s and 1980s. Some countries in the Middle East, such as Syria, have so far survived demonstrations by issuing ration cards or hiking wages). 24 The primary duty for an agent is to carry out the authority granted to him by the principal. [START_REF]An agent may exceed the authority granted by the principal is the outcome is beneficial to the latter[END_REF] In carrying out his authority, the agent must act with the care of an ordinary person. 27 An agent receives the funds of his principal as a trustee. 28 As such, the agent the liable if the funds are lost due to his negligence. The products must be sold at a price fixed by the principal. 29 Hence, an agent is not free to sell the products at a lower price or any other price. The agent, as part of the agency contract, must report to the principal the agency's activities and other information regarding its performance. 30 The purpose of this reporting is to keep the principal abreast of the affairs of the agency and to act accordingly, if necessary.

As a commercial agent has certain duties, the principal is also bound by certain duties. For example, the principal is under an obligation to remunerate the agent. 31 The Jordanian law does not specify any remuneration ceilings. The agent's remuneration could be based on a percentage of the value of the contract obtained through the agent.

Moreover, the law does not specify if the commercial agent has a right to remuneration for the business concluded which is to be attributed to his activity. In some cases, an agent may have the right to remuneration without having conducted any attributable activity. If, for instance, an agent is assigned an exclusive sales area or a defined group of customers, he has the right to claim remuneration for all contracts concluded with persons within the scope of the area or with the designated customers, even though he did not actually participate in the transaction. The law does not determine when the remuneration is due. It could be due upon the completion of the supplier's performance of the transaction. Unless otherwise provided by contract, the principal could account for remunerations on a monthly basis.

The principal is bound by the agent's actions. 32 However, the agent is jointly and severally liable with the principal to the local merchant for whose benefit a contract has been concluded until all the terms and conditions of the contract have been performed. 33 Finally, the principal is liable for any damages caused to the agent through the ordinary performance of the agency. 34 The principal is not liable if the damage is caused by the agent's own negligence.

Courts in Jordan have exclusive jurisdiction in settling disputes arising out of commercial agency contracts. 35 A foreign court cannot decide such disputes. Moreover, the use of arbitration is not permitted. 36 The wording of the law means that the parties do not have the choice to use arbitration even after a dispute has risen. The exclusive jurisdiction of Jordanian courts is thus mandatory and leaves no room for using other alternative dispute resolution mechanisms. There is no obvious reason as to why the law grants courts the exclusive jurisdiction in settling commercial agency disputes without any exceptions. The exclusive jurisdiction of Jordanian courts could be intended to protect local agents by not using foreign courts which they are not familiar with.

III. Exclusivity of Commercial Agency

Exclusivity exists when a manufacturer utilizes only one agent for the sale of his products. The Law of Commercial Agents and Intermediaries of 2001 and related laws do not regulate the exclusivity clause. In contrast to some legal systems mainly in the Gulf

States-Kuwait and UAE-the Law of Commercial Agents and Intermediaries does not set out the basic elements which a contract of commercial agency must contain. 42 Rather, the Jordanian legislator left the exclusivity provision to the agreement of the parties. In other words, exclusivity is determined by general principals of contract and is a matter of negotiation between a foreign principal and its Jordanian commercial agent. In practice, all commercial agents are Jordanian nationals and enjoy exclusive privileges.

The first inquiry into exclusivity involves the express language of the agency agreement between the parties. Agency can be de facto exclusive without an express agreement between manufacturer and agent.

A manufacturer can simply appoint an agent in a particular geographic area and refrain from appointing any other. To put it differently, a manufacturer may impose territorial limitations upon the agent which confine an agent's sales within an assigned geographic area. For example, a cheese manufacturer might expressly prohibit each agent from selling cheese outside its assigned territory. This type of restriction can be referred 42 See Kuwaiti Code of Commerce, art. 274.

to as an "exclusive territory" as it results in a closed territory. 43 A manufacturer can agree that the agent will sell the manufacturer's product only within a specified territory. This arrangement, which can be referred to as creating an "exclusive sales territory," limits the agent's freedom to deal with other manufacturers. In other words, the agent is not free to sell the goods of other manufacturers in the designated areas. A manufacturer may also forbid its agents to sell to certain designated customers or customer classes. 44 These types of agency restraints involve the allocation of customers or classes of customers among agents on the basis of characteristics other than geographic location. The manufacturer may reserve certain accounts to certain agent because, among other things, it is more qualified to serve the special needs of those customers. In addition, the manufacturer may assign a class of customers to some, but not all, agents so as to permit agent specialization.

The question is whether the manufacturer, having granted the agent territorial exclusivity, thereafter lawfully may engage in market expansion conduct designed to increase the manufacturer's market penetration within the territory already provided to the manufacturer's agent. Agents fearing encroachment of their established and welldeveloped territories could respond by filing lawsuits against the manufacturer. The encroachment of the manufacturer violates his contractual obligations to the dealer.

A. The Law and Economics of Competitive Market

Competition is the linchpin of the free market system. A market is considered competitive if individual firms in that market have little or no power to influence the price or other terms on which products are sold. 45 By ensuring that resources are allocated efficiently and by spurring innovation, competitive markets ultimately maximize consumer welfare.

The relationship between competition and commercial agency is particularly relevant to so-called "vertical restraints". 46 Vertical restraints frequently involve manufacturers and distributors. Vertical restraints typically relate to the geographic territories or classes of customers to which distributors sell, the degree of exclusivity the manufacturer or the distributor can count on from the other, and the prices at which distributors sell. The negative anti-competitive effects of exclusivity can be considerable.

Exclusivity of commercial agency can be a restraint of trade or monopolization. 47 Exclusivity can raise barriers to entry or market access and thus enhance unilateral priceraising power. The loss of business resulting from exclusivity could lead to claims of anti-monopoly violations by excluded parties. 48 (GATT). [START_REF] Aly | Definition of Trade in Services under the GATS: Legal Implications, 32[END_REF] Articles XVII and II of GATS respectively establish the National Treatment and Most-Favored-Nation (MFN) principles, subject to rather substantial rights of derogation under each country's Schedule of Specific Commitments and List of MFN Exemptions, respectively drawn up in line with further stipulations in Article XX of the GATS and the GATS Annex on Article II (MFN) Exemptions. Article XVI establishes a market access obligation somewhat akin to the provision on quantitative restrictions in Article XI of the GATT, which obligation is also subject to derogations under the Schedule of Specific Commitments. Despite these basic disciplines, the GATS is very much an agreement in continuous progress. In several aspects, GATS is no more than an agreement to enter into further negotiations with reference to progressive liberalization to further liberalize trade in services. 55 This makes GATS, in several respects, a difficult agreement to enforce, since several of the provisions end up in effect as expressions of intent to liberalize despite their not being worded as such.

GATS requires the member country to ensure that a monopoly supplier does not "abuse" its monopoly position when it competes in the supply of services outside its monopoly rights. [START_REF]VIII. GATS left the important term "abuse[END_REF] This language applies only when there is a "sole" supplier of the service in question. GATS provides that member country recognizes that certain business practices of service providers, other than those falling under article VIII, may restrain competition and thereby restrict trade in services. 57 Obviously, this provision leaves a great deal of discretion to countries as to the definition of these restraints on competition, the regimes applying to them, and the measures available to oppose them. Furthermore, GATS obliges the member to accede to any request for consultation with any other Member concerning eliminating restrictive business practices with a view to eliminating them. 58 Beyond this, the negotiating technique adopted in drawing up the GATS is unique.

Unlike the GATT, which involves a negative list approach under which any item or sector not included in a schedule is deemed to be automatically covered by the agreement, the GATS involves a positive list approach, under which only those items specifically scheduled by a contracting party are covered. The latter approach is inherently more restrictive, since only those commitments and sectors which the parties have expressly considered are covered. This approach excludes, for example, newlyemerged services that parties could not anticipate at the time of negotiations.

C. Jordan's Specific Commitments in Relation to Commercial Agency

Jordan made specific commitments in specific service sectors on both market access-Article XVI of GATS-and national treatment-Article XVII of GATS. 61 These specific commitments are inscribed in a schedule with such limitations and derogations as Jordan deemed necessary. These specific commitments effectively form the crux of the obligations currently undertaken by Jordan under the GATS, since they determine the incidence of the wider, more general disciplines under the agreement.

The sector of distribution services-whereby Jordan made many commitmentsincludes postal, energy, land transportation, maritime, environmental, audiovisual, and tourism services. However, since my goal is not to analyze this sector thoroughly in the present article, at this stage I will discuss Jordan's commitments as they relate to commercial agency only. 61 In addition to specific commitments, Jordan adopted a general commitment that may not be undermined or modified by it to recognize most-favored nation status (MFN status). The general commitment applies horizontally to all sectors and to all countries. Id. art. II.1 (With respect to any measure covered by this Agreement[GATS], each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favorable than that it accords to like services and service suppliers of any other country).

With regard to commercial agency, Jordan submitted a rather limited schedule of commitments. Jordan introduced several limitations on market access. Barriers to market access include exclusive rights for "Jordanians" to supply; restrictions on the legal entity through which a service supplier may deliver the service (e.g., natural persons and partnerships); and limitations on the level of shareholding or equity that a foreign service supplier may make. 62 Jordan also made no commitments for "presence of natural persons" mode of supply so that it could introduce or maintain measures inconsistent with market access or national treatment.

The commitments made by Jordan with regard to commercial agency can be evaluated as trade barriers operated intentionally to protect the exclusivity rights for Jordanian agents. However, these commitments may reflect the particular cultural-social environment in Jordan which would support their incorporation, the necessity of sustaining specific public policy objectives, or the inevitable reflection of the particular situation intrinsic to Jordan. At any rate, based on the commitment Jordan made in the WTO, commercial agency seems to be particularly ripe for the consideration of competition policy and for further liberalization.

IV. Termination of Commercial Agency

Agent effectiveness within his assigned market area is critical to a manufacturer's plans. Ineffective agents can lead to lost sales and ultimately taking the manufacturer out of the market. As such, the principal or manufacturer can terminate the existing agency relationship. The termination clause is one of the most important clauses in any agency agreement. The elements of the clause involve: mutual termination rights without cause;

An agent may sue the principal/manufacturer for termination without cause or fault on the part of the agent and may recover any damages relating to the termination and his lost profits. 68 Causes for termination may include fraud or breach of contract. These causes are considered significant transgressions committed by the agent that merit termination. The Law of Commercial Agents and Intermediaries of 2001 does not provide standards for "cause or fault." 69 The presence of these standards is designed to prevent principals or manufacturers from engaging in opportunistic behavior when the relationship between the principal and the agent sour. In addition, these standards compel principals to treat their agent fairly. The law should have provided that termination can only occur upon a failure to perform substantially on material aspects of the contract. The law also should have provided an opportunity for the agent to correct the problem before resorting termination. In other words, termination of an agency agreement should be the last resort. The law does not address the issue of burden of proof of cause for termination and whether the burden falls upon the principal or the agent.

To protect the principal against an agent's under-performance, the agency agreement ought to include a performance evaluation provision which should be linked to a termination. Such an evaluation provision may include sales performance trends over time. 70 In this way, a manufacturer can reasonably justify the termination of the agency within for those commercial agents who fail to perform effectively.

In the event of wrongful termination, the Jordanian courts decide the amount of indemnity owed to the agent, taking into account the harm actually suffered by the agent and lost profits. 71 In practice, however, the indemnity is frequently determined arbitrarily by the courts on the basis of an annual commission arrived at by averaging the commissions of the preceding years of activity. 72 A court is likely to take into account as well factors other than the amount of past commissions, such as showroom costs, warehouse, maintenance or repair facility, the amount of money which the agent has invested, the portion of the agent's time which has been devoted to the principal's business, or the cost to the agent of the termination of employment and other contracts resulting from the termination of the sales agency relationship. To recover this indemnity, the agent must demonstrate that he has not breached the agency agreement, and that he has successfully promoted the principal's products. 73 The overlapping provisions of the Civil Code and the Law of Commercial Agents and Intermediaries of 2001 may increase the sum awarded in case of termination. The right to an indemnity cannot be waived by contract. In other words, this right to an indemnity exists notwithstanding any contractual provision to the contrary. 70 Jordanian courts must walk a fine line in interpreting the evaluation provision. For example, the fact that sales for a given year are less than those of the previous year "without being ridiculously low" is not sufficient to deprive the agent of a termination indemnity. Also, in a case where mandatory sales goals are provided, courts should refuse to permit termination of an agency agreement for failure to comply with the sales goals, on the ground that such failure do not result from a lack of activity on the part of the agent but from the fact the products are becoming less popular with the potential customers. Therefore, the law should be amended so as to permit the use of such mechanisms.

On balance, Jordan's approach to the use of commercial agents is restrictive. The law sets certain conditions for a person to act as an agent. For instance, these conditions relate to nationality and registrations. Only Jordanian persons can become agents for foreign principals or manufacturers. In addition to the nationality condition, a commercial agent must be duly registered at the Commercial Agents Registry of the Ministry of Industry and Trade. The purpose of registration, among other things, is to keep record of persons acting as agents. As currently written, the law does not invalidate an unregistered commercial agent who can practice agency. The law should be modified to invalidate unregistered commercial agents so as to protect consumers and other third parties whom may deal with the agent.

In discussing exclusivity of commercial agency, Law of Commercial Agents and WTO rules are closely related and interact with each other. It is not surprising, therefore, that the GATS, through articles VIII and IX, places an obligation on the part of WTO members not to introduce more restrictive rules on the flow of services and preserve the degree of access provided under current domestic regulations. Jordan maintains restrictions in the distribution sector, including commercial agency, in which foreign investment is circumscribed through equity and other restrictions. Trade partners may pressure the Jordanian government to adopt the policy of increasing competition in commercial agency as a basic principle of regulatory reform. Moreover, GATS can be a promising tool for achieving liberalization in commercial agency sector. Thus, any future modification to the commercial agency law will not be a voluntary response by the government to internal public and private sector concerns who prefer to maintain the status quo.

The termination clause is one of the most important clauses in any agency agreement. The agency agreement can terminate by the mutual desire of parties, at a definite time, or for a good cause. A manufacturer cannot terminate the agency at any time, for any reason or for no reason at all. An agent may sue the manufacturer for termination without cause or fault on the part of the agent and may recover any damages relating to the termination and his lost profits. The "cause" standard for termination is vague and variable because clear patterns of acceptable or proscribed conduct are difficult to discern. The law, or even courts through judicial decisions, should provide a bright-line standard for termination. It is also advisable that a reason be given for the termination so as to avoid a claim that the termination is malicious. In addition, a notice of termination, with a "cure" provision should be included in the law. In other words, the law should provide a notice of termination so that the agent and principal can settle their accounts and avoid surprise termination. Even before termination, the law could grant the agent a grace period to rectify the problem that would merit termination.

Many lawsuits are the product of the parties' failure to honestly or sufficiently communicate their expectations of each other during the course of their agency relationship. As far as the contract is concerned, the structure of a commercial agency agreement varies considerably, depending on the legal drafting technique. A well-written contract, combined both with honest communication by the manufacturer and solid justifications for its business conduct, are big steps toward avoiding the filing of a lawsuit to begin with. Beneficial relationships will result from a combination of frequent and timely communications between the principal and his agent and also from knowledge of the laws of Jordan related to commercial agency. If still more reforms do prove necessary, the presently suggested improvements will give future legislatures the background for serious consideration and understanding of what, in fact, remains to be done.

1

  Reflection on Exclusivity and Termination of Commercial Agency in Jordan: The Intertwining of Domestic Regulation and International Trade LawBashar H. Malkawi*I. IntroductionAny foreign manufacturer desiring to market its products in Jordan has several

  Malkawi is Dean and Professor of Law at the University of Sharjah, United Arab Emirates. He holds S.J.D in International Trade Law from American University, Washington College of Law and LL.M in International Trade Law from the University of Arizona. He would like to thank Professor David Gantz for his invaluable guidance throughout the writing process and for helping him build on what was once a faint idea. 1 See Augustin Jausas, International Encyclopedia of Agency and Distribution Agreements 23-26 (2008) (agency contracts run to the tune of billions of dollars worldwide).

* Bashar H.

2

The Arab legal system distinguishes between acts to which private persons are parties (civil acts) and acts to which merchants are parties (commercial acts). The former are generally subject to the civil code and the latter to the commercial code. The civil and commercial codes complement each other in many areas including agency relations. See H S Shaaban, Commercial Transactions in the Middle East: What Law Governs? 31 Law & Pol'y Int'l Bus. 157,

160-163 (1999)

. See also See Mohamed El-Sayed El-Keky, Commercial Law 78 (in Arabic) (2004).

  Id. art. 2. While Arab jurisdictions that regulate commercial agency share common definitional approaches, each jurisdiction has its own definitional subtleties and mix of exclusions and exemptions. See Egyptian Code of Commerce of 1999, art. 5; Kuwaiti Code of Commerce of 1980, art. 271; Lebanese Commercial Code of 1942, art. 272; Moroccan Commercial Code of 1996, art. 393; Syrian Code of Commerce of 2007, art. 154; and UAE Commercial Transactions Law of 1993, 217.6 Acts defined as commercial in the commercial include purchase of goods intended to be sold as they are or after their manufacture, leasing of goods for lease, exchange operations, banking operations, land and maritime and air transport, brokerage and commission, insurance, public entertainment, and business agencies. Other commercial acts which are similar to these acts by nature or aim are considered commercial acts. See Jordanian Code of Commerce No. 12 of 1966, art. 6.1 & 2, 81.1.

7

Commercial agencies and distributorships are essentially different and governed by different laws on Western legal systems. See Rochelle B. Spandorf, Franchise Player, 29 Los Angeles Lawyer 34, 43

(2006)

. See also Uri Benoliel, Rethinking the Distributor-Manufacturer Fiduciary Relationship: A Marketing Channels Perspective, 45 Am. Bus. L.J. 187, 215 (2008). 8 A person is independent if he is essentially free to arrange his activity and determine his hours of work. It is important to point out the distinction between an independent agent and an employee. Any person who is

  of agency contracts will not be heard.37 This rule is founded upon considerations of public policy. Documents may be lost, witnesses may be dead, and the recollection of events long past may have become dim. Passage of time extinguishes the legal right of enforcement; it does not extinguish the underlying obligation.38 Parties cannot contract out by denying the lapse of a period of time. Courts would invalidate such a provision on the grounds that it contravenes public policy.Agency law violations carry several penalties. Parties who "willfully" submit false information to the Registrar pertaining to agency registration or who falsely represent themselves as agents are subject to a fine of between Jordanian Dinar 500 (equivalent to US $706) and Jordanian Dinar 2000 (equivalent to US $2827).Injured individuals may have private remedies-such as compensatory damages, restitution, or lawyer's fees-for agency law violations. The Law of Commercial Agents 37 See Law of Commercial Agents and Intermediaries No. 28 of 2001, supra note 3, art. 16.b.38 Jurisprudence of Arab countries allow an action to enforce a claim of right to be barred by the passage of time. However, the Sharia does not recognize the legal notion of passage of time as extinguishing any right. This distinction between a legal right and its enforcement, which is cogent, has greatly influenced the laws of Arab countries. See Mahir Jalili, Time Bar Clauses in Saudi Arabian Contracts, 13 International Construction Law Review 488,490-91 (1996). Intermediaries of 2001 does not provide several other penalties such as blacklisting, freezing of assets and confiscation, ordering restitution, issuing cease and desist orders, banning violators from registration.

	The Law of Commercial Agents and Intermediaries of 2001 provides that after a
	certain length of time, three years post contract termination or term expiry, claims arising
	32 Id. art. 859.

33

See Law of Commercial Agents and Intermediaries No. 28 of 2001, supra note 3, art. 15.

34

See Jordanian Civil Code, supra note 26, art. 859. 35 See Law of Commercial Agents and Intermediaries No. 28 of 2001, supra note 3, art. 16.a. 36 In general, arbitration can be used to settle all civil and commercial disputes. See Omar Aljazy, Arbitration in Jordan: From Old to New, 25 Journal of International Arbitration 219, 223 (2008)

out

39

The inadvertent agent who had no intention to violate the law cannot be punished. Foreigners who engage in commercial agency activities in contravention of the law are subject to up a fine.

40

Violators of armaments contracts prohibition are subject to severe penalties. These violators can be sentenced between six months and one year, and/or fined between Jordanian Dinar 10000 (equivalent to US $14,139) and Jordanian Dinar 15000 (equivalent to US $20,208), and recovering any remuneration received or profits made, if known, or any amount at the discretion of the court if the remuneration is unknown. 41 39 See Law of Commercial Agents and Intermediaries No. 28 of 2001, supra note 3, art. 18.a. 40 Id. 41 Id. art. 18.b.

and

  See Jessica L. Taralson, What Would Sherman Do? Overturning the Per Se Illegality of Minimum Vertical Price Restraints under the Sherman Act in Leegin Creative Leather Products, Inc. V. PSKS, Inc. was not as Reasonable as it Semmed, 31 Hamline L. Rev. 549, 556 (2008). See Barbara Ann White, Black and White Thinking in the Gray Areas of Antitrust: The Dismantling of Vertical Restraints Regulation, 60

	Geo. Wash. L. Rev. 1 (1991). See also Val D. Ricks and R. Chet Loftis, Seeing the Diagonal Clearly:
	Telling Vertical From Horizontal in Antitrust Law, 28 U. Tol. L. Rev. 151, 159 (1996).
	47 See Lahouel, Competition Laws in MENA: An Assessment of the Status Quo and the Relevance of a
	WTO Agreement, 6-7 (The Economic Research Forum for the Arab Countries, Iran and Turkey: Cairo
	2000). For an examination of the competing view of antitrust law see Page, Ideological Conflict and the
	Origins of Antitrust Policy, 86 Tulane L. Rev. 1 (1991).

An exclusive agency can eliminate rivalry among agents in the sale of the manufacturer's product and has the potential of 45 See Michal S. Gal, Imported Antitrust Competition Policy for Small Market Economies 35 (2003). See also Michal S. Gal, Market Conditions under the Magnifying Glass: The Effects of Market Size on Optimal Competition Policy, 50 Am. J. Comp. L. 303, 314 (2002). 46 48 In principle, Jordan competition law covers the entire economy; yet it provides several important exemptions. For example, competition law does not apply if other legal provisions do not allow competition in a market for certain goods or services. Such provisions take precedence over the provisions of the competition law. See Jordan Provisional Anti-Trust Law No. 49 of 2002, Official Gazette No. (4560), art. 7 (August 15, 2002).

  GATS also imposes a duty to cooperate in the provision of non-confidential information of relevance to the matter in question. GATS Article VIII violations are subject to, under the Article XXIII, the Dispute Settlement and Enforcement provisions which authorize a complaining member to resort to the WTO's Dispute Settlement Understanding procedures. To date, there have been several requests for consultations concerning GATS article VIII.59 Those requests represent a good example of the potential for competition to be used for further liberalization in trade in services and to address market access barriers.

Article VI of the GATS deals with domestic regulation. At its most basic level, it provides that in sectors where specific commitments are undertaken, each Member shall ensure that all measures of general application affecting trade in services are administered in a reasonable, objective, and impartial manner. GATS sets out specific rules to apply to measures relating to qualification requirements and procedures, technical standards, and licensing requirements to ensure that they do not constitute unnecessary barriers to trade in services.

60

Such measures in domestic regulations should not constitute unnecessary barriers to trade in services. 58 Id. art. IX.2. 59 See Catherine B. Harrington, Weather May Not Stop USPS, but Special Interests Will: The Bush Administration's GATS Offer Supports Private Express Delivery Services but Threatens to Stamp Out USPS, 19 Am. U. Int'l L. Rev. 431, 448-459 (2003) (providing references to Deutsche Post case, Canada Post's activities, and U.S. Postal Service). 60 See General Agreement on Trade in Services, supra note 53, at art. VI.4.

68

  Id. Like Jordan, other Arab countries afford agents a high degree of protection against termination and non-renewal of agency agreements. See Egyptian Code of Commerce of 1999, art. 163; Lebanese Code of Commerce, art. 289; Syrian Code of Commerce, art. 384; and UAE Commercial Transactions Law of 1993, art. 214. See also Theodore W. Kassinger and Dylan J. Williams, Commercial Law Reform Issues in the Reconstruction of Iraq, 33 Ga. J. Int'l & Comp. L. 217, 222 (2004). 69 Every contract imposes an obligation of good faith and fair dealing on contracting parties. This rule can be relevant in defining termination. See Chibli Mallat, Commercial Law in the Middle East: Between Classical Transactions and Modern Business, Am. J. Comp. L. 81, 104-110 (2001). See also Frederick V. Perry, Shari'ah, Islamic Law and Arab Business Ethics, 22 Conn. J. Int'l L. 357, 374 (2007).

  Termination can occur by the operation of the law. For example, the death or insanity of the commercial agent terminates the relationship by operation of law.74 However, death or insanity of the supplier does not automatically terminate the agency. The agency relationship, unless otherwise agreed, will be deemed effective until the successor of the supplier gives different instructions. Bankruptcy of the principal terminates the agency relationship by operation of law.75 Bankruptcy of the commercial agent does not terminate the agency relationship automatically, but constitutes a reason for the principal to terminate the contract. If the principal does not choose to terminate the relationship, the trustee in bankruptcy may do so on behalf of the agent. Law of Commercial Agents and Intermediaries does not regulate exclusivity.Rather, the Jordanian legislator left the exclusivity provision to the agreement of the parties. Rational use of exclusive agency may affect competition and consumer welfare.Anti-monopoly enforcement agencies should not elevate the short-term pecuniary interests of discrete competitors at the expense of competition and consumer welfare.That exclusive agency is lawful remains to be tested in courts. If a case arises in the future, courts should uphold exclusive agency. When the decision to grant an exclusive agency is made by manufacturer acting in its own self interest, consumer welfare could be protected to a greater extent than any ad hoc decision-making by a court could secure.

	Jordanian courts have exclusive jurisdiction in settling disputes arising out of
	commercial agency contracts. The Law of Commercial Agents and Intermediaries does
	not permit the use of other alternative dispute resolution mechanisms such as arbitration
	The Law of Commercial Agents and Intermediaries gives commercial agency a and mediation. Litigation flies in the face of maintaining healthy relations between the
	sweeping scope. The law does not distinguish between agencies and other intermediaries. principal and agent. The principal and agent must continuously cultivate good personal
	Consequently, a broad variety of unsuspecting commercial arrangements may qualify as relationships. These types of mechanisms help mitigate the spillover effects of disputes
	agencies. The Jordanian law should provide a clear definition for each type of between principals and agents especially if they are engaged in long-term relationships.
	intermediaries.

Conclusion

A successful relationship between the foreign principal and his local agent must be based on familiarity with the laws of Jordan. The Civil and Commercial Codes as well as the Law of Commercial Agents and Intermediaries of 2001 govern agency relationships in Jordan. Many of these codes and laws overlap leading sometimes to confusion. For instance, parties' rights and obligations are found in the Commercial Code, Civil Code, and Law of Commercial Agents and Intermediaries. The Jordanian legislator should enact a comprehensive commercial agency law that governs all aspects of agency. 74 See Jordanian Civil Code No. 43 of 1976, art. 861. 75 Id. art. 205.

The A subsidiary rationale for sanctioning exclusive agency is the common sense notion that courts should not provide artificial, non-market incentives for internal expansion, an alternative to exclusive agency that will be inefficiently pursued if appointments of exclusive agents are met with expense and protracted challenges under the anti-monopoly laws.

Id. art. 18.a(3).

Id. art. 10.a.

The commercial agency laws of Egypt, Kuwait, Syria, and UAE have similar requirement of direct relationship. See Thomas F. Clasen, International Agency and Distribution Agreements: Middle East/Africa/Asia/Pacific 25-31 (1994).

See Sector Specific Commitments of Jordan-Distribution Services, available at <http://tsdb.wto.org/simplesearch.aspx> (last accessedAugust 26, 2010).

permitting the authorized agent himself to exercise some market power. 49 However, the manufacturer's or agent's purpose could be not to limit rivalry in itself or to permit an agent to exercise market power but rather to render more efficient the distribution of his product. The manufacturer would not grant the exclusive agency unless he believed it would make the distribution of his product more efficient. Exclusivity can be lawful in the absence of monopolistic purpose or anticompetitive effect i.e. the maintenance of a minimum pricing. That exclusive agency is lawful remains to be tested in courts.

Therefore, the legality of exclusive agency, under anti-monopoly laws, remains intact.

National authorities in Jordan systematically favor the interests of domestic commercial agents over the interests of domestic consumers. For example, customs authorities will prevent the entry into Jordan of goods originating with a foreign manufacturer who has a duly registered agent for these goods in Jordan, but are shipped through another person. Jordanian courts can issue an injunction to prevent parallel import made by a third party in breach of the exclusivity clause. Parallel imports involve the importation of genuine goods outside the authorized distribution channels. 51 In other words, parallel import is the importation of goods from a foreign source by bypassing the authorized local agent therefore allowing the sale of goods directly to retailers or consumers. The matter of parallel importation is addressed through case law as the following case illustrates. 49 The Kuwaiti Antitrust Law, for example, prohibits abusive use of a dominant position. See Lahouel, supra note 44, 8. See also El-Dean, Privatisation and the Creation of a Market-based Legal System: The Case of Egypt 167 (Egypt competition law forbids exploitative behavior) (Brill Academics: Leiden 2002). 50 No case to our knowledge has addressed the question of legality of exclusivity. 51 Parallel imports or gray market goods are genuine goods and not counterfeits whereby trademark is misappropriated. See Keith E. Maskus, Parallel Import, 23 World Econ. 1269 (2000).

The case concerns a Jordanian company, Jordan Mechanical Engineering Company, acting as an agent of "Maggi" chicken stock cubes which is a product of Nestle, a Swiss company. 52 It came to the knowledge of Jordan Mechanical that some Jordanian traders, such as Abdul-Fattah Qinno, imported about 1000 box of Maggi cubes (product of Egypt). These products did not conform to the required specifications. The Court of Cassation found that Jordan Mechanical was entitled to preserve its rights as the authorized agent of the manufacturing company for marketing certain goods.

By bringing the case, discussed above, the agent sought to protect regular trade channels. Local agents have built the goodwill of imported products by marketing plan, promotional efforts, and providing a product warranty through after-sale servicing. The purpose of all these programs is to maintain clients and increase the sale of goods. Agents provide services and incur costs that parallel importers may not provide or incur. Thus, parallel importers free ride at the expense of authorized distributors. In addition, parallel imports may damage product quality control. Poor quality could cause consumer confusion and diminish the reputation of the manufacturer and agent.

B. The General Agreement on Trade in Services

The basic WTO instrument regulating trade in services is GATS, introduced as Annex 1B to the Agreement Establishing the WTO of April 15, 1994. 53 a definite term; termination for cause; and the delineation of the parties' rights and obligations upon termination and thereafter.

The simplest form of termination is bilateral termination right whereby the agency agreement is terminable by both parties. 63 Thus, one party cannot terminate a valid agency contract without the agreement of other party. While unilateral termination is generally accepted for ordinary contracts, 64 the Law of Commercial Agents and Intermediaries of 2001 does not permit this type of termination. 65 Moreover, it is common for a commercial agency to contain a specific term. 66 Agency terminates at the end of its specific term. In this case, the commercial agent is not entitled to compensation. The Law of Commercial Agents and Intermediaries of 2001 provides that the termination of an agency agreement without any fault on the part of the agent allows him to claim compensation. 67 The rule seems to apply only to termination of an agency before its expiry term. Thus, termination of an agency agreement due to its expiration does not entitle the agent to compensation. In commercial agency for fixed term, the agreement, not the law, may provide for serving a notice. It is possible that an agency agreement does not contain a provision for termination. In this scenario, the length of the contract will be set at a reasonable duration. 63 66 The term of the agency agreement is simply one of the terms bargained for. 67 See Law of Commercial Agents and Intermediaries No. 28 of 2001, supra note 3, art. 14. See also Howard L. Stovall, Recent Changes to Commercial Agency and Distributorship Law in the Middle East, Texas Transnational Law Quarterly (September 2008) (The UAE Commercial Agency Law states that if the commercial agency is terminated "at an inappropriate time" or for any reason beyond the commercial agent's control, the commercial agent may claim compensation for damages suffered).