Trade Agency Clauses and Guarantees

Preface

Trade activities are controlled by regulations that ensure the interests of all stakeholders are put into consideration before making key decisions. This means that there are guidelines that ensure all trade stakeholders are respected and that activities are done according to agreements made by them. The following terms are commonly used in trade agreements and it is necessary to define them in their contexts to ensure the audience understands their meanings in further discussions.

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Trade agency refers to the process of conducting business activities through middlemen that are commonly called brokers, wholesalers or retailers. These middlemen conduct business activities for suppliers or consumers; therefore, they do not have direct investments in terms of finance, infrastructure or human resource. A clause is an article that contains and states the rules of engagement between trade partners. It defines their terms of engagement, time, costs and other important features that determine the success of business activities1. Trade agency clauses are divided into three groups depending on their application and participants’ condition of use. They include guarantee, exclusivity and non-competitive clauses that will be defined later in this essay.

A guarantee is an assurance that is provided to business partners to promise them that their goods or services are in safe hands. In addition, they are offered to strengthen trust and credibility on business processes and enable clients to transfer their powers to trade agents. In addition, trade agents offer guarantees to clients and suppliers to assure them that their investments are safe in their hands. Therefore, guarantees area assurances offered to strengthen trade contracts by developing trust and ensuring the security of goods or services is not compromised.

Trade agencies are individuals, organizations or entities established to ensure there is coordination between manufacturers, suppliers, retailers and consumers. Their role is to bridge the gap between various stakeholders in business activities. They offer consultancy and logistic services that are important in determining the success of business activities. Trade agencies must be registered and conversant with the policies and procedures that guide business operations in their fields2. This means that they should have professional expertise, experience and adequate resources to ensure there is a seamless interaction and movement of goods and services between suppliers and their clients. The reward of a trade agent is the commission charged for offering his services and the amount is calculated depending on the nature, size or duration of the transactions made.

Trade agencies may contact manufacturers or suppliers or use other agents to do so. However, the purpose of their involvement in business activities is to ensure there is little time wasted in making transactions.

These contracts are documents that show the relationship between manufacturers and their agents. In addition, they also show the association of agents and consumers and this means that the documents bind various business stakeholders to ensure everybody plays his role effectively. They play important roles in shaping the nature of engagement between agents and their clients and give businesses legitimacy. Trade contracts must be signed by all parties concerned including agents, their clients and relevant government departments to ensure the agreement does not violate the laws of the land.

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Trade contracts and guarantees are important in business activities because they legitimize them and allow nations to facilitate their success. Government departments concerned with various business activities must participate in ensuring that quality standards are observed. In addition, they ensure the laws of the land are given priority in deciding the type of business activities that trade agencies and their clients are allowed to conduct. Moreover, these contracts and agreements define the context and scope of engagement between various business stakeholders and ensure every player performs his duties according to the stipulated guidelines3.

Lastly, they assure investors in business transactions that their expectations will be achieved because all stakeholders are obligated by law to perform their duties as their contract dictates. This strengthens their trust and enables them to give powers to third parties to conduct businesses on their behalf.

The criterion for determining a trade contract is guided by various factors. First, trade agencies and other stakeholders ensure the business activity being covered is legitimate. This requires proof of registration with relevant government authorities. Secondly, the business activity should allow third parties to be involved in the supply process4. This involves tangible business activities that will ensure there is the active participation of trade agents. In addition, there should be a need for professional assistance to warrant the involvement of trade agents and contracts. This means that an investor that understands trade transactions hardly involves agents in his activities.

Trade contracts can be terminated if any or a combination of the following events occurs. First, they are terminated when a contract matures. This means that contracts are designed to serve their purposes and when this has been achieved their relevance ceases to exist. Secondly, trade agreements have time limits to ensure investors translate the procedures and activities of these agreements into meaningful business plans. Therefore, these contracts are deemed to be valid within their specified time limits and when their deadlines expire it means that either one of the stakeholders has failed to perform his role properly or the contract was poorly designed; therefore, the contract is terminated.

Contracts can also be terminated if the government decides that it violates the laws of the land or there are higher chances that it may do so. Lastly, natural and man-made calamities may render a party ineffective in delivering its expected results due to political instability, diseases, death or bankruptcy; therefore, the contract becomes irrelevant and this necessitates the need for it to be terminated.

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These contracts are different because of the nature of business activities that exist in the world; however, they portray the following similar characteristics. First, they must have the names of stakeholders and their full addresses to ensure people can be contacted when the need arises. Secondly, they must have a brief description of the nature of business activities they cover and where they are located. They should have time specifications to show when the contract started and its excepted day of maturity. In addition, they should have terms and conditions that specify the obligations of all stakeholders and the reward for their commitment or non-commitment5. Lastly, they should have government’s approval and permission to allow their stakeholders to execute their mandates within the specified jurisdiction.

Guarantee Clause

This is a document or its section that assures all stakeholders that their partners will perform their duties responsibly and avoid losses and delays or compromise the quality of services offered. A non-guarantor agent is not bound by law to state his affirmation and accept responsibility for damage, delay or loss of property or business value. Therefore, he is not bound by the contract or law to undertake precautionary measures to ensure there is safe and timely delivery of services stipulated in an agreement. Agents must comply with the guarantee clause because they are parties to business contracts. The commissions they get from offering their services are subject to their performance and thus they must comply with the requirements of their contracts. Secondly, state laws that govern business contracts specify the roles and meanings of clauses regarding the responsibility of parties6. These laws become part of business contracts by extension because they are supervisory.

Clauses are established to guide the interaction and activities of stakeholders regarding a contract. Agents take full responsibility for compensating their clients when they fail to play their roles according to how their contracts dictate. Contracts can be terminated without agents being compensated and in fact, they may face prosecution and revocation of their licenses.

Exclusivity Clause

This clause excludes trade agents from activity shouldering the responsibilities of a contract when losses occur. Agents become non-coital members and do not guarantee their clients compensations when losses occur. However, their exclusion is determined by the type of contract signed in the following ways. Some clauses limit the activities of agents to places and thus any loss that occurs outside a given jurisdiction will not be considered to be the responsibility of agents7.

Secondly, other clauses cover specified commodities and clients and those not included in these lists are not guaranteed. Moreover, the clause may limit agents’ participation to certainties and this means that they do not take responsibility for anything that happens outside this boundary. Lastly, this clause allows agents to practice other trade works and they have a right to sign multiple contracts with different clients regardless of their business activities. Violation of this clause may lead to termination or suspension of the contract, reduced commission, prosecution or financial compensation.

Non-Competitive Clause

This clause restricts businesses from participating in activities that are considered to be a threat to their survival. In addition, it restricts the geographical coverage of a business for a specified time to ensure business activities are not compromised by employees or clients that may decide to invest and compete with an investment. A valid non-competitive agreement is established when there are threats to a company caused by trade regulations that give excess freedom to people to invest in business activities. Anybody who violates this clause may face prosecution, termination of existing contracts and suspension of practicing license8.

The World Trade Organization (WTO) endeavors to create a healthy environment for positive competition amongst investors from different regions. Therefore, it has enforced policies that promote foreign investments and international trade in all regions. In addition, it has enabled countries to get financial help from the World Bank to expand their investment opportunities and attract both domestic and foreign investors. This has reduced monopoly and prohibited non-competition in developed and developing nations; therefore, it has given investors equal opportunities to compete with each other.

Guarantees of the Agents

This refers to the provision that allows agents to have powers to control the activities of businesses for their clients. Agents are important stakeholders in business activities because they form a link between suppliers and consumers. Therefore, they should have adequate powers to determine the future of business activities and nature of the transitions involved. Agents demand the following guarantees to enable them to conduct business activities with confidence and without the troubles associated with delegation of duties9. The guarantees of agents revolve around custody, franchise and redemption.

Agents have the right to be custodians of property and cash of their clients because they have the responsibility of conducting businesses for them, Therefore, they are supposed to have all the required resources to make sure suppliers and consumers meet their demands. This means that there is no way agents will transact business activities if they do not have money. Moreover, they cannot use their own cash, especially if the amongst involved is huge and the business activity is risky. Therefore, they have the right to be the custodian of the property or cash of their agents.

Secondly, agents have the right to withhold the property of their consumers if think the quantities or qualities have been compromised. They conduct businesses for suppliers and consumers and thus they must ensure that the goods supplied to them are of the required quality and quality before handing them to consumers. This reduces the risks of worsening damages or compromising the quality of products that may be returned to manufacturers.

In addition, agents have the right of custody of property if they used their money to finance part or the whole of the transactions involved in purchasing goods for their clients. They are entitled to withhold the goods until their clients pay them what they paid out for them. Sometimes clients may want to buy goods yet their prices increase when they have already sent money. This means their agents will have to pay the excess amount before the goods are released; therefore, these costs are passed to clients and this may trigger withholding of goods in warehouses by agents.

The amount secured by the right of custody belongs to the agent concerned in a contract. However, this is subject to agreements between agents and their clients. Occasionally, unforeseen changes affect the performance of businesses and the value of services and goods in international and local markets. This means that agents cannot predict the value of products and thus they wait until when they have them on their doorsteps before communicating to their clients. The amounts secured by rights of custody may be pain on the spot or included in the commission of agents.

Franchise right refers to the privileges and freedoms of an agent as a business entity. This means that legal consent is given to individuals to register their businesses and conduct activities stipulated in their practicing licenses. The concept of franchise right arises due to the need to protect business entities and give them legal powers to conduct their activities without interference from similar or different companies. This means that agents have the power to sue clients or competitors who threaten to interfere with their activities. The following issues determine the conditions for use of franchise rights.

Agents have warehouses to store goods before they are distributed t their owners. These warehouses have rules that govern the entrance and release of goods to ensure proper procedures and standards are followed. Agents have the right to reject the admission of goods or release them from their warehouses. They have the right of protecting all goods in their warehouses from unauthorized access from suppliers, clients and other stakeholders.

Any loss or damage that occurs on goods while still in warehouses is accounted for by agents. That is why they ensure nobody has access to them unless they have permission to do so. In addition, they do not have the right to access goods in other warehouses for their clients unless they have permission to do so. It is necessary to explain that all agents consider their colleagues from other warehouses as competitors or clients. Therefore, they must have valid reasons to give them access to goods in their warehouses. Agents and clients are treated similarly by other warehouses; however, this is subject to internal policies that govern the relationships between businesses.

In addition, all goods on transit are in the hands of agents from the moment they leave the manufacturer or supplier’s warehouse. Therefore, agents have the responsibility of ensuring that these goods are transported and delivered safely by making follow-ups and tracking the movement of goods once they are on transit. However, agents must check and ensure the quality and quantity of goods supplied are of the required standards before dispatching them to their clients. Therefore, they must inspect them as soon as they are delivered to their warehouses and make necessary inquiries within the shortest time possible to be sure that the products are of the desired value and quality.

Franchise right is used to ensure businesses protect and maintain their identities as a strategy of being relevant in a competitive industry. In addition, this right is used to enable businesses and agents to have the power to control the movement, quality and quantity of products according to the specifications and requirements of their clients. It gives agents the power to promote ethical business procedures by allowing them to pay supervisory and quality assurance roles before goods are re-released to clients.

The level of an agent’s preferential level in franchise right depends on the intensity of competition in an industry and how other players manage the effects of globalization and inflation. In addition, the nature of goods, size and urgency of delivering them will also determine the agent’s preferential level in franchise rights. Agents do not enjoy the privileges of this right because of the complexity and nature of transactions involved in this industry.

The right of redemption in case of an agent’s bankruptcy is stipulated in contracts that explain the required procedures to be followed to claim goods or money in the agents’ possession. The following issues determine the conditions for use of this right and enable agents and their clients to play their roles in ensuring that all contracts are terminated professionally. First, when things exist in kind within the agent’s property they can be claimed by presenting related documents to prove their ownership to the relevant authority. This helps the transition authority to release goods whose owners have paid for and not yet claimed them10.

Secondly, all parties entrusted with property should provide proof of their ownership to claim them when agents are declared bankrupt. Moreover, clients can claim goods or prices not paid to agents before they were declared bankrupt by presenting documents as evidence that show incomplete transactions. On the other hand, prices that were paid to agents but not given to clients before they were declared bankrupt are paid when the assets of their warehouses are sold.

Conclusion

Trade agency clauses and guarantees are established to ensure business activities are guided by professional, legal and moral policies. In addition, they ensure investors have equal opportunities of exploring new markets and expand their operations. However, it is necessary to observe the following recommendations to ensure agents and clients have mutual relationships. First, there is the need for continuous evaluation of trade agency clauses to ensure they reflect the changes in the modern world. For instance, the introduction of sophisticated technology has reduced expenses on tracking goods from suppliers until they arrive at agents’ warehouses.

This means that agents should evaluate their commissions on services offered to clients. Secondly, there is the need to network warehouses and reduce the stiff-neck competitions that exist amongst agents. This will promote unity, learning and coordination amongst agents. Thirdly, the roles and functions of agents as stipulated in various agency clauses should be expanded to meet the complexities associated with increased international trade activities.

Lastly, globalization has enabled business operations to use and adopt similar procedures to limit costs and enhance compatibility with other systems. This concept should be used by agents and clients to ensure there is diversification of processes involved in claiming compensations from stakeholders involved in agency transactions. In addition, it will expand the scope of coverage of the products that pass through the hands of agents and this will increase investment opportunities.

Reference List

Alberic, C., International Commercial Agency and Distribution Agreements: Case Law and Contract Clauses, Vatican, Kluwer Law International Press, 2011.

Aspinwall, M., Side Effects: Mexican Governance Under NAFTA’s Labor and Environmental Agreements, California, Stanford University Press, 2013.

Bogaert, G., Commercial Agency and Distribution Agreements, Vatican, Kluwer Law International Press, 2010.

Christou, R., International Agency, Distribution and Licensing Agreements. Written and Edited by Richard Christou, London, Sweet and Maxwell, 2011.

Cottarelli, C., Frameworks for Monetary Stability: Policy Issues and Country Experiences, Washington, International Monetary Fund, 2009.

Gray, J., The Company States Keep: International Economic Organizations and Investor Perceptions, Massachusetts, Cambridge University Press, 2013.

Igbal, Z., Trade Reform and Regional Integration in Africa, Washington. International Monetary Fund, 2010.

International Monetary Fund, Financial Globalization: The Impact on Trade, Policy, Labor, and Capital Flows, Washington. International Monetary Fund, 2009.

Lahiri, D., Policy Experiences and Issues in the Baltic, Russia, and Other Countries of the Former Soviet Union, Washington. International Monetary Fund, 2010.

Otis, L., EC, NAFTA to Benefit U.S. Agents. (European Community, North American Free Trade Agreement), New York, Wiley, 2011.

Footnotes

  1. Aspinwall, M., Side Effects: Mexican Governance Under NAFTA’s Labor and Environmental Agreements, California, Stanford University Press, 2013, p.13.
  2. Cottarelli, C., Frameworks for Monetary Stability: Policy Issues and Country Experiences, Washington, International Monetary Fund, 2009, p.53.
  3. Alberic, C., International Commercial Agency and Distribution Agreements: Case Law and Contract Clauses, Vatican, Kluwer Law International Press, 2011, p.38
  4. International Monetary Fund, Financial Globalization: The Impact on Trade, Policy, Labor, and Capital Flows, Washington. International Monetary Fund, 2009.
  5. Christou, R., International Agency, Distribution and Licensing Agreements. Written and Edited by Richard Christou, London, Sweet and Maxwell, 2011, p.19.
  6. Gray, J., The Company States Keep: International Economic Organizations and Investor Perceptions, Massachusetts, Cambridge University Press, 2013, p.81.
  7. Lahiri, D., Policy Experiences and Issues in the Baltic, Russia, and Other Countries of the Former Soviet Union, Washington. International Monetary Fund, 2010, p.29.
  8. Otis, L., EC, NAFTA to Benefit U.S. Agents. (European Community, North American Free Trade Agreement), New York, Wiley, 2011, p.44.
  9. Bogaert, G., Commercial Agency and Distribution Agreements, Vatican, Kluwer Law International Press, 2010. p.28.
  10. Igbal, Z., Trade Reform and Regional Integration in Africa, Washington. International Monetary Fund, 2010. p.32.
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