Reading 3: Role of commercial agents
Most companies engaged in international trade make use of agents to represent them
abroad. The relationship between agent and principal is commonly governed by a
commercial agency agreement, and the European Union has sought to harmonise1 its
member states’ agency laws in order to give agents greater protection.
This text is taken from the introduction to a document written to inform lawyers about
recent changes in the law concerning commercial agency agreements.
18 Read the text and decide whether these statements are true (T) or false (F).
1 Under EU law, a commercial agent is a person who sells goods and services
on behalf of a principal.
2 Agents are generally paid a flat rate; that is, a charge that is the same for
everyone.
3 Principals will often abandon agency agreements once a customer base
becomes established.
1 The role of commercial agents is well known. They act as independent intermediaries
representing their principals in the market. A commercial agent is defi ned by EU
Directive 86/653 as a person ‘who is a self-employed intermediary having continuing
authority to negotiate the sale or purchase of goods (but not services) on behalf of his
principal or to negotiate and conclude such transactions on behalf of and in the name of
his principal ...’. They do not buy products from their principals, but arrange sales directly
from their principals to the customer. For the provision of this service, commercial
agents are typically paid a commission by their principals, calculated as a percentage of
the sale price of the product to the customer.
2 Commercial agency is of particular importance in international trade. It provides a
convenient structure enabling a foreign supplier to penetrate an overseas market. By
using the services of an agent established in the targeted overseas market, the principal
can benefi t from the knowledge and local connection of the agent, avoid the investment
and commitment of managerial resources required by the establishment of a branch or
subsidiary and, by taking advantage of the agent’s services on a commission basis, can
effectively test the overseas market on a ‘no cure, no pay’ basis.
1 Harmonisation is the process by which different states adopt the same laws.
abroad. The relationship between agent and principal is commonly governed by a
commercial agency agreement, and the European Union has sought to harmonise1 its
member states’ agency laws in order to give agents greater protection.
This text is taken from the introduction to a document written to inform lawyers about
recent changes in the law concerning commercial agency agreements.
18 Read the text and decide whether these statements are true (T) or false (F).
1 Under EU law, a commercial agent is a person who sells goods and services
on behalf of a principal.
2 Agents are generally paid a flat rate; that is, a charge that is the same for
everyone.
3 Principals will often abandon agency agreements once a customer base
becomes established.
1 The role of commercial agents is well known. They act as independent intermediaries
representing their principals in the market. A commercial agent is defi ned by EU
Directive 86/653 as a person ‘who is a self-employed intermediary having continuing
authority to negotiate the sale or purchase of goods (but not services) on behalf of his
principal or to negotiate and conclude such transactions on behalf of and in the name of
his principal ...’. They do not buy products from their principals, but arrange sales directly
from their principals to the customer. For the provision of this service, commercial
agents are typically paid a commission by their principals, calculated as a percentage of
the sale price of the product to the customer.
2 Commercial agency is of particular importance in international trade. It provides a
convenient structure enabling a foreign supplier to penetrate an overseas market. By
using the services of an agent established in the targeted overseas market, the principal
can benefi t from the knowledge and local connection of the agent, avoid the investment
and commitment of managerial resources required by the establishment of a branch or
subsidiary and, by taking advantage of the agent’s services on a commission basis, can
effectively test the overseas market on a ‘no cure, no pay’ basis.
1 Harmonisation is the process by which different states adopt the same laws.
3 But the position of the commercial agent is vulnerable. Because of the agent’s role as
intermediary, the principal necessarily has perfect knowledge of the customers procured
by the agent. As sales volumes build, the temptation for the principal to circumvent
the agent and enter into direct relationships with customers can often become
overwhelming against the background of an increasing commission bill, often fuelled by
repeat orders from the same customers. It is commonplace, therefore, for the commercial
agent to fi nd his relationship with his principal brought to an end precisely at the
moment where the agent’s efforts have resulted in the establishment of a signifi cant
new customer base for the principal in a new market. In this way, the agent becomes
the victim of his own success and the principal takes advantage of the goodwill in the
principal’s product, created largely as a result of the agent’s efforts.
1 commission a when payment is only made following a positive result
2 intermediary b the benefit a business gets from having a good reputation
3 a ‘no cure, no pay’ basis c someone who carries messages between people who are unable
4 goodwill to meet
d payment to someone who sells goods which is directly related to
the amount of goods sold
intermediary, the principal necessarily has perfect knowledge of the customers procured
by the agent. As sales volumes build, the temptation for the principal to circumvent
the agent and enter into direct relationships with customers can often become
overwhelming against the background of an increasing commission bill, often fuelled by
repeat orders from the same customers. It is commonplace, therefore, for the commercial
agent to fi nd his relationship with his principal brought to an end precisely at the
moment where the agent’s efforts have resulted in the establishment of a signifi cant
new customer base for the principal in a new market. In this way, the agent becomes
the victim of his own success and the principal takes advantage of the goodwill in the
principal’s product, created largely as a result of the agent’s efforts.
1 commission a when payment is only made following a positive result
2 intermediary b the benefit a business gets from having a good reputation
3 a ‘no cure, no pay’ basis c someone who carries messages between people who are unable
4 goodwill to meet
d payment to someone who sells goods which is directly related to
the amount of goods sold
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