Trade negotiations: establishing an agreement between traders

Verified 01 April 2023 - Legal and Administrative Information Directorate (Prime Minister)

When professionals want to enter into a commercial relationship, they negotiate the rules of their relationship. This trade negotiation must have been conducted by good faith and be formalized in a written agreement. The rules for drawing up these agreements vary according to the traders and the products concerned.

After negotiating the basis of their commercial relationship, a supplier and a distributor shall draw up an agreement setting out the rules on which they have agreed. This negotiation must have been made in good faith, i.e. the distributor and the supplier must have sincerely tried to negotiate with each other. If the negotiations do not reach the deadline because one of the parties failed to act in good faith, the latter may be held liable.

Distributors are the intermediaries between a manufacturer and a customer. They purchase products (or services) from a manufacturer for resale to an end customer, individual or company. There are several types of distributors: wholesalers, central purchasing bodies, specialty or local shops... All the intermediaries between the company and the customers are called the “distribution channel”.

The agreement may take the form of a single document or a framework contract and enforcement contracts.

It exists multiple types of conventions depending on the goods or services concerned. These agreements are subject to different rules (e.g. mandatory information to be provided). In addition, the quality of the purchasing professional (e.g. wholesaler) also plays a role in the rules of the establishments of the agreement.

FYI  

Where the agreement concerns perishable foodstuffs, the supplier and the distributor shall not be obliged to conclude a written agreement.

A wholesaler buy goods to one or more suppliers and resells them to other professionals.

The customer can be a trader, another wholesaler, a processor or a professional who buys for the needs of his business.

Mandatory particulars

Where a supplier wishes to conclude an agreement with a wholesaler, the agreement must contain following information :

  • Conditions of the sale of products or the provision of services
  • Price reductions, types of situations and modalities under which derogations may be applied
  • Commercial cooperation services (promotions) provided by the distributor to promote the marketing of the supplier's products or services. These services should not be part of the purchase and sale obligations. The following information shall also be provided:
    • Subject matter of the services
    • The date on which these services apply
    • Arrangements for the performance of services
    • Remuneration for each service
    • Overall remuneration for services
  • Other obligations to promote the commercial relationship between supplier and distributor (referencing, statistics, etc.). The following information shall be specified for each obligation:
    • Subject matter
    • The date on which this applies
    • Implementing rules
    • Remuneration or overall price reduction applicable to all obligations
  • For any service or obligation resulting from an agreement concluded with a company outside France linked to the buyer
    • Subject matter
    • Expected Date
    • Implementing rules
    • Products to which it relates
  • Expected date of services (for example, the date on which a repair must take place)
  • Arrangements for carrying out the services (e.g. repair will take place on Friday from 2 p.m. to 5 p.m., 2 workers will be on site, etc.)
  • Remuneration for each service
  • Overall remuneration for services
  • Subject matter
  • Expected Date
  • Implementing rules
  • Remuneration or overall price reduction applicable to all obligations
  • Reciprocal obligations to which the supplier and the wholesaler have committed themselves. The Convention shall be drawn up on a single document, separately or as a whole, consisting of a framework contract and enforcement contracts

FYI  

Of additional information shall be indicated when the agreement relates to the purchase of manufactured goods, manufactured at the request of the purchaser or to the design and production of food products for the particular needs of the purchaser.

Additional information

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Purchase of manufactured goods, manufactured at the buyer's request

A supplier wishes to enter into an agreement with a distributor who buys manufactured products, manufactured at his request, to integrate them into his own production.

It is forbidden to buy more than €500,000 manufactured products made on demand.

The agreement shall contain additional information following:

  • Purpose of the agreement and obligations of the seller and the buyer
  • Prices and pricing arrangements
  • Billing and Payment Terms
  • Respective responsibilities of the buyer and the seller and the guarantees
  • Duration of the agreement and arrangements for termination
  • Dispute settlement procedures with respect to the implementation of the Convention (e.g. the competent court, the applicable law). If the seller and buyer wish to use the mediation, the arrangements for its establishment must be specified
  • Where necessary, the terms of application of a retention of title (a clause whereby the seller remains the owner of the goods until the buyer has paid the full price)
  • Where the nature of the agreement so requires, rules concerning intellectual property between the seller and the buyer (e.g. sale of patented software)

Design and production of food products for the specific needs of the buyer

A seller wants to enter into an agreement with a wholesaler who buys designed and manufactured food products in a manner that meets its needs. These products are then sold under the brand name of the wholesaler.

The agreement shall contain additional information following:

  • Prices or criteria and procedures for determining the purchase price of agricultural products used in the manufacture of foodstuffs. This includes the innovation efforts that the manufacturer has made at the request of the wholesaler.
  • Clause for the automatic revision of prices according to the variation in the cost of the agricultural raw material or processed products used in food products.
  • Clause concerning the estimated volume that the distributor undertakes to have produced over a given period. It must also provide for a reasonable period of advance notice to enable the manufacturer to anticipate any variations in volume.
  • Minimum period of notice to be respected in the event of termination of the contractual relationship. We also have to anticipate what will happen to packaging and finished products when the contract is terminated.
  • Clause for the allocation between supplier and distributor of the various costs which may be added over the life of the contract.
  • Periodic alerting and exchange of information between supplier and distributor to optimize supply conditions and limit disruptions.
Date of conclusion of the agreement

The agreement has to be concluded at the latest at one of the following dates:

  • The 1er March the year in which the Convention begins to apply. Supplier must communicate its general conditions of sale within a reasonable time before that date.
  • In within 2 months of the start of the marketing period products or services of a particular marketing cycle (this refers to products or services that are sold over a particular period of time: for example, Christmas decorations at the end of the year). The supplier must communicate his general terms and conditions of sale before the point of commencement of marketing.
Duration of the agreement

The agreement between a supplier and a wholesaler may be concluded for 1, 2 or 3 years.

Where the agreement is concluded for a period of two or three years, it must provide for the arrangements under which the agreed price is revised. For example, the evolution of the price according to the costs related to the production costs (electricity, raw materials, etc.).

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Consumer products

A consumer product is a common consumer product that has an expiry date (e.g., food, household products, alcoholic beverages, etc.).

You can find the consumer goods liston the website of Legifrance.

A consumer product is a common consumer product that has an expiry date (e.g., food, household products, alcoholic beverages, etc.).

You can find the consumer goods liston the website of Legifrance.

Mandatory particulars

Where a supplier wishes to conclude an agreement with a distributor for consumer products, the agreement must contain the following information

  • Scale unit prices with the general conditions of sale (GTC) or the arrangements for consultation of the scale on which the negotiations have been based
  • Each reciprocal obligation to which the supplier and the distributor have committed themselves following the conclusion of the commercial negotiation. The unit price of each reciprocal obligation must also be indicated.
  • Estimated turnover
  • Terms of the operation sales and price reductions. The date on which this applies must also be indicated.
  • Services of trade cooperation (promotions) made by the distributor to promote the marketing of the supplier's products or services. These services should not be part of the purchase and sale obligations. The following information shall also be provided:
    • Subject matter of the services
    • The date on which these services apply
    • Arrangements for the performance of services
    • Remuneration for each service
    • Overall remuneration for services
  • Other obligations to foster the commercial relationship between supplier and distributor (referencing, statistics, etc.). The following information shall be specified for each obligation:
    • Subject matter
    • The date on which this applies
    • Implementing rules
    • Remuneration or overall price reduction applicable to all obligations
  • Penalties for non-compliance with contractual obligations. The logistical penalties imposed by the distributor on the supplier must be proportionate to the harm suffered. They cannot exceed 2% the value of the products ordered in the product category concerned by the infringement. Proof of the non-compliance and proof of the damage sustained must be provided by the distributor who sends the penalty notice. A logistical penalty may not be imposed for a breach that occurred more than one year ago. Logistical penalties may also be imposed by the supplier on the distributor under the same conditions and within the same limits. Where the breach arises from an exceptional situation seriously affecting supply chains in one or more sectors, outside the distributor or supplier, the application of the logistical penalties provided for in the contract may be suspended by decree of the Council of State for a maximum period of 6 months, renewable.

FYI  

Where the supplier and the distributor are subject to reciprocal obligations, a separate agreement must be drawn up to determine the procedure for calculating the penalties laid down in the basic agreement. In the event of termination of the separate agreement, the basic agreement shall continue to exist.

Date of conclusion of the agreement

It has to be concluded at the latest at one of the following dates:

  • The 1er March the year in which the Convention begins to apply. Supplier must communicate its general conditions of sale at least 3 months before that date (i.e. before 1er December)
  • Within 2 months the starting point of the marketing period for products or services in a particular marketing cycle (this refers to products or services that are sold in a particular period of time, for example, Christmas decorations at the end of the year). The supplier must communicate his general conditions of sale at least 2 months before the start of the marketing period

Warning  

The distributor has a reasonable period of time from the receipt of the GCS to accept, refuse or indicate the conditions he wishes to negotiate. His reply must be justified and detailed.

Duration of the agreement

The agreement between a supplier and a distributor may be concluded for 1, 2 or 3 years.

Where the agreement is concluded for a period of two or three years, it must provide for the arrangements under which the agreed price is revised. For example, the price may be affected by the evolution of costs related to production costs (electricity, raw materials, etc.). Distributor must transmit, before 1er September each year, to the ministers responsible for agriculture and the economy, a document setting out the share of surplus turnover which has been recorded following an increase in the purchase price of food and agricultural products.

Manufactured products, made on demand

A supplier wants to enter into an agreement with a distributor who buys products manufactured, manufactured at its request to integrate them into its own production. The amount of such purchases must be less than €500,000.

The agreement shall contain following information :

  • Terms of the operation sales of products or services and price reductions
  • Where provided for, the situations and arrangements in which derogating conditions of the sales transaction may be applied
  • Trade cooperation services (promotions) made by the distributor to promote the marketing of the supplier's products or services. These services should not be part of the purchase and sale obligations. The following information shall also be provided:
    • Subject matter of the services
    • The date on which the services are to take place
    • Arrangements for the performance of services
    • Remuneration for each service
    • Overall remuneration for services
  • Other obligations to foster the commercial relationship between supplier and distributor (referencing, statistics, etc.). The following information shall be specified for each obligation:
    • Subject matter
    • Expected Date
    • Implementing rules
    • Remuneration or overall price reduction applicable to all obligations
  • For any service or obligation arising out of agreement with a company outside France linked to the buyer
    • Subject matter
    • Expected Date
    • Implementing rules
    • Products to which it relates
  • Purpose of the agreement and obligations of the seller and the buyer
  • Price and pricing arrangements
  • Conditions of invoicing and settlement
  • Responsibilities buyer and seller and warranties
  • Where necessary, the detailed rules for the application of a retention of title
  • Where the nature of the Convention so requires, rules concerning the intellectual property between seller and buyer (for example, selling patented software)
  • Duration of the agreement and arrangements for termination
  • Dispute resolution procedures on the implementation of the Convention. If the seller and buyer wish to use the mediation, the arrangements for its establishment must be specified.
  • Penalties for non-compliance with contractual obligations. The logistical penalties imposed by the distributor on the supplier must be proportionate to the harm suffered. They cannot exceed 2% the value of the products ordered in the product category concerned by the infringement. Proof of the non-compliance and proof of the damage sustained must be provided by the distributor who sends the penalty notice. A logistical penalty may not be imposed for a breach that occurred more than one year ago. Logistical penalties may also be imposed by the supplier on the distributor under the same conditions and within the same limits. Where the breach arises from an exceptional situation seriously affecting supply chains in one or more sectors, outside the distributor or supplier, the application of the logistical penalties provided for in the contract may be suspended by decree of the Council of State for a maximum period of 6 months, renewable.

FYI  

Where the supplier and the distributor are subject to reciprocal obligations, a separate agreement must be drawn up to determine the procedure for calculating the penalties laid down in the basic agreement. In the event of termination of the separate agreement, the basic agreement shall continue to exist.

Food products designed and produced for the particular needs of the buyer

A seller wishes to enter into an agreement with a distributor who purchases food products designed and manufactured on terms and conditions that meet the distributor's needs. The products are then sold under the distributor's brand.

The agreement shall contain information following:

  • Terms of the operation sales of products or services and price reductions
  • Where provided for, the situations and arrangements in which derogating conditions of the sales transaction may be applied
  • Trade cooperation services (promotion) made by the distributor to promote the marketing of the supplier's products or services. These services should not be part of the purchase and sale obligations. With regard to trade cooperation services, the following information should also be provided:
    • Subject matter
    • Expected Date
    • Implementing rules
    • Remuneration for each service
    • Overall remuneration
  • Other obligations serving to fostering the commercial relationship between supplier and distributor (referencing, statistics, etc.). The following information shall be specified for each obligation:
    • Subject matter
    • Expected Date
    • Implementing rules
    • Remuneration or overall price reduction applicable to all obligations
  • For any service or obligation arising out of agreement with a company outside France in relation to the buyer:
    • Subject matter
    • Expected Date
    • Implementing rules
    • Products to which it relates
  • Price or criteria and procedures for determining the purchase price of agricultural products used in the manufacture of foodstuffs. This includes the innovation efforts that the manufacturer has made at the request of the distributor.
  • Automatic review clause prices depending on the variation in the cost of the agricultural raw material or processed products used in food products
  • Clause concerning the estimated volume that the distributor undertakes to have produced over a given period. It must also provide for a reasonable period of advance notice to enable the manufacturer to anticipate any variations in volume.
  • Minimum period of notice to be respected in the event of a breach of the contractual relationship. We also have to anticipate what will happen to packaging and finished products when the contract is terminated
  • Allocation clause between supplier and distributor of the different costs which may be added over the life of the contract
  • Alert and information exchange system recurrences between supplier and distributor to optimize supply conditions and minimize disruptions
  • Penalties for non-compliance with contractual obligations. The logistical penalties imposed by the distributor on the supplier must be proportionate to the harm suffered. They cannot exceed 2% the value of the products ordered in the product category concerned by the infringement. Proof of the non-compliance and proof of the damage sustained must be provided by the distributor who sends the penalty notice. A logistical penalty may not be imposed for a breach that occurred more than one year ago. Logistical penalties may also be imposed by the supplier on the distributor under the same conditions and within the same limits. Where the breach arises from an exceptional situation seriously affecting supply chains in one or more sectors, outside the distributor or supplier, the application of the logistical penalties provided for in the contract may be suspended by decree of the Council of State for a maximum period of 6 months, renewable.

FYI  

Where the supplier and the distributor are subject to reciprocal obligations, a separate agreement must be drawn up to determine the procedure for calculating the penalties laid down in the basic agreement. In the event of termination of the separate agreement, the basic agreement shall continue to exist.

For any failure to comply with the rules on the establishment and application of an agreement between traders, one of the following administrative fines may be applied:

  • Individual business If the breach is committed by a €75,000. In the event of repeated infringement within two years of the first penalty, the maximum amount shall be increased to €150,000
  • If the breach is committed by a business, the fine may be €375,000. In the event of repeated infringement within two years of the first penalty, the maximum amount shall be increased to €750,000.

In case of non-compliance with the deadline of 1er March (to conclude the agreement) where necessary, one of the following administrative fines may be applied:

  • Individual business If the breach is committed by a €200,000. In the event of repeated infringement within two years of the first penalty, the maximum amount shall be increased to €400,000.
  • If the breach is committed by a business, the fine may be €1 000 000. In the event of repeated infringement within two years of the first penalty, the maximum amount shall be increased to €2 000 000.

Who can help me?

Find who can answer your questions in your region

  • Directorate-General for Competition, Consumer Affairs and Fraud Prevention (DGCCRF)

    If you want to report a difficulty encountered with a merchant

    On the Internet

    You can use the site Conso Signal.

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  • Regional Directorate for Economic Affairs, Employment, Labor and Solidarity (Dreets, ex-Direct)