Enforcement Scenarios For Iraq's New Commercial Agency Law

Iraq's new Commercial Agency Law ("the New CAL") comes into force on 13 November 2018.1 The New CAL could substantially disrupt existing foreign investment for Iraqi import businesses, if it is fully enforced, but how its provisions will be implemented remains to be seen. Our original Client Alert summarizing the New CAL was published on 6th December 2017 and is available here. This Client Alert outlines six possible enforcement scenarios and how foreign investors should plan mitigation.

New Restrictions on Foreign-Investment Importers

Prior to the New CAL, Iraqi companies wholly-owned by foreign investors could freely import products and services into Iraq, subject to holding the required approvals and licenses. However, two articles in the New CAL may drastically change Iraq's import business landscape:

Article 4(2): If the applicant for a [Commercial Agency] license is a company [...] this company must be an Iraqi company and its capital should be one hundred percent (100%) owned by Iraqi citizens [...]. Article 13: It is prohibited to import commodities, goods, products or to provide foreign companies services by the Ministry of Trade - The Iraqi General Company for Exhibitions & Commercial Services and the Ministry of Finance - General Customs Authority, except through an authorized Commercial Agent, for which the commercial agency contract is registered in his name on behalf of that company for the Commercial Agent territory in Iraq. If implemented as written, the practical implications are twofold:

Any existing Iraqi company with any non-Iraqi shareholders that currently imports and distributes goods and services into Iraq may have to restructure its shareholding; and Foreign companies will be required to engage a registered commercial agent that is either an Iraqi national or a company wholly-owned by Iraqi nationals. Possible Enforcement Scenarios

Whilst monitoring the New CAL's implementation, we have seen no clear move towards enforcement. Some government agencies or state-owned companies have sporadically stated that importers must register, but these statements have often been expressly or quietly withdrawn once the practical ramifications of enforcing the requirement are understood.

Going forward, we believe that there are six reasonably foreseeable scenarios pertaining to how the New CAL's Article 4(2) and Article 13 may be implemented.

Scenario 1: No change in actual import and customs clearing practice.

It is possible that...