Modification of Paraguayan Law 194/93

By Maria Gloria Trigüis, Berkemeyer Attorneys & Counselors

The objective of this commentary is the draft legislation which would modify Law 194/93 that regulates the relations between manufacturers and foreign firms and individuals or legal entities domiciled in Paraguay.

The reason to modify Law 194/93 according to the legislators is: “….Although this law had the intention to seek a legal shield of the contractual relationship that could generate between the affected individuals, in practice the proliferation of unfair terms inserted in contracts, or conditions which imposed unfavorable and extorsive conditions to continue with the relationship and accepted by the representatives, agents or distributors to prevent others from benefiting from the years of work invested in the placement of products within our market..”

The draft legislation aims to provide more elements of protection for Paraguayan representatives, agents or distributors, not acknowledging that many judicial actions have been initiated under Law 194/93, and serious precautionary measures were issued by Judges.

If the position of the manufacturer or foreign firm was sufficiently disadvantageous, with the new bill that situation worsens.

As a matter of fact, in Article 1 of the draft bill includes “controlled national firms" and its branches indirectly.

Moreover, Article 2 of the draft bill includes the concept of "Manufacturer and / or foreign company" understood as a natural or legal person established abroad, with a branch or not in the country, to promote, sell or place within the country's products or services and "Manufacturer and / or controlled national firm" that is natural or legal entity established in the country (Paraguay), in which one or more manufacturers or foreign firms have a stake in assuring them that the majority in the assemblies or partners, or those that, under specific contractual links are under the dominant influence of the manufacturers or foreign firms.

Note that under comparative law, the Dominican Republic prohibits the grantor from establishing itself in its territory, weather it is by fixing or establishing a domicile or a Dominican subsidiary, or any other form to substitute the activities of the dealer. Dominican law also prohibits the grantor from appointing a new domestic or foreign dealer to replace the previous one if an amicable agreement, definitive and within the provisions of the law and the corresponding compensation paid in a total lump sum. There is joint liability with new grantor.

If the draft bill which modifies law 194/93 enters into force Paraguayan legislation would equate with the Dominican Republic, which has the aforementioned protective mechanisms in this field of law.

Article 4 of the proposed bill include the provisions of Paraguay Presidential Decree number 7 , regarding the factor by which you must multiply to obtain the amount of compensation if the contract is modified, renewed or holding a new contract in relation to the portfolio of customers, areas, or lines of products, as when there is a decrease in the utilities of the representative, agent or distributor.

Article 6 (d) establishes an exemption from liability when the representative, agent or dealer has reached the average the set goals of the past two years, even if the agreed goals are higher.

Article 8, includes the obligation of the manufacturer and/or foreign company or manufacturer and/or controlled national firm to repurchase the receivables which have been documented. This situation can easily become a “death trap” for the manufacturer, foreign firm or controlled national firm.

Article 9 includes examples of restrictive clauses that are considered restrictive for the representative, agent or distributor. There is obviously no equitable conditions for the manufacturer , foreign firm or controlled national firm.

The draft bill also establishes the obligation to provide the goods or services. The draft bill establishes that the rights acquired by the representative, agent or distributor shall remain subsisting even if the majority of the shares are transferred.

Article 12 is a setback given that it allows you to prove the relationship by any means, when the previous Law 194/93 established that the law was only enforceable against contracts entered into prior to the effective date of the law.

Clearly the objective of this draft legislation is to establish a highly protectionist set of rules of the activities carried out by dealers, agents and sales representatives.

It should be noted that while the incorporation of Law 194/93 to the Paraguayan legal system has filled in a legislative gap, the disproportionate and unlimited paradoxical protectionism inevitably hinder business when it is intended to protect it. The legislative gap persists regarding local intermediaries and what's more it is a violation to the spirit of free trade which is enshrined in the Paraguayan Constitution.

(1) PROYECTO DE LEY “Que Amplía y Modifica los Artículos 1°, 2°, 4°, 6°, 8°, 9° y 12 de la Ley N° 194/93, “Que Aprueba con Modificaciones el Decreto-Ley N° 7 del 27 de marzo de 1991, por el cual se establece el Régimen Legal de las Relaciones Contractuales entre Fabricantes y Firmas del Exterior y Personas Físicas o Jurídicas domiciliadas en el Paraguay.