1. Lecture 14 agency

2. I. Introduction
II. Relations between principal and agent
III. What to be covered in agency agreement

3. I. Introduction
Agency is a kind of common practice in international trade. It is a means of business in which an agent does buying and selling for his principal abroad.

4. For example, a seller authorizes a person or a firm as a selling agent to act for him, in order to sell his products to some middlemen or other clients.

5. An agent obtains a commission at certain percentage of sales as the remuneration for his service. It is more convenient and economical for some firms of smaller scale to do their business through some agencies abroad.

6. There are mainly two types of agents
general agent
sole agent/ exclusive agent.

7. A general agent
A general agent may be a firm or a person who acts under instructions from his principal to sell or buy on the best terms obtainable, charging a commission under an agreement concerned.

8. A sole agent
A sole agent may be a firm or a person who acts exclusively for one foreign principal with exclusive agency rights to sell certain kinds of commodities in a certain area contracted between the two parties.

9. II. Relations between principal and agent
The relation between the principal and the agent is a legal one through signing a contract or an agreement, which is a relationship of rights and duties.

10. In commercial practice, it is a must for the principal to know clearly about the relevant laws and regulations of the country concerned prior to choosing an agent and signing of the contract because the word “agent ” or “agency” may have different meanings in different countries.

11. For example, it is stipulated in most European countries that the agency contract should follow the relevant law of the agent’s country, but the UK has no particular laws for the protection of the agent’s interest.

12. In any case, the following principles concerning the relationship between the principal and the agent are universally accepted.

13. 1. The relationship between a principal and an agent is one in which the agent is being entrusted by the former to buy or sell on his behalf. The agent himself is not involved as one party in a transaction

14. 2. Therefore, the agent is not entitled to sign his own name on any such contract of buying or selling

15. 3. The agent needn’t share the risks of business

16. 4. The agent has no right, either, to share any profit from a transaction. What he can get is but a prearranged commission as his remuneration for his work done. Usually, the commission rate varies from 5% to 10%.

17. III. What to be covered in agency agreement
In the practice of appointing an agent, the terms of agency are sometimes set out through correspondence between both parties, if the dealings concerned are large on scale, a formal agreement or contract is advisable. The agreement/ contract may be drafted by one of the parties in consultation with the other.

18. As to matters to be covered in the agreement/contract, please see the following specimen.

19. IV the points before agency
1. prior to the appointment of an agent, the principal should make a careful investigation
2.the terms and conditions of an agency should be made clear and definite before the agreement is signed by the parties concerned

20. 1.prior to the appointment of an agent, the principal should make a careful investigation about the qualification, experience and professional morality of the firm or the person to be appointed, such as:

21. the reliability and financial soundness of the prospective agent.
His marketing and sales promoting skills
His market connections and sales channels.
Whether the prospective agent is also an agent of similar goods.

22. 2. the terms and conditions of an agency should be made clear and definite before the agreement is signed by the parties concerned. Points to be covered in the agreement may include the following:

23. 1)the principal and the agent
2)the nature and duration of the agency (eg. General agency, exclusive agency or sole agency; a buying agent for importer, or a del credere agency)
3)the territory to be covered

24. 4)the products the agent appointed for
5)the commission for the agent
6)the rights and duties of the agent and the principal
7)the method of purchase and sale (eg. The agent is to buy on his own account or on consignment)

25. 8)details of expenses to be allow such as for faxes and telephone calls
9)the method of arbitration in case of the event of dispute.

26. V useful expressions 1. applying for agency
2. agreeing to appoint or negotiate for agency

27. 1. applying for agency
1) We are venturing to request you to appoint us as your agent in china for your textiles.
2) We wish to handle as an exclusive agent in this line.
3)Since we have dealt in recorders for more than 30 years, we believe that we can offer expertise in obtaining orders and handling sales in this line.

28. 4) We are convinced that there is a profitable market in our area waiting to be developed for your product and should like to act as your agent in this line.
5)Having a wide and varied experience in the trade, we are convinced that we are in a position to take care of your import business as a buying agent in the most effective manner.

29. 6) We should be glad if you would consider our application to act as your agency for the sale of your shoes.

30. 2.agreeing to appoint or negotiate for agency
1)After investigation and due consideration, we have decided to appoint you our agent in the district you defined, subject to the following terms and conditions.
2)We are pleased to confirm the agency agreement reached during our discussion last month and are looking forward to a happy and successful working relationship with you.

31. 3)We are quite willing to accept the agency proposed by you for a trial period of one month provided you are in a position to entertain our commission rates.
4)We have noted your request for acting as our agent in your area, but before going further into the matter, we would like to know your plan for promoting the sales and annual turnover you may realize in your market.

32. 5)As regards the question of sole agency, in our opinion, we both had better leave it in abeyance pending the development of business.
6)We would like to inform you that the market is already saturated. Because of this, we do not see any great chance of restoring our sales to their former level.