EGAlim 3 law in France: Update on its main contributions before the announced change in the schedule for the 2024 trade negotiations

To ensure that the desired price cuts take effect from January 2024, the Ministry is currently preparing a bill of law to bring forward the date of commercial negotiations for the "75" largest manufacturers and their clients in the retail business. The bill is due to be presented to the Council of Ministers on 27 September 2023.

In the meantime, we would like to take a brief look at the system applicable to these negotiations and the re­cent changes introduced by the law of 30 March 2023 aimed at strengthening the balance in commercial re­lationships between suppliers and distributors, also known as the "Descrozaille" law (named after the MP who initially introduced this law) or the "EGAlim 3" law.

As a reminder, Article L. 443-8 of the French Commercial Code requires suppliers and buyers or distributors of food products and products intended for pet food to enter into a written agreement, also known as a "conven­tion unique" (single agreement) by 1 March at the latest, for a period of one, two or three years, setting out in particular the reciprocal obligations to which the parties are committed at the end of the commercial negotia­tions.

This article stipulates that the supplier must communicate its general terms and conditions of sale (if it has drawn them up) to the buyer at least three months before this date, i.e. before 1 December (subject to a new law bringing this date forward).

​1.	The reaffirmation (i) of the application of French law to any agreement between a supplier and a buyer relating to products or services marketed on French territory and (ii) of the exclusive jurisdiction of French courts for any dispute relating to their application (L. 444-1 A C. com.)
​2.	​The extension to private label products of the principle of non-negotiability of agricultural raw materials, prohibiting commercial negotiation on the supplier's share of the price of agricultural raw materials and processed products composed of more than 50 percent of agricultural raw materials (processed pro­ducts) (L. 441-7 C.com.)
​3.	​The provision of an additional certificate under pricing transparency option 3, to be provided by the supplier to the distributor in the month following the sending of the general terms and conditions of sale (L. 441-1-1 C. com.), the purpose of which is to certify the consistency of the information relating to chan­ges in the price offered in accordance with the general terms and conditions of sale, particularly with regard to the evolution of the proportion represented, in the agreed price, by the purchase price of agri­cultural raw materials To this end, new Article L. 441-1-1 of the French Commercial Code stipulates that "the supplier shall send to the independent third party the documents required for this certification, in particular the methodolo­gy used to determine the impact on its price of the evolution in the price of the said agricultural raw materials or the said processed products". It should also be remembered that the purchaser may, at his own expense, ask the supplier to appoint an independent third party to certify the accuracy of the information provided in the general terms and con­ditions of sale, whether it concerns the unit (option 1) or aggregate (option 2) share of agricultural raw materials and processed products in the supplier's price list. Any breach of the provisions relating to the obligation of price transparency and the obligation of non-negotiability of the share of the supplier's price list represented by the price of agricultural raw materials and processed products is punishable by an administrative fine of up to 75,000 euros for an individual and 375,000 euros for a legal entity (amounts doubled if the breach is repeated within two years of the date on which the first penalty decision became final).
​4.	Greater control over logistics penalties, which are now capped at 2 percent of the value of the products ordered in the product category in which the breach was established (rather than the entire order) (441-17 C. com.)   The EGAlim 3 law also provides several new rules on the implementation and control of logistics penal­ties, including an annual obligation for distributors to notify the authorities of the amount of logistics penalties imposed on their suppliers, as well as the amounts actually received. Failure to comply with this obligation is punishable by an administrative fine of up to 75,000 euros for an individual and 500,000 euros for a legal entity (increased to 150,000 euros and 1,000,000 euros respectively if the breach is repeated within two years of a final penalty decision). Finally, we would like to draw your attention to the new obligation under this law to conclude a logistics agreement separate from the single agreement (convention unique), for which the 1 March deadline is not applicable.
​5.	​The introduction of a new analysis criterion for the sudden termination of longstanding commercial re­lationships, namely the considering of "the economic conditions of the market on which the parties operate" for the determination of the price during the notice period (L. 442-1, II, C. com)   In this respect, the EGAlim 3 law provides in particular, on an experimental basis for a period of three years, that in the absence of an agreement entered into by 1 March at the latest, the supplier may (i) either, in the absence of a newly formed contract, terminate any commercial relationship with the dis­tributor, without the latter being able to invoke the sudden termination of longstanding commercial relationships within the meaning of Article L. 442-1, II, of the French Commercial Code, (ii) or request the application of a notice period in accordance with this Article (article 9 of the law EGAlim 3). The French Commercial Code also expressly introduces the principle of good faith in the negotiation of written agreements, in accordance with article 1104 of the French Civil Code (L. 441-4 C.com. ), leading to a new restrictive practice (subject in particular to the imposition of a civil fine) for "failing to conduct commercial negotiations in good faith in accordance with article L. 441-4, with the consequence of not concluding a contract within the deadline set out in article L. 441-3" (L. 442-1, 5° C.com.). In addition to the cessation of practices, compensation for the damage suffered, the nullity of unlawful clauses or contracts and the recovery of undue advantages, French law allows the Minister of Economy to ask the Court to impose a civil fine on the perpetrator of a restrictive competition practice, up to the highest of the following three amounts: 5 million euros, three times the amount of the advantages unduly received or obtained, or 5 percent of the sales (excluding tax) achieved in France by the perpetrator of the practices in the last financial year closed since the financial year preceding that in which the practices were implemented.

In this context of strong pressure from the government, the 2024 commercial negotiations are sure not to be straightforward, particularly for small and medium-sized enterprises (SMEs) and intermediate-sized enterpri­ses, which in previous years have not always been able to pass on, in their trade negotiations, increases in production costs other than those linked to the price of agricultural raw materials.