Q&A: manufacture and distribution of fashion goods in France

Manufacture and distribution

What legal framework governs the development, manufacture and supply chain for fashion goods? What are the usual contractual arrangements for these relationships?

Quality and know-how are essential for the production of fashion goods. Many luxury companies have chosen to keep the major part of their production in France.

The term haute couture is protected by law and defined by the Paris Chamber of Commerce. The Haute Couture Syndicate is responsible for determining which luxury companies are eligible to qualify as haute couture. To earn this denomination, companies have to follow specific rules, including designing made-to-order fashion items for private clients, owning at least two workshops (one of which must be in Paris) and presenting a collection of at least 50 original designs to the public every fashion season.

Customers are growing attached to the ‘Made in France’ label, which is also a guarantee of quality at international level. Although not an official label, it certifies that the product has been mainly manufactured and assembled in France, and while it does not have to follow a strict set of specifications, it is illegal to indicate a false origin.

The Directorate General for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) is in charge of conducting investigations to ensure proper use of the 'Made in France' label. The French Customs Administration also offers to review, on a voluntary basis, products to certify that they may be labelled as 'Made in France'.

Most luxury companies’ purchasing and manufacturing strategy is centred around acquisitions to allow them to have the product manufacture under their control and to acquire know-how and intellectual property. Contractual arrangements for relationships relating to the development, manufacture and supply chain for fashion and luxury goods are regulated by standard French contract law but must comply in specific cases with applicable laws and regulations, notably regarding the use of fur, exotic leather and diamonds.

What legal framework governs distribution and agency agreements for fashion goods?

European Regulation (EU) No. 2022/730 of 10 May 2022 on the application of article 101(3) of the Treaty on the Functioning of the European Union (TFEU) to categories of vertical agreements and concerted practices (VBER) and its accompanying Vertical Guidelines are the central element of the legal framework governing distribution and agency agreements. This regulation provides for an exemption to the general prohibition of vertical agreements (article 101(1) TFEU) for selective distribution, which concerns mainly luxury or high-technology goods, and for exclusive distribution.

Apart from this regulation, these agreements are governed by the French Commercial Code, which applies to all companies without specificity to the luxury and fashion sector.

What are the most commonly used distribution and agency structures for fashion goods, and what contractual terms and provisions usually apply?

Under French law, it is essential to avoid any confusion between a distribution agreement and an agency agreement.

French law sets out that a distributor is an independent natural person or legal entity who buys goods and products from the manufacturer or supplier and resells them to third parties upon the agreed trading conditions and at a profit margin set by such distributor.

A distributor may be appointed for a particular territory either on an exclusive or non-exclusive basis.

Under French law, there is no statutory compensation for the loss of clientele and business due to the distributor upon expiry or termination of a distribution agreement. However, French case law has recognised that some compensation may be due when some major investments had been made by the distributor on behalf of the manufacturer or supplier in the designated territory.

Moreover, a party may be found liable for sudden break of established business relationships if it fails to give sufficient notice before terminating the distribution agreement. There is no statutory notice period to terminate a distribution agreement, which mostly depends on the duration of the business relationship as well as sector-specific practices. However, a party is not liable for insufficient notice period where it is at least 18 months as per article L. 442-I of the French Commercial Code.

French law sets out a detailed legal framework relating to the role of commercial agent, which is of a public policy nature (ie, one cannot opt out from such statutory legal provisions). In particular, commercial agents must be registered as such, on a special list held by the registrar of the competent French commercial court.

Under French law, not only is it very difficult to terminate a commercial agent (except for proven serious misconduct) but there is also a statutory considerable compensation for the loss of clientele and business that is due to the terminated agent by the manufacturer or supplier.

Selective distribution is the most commonly used distribution structure for luxury goods in France. It may fall outside the scope of article 101(1) TFEU, which prohibits anticompetitive agreements, if resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly and not applied in a discriminatory way. Moreover, the characteristics of the product in question must require such a network to preserve its quality or ensure its proper use. Finally, the criteria laid down cannot go beyond what is necessary (Metro). As such, selective distribution is available to luxury products. It allows for a greater control by the brand owner on the identity of the resellers and the conditions of selling and marketing. Even if a selective distribution agreement does not meet these criteria, it may benefit from the exemption provided for in the VBER, which provides that a supplier may set out criteria (qualitative or quantitative) to appoint distributors in a given territory. The supplier may then prevent its direct distributors (and their indirect buyers) from conducting active and passive sales to unauthorised distributors in the territory where it implements a selective distribution agreement. However, sales to end-customers may not be restricted.

A selective distribution agreement may, however, not prevent distributors from the effective use of the internet as a sales channel. Although recalled in the VBER, this principle was already enshrined in the 2011 judgment of the European Court of Justice (ECJ) in the Pierre Fabre case (C-439/09). French case law has recently recalled that the objectives of preventing counterfeiting and preserving the prestigious image of its products do not allow a supplier to prevent distributors from the use of internet as a sales channel (Mariage Freres and Rolex).

However, a selective distribution agreement may impose restrictions on certain selling arrangements in relation to the internet. In particular, a supplier may impose conditions relating to its distributor’s website or restrict the use of marketplaces (as indicated by the ECJ in the 2017 Coty case C-230/16) or impose distributors to have at least one brick-and-mortar store. In any case, such restrictions on the way products are sold online should be implemented in a consistent and non-discriminatory manner to benefit from the VBER exemption.

Do any special import and export rules and restrictions apply to fashion goods?

No specific French import and export rules apply to fashion goods. Luxury and fashion goods are bound to the same regulations as standard goods. France, as an EU member state, applies the common external tariff to goods imported from non-EU countries. Broadly, import duties (from zero per cent to circa 17 per cent) are calculated on the value of imported textiles, apparel and footwear goods. Specific rates may apply depending on the individual characteristics of the goods.

There is a specific legislation on products such as exotic leather or diamonds that are used in luxury and fashion goods. Luxury materials are essential to luxury goods and even though some luxury brands are deciding to avoid using them, exotic leathers are still an important raw material for the production of luxury handbags or shoes. France has been party to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) since 1978. CITES aims at ensuring that international trade of specimens of wild animals and plants does not threaten their survival and works by subjecting international trade of specimens of selected species to certain controls. All import, export, re-export and introduction from the sea of species covered by the convention must be authorised through a licensing system.

With respect to trading and sourcing of diamonds, the European Union is also one of the 54 participants to the Kimberley Process initiative, representing all member states including France. The purpose of the Kimberley Process is to put an end to the blood diamonds issue, contributing to the financing of conflicts. The implementation of the Kimberley Process Certification Scheme is provided for at EU level by Regulation (EC) No. 2368/2002 of 20 December 2002.

Additionally, on 2 February 2021, the DGCCRF signed a cooperation protocol with the agency in charge of intelligence processing and action against clandestine financial circuits (TRACFIN) to improve the prevention of money laundering and terrorism financing in several sectors of industry, including luxury. In this respect, exchanges of luxury goods are particularly monitored to ensure they are not linked to financial fraud. In 2022, the DGCCRF conducted investigations in the luxury jewellery and watchmaking sectors to ensure that professionals were complying with their obligations to prevent money laundering and terrorism financing.

What are the requirements and disclosure obligations in relation to corporate social responsibility and sustainability for fashion and luxury brands in your jurisdiction? What due diligence in this regard is advised or required?

Due diligence framework and disclosure requirements are governed by Law No. 2017-399 of 27 March 2017 on the corporate duty of vigilance for parent and instructing companies. This law is designed to ensure effective protection of fundamental rights and individuals’ and environment’s safety regarding all operations of parent companies, their subsidiaries and any other companies in the supply chain regardless of where they operate. Parent companies of groups that employ at least 5,000 employees in France or 10,000 employees worldwide must establish, implement and publish a vigilance plan. As per article 225-102-4-I of the French Commercial Code, the plan consists of reasonable vigilance measures of a nature to identify risks and ward against serious violations of human rights and fundamental freedoms, the health and safety of persons as well as of the environment including, inter alia, risk mapping, value chain assessment processes, mitigation and preventive actions, alert mechanisms and monitoring systems on the effective and efficient implementation of measures.

Recently, new vigilance measures in the form of extra-financial reporting measures have been imposed to an even larger pool of firms by the transposition into French law of the Corporate Sustainability Reporting Standards Directive in December 2023. From 2025, firms employing more than 500 employees and with a net turnover superior to €40 million or a balance sheet superior to €20 million will have to publish a sustainability report certified by an independent expert.

In addition, Law No. 2020-105 of 10 February 2020 relating to the fight against waste and the circular economy provides for a wide variety of measures, including the following:

• a prohibition on the destruction of unsold non-food products intended for sale, which are required to be reused or recycled and subject to a fine of €3,000 maximum for an individual and €15,000 maximum for a legal entity;
• increased consumer information about the environmental qualities of products that generate waste, including from 2023 on the digital publication of product information sheets comprising the product's environmental characteristics (eg, use of renewable resources, durability, reparability or availability of spare parts, etc); and
• a series of new extended producer responsibility schemes including for textile and footwear.

Furthermore, France has introduced provisions to specifically sanction greenwashing statements from 1 January 2023. Decrees No. 2022-538 and 2022-539 of 13 April 2022 prohibit advertisements stating that a product or service is carbon neutral (or any equivalent language, such as: carbon neutral, zero carbon, with a zero carbon footprint, climate neutral, fully offset, 100 per cent offset) unless a report explaining how carbon neutrality is achieved is published and updated annually.

Although greenwashing statements could already be sanctioned on the ground of unfair competition and misleading commercial practices since Law No. 2021-1104 of 22 August 2021 on Climate and Resilience added an environmental dimension to the definition of misleading commercial practices, these new provisions will certainly impact the enforcement climate in France.

Starting in 2023, to support environmental sustainability, the eco-contribution paid by manufacturers to the eco-organism they are mandatorily affiliated to (such as ReFashion for the fashion industry) may be decreased according to a bonus granted with regards to manufacturers’ efforts on three axes: product durability, certification and use of recycled primary materials.

What occupational health and safety laws should fashion companies be aware of across their supply chains?

As for all employers in France, there is, pursuant to article L 4121-1 of the French Labour Code, a general obligation for employers to ensure the safety and protection of the physical and mental health of their employees by taking adequate measures. These include, in particular, (1) implementing prevention, information and training actions and (2) assessing occupational risks for each position and recording all these risks in a single mandatory document to be issued and updated generally on a yearly basis or any time it is necessary. This document is to be made available for employees, staff representatives and the French Labour administration. Failure to proceed so may engage the civil and criminal liability of the employer and the legal entity. These obligations were particularly applicable during the covid-19 pandemic where teleworking has had to be put in place for several months and where specific measures had to be taken within companies’ premises.