Manufacture and distribution

Manufacture and supply chain

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 (‘Chambre Syndicale de la Haute Couture’) is responsible for the determination of 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, disposing of at least two workshops (one of which 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 the international level. Although not an official label, this mention certifies that the product has been mainly manufactured and assembled in France. Though it does not have to follow a strict set of specifications, it is legally forbidden to indicate a false origin. According to the General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF), a ’Made in France‘ good has to:

  • display a different customs codification from those of its non-French raw materials and components;
  • respect a maximum value threshold for its raw materials and non-French components in relation to its price; and
  • have undergone certain processing operations in France if using non-French raw materials and components.

 

This is also the reason why most companies are strongly attached to being entirely in charge of their product development. Most luxury companies’ purchasing and manufacturing strategy is centred around acquisitions to allow them to have the product manufacture under their control.

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.

Distribution and agency agreements

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

The European Regulation (EU) No. 330/2010 of 20 April 2010 on the application of article 101(3) of the Treaty on the Functioning of the European Union (TFEU), which limits the restrictions a supplier could impose to a distributor or an agent, is 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.

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 recently 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, there is no statutory notice period to terminate a distribution agreement under French law. However, most distribution agreements set out a three-to-six-month termination notice period.

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 also there is 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, as explained in question 3.

Such selective distribution systems of luxury products can escape the qualification of anticompetitive agreements, pursuant to article 101(3) of the TFEU (individual and block exemption). However, in 2011, the European Court of Justice (ECJ) held that the selective distribution agreement that has as its object the restriction of passive sales to online end-users outside of the dealer’s area excluded the application of the block exemption in its decision in Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi. The ECJ ruled that it was down to the French courts to determine whether an individual exemption may benefit such selective distribution agreement imposed by French company Pierre Fabre Dermo-Cosmétique SAS to its distributors. To conclude, it is clear that the ECJ set out that the prohibition of internet sales, in a distribution agreement, constitutes an anticompetitive restriction.

Import and export

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 which 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 is 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.

Corporate social responsibility and sustainability

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 with regard to 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 in

 

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.

 

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 non-food unsold products intended for sale, are required to be reused or recycled subject to a fine of €3,000 maximum for an individual and €15,000 maximum for a legal entity;
  • an increased consumer information about the environmental qualities of products that generate waste (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.

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. It is worth noting that this document is to be made available for employees, staff representatives, and the French Labour administration. These obligations are 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 the companies’ premises.

Law stated date

Correct on

Give the date on which the information above is accurate.

February 2021