Modernizing Commercial Agency Regulations in Saudi Arabia: Legal Reforms and Comparative Insights

1.

Introduction

Over the past few years, the Kingdom of Saudi Arabia (KSA) has experienced several economic and legal reforms as part of the ambitious Vision 2030. Among the key areas of regulation influenced by these changes is commercial agency law, which underpins the formation of business relationships between local agents and overseas principals. Traditionally, the Saudi commercial agency laws were initially defined by Royal Decree No. M/11 of 1382H (1962) was marked with the protectionist policy and strong restrictions on foreign principals. Although these rules were meant to empower local businesses and protect national economic interests, they tended to yield inflexible business regulations that discouraged foreign direct investment (FDI) and market liberalization.

There is an increasing scholarly literature explaining why commercial agency regimes need to be modernised to strike the right balance between investor security and market competitiveness. Regarding the self-inflexibility of pre-reform systems, restrictive agency laws increase transactional risks and reduce the entry of multinational corporations into regional markets. In the same way, comparative law analysis of jurisdictions like the UAE and the UK shows that the presence of predictability in the law, a well-developed and accessible dispute resolution system, and concise compensation guidelines leads to a high level of investor confidence (Sornarajah, 2021). All these works aim to address a research gap. As discussions of the reform increase, little research offers a closer doctrinal and comparative examination of recent agency reforms in Saudi Arabia and how they fit within both Shariah and global best practices.

Furthermore, some researchers, including Alotaibi (2021), have noted the overlap between Shariah jurisprudence and current commercial law, arguing for legal paradigms that can merge Islamic principles with contemporary economic conditions. For example, the gharar (uncertainty) principle traditionally complicated the contract of open-ended agency. Still, recent reforms have sought to bring these principles into international market standards (El-Gamal, 2006). This two-sidedness offers fertile ground for legal investigations, particularly in assessing how Saudi Arabia can remain an Islamic legal entity while also incorporating market-driven changes compatible with international trade regimes.

Furthermore, the adoption of these reforms overlaps with Saudi Arabia’s obligations under international conventions, such as WTO membership and bilateral investment treaties, and it is crucial to consider how these reforms will fit within international trade regulations (Sornarajah, 2021). The discussion of these dimensions helps clarify how Saudi Arabia positions itself in the global commercial realm. The new Commercial Agency Law meets these requirements by outlining procedures for registration, termination, and dispute resolution. It minimizes legal ambiguity without reducing the Kingdom’s core regulatory freedom. This situational connection makes the reforms internationally relevant without exaggerating their importance within a broader law-and-development discourse.

Even the application of Shariah-based principles in contemporary legal systems raises further essential questions about judges’ interpretation and application of the laws. The study illuminates how Islamic jurisprudence has been modified in response to the commercialization of global economies by examining how the courts strike a balance between religious beliefs and modern commercial standards (Hallaq, 2009). Furthermore, the study can be included in discussions of hybrid legal systems and of Saudi Arabia’s role in providing its population with aspects of civil law, common law, and Islamic legal traditions (Otto, 2010). This hybridity offers a new avenue for other jurisdictions seeking to modernize while retaining cultural and religious identity.

The main contribution of this article is the development of a three-vector model of institutional fit, doctrinal compatibility, and alignment with Vision 2030 to assess commercial agency reforms in a Shariah-based legal system. Based on this framework, the paper demonstrates that recalibrating agency law-investment policy through it creates a unique hybrid model that cannot be diluted into either regional practice, as seen in the UAE, or the UK’s liberal agency regime. By doing so, it transcends traditional legal transplant scripts by showing how reforms in Saudi Arabia incorporate international investor-friendly characteristics into a normative framework grounded in Shariah and domestic institutional constraints. In cases where this research draws on policy reports, they can only be used as contextual pointers to the modern-day reform processes. The article’s analytical premises are primarily based on academic sources in comparative law, commercial jurisprudence, and Islamic commercial law, as well as on the institutional adaptation theory, which serves as the framework for interpreting the statutory changes (Reimann & Zimmermann, 2019).

Conceptual Framing: The discriminatory integration of foreign principles into Saudi Arabia’s commercial agency law invites the traditional discourse on legal transplant and institutional adjustment. Modernization can be enhanced by transplant, but borrowed rules cannot work without being fitted to local organizations and normative anchors (Reimann & Zimmermann, 2019). In a mixed system grounded in the Shariah, the risk is not formal incompatibility but interpretive friction, unless adjudicative practice and administrative guidance develop concomitantly (Badr, 1978). This also places the reforms within the law-and-development discourse, which balances the standard-setting pressures of globalization with legal particularism and legitimacy (Cane & Kritzer, 2010).

In this paper, we consider the post-2022 regime in Saudi Arabia as a strategy of hybridization: we are liberalizing, specifically in the areas of digitalization, adjudication, and clarity in termination, while applying agent safeguards in moderation to maintain the stability of relations. We test two implications in the paper: (i) does hybridization enhance predictability among foreign principals without impairing the coherence of doctrine among domestic actors; (ii) is the success of transplanted features mediated by institutional adaptation (judicial technique, regulatory guidance, and practitioner capacity) (Sfeir, 2007).

The strategic context of Vision 2030 increases the significance of this question. Vision 2030 expressly aims to diversify the Saudi economy away from oil reliance, encourage investment, and attract international capital into sectors beyond petroleum (Ramady, 2010). Legal modernization is a cornerstone of this change and signals to global investors that Saudi Arabia is determined to establish a transparent, predictable, and enforceable regulatory environment. The commercial agency reforms can therefore be interpreted not just as technical adjustments to the legal framework but also as a tactical tool used to achieve broader economic goals, such as rising FDI inflows, competitiveness, and internationalization (O’Kane, 2013).

Moreover, the reforms are in line with Saudi Arabia’s current commitments under WTO regulations and bilateral investment agreements, which set out the conditions for market access and the non-discriminatory treatment of foreign investors (Sornarajah, 2021). The updated Commercial Agency Law minimizes legal uncertainty by clarifying the registration, termination, and dispute-resolution mechanisms; however, it does not diminish the Kingdom’s regulatory discretion. This is the two-fold success of the following: modernization without loss of sovereignty; a complex balancing act that deserves the close attention of scholars (Ballantyne, 1986).

The other aspect of the conceptual framing concerns the roles of legal culture and judicial capacity as mediators of reform outcomes. That even well-crafted laws cannot always have the desired impact unless the court system is up to speed on the new legislative provisions, the administrative agencies are receptive to change, or business sectors are not convinced that the law is closely followed (Foster, 2010). Therefore, the improvements in agency law reforms in Saudi Arabia are not solely reliant on the quality of statutory texts but also require complementing investments in judicial education, regulatory advice, and stakeholder involvement. This is where the role of an institutional lens that looks not only at what the law says but how it is being interpreted, applied, and experienced in practice becomes important (Cane & Kritzer, 2010).

2.

Pre-reform legal framework

Prior to the recent reforms, the commercial agency regulation in Saudi Arabia was mainly controlled by the Commercial Agency Law, which was passed by royal decree No. M/11 of 1382H (1962). This system was characteristic of the protectionist economic direction of the time and had extreme demands of localization. Commercial agents were to be solely Saudi nationals, or wholly owned by a local registered company registered with the Ministry of Commerce. Contracts signed with unregistered agents were not binding, and no rights were enforceable by the foreign principals (Ballantyne, 1986). Although this regime was meant to protect local commercial interests, it indirectly affected foreign investment, raising concerns about whether it would be enforced and whether it would be legally certain (O’Kane, 2013).

The pre-reform regime was accused of one of its most significant failings: granting excessive protection to agents, especially in contract dissolution and compensation. The statutory provisions, which prioritized the protection of agents while disregarding the autonomy of the contract, led courts to award compensation to agents in cases where term-based contracts had expired. As an illustration, judicial practice before the Board of Grievances showed a tendency to prioritize statutory protection over commercial principles, making the compensation process more uncertain and risky to litigate on behalf of foreign principals (Alzahrani, 2024). Academic commentators have noted that these interpretative trends are creating a sense of legal uncertainty rather than expressing a unified jurisprudential doctrine (Alayed et al., n.d.).

The law’s inflexibility also inhibited flexibility in international business practices. The exclusivity was obligatory, and non-exclusive, regional, or sector-specific agency agreements were not allowed, as are generally employed in comparative jurisdictions (Beraudo, 2014). This framework gave rise to monopolistic behaviour and was incompatible with the new competition standards set out in Saudi competition policy (Alotaibi, 2021). The indefinite agency structure and punitive termination results were also questionable in terms of gharar (undue uncertainty) and unjust enrichment (akl al-m2al bilb2til), both of which are undesirable in Islamic commercial jurisprudence (El-Gamal, 2006; Nyazee, 1998).

Administrative inefficiencies exacerbated these shortcomings in the law. The registration processes were primarily submitted physically, and had long processing times with very little transparency (Ramady, 2010). This was further impaired by the lack of a centralized, publicly accessible registry of agency agreements, which impeded due diligence by foreign principals and weakened market transparency (O’Kane, 2013). Such bureaucratic hurdles were the cause of Saudi Arabia’s deteriorating performance in global ease-of-doing-business indices and of limitations on gaining access to the market.

The pre-reform method of dispute resolution was neither transparent nor efficient. Arbitration was not explicitly provided for in the law to apply to agency disputes. However, Saudi Arabia had ratified the New York Convention and even established arbitration institutions, including the Saudi Center of Commercial Arbitration. This confusion raised questions about the enforceability of arbitration provisions and deterred foreign entities from seeking alternative dispute resolution methods (Saleh, 1984; Al-Ramahi, 2008). Inconsistency among courts in interpreting statutory provisions also heightened investors’ anxiety (Alayed et al., n.d.).

Exclusive agency practices were also economically associated with less competition and higher consumer prices because agents held monopolistic pricing power (Ramady, 2010). These results were not in line with the Kingdom’s overall objectives to diversify its economy, attract foreign direct investment, and participate in global value chains (Sornarajah, 2021). As Saudi Arabia’s economy became more mature, the protectionist rationale that underpinned the 1962 law increasingly conflicted with modern commercial realities, and the need to reform the legislation on a large scale became evident. The following reforms were aimed at addressing these structural deficiencies and harmonizing the statutory rules with the principles of the Shariah and the latest commercial practices.

3.

The 2022–2023 reforms

These are the 2022-2023 reforms introduced by Royal Decree No. M/11 of 1444H (2022-2023) and recalibrate the agency law on four principal axes. To begin with, access to markets: nationality conditions are liberalized, subject to specified conditions that expand the scope of legal participation, but control is maintained through registration (O’Kane, 2013). One of the most probable aspects of interpretative ambiguity is the extent to which mixed-ownership participation is permissible and whether the indirect foreign ownership structure would fall within the scope of the reform. The courts can ask such questions in a purposeful manner that encourages an economic element and regulatory purpose, especially where Shariah-based aspects of justice and openness are involved (Hallaq, 2009).

Second, registration and renewal processes are entirely computerized through the Ministry of Commerce portal, which requires electronic filing and verifiable records, thereby reducing delays and the extent of obscurantism (Ramady, 2010). With electronically submitted documents records being the new norm, there can be conflict over the weight of evidence for such records and the legality of digitally authenticated documents. The judicial committees will therefore take into account the emerging e-transactions jurisprudence and administrative circulars to standardize admissibility and eliminate procedural uncertainty (Foster, 2010).

Third, control over contracts: grounds of termination (expiry, breach, mutual consent) and compensation norms are made explicit in a way that does not conflict with contractual autonomy and agent protection. The issues of what constitutes justified termination or commensurate compensation may fall into a grey area, particularly in long-term commercial relationships. These provisions are to be interpreted by Saudi courts through the application of proportionality analysis and Shariah teachings, such as gharar and fasakh, to ensure that compensation remains linked to verifiable harm rather than an automatic entitlement (El-Gamal, 2006; Nyazee, 1998).

Fourth, dispute resolution: dispute resolution approaches are explicitly acknowledged (such as resorting to the SCCA and international rules), thereby expanding both the scope of forum selection and the enforcement options (Saleh, 1984). Concerns about the scope of arbitrability can also arise, as can issues regarding the application and enforcement of foreign arbitral awards in instances involving public policy or Shariah issues. Cases The trend of recent years towards aligning domestic law with international norms is also expected to be reflected in judicial interpretation, without forfeiting fundamental doctrinal restraints on unconscionable or excessively uncertain contractual terms (Al-Ramahi, 2008; Yasin, 2012).

All these actions are basically aimed at seeking predictability and transparency without altering a Shariah-compatible floor (Hallaq, 2009). The integration of compliance monitoring mechanisms is another interesting development that requires periodic reporting by registered agents and principals. This invention increases accountability and provides the Ministry with data-driven supervisory features that will improve the implementation of the law and foster a transparent market (Ramady, 2010).

Lastly, the reforms have also focused on capacity-building measures, such as training legal practitioners and judges on the implementation of the new law (Foster, 2010). These programs are essential to maintaining uniform interpretation of the reformed statutes and to building institutional competence required to sustain legal modernization. The computerization of the registration processes is one of the most important changes. The new system requires that all contracts between agencies be registered electronically through the Ministry of Commerce’s online portal. It is a system that enables real-time monitoring of application status, automated verification of documentation, and safe storage of contracts in a central database (O’Kane, 2013). Search is also made possible through the digital platform, where interested parties can determine whether agency agreements exist for specific products or market segments, thereby reducing information asymmetry that creates due diligence challenges (Ramady, 2010).

Another significant change is the elucidation of the grounds of termination. The restructured legislation explicitly provides for justifiable grounds for termination, comprising contract expiry, material breach, mutual consent, and force majeure. Such codification reduces the discretion of judicial bodies and provides contracting parties with more precise instructions regarding their rights and duties. Furthermore, under the law, proportionality is applied to compensation claims: compensation can be proportional only to actual damages incurred and cannot be punitive in the absence of egregious misconduct (Beraudo, 2014).

The establishment of arbitration as an acceptable dispute-resolution tool marks a paradigm shift. The reformed law in Article 14 expressly allows parties to incorporate arbitration clauses into their agency agreement and to accept the jurisdiction of the SCCA and other endorsed arbitral institutions (Saleh, 1984). This clause complies with international commercial practice, and the Kingdom shows interest in offering a variety of effective methods for resolving disputes (Al-Ramahi, 2008). The express indication of arbitration also covers past issues of enforceability, thereby minimizing legal ambiguities and encouraging foreign principals to invest more confidently in the Saudi market (Yasin, 2012).

The loosening of nationality requirements, albeit with certain limitations, introduces new opportunities for the foreign specifications of agency relations (Sornarajah, 2021). Under the new legislation, there are now categories of foreign-owned entities that can become registered agents, provided they meet the outlined requirements regarding capital investment, operational capacity, and regulatory compliance. This selective liberalization widens the range of possible agents, increases competition, and offers foreign principals greater choices about how to enter the market and distribute (O’Kane, 2013).

However, the reforms are well-balanced, carrying out liberalization while preserving genuine agent interests. The law still contains clauses requiring good-faith negotiation, fair dealing, and reasonable notice of termination. It also maintains agents’ rights to compensation in cases of termination other than for failing to act in good faith or for actions by the principals that diminish the agency relationship. This balance represents a high level of knowledge of the necessity of impressing foreign investors, as well as of preserving social and economic stability by securing old business relations (Vogel & Hayes, 1998).

The compliance monitoring mechanisms are incorporated, and this element of regulatory control has added another dimension. Registered agents and principals are now required to file regular reports on their commercial operations, sales volumes, experience in dispute resolution, and any significant alterations to the agency relationship (Ramady, 2010). This information helps the Ministry of Commerce track market dynamics, identify trends in non-adherence, and take proactive measures to eliminate potential conflicts or anti-competitive behavior. These reporting requirements also benefit market participants by increasing the amount of available information about the business environment (Foster, 2010).

Capacity-building programs are an addition to the statutory reforms that target institutional issues in implementation. With the support of legal and commercial institutions, the Ministry of Commerce has initiated training on the implementation and interpretation of the new law for judges, arbitrators, lawyers, and business individuals (Cane & Kritzer, 2010). These courses include digital evidence, Shariah-compliant contract interpretation, international arbitration, and comparative commercial law. The reforms also aim to ensure that the legal infrastructure is well-positioned to support the new statutory framework by investing in human capital development (Foster, 2010).

The reformed law also includes transitory provisions to address the transition from the old regime to the new one. The current agency contracts registered under the old law remain valid, provided they comply with the latest reporting and registration requirements within the specified time frames. Contract parties are urged to renegotiate under the new law to comply with its provisions. However, the legacy provisions can still be enforced in areas where they do not interfere with the compulsory regulations in the new law. This intermediate solution aims to reduce the impact and promote a gradual pace of adaptation to the latest legal norms (Beraudo, 2014).

4.

Comparative analysis

In an attempt to put Saudi Arabia’s reforms into context, this paper will conduct a comparative study of two jurisdictions: the United Arab Emirates (UAE) and the United Kingdom (UK). The UAE was chosen based on its geographic proximity, its status as a GCC member, and its comparable past dependence on protectionist agency regimes. Its 2022 reforms provide an appropriate basis for evaluating regional legal harmonization and divergence. In contrast, the UK, with a common law tradition and a liberalized market, provides a different example that emphasizes the freedom of contract and a low role for the state. This two-way focus enables one to conduct intra-regional benchmarking and align with the global market (Klein, 2022).

This comparative analysis is systematic, utilising a three-dimensional framework to ensure methodological clarity and functional equivalence across jurisdictions. First, we examine how the registration and market-access rules are handled in a regulatory context, as they establish the legal bar to entry for an agency. Second, we compare termination and compensation systems regarding their relative merits in providing contractual freedom and safeguarding the agent. Third, we evaluate the design of dispute resolution, especially the accessibility and enforceability of arbitration compared with court-based options. The comparison, organised around these three vectors, would enable the similarities and differences between the UAE and UK regimes to be evaluated systematically and directly in relation to the characteristics of the Saudi reforms.

The Federal Law No. 3 of 2022 in the UAE is an example of how the civil law system can be flexible, enabling agency regulations to adapt without abandoning localized protection. Sharing similarities with Article 4, but also providing flexibilities in termination under Article 9, such as minimum restrictions on long-established foreign corporations and single-stock companies, this law retains the exclusive rights of agents. It is interesting to note that Article 12 expressly mentions arbitration, reflecting the adoption of ADR in Saudi Arabia and suggesting a regional trend toward adjudication-friendly practices (AlSuwaidi, 2022). Nevertheless, the enduring nationality of agents suggests that the UAE is pursuing a veiled liberalization approach rather than the expansive liberalization in Saudi Arabia.

The UK regime, which follows the Commercial Agents (Council Directive) Regulations 1993, adopts a different philosophy based on the principles of EU Directive 86/653/EEC. UK legislation gives greater importance to the freedom of contract, with fewer registration requirements and lax termination conditions, but also provides indemnity or compensation under Regulation 17 to terminated agents. Case law such as Lonsdale v. Howard & Hallam Ltd [2007] UKHL 32 delivers information on how balancing agent protection and the liberalism of the market, which guided the court in this case, can provide insight to the Saudi policymakers, who want to find a balance between statutory regulation and free market (Bird & Bird, 2020).

Hybridization can be observed in reforms in Saudi Arabia: protection for agents similar to those in the UAE is applied alongside UK-style arbitration acceptance and termination flexibility. This selective adoption implies purposeful conformity with international standards without violating Shariah principles. The incorporation of features from both systems can make Saudi Arabia a legally advanced jurisdiction that attracts foreign investment while preserving its cultural and legal identity. Future research may examine harmonization across the GCC, developing these bilateral comparisons into a regionally integrated, yet globally competitive, commercial law (OECD, 2023). Moreover, the analysis of case studies in both the UAE and the UK helps understand how reforms in the field of law are changing across various institutional settings. The gradual changes in the UAE underscore the importance of gradual liberalization as a way to reduce the intensity of stakeholder opposition, whereas the adoption of judicial influence in the UK points to courts as the formers of commercial agency norms (KPMG, 2023).

A different applicable area is the divergent dispute settlement models. The hybrid model offered by the integrated arbitration provisions of the UAE and ministerial supervision is compared with the UK, which offers the separation of judicial enforcement of the agency’s rights. This comparison provides insight into Saudi Arabia’s efforts to establish a balance between administrative regulation and judicial independence (Bird & Bird, 2020). Further, the experience of the UK, where the agency principles derived under the EU were retained post-Brexit, indicates the endurance of legal regimes despite political change, which is encouraging to investors and sends a message of resilience in the face of external shocks (Klein, 2022). This stability would guide Saudi Arabia’s future reforms in the event of a policy change. Lastly, the combination of these comparative lessons helps to better understand the process of hybridization in Saudi Arabia and how the selective incorporation of the features of the two systems, like adjudication mechanisms in the UAE and contract freedoms in the UK, can be used to create a reform model that is locally-oriented and competitive on the international level.

Why these features? A political-economic interpretation of selective borrowing. Saudi decisions are guided by a pragmatic calculus of the 2030 Vision. Arbitration recognition and digital registration are inexpensive, high signal reforms, which decrease frictions in transactions and are a credible commitment to enforce contracts, as is expected by foreign investors. In comparison, domestically accommodating stakeholders by retaining calibrated agent protections, especially compensation in situations of unjustified termination, is in line with domestic stakeholder accommodation in incumbent distributors and SMEs that prioritize relational stability. The outcome is hybridization, where KSA takes the predictability apparatus (registries, more explicit termination rules, ADR) of liberal systems but maintains stability devices known to regional practice. This choice also helps minimize the risk of transplant failure by aligning imported mechanisms with adjudicatory capacity and Shariah-based legitimacy. Judicial art and regulatory advice will play a significant role in converting the borrowed elements into a permanent practice.

5.

Impact on Foreign Direct Investment (FDI)

It is expected that the reform of the Saudi Arabia Commercial Agency Law will substantially transform the investment environment by minimizing past obstacles and serve as an indicator of regulatory reform. First, greater investor confidence can be achieved through stronger statutory provisions, such as transparent registration (Article 7) and termination (Article 10) rules, which eliminate the perceived legal uncertainty that is one of the main deterrents cited in investment reports (Sornarajah, 2021).

Second, now, foreign principals have more strategic choices to enter the market through the introduction of flexible agency arrangements, such as non-exclusive and sector-specific arrangements (O’Kane, 2013). The initial signs of the reforms already affecting investment decisions are the entry of global pharmaceutical and automotive companies into the market (Ramady, 2010).

Third, arbitration (Article 14) has enhanced predictability in dispute settlement, encouraging cross-border investment by providing greater certainty about the enforceability of contracts (Al-Ramahi, 2008; Saleh, 1984). Also, alignment with Saudi Arabia’s bilateral investment treaties (BITs) and WTO obligations strengthens legal compliance with international trade standards, thereby lowering perceived sovereign risk (Sornarajah, 2021). These alignments make Saudi Arabia competitive as a GCC state and emerging market in the quest to attract high-value FDI (Ballantyne, 1986).

It should be stressed that the numerical variables provide the picture of correlation, not causation. Although the initial signs indicate an increase in investor sentiment, these changes can only be interpreted as part of a larger set of Vision 2030 reforms, such as the liberalization of macroeconomic policies, the simplification of regulations, and the encouragement of industry-specific investments (Ramady, 2010). In this connection, the agency law reforms are situated within a broader reform context rather than as a unique or determining factor in FDI performance.

Finally, such reforms indirectly strengthen competition at home. With a decline in agency exclusivity, principals could encourage performance-based representation, thereby increasing efficiency in the distribution network (Alotaibi, 2022). Although encouraging, the long-term effect of FDI will remain unstable unless judicial enforcement, transparency in administration, and perceptions towards investors are maintained (Foster, 2010). This highlights the importance of longitudinal information and further empirical assessment of the reform efficacy in the dynamic legal-economic environment in Saudi Arabia (Cane & Kritzer, 2010).

The psychological aspect of investor confidence cannot be underrated. When foreign investors are making decisions, they usually consider not the formal legal framework but the perception of legal predictability and enforceability (Sornarajah, 2021). Comprehensive legal reform, especially in the areas of digitalization and arbitration recognition, and in accordance with international standards, has symbolic value that can be more significant than the substantive provisions themselves (Khan, 2010). Saudi Arabia can improve its image as a serious, reliable, and forward-looking investment destination by demonstrating its commitment to modernizing the law (Ramady, 2010).

Besides, the reforms promote more advanced market-entry strategies. In the past, foreign principals could do little more than appoint a single exclusive agent who served the entire Saudi market, which was frequently inefficient due to the Kingdom’s extensive geographical coverage and diverse regional markets (O’Kane, 2013). The opportunity to have multiple non-exclusive agents or agents in specific sectors would provide a broader range of distribution policies, a more comprehensive market, and more competition among agents, all of which are beneficial to both the principal and the consumer (Beraudo, 2014).

Arbitration clauses are vital for FDI. International investors usually prefer arbitration over local court litigation for the following reasons: it is neutral, confidential, expert, and enforceable under the New York Convention (Saleh, 1984; Yasin, 2012). The explicit acknowledgment and creation of avenues for arbitration enable Saudi Arabia to eliminate one of the most significant impediments to foreign investment and put the country on par with international best practices in commercial dispute resolution (Al-Ramahi, 2008).

Moreover, aligning the reforms with WTO requirements and bilateral investment treaties minimizes political risk. International law provides investors with the expectation of additional protection through domestic remedies, enabling the establishment of several layers of legal protection (Sornarajah, 2021). This host protection system is especially appealing to risk-averse institutional investors, including pension funds and sovereign wealth funds, who are demanding high levels of legal certainty before investing institutionally in emerging markets (Khan, 2010).

The competition that the reforms brought about is also worth considering. The reforms introduce market pressures that encourage agents to improve the quality and reduce the cost of their services and to develop innovative distribution methods (Alotaibi, 2022). This competition advantage not only benefitsbenefits foreign principals but also Saudi consumers, who can enjoy a broader range of products at more competitive prices. The resulting efficiency will contribute to higher consumer welfare, market dynamism, and allocative efficiency (Ramady, 2010).

6.

Challenges and future directions

Despite the considerable changes proposed by the 2022-2023 reforms, several issues may affect their future effectiveness. To begin with, it requires proper implementation, with the judicial application consistent throughout. Inconsistency in judicial experience and understanding of commercial law can lead to different interpretations of the new provisions, causing uncertainty for investors (Foster, 2010). These risks may be reduced by providing targeted judicial education and by establishing commercial courts that ensure uniformity in judgments (Cane & Kritzer, 2010).

Second, another challenge is the ingrained opposition of the institutional commercial agents. Reforms might be opposed by many long-term agents who will sue or lobby politically (O’Kane, 2013). Law transition studies have shown that this boxing may slow the results of reform unless it is accompanied by a well-developed stakeholder engagement and transitional support systems (Sfeir, 2007).

Third, the more thorough incorporation of arbitration into the framework of commercial dispute resolution provokes the cultural and doctrinal issues. Although this increased caseload is encouraging, doubts remain about the enforcement of foreign arbitral awards, especially those inconsistent with public policy or Shariah (Saleh, 1984). It would help establish stronger judicial precedents on such matters and make Saudi Arabia a more favorable destination for arbitration (Al-Ramahi, 2008; Yasin, 2012).

Also, business guidance is not fully available. The lack of standardized model contracts and authoritative commentary regarding the new law puts parties in the position of making interpretive mistakes and drafting flaws (Beraudo, 2014). Guidelines and explanatory notes from the Ministry of Commerce should also be published to encourage compliance and minimize the number of disputes arising from contract uncertainties (Foster, 2010).

Lastly, regional integration by the GCC is both a challenge and an opportunity. Cross-border investment strategies are complicated by divergent commercial agency laws among GCC members (Ballantyne, 1986). Jurisdictional amphetamines would create a common market in the region, enhancing global competitiveness for Gulf trade (Ramady, 2010). The leadership role of Saudi Arabia in this respect would make it a potential instigator of overall legal integration in the region (Otto, 2010).

Overall, these issues will be tackled through long-term institutional investment, building judicial capacity, and stakeholder dialogue, along with continuous policy improvement to ensure that the reforms have a transformative effect. In addition, the need to increase legal practitioners’ training, especially those operating in non-commercial hubs, is pressing to ensure that law reform is applied uniformly in the Kingdom (Cane & Kritzer, 2010). The absence of such initiatives means that interpretation differences might lead to a lack of investor confidence and regional differences in enforcement (Foster, 2010).

Further, the government should focus on campaigns to raise awareness among the population to advise businesses (particularly SMEs) of their rights and responsibilities under the new law (O’Kane, 2013). Easy-to-understand materials can also bridge knowledge gaps and address inadvertent non-compliance, making the reforms overall more effective (Ramady, 2010).

7.

Conclusion

The 2022-2023 changes to the Saudi Arabia Commercial Agency Law were a historic legislative change in the Kingdom that will make domestic regulations and global trade standards consistent, while the core shall remain Shariah-compliant. These reforms break the century-old protectionist barriers, improve investor confidence through more transparent rules and electronicized processes, and boost dispute-resolution systems by formally recognizing arbitration (Al-Ramahi, 2008; Saleh, 1984). Each of them is an indicator of a more drastic move towards an open, predictable, and investment-friendly business climate in line with Vision 2030 (Ramady, 2010).

As noted earlier in this paper, the pre-reform regime was concerned with protecting local agents, yet it unintentionally restricted market entry and hindered FDI (O’Kane, 2013). Saudi Arabia has shown its interest in legal modernization and economic diversification by acknowledging reforms that align the rights of agents with contract autonomy and best practices worldwide (Sornarajah, 2021). Although the reforms reinforce the doctrinal framework of agency law and align the statutory mechanisms with international best practices, the overall economic implications should be considered with a grain of salt. The first signs of a better investor attitude are indicative but not definitive since several Vision 2030 projects are running in tandem (Ramady, 2010). In this regard, the role of the reform in investor confidence should be viewed as a supportive factor among the many parallel legal and economic trends.

The comparative analysis of the UAE and the UK points to a hybrid nature in Saudi Arabia, where it selectively adopts liberalizing attributes while retaining its legal identity grounded in Islamic principles (Hallaq, 2009; Otto, 2010). However, practical judicial interpretation, inter-regional consistency, strong regulation, and ongoing consultations with the stakeholders will ensure the successful implementation of these reforms (Foster, 2010). The issue of implementation, including judicial training to counter entrenched agents, will play a central role in solidifying the reform’s returns and creating a transparent and competitive commercial market (Cane & Kritzer, 2010).

The empirical conclusions in the paper are speculative. The changing investment environment in Saudi Arabia is due to several simultaneous reforms, and amendments to the agency law are only one strand of the broader changes underway (Ramady, 2010). The trends observed must thus be viewed as early warning signs other than hard evidence of causal effect.

To sum up, the commercial agency reform system in Saudi Arabia not only reinforces the local legal framework but also enhances its appeal as a commercial and investment destination within the region. The assertions about Saudi Arabia’s development as a regional business center must thus be viewed as informed speculation based on the legal path rather than conclusive empirical evidence. These expectations may be justified by the observable correlation between the reforms and the chosen investment indicators, but additional time-series data are needed to determine causality (Cane & Kritzer, 2010). Future studies on investor behavior, the consequences of contract enforcement, and industry-specific patterns of dispute resolution will play a crucial role in confirming the long-term impacts of the reforms on FDI (Sornarajah, 2021).

The following study should be an empirical investigation of the economic consequences of the reforms, long-held investor attitudes, and prospects for legal harmonization across the GCC (Ballantyne, 1986). The Kingdom can serve as a valuable example of how to combine contemporary commercial law with Shariah within the global legal system by maintaining momentum in legal reform and keeping pace with international standards (Hallaq, 2009; Vogel & Hayes, 1998).

Besides, such reforms serve as an example for other emerging markets that struggle to harmonize local legal traditions with the demands of international trade (Otto, 2010). Researching the experience in Saudi Arabia, other policymakers can learn how to sequence reform, involve stakeholders, and introduce legal predictability into culturally based legal frameworks (Reimann & Zimmermann, 2019).

The findings of this analysis also emphasize the need for repeated evaluation. Empirical research on judicial rulings, the rate of contract enforcement, and indicators of investor reaction will play a critical role in determining the effectiveness of reforms and in applying fine-tuning measures as they mature (Foster, 2010). Moreover, the courtship between governmental organizations, non-governmental parties, and scholars should be maintained to create an informed, evidence-based future of legal innovations (Cane & Kritzer, 2010). This will make reform benefits broadly known and applied across all economic sectors.

Finally, embed these reforms within a broader regional integration framework to enhance their effectiveness. It is possible to improve the state’s legal and business competitiveness by supporting the harmonization of agency legislation across the GCC and by cooperating with neighbors to facilitate the ambitions of Vision 2030 programs (Ramady, 2010).

8.

Policy recommendation summary

Cluster 1 — Judicial & institutional capacity.

(a) Specialized training for commercial judges and neutrals on termination standards, compensation calibration, and arbitral-award enforcement in a Shariah context.

(b) Curated guidance notes (benchbooks, circulars) to standardize interpretation and reduce regional variability.

Cluster 2 — Regulatory transparency & compliance tooling.

(a) Public model clauses/contracts for common agency forms (exclusive/non-exclusive; sectoral variants), annotated for Shariah compatibility.

(b) A dashboard within the Ministry’s portal offering renewal alerts, standardized termination notices, and anonymized dispute statistics for market transparency.

Cluster 3 — Regional harmonization & investor engagement.

(a) GCC-level dialogue on registration interoperability, minimum termination standards, and recognition of ADR outcomes.

(b) Periodic consultation with foreign and domestic investors to iterate guidance based on frictions encountered in contracting and enforcement.

These clusters derive directly from the doctrinal and comparative analysis: predictable adjudication (Cluster 1) gives effect to the statutory design; transparent tooling (Cluster 2) reduces transaction costs; regional convergence (Cluster 3) scales investor certainty across the Gulf.