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Conditions to Include in an Export Distribution Agreement

When you make the decision to export the products of your small business to a distributor overseas, it is important to have a written agreement that includes all the provisions necessary to clearly establish the rights, responsibilities, and obligations of the parties.

Content of the Agreement

The agreement between you as the exporter and the distributor overseas should be adapted to the specific circumstances of your commercial relationship and should reflect everything that has been agreed in the negotiation process. It is important to be as precise as possible and not leave out any aspect that is considered crucial or fundamental for the relationship. Before finalizing the agreement you should address any pending matters with the distributor, discuss them, and reach an agreement in order to incorporate these issues in the written agreement.

Identification of the Parties

The agreement should include a complete description of the parties, with their respective legal and commercial names, addresses, taxpayer identification numbers, and the names of their legal representatives or other persons legally authorized to act on behalf of the company. If the authority of a person to act on behalf of the company is included in a power of attorney, deed, or other separate document, a reference to that document should be included in the agreement.

The contact information for each party, for purposes of all official correspondence and communications between the parties with regard to the agreement should be indicated. This includes the names of the contacts, their positions or roles, telephone and fax numbers, e-mails, and addresses. Reference should be made to the accepted form of sending and receiving communications that affect the operation of the agreement, whether by fax, e-mail, or other. It is advisable to indicate how the confirmation and timing of receipt of those communications is to be determined.

The Product

The agreement should clearly and explicitly identify the goods the exporter is going to deliver to the distributor, with all their specifications. The description of the goods should include their qualities, functionality, workmanship, and durability. Any special qualification or certification that the goods have should be indicated.

The conditions for accepting the goods should be indicated. It is common for the distributor, as the importer, to require the right to inspect the goods when they are delivered. The conditions in which the distributor can reject and return goods that arrive damaged or defective should be established. In that case, the distributor could be responsible for payment of the tariffs and other charges and taxes in the country of import, and the agreement should stipulate who is liable for final payment of these costs, and how the exporter will reimburse the distributor, if this is what has been agreed. Depending on the type of product being exported, it may be convenient to include a provision that the acceptance of the goods depends on an inspection performed by an independent third party.

The importer could be obliged to provide information on the quality required of the goods in the destination country. The exporter should guarantee that the goods meet the corresponding rules and standards.

When the goods are covered by a warranty granted by the exporter, this should be included in the agreement, indicating the conditions and terms, or making reference to another separate warranty document.

Delivery and Sales

The agreement should specify the form of delivery of the products that has been agreed with the distributor, regarding the mode of transportation and the INCO terms, which are commercial terms used internationally to indicate the place of delivery of the goods, the point at which title to the goods passes, and the associated rights and obligations of the parties.

The agreement should include a force majeure clause, exempting the exporter from liability when non-fulfillment of the delivery conditions is due to acts or circumstances beyond its control, such as natural or weather-related disasters, strikes, war, or acts of God.

The territory in which the distributor will sell the products should be delineated. This could be a region, country, or specific area within a country. There should be in indication of whether the distributor has exclusive or non-exclusive rights to sell the product. The period in which the agreement is to be in effect should be indicated, along with options for renewal when the original term expires. Any agreement with the distributor in terms of the minimum quantity of goods that are going to be bought and sold should be indicated. It may be convenient to include a clause indicating that the exporter reserves to right to fill orders according to the level of inventory it has available.

Other provisions regarding sales that should be in the agreement include the service after the sale that the distributor is to provide, and the inventory of spare parts that is to be maintained to provide services according to a warranty, or as part of the service after the sale. บริษัทขนส่งสินค้าเอกชน

Payment and Other Financial Conditions

The form of payment convened with the distributor, whether letter of credit, bank draft, documentary collection, payment in advance, open account, or other, must be included in the agreement. The payment term, charges and interest for late payment, and the recourse the exporter has in case of non-payment by the distributor should be specified in the agreement.

The responsibilities of the parties with regard to the payment of tariffs, customs duties, and other charges and taxes associated with the export and import of the goods should be clearly established.

Intellectual Property

When there is intellectual property involved in the product or service, such as patents, trademarks, formulas, or other proprietary information of the company, clauses that protect these rights should be included in the agreement. If you are going to grant certain rights to the distributor, for example to provide technical service for the product, you should specify the scope of the distributor’s use of these rights.

The free trade agreements the U.S. has signed with various countries and regions of the world contain protections of intellectual property. Nevertheless, this protection is not always automatic, and by including the appropriate provisions in your agreement, you will be supporting your rights.

Responsibilities, Dispute Resolution, and Governing Law

The obligations of the parties should be indicated, as well as the acts and events that could entitle either of the parties to terminate the agreement. The recourses each party has in the event of breach by the other party should also be indicated.

Another important clause is that which deals with the resolution of disputes in the interpretation and operation of the agreement and the overall commercial relationship. The agreement should indicate how and where disputes are to be resolved, the way in which arbitrage will be carried out, if applicable, and the law that governs the agreement and the commercial relationship, which could be the law of some state in the U.S., or an international court or other organism.

Guidance

Many times the rights and obligations of the parties are indicated in a standard format that appears on the back of the export invoice. When you use a standard format it is important to review it to ensure that it reflects all the applicable terms and conditions, according to what has been negotiated and convened with the distributor. If you have any doubts, or when the circumstances merit a specially drafted contract between you as the exporter and the distributor, it is advisable to consult with an attorney competent in matters of international trade.

Export Legal Assistance Network

The International Trade Office of the Small Business Administration (www.sba.gov) offers a program call the Export Legal Assistance Network (ELAN). ELAN is a group of attorneys throughout the U.S. that specialize in international trade and can provide an initial legal consultation, free of charge, to address your legal questions related to exporting. You can find more information on the ELAN website at www.export-legal-assistance.org, including a list of regional coordinators with their names, addresses, telephone numbers and e-mails.

Standard Format from the International Chamber of Commerce

The International Chamber of Commerce (ICC) offers standard models of sales and distribution contracts. These models do not grant universal legal guarantee for all types of contractual relationships for the sale or distribution of goods and services, but they can serve as a good reference and starting point.

On the website of the International Chamber of Commerce at www.iccwco.org, by selecting the icon “ICC Bookstore” that appears in the column on the right side of the page under “Divisions”, a page with purchase options will open. You can purchase the “ICC Model International Sale Contract”, or the “ICC Model Distributorship Contract”.

 

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