Distribution agreements in Asia

Distributor or agent

A distributor buys and resells in its own name and bears credit and inventory risk; an agent sells in the principal's name for commission and bears neither. The choice affects pricing control (resale price maintenance by a supplier to a distributor is restricted under competition law in Singapore, Hong Kong, Japan and Taiwan; a principal sets its own prices through an agent), liability to customers, tax (an agent with authority to conclude contracts can create a permanent establishment for the principal) and termination rights. In the LegalMatrix jurisdictions outside Asia, the United Kingdom and Malta add a statutory compensation or indemnity for commercial agents on termination that cannot be excluded; Asia has no equivalent, but Japanese and Taiwanese courts protect long-standing distributors through good-faith and reasonable-notice doctrines.

Territory, exclusivity and competition law

Exclusivity is the distributor's main ask and the supplier's main risk. If granted, tie it to minimum purchase targets with a right to convert to non-exclusive or terminate on shortfall, and reserve direct sales to named accounts and online channels. Competition law shapes the terms: Singapore's Competition Act, Hong Kong's Competition Ordinance, Japan's Antimonopoly Act and Taiwan's Fair Trade Act each prohibit resale price maintenance in most circumstances and scrutinise territorial restrictions that partition markets or ban passive sales. Recommended resale prices and maximum prices are generally permitted; fixed or minimum prices are not. The LegalMatrix go-to-market contract bundle drafts the distribution agreement within these limits and the review note records the competition position in the jurisdiction.

Brand and intellectual property control

The distributor will use your trade marks, and in some markets will try to register them. The agreement should state that all marks, domain names and social media handles remain the supplier's; grant a non-exclusive, non-transferable licence limited to the territory and term; prohibit registration of the marks or confusingly similar marks and require assignment of any registrations obtained; set quality and presentation standards with approval rights over marketing; and require the distributor to assist with enforcement. File the marks in the territory before appointing the distributor, in the Latin-script and local-script forms customers will use; see the LegalMatrix guide on trade mark strategy for Asian brands.

Ordering, pricing and payment

Use a framework structure: the agreement sets the mechanics and the price list or purchase orders set the commercial detail, with a clear order of precedence. Settle currency, Incoterms for delivery and risk, payment terms and security (letters of credit or guarantees for new distributors), price change notice periods, and who bears import duties and local taxes. Japan's Subcontract Act and related rules on payment terms to smaller suppliers can apply to arrangements with Japanese counterparties; check the Japan Fair Trade Commission. Product liability regimes in all four markets impose strict liability on manufacturers and importers, so the agreement should allocate recall responsibility and require insurance.

Term, termination and the run-off

Fixed terms with renewal on performance are safer than evergreen terms. Japanese and Taiwanese courts have required reasonable notice, and in some cases compensation, where a supplier terminates a long-standing distributor without cause on short notice, even where the contract permitted it; six to twelve months' notice for a mature relationship is prudent. On termination the agreement should deal with repurchase of stock (at what price), cessation of brand use, transfer of customer data and regulatory registrations (product registrations in some sectors are held by the local distributor and must be transferred), and the treatment of pending orders. Non-compete obligations on a distributor during the term are usually acceptable; post-term non-competes are scrutinised under competition law.

Change of control on either side should be a termination trigger. A distributor acquired by a competitor is a different counterparty, and a supplier acquired by a group with its own distribution network will want to consolidate. Insolvency, loss of required licences and a sustained failure to meet minimums are the other standard triggers; a cure period for curable breaches keeps the clause fair enough to be enforced.

Registrations, labelling and compliance

Products in regulated categories (food, cosmetics, medical devices, electrical goods, chemicals) need local registrations, labelling in the local language and conformity marks before sale in each of the four markets. The agreement should say who obtains and holds each registration, who pays, and that registrations held by the distributor are held on trust for or assigned to the supplier on termination; a distributor holding the only product licence has leverage out of proportion to its contract. Import licensing, customs valuation and parallel import rules also differ: Singapore and Hong Kong are largely open, Japan and Taiwan permit parallel imports of genuine goods with limits, which affects how much exclusivity a distributor can actually enjoy. The LegalMatrix review note for each jurisdiction lists the registration categories to check with the sector regulator.

Language, law and disputes

Singapore and Hong Kong distributors will sign English-law-style contracts under Singapore or Hong Kong law without difficulty. Japanese and Taiwanese distributors expect a bilingual text; the supplier can choose Singapore or Hong Kong law and arbitration (SIAC or HKIAC) and obtain enforcement in Japan under the New York Convention and in Taiwan under the Arbitration Act on reciprocity, or accept local law for a stronger relationship. Court litigation in a foreign language and jurisdiction is rarely practical against a local distributor, so arbitration with a neutral seat is the usual compromise.

Checklist before appointing a distributor

• Register the marks in the territory in all relevant scripts.
• Decide distributor or agent with tax and pricing control in mind.
• Tie exclusivity to minimums with conversion and termination rights.
• Keep resale price terms to recommendations or maximums.
• Provide for stock repurchase, registration transfer and brand cessation on exit.
• Choose arbitration with a neutral seat and a bilingual text where needed.