China distribution contracts
China distribution contracts

Last week, in China Distribution Contracts: The Questions We Ask, we wrote about some of the initial questions we ask our clients for whom we are drafting China distribution contracts. That post started out discussing how forming and then operating a China WFOE is difficult and expensive — see Forming a China WFOE: Ten Things To Consider and Doing Business in China with Deportation or Worse Hanging Over Your Head on why having a WFOE is a must if you will be doing business within China. We then discussed how our China lawyers have been seeing many more foreign companies choosing to sell their products to China via distribution relationships rather than via a WFOE. For the basics on what it takes to establish and document distribution relationships with Chinese companies, check out the following:

Today’s post focuses on some of the additional questions we often ask our clients that have retained us to draft their distribution agreement with a Chinese company or companies. As with last week’s post, it consists mostly of an amalgamation of emails from our China attorneys seeking more client information and providing additional client assistance before drafting a China distribution agreement.

1. How are you planning to deal with warranties? A standard approach is for you to draft the warranty and then have your distributer pass on this warranty to consumers without any changes. Under this approach you will need to work with your distributor to design an appropriate warranty that a) works for your products, b) works for your company and your distributer, c) meets market demands, and d) complies with Chinese law.

The alternative is to allow your distributor to provide whatever warranty it wants to consumers. Your warranty is with the distributor and you will not cover any warranty beyond that which you have specifically agreed with your distributor. Under this sort of arrangement you have no contractual relationship with the consumers and the consumers have no legal basis to assert warranty claims against you. They are limited to making claims only against your distributor. This option is consistent with the legal status of a distributor that buys and then resells your products. However, under this approach you no longer control the nature of the warranty and many of our clients do not want to give up this control.

Much can depend on the nature of your product, your consumers and your trust in your distributer. We should discuss all of these things by telephone.

2.. Determining the sales price to consumers. Normally, the distributor is free to set the prices it wants for the products, since it has purchased the product and therefore owns them. However, many of our clients wish to exercise at least some pricing. Absolute resale price maintenance is not legal in China so you cannot dictate the sales price. You can, however, require your distributor to work with you on pricing and even set a pricing product range, both maximum and minimum. Please advise on how you want to proceed on the pricing issue.

3. What form training will you provide to your distributor? Where will your provided this (in China or in your home country)? How will training costs be determined and who will pay those costs?

4. Do you want to require all communications from your distributor be in English?

5. Will your technical documents be translated into Chinese? If yes, who will do this? You or your distributor and who will cover these costs? 

Please advise on the above. We will begin drafting your distribution agree  responses are complete.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.