THE INTERNATIONAL DISTRIBUTION OF WINE

Over the past years, as you know, the Italian wine producers have significantly increased the share of foreign sales and the search for new international markets.

The great appreciation abroad of Made in Italy wine and other food products is undoubtedly a great opportunity for growth and diversification in the market, especially in light of the continuing decline in consumption and the crisis of the internal market.

The marketing of Italian wines abroad, moreover, requires proper planning of the various activities necessary to achieve satisfactory results from analysis of markets to commercial strategy, from tax and customs issues to legal ones. Within these themes, we intend to dwell on the main contracts and legal instruments that might be used in international trade as a guarantee of the Italian exporter, subject to deepen in subsequent articles the specific legal instruments that might be used by the exporter of wines and respective characteristics.

In general terms, the Italian exporting company can choose among different organization and marketing types that bring to an increasing level of involvement of the foreign entity, to say: (i) distribution without organization abroad and direct sales; (ii) distribution through third parties abroad, coordinated and subject to the address of the Italian company, (iii) e–commerce; and (iv) direct presence of the exporting company abroad, through subsidiaries or joint–ventures with foreign subjects.

The choice between the various types of international sales channels should be made wisely according to the needs of the company and the country or region selected, bearing in mind that each type of marketing corresponds to a specific legal framework, taxation and customs , strongly differentiated in the various forms of distribution. It should be highlighted that, in certain cases, the choice of the marketing structure by the company is not entirely free, but can be conditioned by the type of market or by the law of the foreign country (in some countries, for example, the presence of a wine importer is essentially required).

Here below, we summarize briefly the various types of organization for the marketing of products abroad.



(i) Distribution without organization abroad.

Are included in this group the direct sales to foreign customers, for example as a result of direct orders or at fairs. These terms of sale are the less demanding in terms of structure solutions, but sometimes difficult to achieve and with limited results.

(ii) Distribution through third–party organization abroad.

These are the most common marketing structures, through which third parties living abroad organize the distribution of the products of the exporter in a stable and lasting way (agents, dealers –distributors or importers) or promote sales on an occasional basis (business agents).

Of particular importance are the figures of the distributors/importers and of agents, which allow the exporting company to benefit from an organizational structure that will be addressed in large part according to its directives, commercial or not, without being paid by the company in itself.

Common elements to these figures are stability and durability of the relation with the exporting company, characterized by the continuity of services that go on in time.

The main difference between intermediaries in the strict sense of the term (agents and procurers) and distributors/importers is that the first ones deal on behalf (and sometimes in the name) of the principal, while the latter ones act in their own name.

The agents promote the conclusion of contracts in exchange for a commission, distributors/importers operate as buyers and dealers and are paid through a margin (difference between purchase price and resale).

(iii) e–commerce.

A further abroad sales channel is represented by the e–commerce, which is a significant growing phenomenon. We should bear in mind that the creation and utilization of an e–commerce with sales abroad involves handling various issues, including fiscal, legal and logistics ones.

(iv) Direct presence abroad.

Another chance to market products abroad is to establish a direct presence in a foreign country, as a subsidiary or a branch. This category includes the establishment of joint ventures with local players or the formation of a directly controlled by the exporter company. The marketing of a product abroad – especially of wine, which is subject to a wide and detailed regulation that is different in every country – has risks and criticalities, including, for example, the possibility of defaults in international payments, bankruptcy or insolvency of the foreign entity, the need to comply with local law, the country risk, unfair competition, the failure to meet the labeling requirements of the local market, the violations of the trademark and unfair trade practices of the foreign entity.

To manage and reduce these risks and criticalities it is necessary to prepare a proper contract, governing in a clear and comprehensive way the relation.

Therefore, the contract represents an essential means for the protection of the interests of the Italian company that sells and markets its wines in international markets, in order to prevent or otherwise resolve any dispute with the foreign subject, to regulate mutual rights and obligations of the parties and to limit any liability of the exporter.

It should also be remembered that in some foreign countries the preparation of a written contract is a necessity (in Russia, for example, the written contract is required to obtain the certificate of conformity of the products). One of the most widely used tools for the marketing of wine in foreign markets is represented by the distribution contract.

In many countries, in effect, including the United States of America and the Russian Federation, there are complicated procedures for the importation of such products, that it is appropriate, if not necessary, to delegate to a local entity.

With the international distribution contract, as it is well known, the manufacturer is obliged to provide for the duration of the contract, the goods object of the contact to a dealer (distributor), which in turn is obligated to buy them and sell them in its name and on its own, in a given territory.

This contract provides for the establishment of a stable and lasting relation between the exporting company and the distributors/importers, being people destined to collaborate over time.

Here below, we summarize some of the key issues and elements to be treated in the negotiation and signing of an international contract for distribution.

Written form

The written form of the contract, sometimes mistakenly perceived as an unnecessary formality, is instead essential, both for the clarity of the rules of the relation and, sometimes, as mentioned above, for export?related law requirements in a specific country. It is recommended, especially for international distribution contracts, to avoid starting to give effect to what was discussed only verbally. In case of dispute, the burden of proof of the terms and conditions of the relation become extremely difficult and the foreign distributor would benefit from a better knowledge of local legislation and market.

Price, conditions and terms of payment of the price

The clear indication of the price, any discounts and/or promotions, changes in the price and the terms and conditions of payment of the products is a basic element of the contract, but sometimes not sufficiently cared, although it has also tax implications. Given the risks of outstanding debts of subjects abroad and the difficulty of recover the sums in countries sometimes distant and whose law often disadvantages foreign creditors, it is advisable to include, where possible, the provision of advance payments (at least partial) and/or the form of guarantees of payment (eg. letters of credit, insurance).

Minimum revenues

It is recommended to include, where possible, in the contract, the obligation for the foreign importer?distributor of wine to achieve certain minimum volumes of sales, with the option for the Italian exporter to terminate the contract in case of failure to reach such minimum. This clause allows to break free from the ratio in cases where the distributor is inadequate or ineffective in sales, especially in cases where they have exclusive rights to a particular country.

Trademarks and intellectual property

One of the main risks to consider is that there may be incorrect using in the foreign country of the exporter?s brand of the wine or that the foreign distributor can try over time to steal the brand on the local area.

In addition to the ordinary tools of brand protection, it is proper to ask the distributor the recognition of the ownership of the brands of the exporting entity and the monitoring on its foreign market to pursue promptly any situations of infringement and/or plagiarism of its trademark and product.

Duration and termination of the relation

The duration of the relation and the cases of termination/withdrawal from the relation must be well regarded at the time of the agreement and regulated clearly in the contract, in order to prevent having to be tied to foreign distributors/importers (especially if they have a territorial exclusivity) of which you have lost confidence or inadequate.

Language of the contract

The language of the contract is an element that sometimes is treated with disdain. The contract is sometimes signed with a text in two languages, with the possibility of disputes in the case of not precise and faithful translations. In such cases, it is advisable to specify what text will prevail in case of differences and, in any case, be assisted by a qualified advisor to verify the accuracy of the translation and the conformity of the two texts.

Applicable law

The choice of the Law applicable to the relation and to the contract between the parties is a fundamental stipulation of the contract of international distribution, because laws have very often significantly different contents, especially in the case of countries outside the EU, for which the same text of the contract may lead to very different solutions, depending on the chosen law. Where possible, it is advisable to apply the Italian law, with respect to foreign local law, which moreover is often poorly known by the exporter.

Jurisdiction/Arbitration

It should also be provided which will be the competent body to decide any dispute, if there were a controversy between the parties over the interpretation or application of the contract.

In the contract the parties shall indicate which court has the competence: it is appropriate for the Italian exporter to provide for the court of its country as competent, but in some cases this may not be accepted by the foreign entity or not always easy.

The parties have also the possibility to entrust the resolution of any dispute to an arbitration (or to a sole arbitrator), bearing in mind that this option, which has the advantage of shorter times, may involve significant costs.

The aforementioned contents represent some of the main themes of a contract of international distribution, the contents of which depend significantly on the different foreign countries where the export is made.

Such contents will be supplemented from time to time with further customary clauses (terms and place of delivery, guarantees, wine labeling, product liability, etc.) and adapted to the specific case, taking into account the foreign countries in which you plan to export wine products and according to the needs of the exporting enterprise and its features.



By Lawyer Luca Moro, Court of Padua

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This document has the sole purpose of outreach and information and does not represent in any way, nor does it constitute, legal advice on the matters discussed in it.