ALL FRONTIER GLOBAL NEXUS — FAQ SUPPLEMENT

DISTRIBUTION AGREEMENT

VS. TRADE MANDATE

Frequently Asked Questions — Choosing the Right Commercial Structure for India-EU Market Entry

This FAQ answers the most commonly asked questions about the difference between a Distribution Agreement and a Trade Mandate — two fundamentally different commercial structures for bringing Indian goods to EU markets. Understanding which structure to use — and when — is one of the most important decisions in India-EU trade facilitation.

SECTION 1 — FUNDAMENTAL DIFFERENCES

Q1. What is the core difference between a distribution agreement and a trade mandate?

The core difference is who takes title to (ownership of) the goods and who bears commercial risk. In a distribution agreement: the distributor buys the goods from the Indian supplier (takes title), pays for them, warehouses them, and resells them to end customers in the EU under their own commercial risk. The supplier receives payment upfront (or on agreed terms) regardless of whether the distributor resells successfully. In a trade mandate (commission-only model): the agent or facilitator never takes title to the goods and never pays for them. The agent introduces the EU buyer to the Indian supplier, and the supplier sells directly to the buyer. The agent earns a commission on the value of each transaction between supplier and buyer, paid by the supplier. The agent bears no stock risk, no payment risk, and no logistics risk.

Q2. In a distribution agreement, who is the EU buyer's contractual counterparty?

In a distribution agreement, the EU distributor is the contractual counterparty to the EU end customer. The distributor buys from the Indian supplier and sells to EU customers under the distributor's own name, brand (or the supplier's brand under licence), and general terms. The Indian supplier has no direct contractual relationship with the EU end customer — the supplier's customer is the distributor. In a trade mandate, the Indian supplier sells directly to the EU buyer — the supplier's contractual counterparty is the buyer themselves. The facilitator is not a party to the sale — they are a party to the mandate agreement with the supplier, and they earn commission from the supplier on the value of the supplier-to-buyer transaction.

Q3. Which model gives the Indian supplier more control over the EU market?

The trade mandate model gives the Indian supplier significantly more control: the supplier sets the price directly with the EU buyer; the supplier controls the product specification, quality, and branding; the supplier builds a direct relationship with the EU buyer; the supplier receives the full sale proceeds (minus the commission paid to the facilitator). The distribution model trades control for certainty: the supplier receives a predictable price from the distributor; but the distributor controls resale pricing, end customer relationships, and market strategy — and can delist the product at any time without explanation (subject to contractual notice periods). For a long-term EU market presence, the trade mandate model builds more durable supplier-buyer relationships and higher long-term revenues for the Indian supplier.

Q4. Which model is lower risk for the Indian supplier?

This depends on the definition of risk. Financial risk: the distribution model has lower financial risk for the supplier — the distributor pays (on agreed credit terms) and the supplier receives payment from one creditworthy EU counterparty rather than managing multiple EU buyer credit relationships. Stock risk: in the distribution model, the distributor bears the risk of unsold stock. In the trade mandate model, the supplier only produces what is ordered by the buyer — no excess stock risk. Market risk: in the distribution model, the supplier's EU market access depends entirely on the distributor's commercial efforts and commitment — if the distributor underperforms or terminates, the supplier loses all EU market access immediately. In the trade mandate model, the supplier can work with multiple EU buyers simultaneously — market access is diversified. Overall: the distribution model concentrates financial risk management on one counterparty; the trade mandate model diversifies commercial relationships but requires the supplier to manage EU buyer credit risk themselves (typically with ECGC cover).

SECTION 2 — LEGAL STRUCTURES

Q5. What is the legal relationship between the parties in each model?

Distribution agreement: Buyer-seller relationship between the Indian supplier (vendor) and the EU distributor (purchaser). Each purchase order is a separate sale contract. The distribution agreement sets the terms (exclusivity, minimum purchase volumes, pricing, branding, territory). Agency/mandate relationship: The facilitator is an agent of the supplier — acting on the supplier's behalf to introduce buyers. The facilitator's authority and obligations are defined in the mandate agreement. The facilitator does not contract with the EU buyer on their own account — the supplier-buyer contract is a direct commercial sale. The Commercial Agents Directive (Directive 86/653/EEC) governs commercial agency relationships in the EU — it provides mandatory protections for EU-based commercial agents (notice periods, indemnity on termination) that are important if the facilitator is EU-established. Indian facilitators are not directly subject to the EU Commercial Agents Directive — but EU courts may apply it if an EU agent is involved.

Q6. What is exclusivity and how does it work differently in each model?

In a distribution agreement: exclusivity is granted to the distributor — meaning the Indian supplier agrees not to sell to any other buyer (distributor or direct) in the defined territory during the agreement period. This is a significant commercial concession — the supplier's entire EU market access in the territory is dependent on the distributor's performance. Exclusive distribution agreements should always include minimum purchase volume commitments (MAP — Minimum Annual Purchase) so that exclusivity is forfeited if the distributor does not meet the volume targets. In a trade mandate: exclusivity can be granted to the facilitator — meaning the supplier agrees not to appoint another agent for the same territory or buyer category during the mandate period. However, mandate exclusivity is less commercially restrictive because the supplier still sells directly to buyers — the exclusivity is on the facilitation service, not on the product sales channel. Non-exclusive mandates (where the supplier can appoint multiple facilitators or approach buyers directly) are also common and commercially valid.

Q7. What EU competition law applies to distribution agreements?

EU distribution agreements are subject to EU competition law — specifically the Vertical Block Exemption Regulation (VBER) (Commission Regulation (EU) 2022/720, in force from 1 June 2022, replacing the 2010 VBER). Key points: absolute territorial restrictions (prohibiting the distributor from selling into other EU member states) are generally prohibited under EU competition law — passive sales (responding to unsolicited EU customers from outside the territory) cannot be prohibited. Dual pricing (charging the distributor more for goods it exports than for goods it sells in its exclusive territory) is prohibited under the new VBER. Online sales restrictions are largely prohibited — the distributor cannot be prevented from selling online to customers across the EU. Trade mandates (genuine agency relationships where the agent does not take commercial risk) are generally outside the scope of EU competition law — the agency relationship is between the supplier and the facilitator, not a vertical supply relationship of the type governed by the VBER.

SECTION 3 — COMMERCIAL CONSIDERATIONS FOR FACILITATORS

Q8. As a trade facilitator, should I recommend the distribution model or the mandate model to my Principals?

From the facilitator's perspective, the trade mandate model is strongly preferable because: (a) the facilitator earns commission on every transaction between the supplier and the introduced buyer — including repeat orders over the tail period; (b) the facilitator's commission income is ongoing for as long as the commercial relationship continues — the distribution model generates commission only on the initial introduction; (c) the facilitator maintains visibility and relevance in the commercial relationship — in the distribution model, once the distributor is introduced, the facilitator may be bypassed; (d) the mandate model aligns the facilitator's interest with the supplier's long-term commercial success — more sales = more commission = both parties benefit. Only recommend the distribution model where the specific product or market conditions strongly require it — for example, where the product requires local EU stockholding, assembly, or after-sales service that only an EU-based distributor can provide.

Q9. Can the same transaction involve both a distribution agreement and a mandate?

Yes — in practice, hybrid structures occur. Example: An Indian supplier appoints All Frontier Global Nexus as their mandate facilitator to introduce EU buyers. One of the introduced buyers is an EU distributor who proposes to buy the goods in bulk and redistribute in their territory. The facilitator earns commission from the supplier on the sale to the distributor (mandate). The distributor and supplier sign a distribution agreement for the ongoing supply relationship. In this hybrid, the facilitator earns the introduction commission; the ongoing supply is governed by the distribution agreement (which may or may not generate ongoing commissions for the facilitator depending on the mandate terms and tail period). Ensure the mandate agreement covers this scenario — specifically, that the facilitator's commission is payable on all transactions with the introduced party (including transactions under any distribution agreement subsequently signed), within the tail period.

Q10. What happens to my commission if the supplier and distributor sign a distribution agreement that excludes me?

This is a circumvention scenario. If the supplier and the EU buyer (distributor) sign a distribution agreement without involving the facilitator in the commission arrangement, and this happens within the tail period of the mandate, the supplier is in breach of the mandate agreement and NCNDA. The facilitator is entitled to commission on all transactions with the introduced party within the tail period — regardless of whether those transactions are governed by a distribution agreement or a direct sale. The mandate agreement should be drafted to make this explicit: "Commission is payable on all transactions between the Principal and the Introduced Party, however structured, including transactions under any distribution, supply, or other commercial agreement between the Principal and the Introduced Party, concluded within the tail period." If circumvention is confirmed, pursue recovery through the dispute resolution mechanism in the mandate agreement.

SECTION 4 — CHOOSING THE RIGHT STRUCTURE

Q11. When is a distribution agreement genuinely the better commercial choice?

A distribution agreement is commercially preferable when: (a) the product requires local EU stockholding — the EU market requires fast delivery from local stock (e.g. spare parts, perishable goods with very short shelf life, FMCG with frequent small orders); (b) after-sales service is required — the distributor provides installation, maintenance, warranty service, or technical support that requires local presence; (c) the product is new to the EU market — the distributor takes the market development risk, investing in promotion and sampling before significant orders flow; (d) the Indian supplier lacks the capacity or capability to manage multiple EU buyer relationships directly — a single distributor simplifies the commercial relationship; (e) the product requires local EU regulatory filing (e.g. the EU distributor holds the marketing authorisation for a pharmaceutical, or the CE marking in their name) — in these cases, the distributor is necessarily the legal market-entry entity.

Q12. What are the key questions to ask before choosing between the two models?

Before deciding between distribution and mandate, ask: (1) Does the product need local EU stockholding or after-sales service? → Yes: consider distribution. No: mandate preferred. (2) Is the Indian supplier willing and able to manage direct EU buyer relationships? → Yes: mandate preferred. No: distribution may be simpler. (3) What is the annual transaction value? → Above EUR 500,000/year: the commission cost of a mandate may be lower than the distributor's margin. Below EUR 100,000/year: distribution overhead (minimum order quantities, stock management) may be proportionally expensive. (4) How important is the supplier's long-term brand and relationship control in the EU market? → Very important: mandate. Less important: distribution acceptable. (5) Does the facilitator want ongoing commission income over multiple years? → Yes: push for mandate model. (6) Is there a genuine EU distributor who has strong market reach and is willing to commit to minimum volumes? → Yes: distribution may be the right channel for that specific partner.

RELATED DOCUMENTS IN THIS LIBRARY

Doc 109 — FAQ Supplement: Distribution Agreement vs. Trade Mandate — All Frontier Global Nexus