Article by Fidinam
Understanding the Legal Framework for Commercial Contract in Vietnam: Focus on Distribution Agreements
Distribution agreements are a common entry route for foreign companies in Vietnam. They provide market access without requiring a local subsidiary. Yet, Vietnam’s legal system does not formally recognize “distribution agreements” as a distinct contract type. Instead, businesses must navigate a patchwork of rules under the Commercial Law, Civil Code, Competition Law, and sector-specific regulations. This legal ambiguity creates both opportunities and risks.
Legal Framework and Gaps
Unlike franchise or agency contracts, which are explicitly regulated, distribution agreements fall into a grey zone. In practice, they are often treated as long-term sales contracts with elements of exclusivity. This lack of a clear legal definition means that disputes can be unpredictable, with courts or arbitral tribunals interpreting contracts differently depending on context.
Key Legal Issues
Exclusivity and Territory: Distributors usually seek exclusive rights within a region. However, exclusivity may raise concerns under competition law if the supplier has significant market power.
Pricing and Competition: Suppliers often wish to control resale prices, but Vietnamese law prohibits minimum resale price maintenance. Recommended retail prices are safer, though still subject to scrutiny.
Termination and Compensation: Vietnamese law does not grant automatic compensation rights upon termination, unlike some European jurisdictions. Clear contract terms are therefore essential.
Intellectual Property: Without safeguards, distributors may attempt to register the supplier’s trademarks locally. Registering trademarks early is a key preventive step.
Compliance: Obligations related to labeling, product registration, and warranty must be clearly assigned to avoid liability.
Negotiation Dynamics: In practice, distributors in Vietnam favor exclusivity but resist binding sales commitments. Suppliers, meanwhile, seek performance guarantees. A middle ground is using “soft targets” tied to bonuses instead of hard quotas, aligning incentives without breaching competition rules.
Emerging Trends: E-commerce is reshaping distribution, as cross-border sales through platforms like Shopee and TikTok Shop bypass official distributors.
Trade agreements such as the EVFTA and CPTPP are opening Vietnam’s distribution sector further, heightening competition.
ESG standards are gradually influencing contracts, as global suppliers demand clauses on sustainability and product traceability.
Practical Recommendations
- Draft contracts with precision to fill legal gaps.
- Review exclusivity and pricing clauses for competition law compliance.
- Secure trademark protection before appointing distributors.
- Define responsibilities for compliance and after-sales obligations.
- Choose arbitration (e.g., VIAC, ICC) for more predictable dispute resolution.
Conclusion
Distribution agreements in Vietnam are vital but legally ambiguous. Success requires careful drafting, proactive risk management, and an understanding of local business dynamics. Companies that balance legal safeguards with practical flexibility will be best placed to thrive in this evolving market.
For more information, visit Fidinam at https://www.fidinam.com/en/vietnam