International Intermediation: an essential tool for exporters

In order to facilitate the entry of their product into a specific foreign market, exporters commonly use the tool of intermediation to hire individuals who will assist them in reaching buyers and promoting their products.

Internationally, intermediary models are essential in the export and international trade procedures and should be understood by those seeking to internationalize their products. Let’s explore further.

Please contact us here if you would like help from our lawyers in your case.

Author: Leonardo Almeida Lacerda de Melo

Internation trade

When aiming to export products in international trade, the producer must be aware of the endeavor they have embarked upon, with the first step being a thorough understanding of the target market. However, it’s typical for the final sale to be outsourced to one or more intermediaries between the exporter and the buyer, in order to increase the exporter’s sales opportunities.

These intermediaries may assume different responsibilities at different stages of the exporting process, whether they are domestic intermediaries of the exporter (such as trading companies). Thus, with contacts in the target market or intermediaries from the target market who have contacted the exporter and already present a certain client portfolio.

First, we will delve into the details of how the main types of intermediation agreements in Brazil work (which may vary by country, although they follow the same logic): agency, distribution, and commercial representation agreements.

Subsequently, we will examine specific clauses of the contract in more detail, such as the non-circumvention clause, which aims to prevent the exporter from bypassing the intermediary by directly contacting the client in an attempt to circumvent the intermediation.

Agency, Distribution, and Commercial Representation Agreements

With considerable similarities, these three types of agreements aim to facilitate the sale of the exporter’s product in a particular market. To do so, the exporter seeks external assistance for the final sale. Let’s explore the main relations related to this practice.

Agency Agreement

This is a bilateral and typical contract (provided for in the Brazilian Civil Code) in which the intermediary (agent) is tasked with promoting the sale of the exporter’s product (principal).

In other words, the principal presents the product they wish to offer to the target market, and the agent is responsible for finding buyers for the specified product in that region.

In this type of contract, the principal may, optionally, grant powers to the agent to conclude the sale of the product on their own.

The agent’s consideration should occur when transactions are carried out within their operating zone, even if they did not participate directly in the negotiation (unless otherwise specified in the contract). Furthermore, if a sale fails to occur solely due to the fault of the principal, the agent is still entitled to its consideration.

Distribution Agreement

Also provided for in the Civil Code, the distribution contract is quite similar to the agency contract. The principal seeks an intermediary (in this case, the distributor) to operate in a specific area with the aim of selling the offered goods.

Practically everything said about the agency contract applies to the distribution contract. The only difference is the direct possession of the goods: in the case of distribution, the distributor has direct possession, facilitating the final sale, but requiring that the exporter (principal) has already carried out the exportation prior to keeping the goods in the destination market.

Naturally, this entails considerable differences in logistical planning.

Brokerage Agreement

In this model of agreement, which is typical and bilateral, the intermediary (broker) shall seek clients for the sale of the exporter’s products, without having powers constituted in a mandate.

Unlike the typicality of the contracts mentioned earlier, the consideration of the broker is not tied to a specific representation zone, but rather to the clients they are able to secure and assist in the intermediation of the business.

In other words, the broker does not possess a power of attorney granting them authority to represent the principal, he shall solely act as an intermediary between the purchase and sale of the exported product.

The broker’s function, besides finding the actual client, is to mediate the negotiation in order to receive its consideration (unless otherwise specified in the contract).

General Considerations

Despite the typical contracts provided for in the Brazilian Civil Code, namely agency, distribution, and brokerage contracts, it’s common in the field of international trade to have significant differences in the relationships between the exporter and the intermediary. 

Thus, often mixing the characteristics of the three types of agreement and defining specific conditions of consideration and the intermediary’s powers of representation.

Due to this, it’s important for the exporter to remain open to various possibilities of negotiation relevant to the agreement with each intermediary in the export process (usually involving more than one). Considering the specificity of each one’s role in selling their product.

Key Precautions in the Agreement

When the exporter and intermediary negotiate to sell the product, it is in the interest of both parties to draft a well-crafted term of agreement that seeks to protect both from possible bad faith on either side.

On one hand, the exporter entrusts the intermediary with their product, values, and means of production, and on the other hand, the intermediary presents the client to the exporter and expects proper remuneration through their successful intermediation.

Let’s see how these precautions can be taken.

Non-Circumvention Clause

This clause is a means of protecting the intermediary from what is known as a bypass: when the exporter begins to deal directly with the client in order to avoid the consideration of the intermediary.

In this clause, both parties commit to not conducting any business directly with a third party introduced by either party.

In other words, when the intermediary introduces a specific client to the exporter, whether the intermediary is an agent, distributor, or broker, the exporter is obligated to conduct the sales transaction only through this intermediary.

This clause aims to ensure that the intermediary materializes their role in the sale, granting them the right to consideration.

Another necessary provision in the Non-Circumvention clause is its validity even after the termination of the representation contract. Without this provision, the exporter could take advantage of the contract’s termination to deal directly with the end client, thereby seeking to avoid consideration of the intermediary.

Non-Disclosure Clause

In the relationship between the exporter and the intermediary, it is in the interest of both parties to maintain the confidentiality of sensitive information, especially regarding the exporter’s product. In order to protect them in this regard, the non-disclosure clause becomes useful and widely used in general representation agreements.

With this clause, both parties can share information in their negotiations with the assurance that it will remain confidential.

In the event of non-compliance, the recipient of the information discloses it to third parties. A penalty should be stipulated that is sufficient to both deter the disclosure of such information and compensate for any damages caused by such disclosure.

The Need for Legal and Specialized Assistance

As demonstrated, the intermediary relationship has various nuances and delicate issues that require the attention of a specialized person. The idea is to prevent non-compliance or evasion of obligations, as well as to determine the limits of the intermediary’s role, their powers, and proper remuneration.

With proper guidance, the contract can be well-defined to avoid potential disputes, which mitigates damages for both parties.

Furthermore, in the event of contractual non-compliance, a specialized attorney can legally act in the court of law specified in the agreement to protect the rights of the requesting party and prevent further damages.