Distribution Agreements with Foreign Brands in Turkey

1. Introduction

Working as the exclusive or non-exclusive distributor of a foreign brand in Turkey can be extremely lucrative. International manufacturers want reliable local partners who understand Turkish customers, regulatory requirements and market dynamics. Turkish distributors, on the other hand, want long-term contracts that justify their investment in marketing, staff, stock and after-sales services.

However, distribution agreements with foreign brands are not just commercial documents. They create long-term legal obligations and risk allocations. Poorly drafted clauses on territory, exclusivity, pricing, termination and compensation can easily turn a promising business relationship into a legal dispute.

This article explains, in practical and accessible terms:

• the basic legal nature of distribution agreements with foreign brands,
• differences between agency, distributorship and franchise relationships,
• key clauses that foreign brands and Turkish distributors should negotiate,
• competition law and compliance issues for vertical agreements,
• termination, compensation and dispute resolution mechanisms, and
• best-practice drafting tips for both sides.

The focus is on Turkish law and practice, but most principles are relevant for foreign brands entering the Turkish market through local partners.

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2. Legal Nature of Distribution Agreements under Turkish Law

2.1. No specific statutory definition

Under Turkish law, there is no single, codified “Distribution Agreement Act”. Distribution contracts are therefore “innominate contracts” (atipik sözleşme), which means:

• they are primarily governed by the freedom of contract principle in the Turkish Code of Obligations (TCO),
• where appropriate, provisions on sales, agency and mandate may apply by analogy,
• and mandatory rules on competition law, consumer protection, product liability, intellectual property and commercial law also play a role.

Because there is no specific statute, the wording of the contract becomes especially important. Courts look first at the parties’ agreement, then at similar contract types and general principles of good faith.

2.2. Distributor as independent entrepreneur

In a typical distribution relationship with a foreign brand:

• The supplier (foreign brand) sells products to the distributor.
• The distributor purchases these products in its own name and on its own account, then resells them to Turkish customers.
• The distributor usually bears commercial risk regarding local marketing, sales costs, unsold inventory and, up to an agreed point, customer defaults.

This is different from a commercial agent, who does not normally buy and resell products, but instead intermediates sales on behalf of the principal and earns commission. The agent is closely regulated by specific provisions in Turkish law; the distributor is not.

Because the distributor is an independent entrepreneur:

• employment law normally does not apply,
• the distributor is not a “branch” or permanent establishment of the foreign brand (although tax considerations must always be checked),
• and the distributor has wider freedom but also higher commercial risk.

2.3. Distribution vs franchise vs agency

In practice, foreign brands may confuse distribution, franchise and agency. The differences matter, especially in terms of control, obligations and termination compensation.

• Agency:
  • Agent negotiates (and sometimes concludes) contracts on behalf of the principal.
  • Agent does not take title to the goods (usually no stock).
  • Commission-based remuneration.
  • Turkish law has more protective rules for agents, including possible compensation on termination.
• Distribution:
  • Distributor buys and resells products in its own name.
  • Margin comes from difference between purchase and resale price.
  • Less direct control by the supplier over end customer relationships (unless the contract regulates this).
• Franchise:
  • Often includes distribution plus use of brand, business model, know-how, store concept and continuous support.
  • Typically more detailed and restrictive obligations for the franchisee.

Clearly qualifying the relationship in the contract (e.g., “This is a distribution agreement, not an agency agreement”) helps manage expectations and risk, but the court will still look at the actual conduct of the parties.

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3. Why Foreign Brands Use Distributors in Turkey

Foreign brands often prefer distributors instead of directly setting up a subsidiary or branch in Turkey, for several reasons:

• Speed of market entry: A local distributor usually already has a sales network, clients and staff.
• Lower initial investment: The distributor absorbs marketing and operational costs.
• Local knowledge: Understanding of language, culture, consumer habits and local regulations.
• Risk allocation: Credit risk, inventory risk and sometimes regulatory risk can be managed through the distributor.

On the other hand, choosing a distributor also means:

• less direct control over the brand’s positioning,
• possible dependency on a single local partner,
• competition law constraints on imposing pricing and restrictions, and
• potential difficulties when terminating and shifting to another distributor.

Foreign brands should therefore treat the selection and contracting of a distributor as a strategic decision, not a simple sales arrangement.

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4. Core Structural Choices: Exclusivity, Territory and Channels

4.1. Exclusive vs non-exclusive distribution

One of the first questions is whether the distributor will have exclusive rights in a specific territory or market segment.

• Exclusive distribution:
  • Supplier appoints one distributor for the defined territory and agrees not to supply competing distributors there.
  • Sometimes, the supplier even undertakes not to sell directly to customers in that territory.
  • The distributor usually commits to minimum purchase volumes or active sales efforts.
• Non-exclusive distribution:
  • Supplier can appoint multiple distributors in the same territory or keep the right to sell directly.
  • Lower dependency on a single partner, but also weaker commitment from the distributor.

From the Turkish distributor’s perspective, exclusivity is very attractive because it protects its investment in brand development. The foreign brand, however, must carefully assess the distributor’s financial strength and capabilities before granting exclusivity.

4.2. Territorial clauses and e-commerce

Distribution agreements with foreign brands almost always include a territory definition, such as:

• “The Republic of Turkey”,
• specified provinces or regions, or
• certain channels (e.g., only online marketplace sales in Turkey, or only B2B industrial clients).

In modern practice, online sales and cross-border e-commerce create complications:

• If the distributor has an exclusive territory, can other distributors or the supplier itself sell into Turkey via online channels?
• Are “passive” online sales to Turkish customers allowed (e.g., foreign website accessible from Turkey) while “active” targeting of Turkish customers is prohibited?

Clear wording on online and offline channels, language versions, geo-targeting and marketing activities is essential to avoid conflict.

4.3. Selective distribution systems

For premium or luxury brands, a selective distribution system may be used:

• The foreign brand sets objective criteria for distributors (showroom quality, staff training, after-sales services, etc.).
• Only partners fulfilling these criteria may sell the products.
• Sub-distribution may also be controlled through approval mechanisms.

In Turkey, as in the EU, selective distribution must still comply with competition law rules and cannot be used as a disguised tool for illegal resale price maintenance or market sharing.

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5. Pricing, Discounts and Competition Law Constraints

5.1. Recommended vs fixed resale prices

Foreign brands often want to ensure a consistent price level worldwide. However, under Turkish competition law (which is largely harmonized with EU rules), resale price maintenance (binding resale prices) is generally prohibited.

Key points:

• Suppliers may recommend resale prices or set maximum prices, so long as these do not effectively become fixed prices through pressure or incentives.
• “Soft” coordination that results in a de facto obligation (e.g., threats to cut supply if the price is not respected) can still breach competition law.
• Documented communication and enforcement practices are as important as the wording of the contract.

Therefore, clauses like “Distributor shall not sell below the prices communicated by the Supplier” are risky. A safer formula is:

“The Supplier may provide recommended resale prices or maximum prices, which the Distributor is free to follow or not, at its sole discretion, subject to applicable competition laws.”

5.2. Discounts, rebates and marketing support

Contracts typically regulate:

• wholesale prices and annual price lists,
• volume-based rebates or bonuses,
• marketing funds (co-op funds) and joint campaigns,
• stock clearance and end-of-life product discounts.

It is crucial to define:

• how and when prices can be changed,
• conditions for applying rebates (objective, transparent criteria), and
• billing and documentation requirements, especially for tax and transfer pricing compliance.

5.3. Vertical restraints: non-compete and customer restrictions

Under competition law, certain vertical restraints (restrictions imposed by the supplier on the distributor) can be valid if they remain within defined thresholds (e.g., global market share, duration) and do not contain “hardcore” restrictions such as absolute restrictions on passive sales or minimum resale prices.

Typical restraints include:

• Non-compete obligations: Distributor may be restricted from selling competing products. The duration and scope must be carefully calibrated.
• Customer group restrictions: Distributor may be assigned B2B customers while the supplier retains large key accounts.
• Active sales restrictions: Distributor may be prevented from actively targeting another distributor’s exclusive territory (but passive sales must generally remain allowed).

Given the complexity and the risk of fines by the Turkish Competition Authority, foreign brands and distributors should always seek specialised legal advice when drafting vertical restraints.

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6. IP, Branding and Marketing Control

For foreign brands, intellectual property and brand protection is often the most sensitive aspect of the distribution agreement.

6.1. Trademark and logo usage

The agreement should clearly regulate:

• the license granted to the distributor to use the brand’s trademarks, logos and trade dress in Turkey,
• permitted and prohibited uses (website, store signs, domain names, social media, etc.),
• obligation to comply with brand guidelines,
• and the obligation to cease all use upon termination.

Foreign brands should ensure that:

• trademarks are duly registered in Turkey,
• the license in favour of the distributor is documented, and
• no rights inadvertently transfer to the distributor (e.g., no ownership of local domain names or social media accounts unless controlled via contract).

6.2. Local marketing materials

Typically, the distributor:

• translates global marketing materials, or
• creates local content in Turkish.

The contract should specify:

• who owns the copyright in locally created materials,
• who bears the responsibility for legal compliance (e.g., advertising, unfair competition, consumer law),
• approval procedures for promotional campaigns.

A common solution is:

“All marketing materials created by the Distributor that incorporate the Supplier’s trademarks or other IP shall be deemed works made for hire, and all rights shall vest in the Supplier. The Distributor shall have a limited licence to use such materials during the term of this Agreement.”

6.3. Product modifications and localisation

Sometimes, products must be adapted to Turkish standards (labelling, user manuals, technical specifications). The parties must decide:

• who is responsible for localisation,
• who bears the cost,
• and who is liable if localisation is defective or non-compliant with regulations.

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7. Regulatory Compliance, Product Liability and Consumer Law

7.1. Compliance with Turkish regulations

Depending on the product category (food, cosmetics, electronics, medical devices, chemicals, etc.), various Turkish authorities and regulations may apply, including:

• safety standards,
• registration or notification obligations,
• labelling requirements,
• environmental and recycling obligations.

The distribution agreement should clearly allocate:

• who obtains required approvals or registrations,
• who maintains technical documentation,
• and how the parties cooperate in case of inspections or penalties.

From the foreign brand’s perspective, pushing all responsibilities to the distributor may seem attractive, but this is not always enforceable against regulators or consumers. A balanced cooperation clause is usually safer.

7.2. Product liability and recalls

If products cause damage or present a safety risk, both the manufacturer and the distributor can face liability.

Key clauses to address:

• Representations and warranties: Supplier’s warranty that products comply with applicable standards at the time of delivery.
• Distributor’s duties: proper storage, handling, and no unauthorized modifications.
• Notification obligations: immediate notice in case of accidents, complaints or suspected defects.
• Recalls and field actions: who decides, who pays and how the process is managed.

It is sensible to include a detailed product recall protocol and to require the supplier to maintain adequate product liability insurance that also covers the distributor’s territory.

7.3. Consumer protection

Where the distributor sells to consumers (B2C), Turkish consumer protection rules will apply:

• mandatory withdrawal rights for distance sales,
• obligations for warranty and after-sales service,
• regulations on unfair commercial practices.

The distribution agreement should ensure that the foreign brand’s policies are harmonised with Turkish law and that parties agree on who bears the cost of mandatory consumer rights.

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8. Payment Terms, Risk Transfer and Incoterms

8.1. Payment methods and credit limits

Given exchange rate volatility and payment risk, foreign brands commonly require:

• advance payment, or
• letters of credit, or
• strict credit limits with guarantees.

Contracts should specify:

• currency, payment method and bank charges,
• late payment interest,
• security instruments (e.g., bank guarantees, promissory notes),
• and the possibility of suspending deliveries in case of overdue payments.

From the distributor’s perspective, adequate payment terms are critical to maintain cash flow and invest in marketing.

8.2. Delivery, Incoterms and risk transfer

Distribution contracts usually reference Incoterms (e.g., FCA, CIF, DAP). This determines:

• who bears transport costs,
• when the risk of loss or damage passes from supplier to distributor,
• and who is responsible for customs clearance and import duties.

For imports into Turkey, clarity on:

• customs valuation,
• clearance procedures,
• and responsibility for misdeclarations is vital.

The contract should ensure that commercial reality matches customs documentation to avoid accusations of under-invoicing or smuggling.

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9. Term, Termination and Post-Termination Issues

9.1. Fixed-term vs open-ended agreements

Distribution agreements with foreign brands can be:

• Fixed term (e.g., 3 years, extendable), or
• indefinite term with termination on notice.

Each model has advantages:

• Fixed-term contracts offer more security for the distributor but may lead to disputes if the brand wants to exit earlier.
• Indefinite contracts are more flexible but may be seen as less attractive by a distributor who needs to invest heavily in the brand.

A common hybrid solution is a fixed initial term (e.g., 3 years) with one-sided or mutual renewal options and notice periods.

9.2. Termination for cause

Besides ordinary termination on notice, the contract should define termination for cause, typically including:

• serious breach of contract,
• insolvency or bankruptcy,
• competition law violations,
• damage to the brand’s reputation,
• failure to reach agreed minimum purchase targets (after cure period).

To reduce conflict, it is helpful to introduce:

• a notice and cure mechanism (e.g., 30 days to remedy the breach), and
• clear documentation of warnings and performance reviews.

9.3. Compensation on termination

One of the most sensitive questions is whether the distributor is entitled to goodwill or termination compensation at the end of the relationship.

Turkish law contains specific rules for commercial agents, including potential compensation in case of unjustified termination, based on client portfolio built by the agent. For distributors, there is no direct statutory right to such compensation, but courts may:

• apply agency rules by analogy in some cases, or
• recognise a claim based on unjust enrichment or good faith, especially where the distributor significantly increased the brand’s market value.

To reduce uncertainty, the parties may:

• agree that no goodwill compensation is due, or
• foresee a pre-agreed formula (e.g., a percentage of average annual net margin) under certain conditions.

Even if such clauses exist, their enforceability may be tested in court depending on the facts, so they should be drafted carefully.

9.4. Post-termination non-compete and transition

Post-termination non-compete clauses (preventing the distributor from representing competing brands after termination) are particularly sensitive.

To be enforceable and reasonable, they should be:

• limited in time (e.g., 1–2 years),
• limited in territory and product scope,
• justified by legitimate interests (e.g., protection of know-how, client data).

The contract should also regulate:

• return of unsold stock (buy-back mechanisms or stock clearance periods),
• transfer or deletion of customer databases,
• return or destruction of marketing materials and confidential information,
• transition of after-sales obligations to the new distributor or directly to the supplier.

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10. Dispute Resolution and Applicable Law

10.1. Choice of law

In cross-border distribution agreements, the parties usually choose a governing law. Foreign brands often prefer their home state law; Turkish distributors prefer Turkish law.

However, even if a foreign law is chosen, mandatory Turkish rules (e.g., competition law, consumer law, certain commercial rules) may still apply because the activities are performed in Turkey.

Key considerations:

• If most performance and effects are in Turkey, choosing Turkish law may reduce uncertainty and enforcement issues.
• If foreign law is chosen, parties should still obtain Turkish legal advice on mandatory local provisions.

10.2. Courts vs arbitration

For dispute resolution, the parties can choose:

• state courts (Turkish or foreign), or
• arbitration (e.g., Istanbul Arbitration Centre, ICC, etc.).

Advantages of arbitration in this context may include:

• neutrality for both parties,
• expertise of arbitrators in international distribution and competition matters,
• easier recognition and enforcement in multiple jurisdictions under the New York Convention.

If Turkish courts are chosen as the forum, the agreement should clearly indicate exclusive jurisdiction and the specific court (e.g., Istanbul Commercial Courts).

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11. Practical Drafting Tips for Foreign Brands

Foreign brands entering Turkey through distributors should consider the following checklist:

1. Due diligence on the distributor
   • financial strength, existing product portfolio, regional coverage;
   • reputation and compliance history.
2. Clear definition of territory and channels
   • offline and online sales, marketplace rules, cross-border e-commerce.
3. Balanced exclusivity and performance targets
   • exclusivity tied to realistic minimum purchase commitments;
   • periodic performance reviews and automatic downgrades from exclusive to non-exclusive in case of underperformance.
4. Robust competition law compliance
   • avoid resale price maintenance language;
   • design non-compete and customer restrictions to fit within safe thresholds;
   • regular legal review of contractual restraints.
5. Strong IP and brand protection
   • registered trademarks in Turkey;
   • clear license and brand usage guidelines;
   • strict control over domain names, social media and online presence.
6. Clear allocation of regulatory and product liability risks
   • specify who handles registrations, labelling and compliance;
   • include warranty, indemnity and recall provisions;
   • require appropriate insurance.
7. Exit strategy from the start
   • pre-defined grounds and procedures for termination;
   • stock buy-back, transition of customers, and post-termination obligations;
   • realistic strategy to appoint a replacement distributor if needed.

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12. Practical Drafting Tips for Turkish Distributors

Turkish distributors negotiating with foreign brands should also protect their own interests:

1. Seek realistic exclusivity with protection mechanisms
   • exclusivity for defined territory and channels;
   • prohibition of direct sales by the supplier to your main customers, unless mutually agreed;
   • clear rules on parallel imports and selective distribution.
2. Secure adequate term and notice periods
   • avoid arrangements where the supplier can terminate at very short notice;
   • aim for a fixed initial term and fair notice period for non-fault termination.
3. Negotiate reasonable performance obligations
   • minimum purchase targets that reflect market realities;
   • possibility to adjust targets in case of economic downturn or regulatory change;
   • cure periods before loss of exclusivity.
4. Ensure commercial viability of pricing and payment terms
   • sufficient margin to cover marketing, staff and credit risk;
   • clear rules for price revisions, discounts and marketing support;
   • realistic payment terms and credit limits.
5. Obtain clarity on stock and investment protection
   • mechanisms for stock returns or discounts on termination;
   • protection for exclusive investments (showrooms, equipment, local branding).
6. Review governing law and dispute resolution
   • understand the practical consequences of accepting foreign law and foreign courts;
   • consider arbitration as a neutral option;
   • ensure that the contract is enforceable under Turkish law.