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New Free Trade Agreement between the EU and India: Legal Framework for Distribution
The free trade agreement (“FTA”) recently concluded between the EU and India will make India an even more attractive market for European manufacturers. The European Commission expects EU exports of goods to India to double by 2032. The FTA provides significant tariff reductions across key sectors, including machinery, gems and jewelry, and several agricultural products, with many products receiving reduced tariffs like 50% to 18%, or complete zero-duty access. These concessions are designed to lower input costs, enhance supply‑chain efficiency, and strengthen bilateral commerce across industries for both economies.
When it comes to distributing products to Indian customers on the ground, German manufacturers - as always - face the choice: make or buy. While the FTA substantially enhances India’s appeal as a strategic manufacturing base - by lowering trade barriers and deepening opportunities for supply‑chain integration, thereby offering European manufacturers commercially compelling pathway to leverage the “Make in India” ecosystem - alternate lighter entry models like distributorship arrangements provide a prudent initial step. It enables manufacturers to commercially assess the Indian consumer market, understand demand dynamics, and calibrate their long‑term investment strategy before committing to on‑ground manufacturing operations.
European manufacturers can handle distribution themselves, from their home country, to access the Indian market, build distribution networks, and assess commercial viability without the immediate complexity of setting up a full-fledged local entity. They can also establish subsidiaries, branch or liaison offices in India. While establishing a subsidiary, branch or liaison office offers greater operational control and closer supervision over market activities, it typically involves regulatory approvals, compliance with foreign investment and corporate governance requirements, and the need to build local management and operational infrastructure.
For distributorship, European manufacturers can appoint local companies as distribution intermediaries who know the market. In this context, it is possible for the European manufacturer to agree with its contractual partner in India either that its own (e.g. German) law applies or that Indian law applies. If the contract so provides, the contractual relationships are in principle subject to the same legal rules that would apply if the products were distributed in Germany. Or better still: Section 92c of the German Commercial Code (HGB) grants manufacturers who appoint commercial agents or distributors outside the European Economic Area greater contractual freedom than usual. In such cases, it is possible to deviate from all mandatory provisions of Sections 84 et seq. HGB - at least in the case of individually negotiated contracts. For example, the statutory minimum notice periods do not necessarily apply, and the goodwill indemnity under Section 89b HGB may be excluded or modified.
Alternatively, the parties may decide that Indian distribution law shall apply. In that case, however, European manufacturers are well advised to seek advice from Indian lawyers regarding local regulatory environment.
While the parties may designate either German or Indian law as the governing law for their distribution arrangement, they retain full autonomy to structure, negotiate, and document a sophisticated cross‑border commercial relationship for commercial flexibility. However, in the Indian context – where no dedicated statute regulates distribution relationships – the practical commercial landscape necessitates the incorporation of appropriate contractual and regulatory safeguards. These safeguards must ensure a durable and compliant business presence in India, operating within the framework of the Indian Contract Act, 1872, and aligned with the on‑ground regulatory realities of the Indian market.
India’s exchange control regime is generally business‑friendly, allowing cross‑border payments such as distributorship fees, commissions, and royalties through established regulatory channels. However, the agreement must still be drafted with care so that its commercial structure and incentive mechanisms do not raise concerns under any Indian law. A clear, balanced, and well‑structured arrangement will support the parties’ commercial objectives while remaining comfortably within India’s regulatory boundaries.
India does not curtail commercial freedom in distribution arrangements; rather, it channels that freedom through a structured compliance framework. For any end‑product to lawfully enter and circulate within the Indian market, European manufacturers must comply with certain mandatory obligations such as certification standards, quality‑control approvals, labelling rules, and sector‑specific registrations. These requirements do not restrict the parties’ commercial choices; they simply ensure that products meet India’s consumer‑protection and regulatory expectations. For European manufacturers, careful structuring at the outset will ensure that commercial flexibility is harmonized with India’s mandatory regulatory environment. Success in India therefore demands both commercial foresight and regulatory discipline.
It is also important to agree that any disputes shall be decided by an arbitral tribunal. By contrast, agreeing on German jurisdiction would have the disadvantage that enforcement of a German court judgment - while theoretically possible - would require a very time-consuming recognition procedure in India, which would, among other things, necessitate bringing a new action. Enforcement of a foreign arbitral award in India is easier, as India (like, for example, Germany) is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Under this Convention, all signatory states have undertaken to enforce foreign arbitral awards within their territory without a renewed, full review of the merits.
India is an attractive enforcement jurisdiction owing to its distinctly pro‑enforcement stance toward foreign arbitral awards. Indian courts refrain from revisiting the merits or reopening factual findings, and the limited grounds for refusal are narrowly interpreted, with the burden placed squarely on the party resisting enforcement. Once enforceability is established, the award is treated as a decree of an Indian court to be executed against the opposite party in India without a fresh trial. For European manufacturers engaging Indian counterparties, this means that a well-drafted arbitration clause is a powerful risk management tool supported by an arbitration/enforcement‑friendly regime.