An international production agreement is a contract in which a Dutch customer outsources production to a foreign manufacturer. This is attractive to many companies due to scale and costs. In our practice, we see that production contracts introduce additional legal risks that do not arise in-house: quality, IP protection, delivery times, and working conditions. A good contract shifts risks back to the manufacturer and builds safeguards for enforcement.
What is the legal problem?
Production agreements regulate specifications, quantities, quality, IP rights, exclusivity, payment, and termination. Internationally, rules regarding trademark and design protection, product liability, and labor standards vary. Without clear agreements, you run the risk of quality problems, IP leaks, parallel production, and reputational damage due to poor labor practices at the manufacturer.
What does the law say?
Under Dutch law, general contractual principles apply to production agreements. The Vienna Sales Convention may apply where a sales element predominates under Article 3 CISG. EU product liability under Directive (EU) 2024/2853 and CE rules apply to products placed on the market in the EU. CSDDD (Directive (EU) 2024/1760) requires due diligence in the supply chain.
Local law in the country of production governs labor and environmental obligations that can affect your reputation. For textiles, the EU Textile Strategy 2030 applies additionally; for minerals Regulation (EU) 2017/821 (conflict minerals).
What risks do companies face?
Quality defects lead to recalls and claims by end customers. IP leakage enables counterfeiting. Late delivery costs customers. Production without NNN protection makes your design copyable. Poor working conditions at the manufacturer can lead to your liability via CSDDD. Unexpected breaches of exclusivity undermine your commercial position.
Practical example from our practice
We advised a Dutch fashion chain that outsourced production to a Bangladeshi manufacturer without an ESG clause or audit. A media report regarding working conditions caused reputational damage and loss of revenue. Upon renegotiation, we incorporated: contractually mandated compliance with international labor standards (ILO Conventions), audit rights via SGS, ESG reporting obligations under CSDDD, immediate termination in the event of serious violations, and a predetermined penalty. Subsequent incidents were addressed early.
What can you do?
Specify quality, quantities, and delivery times in appendices. Arrange for IP ownership, NNN protection, and non-competition. Incorporate quality controls (pre-shipment inspection). Draft ESG clauses with audit under CSDDD. Combine with product liability indemnification under Section 6:187 of the Dutch Civil Code. Clearly agree on exclusivity, minimum purchase quantities, and exit. See also our article on Supply chain contracts from a legal perspective.