Although the Arabic-speaking countries of the Middle East account for a relatively small portion of total world trade outside the oil sector, many U.S. companies have found that region to be an important market, particularly after the dramatic rise in oil prices in the early 1970s increased the region's purchasing power. Many U.S. companies sell their products in the Middle East through local distributors, because of the formidable obstacles in the region posed by culture, religion and language. But appointment of distributors often leads to their termination, whether due to a distributor’s unsatisfactory performance, a supplier’s change of marketing plans, the sale of a supplier’s business to another company where both parties have their own distribution network in place, or even a supplier’s decision to stop manufacturing a particular type of product.

At the outset, before considering the legal aspects of distributor termination in the Middle East, we emphasize two crucial practical aspects. First, a U.S. company which intends to terminate a Middle East distributor should almost always seek termination on an amicable or negotiated basis, but with a view toward potential litigation. Second, and related to the above, a literal analysis of the parties’ rights (under applicable contract provisions of laws) is undoubtedly less important in the Middle East if the distributor has strong influence in local government and/or commercial circles. Therefore, a foreign supplier should assess the relative power or influence of a local distributor when considering its liability for termination.

Local laws may make it difficult and/or costly for foreign companies to terminate distributors in certain Midde Eastern countries, as further summarized in this article. The most significant distributor “protection” is usually contained in the distributorship law of the local jurisdiction. Therefore, we discuss a preliminary approach for analyzing the more crucial issues, and assessing the risks of such termination, under local distributorship laws. Of course, importation and distribution of certain products and commodities (for example, those in the “public interest,” such as public transportation equipment or pharmaceuticals) are often specially regulated. Such special regulations could make it more difficult for a foreign supplier to terminate an existing local distributor. These more specialized regulations are beyond the scope of this chapter.