The recent increase in US import tariffs will significantly impact companies worldwide. The unexpected rise in costs not only disrupt markets, but also negatively impact business competitiveness.
This situation creates legal risks, particularly concerning contractual obligations on companies supplying goods to the US. It is crucial for businesses to adopt a strategy to mitigate legal and financial risks.
Statutory, contractual and pragmatic mechanisms to face tariffs for supply chain contracts
I. Review your commercial agreement
The commercial agreement between parties is essential to establish which party will bear the risk of increased tariffs and whether termination, amendments or renegotiation is possible. In addition, each of the following concepts should be assessed to evaluate the commercial risks of the increase in trade tariffs (under Belgian law).
II. Force majeure
Tariff increases generally do not qualify as force majeure since they do not make performance impossible, but rather more financially onerous. However, contractual exceptions may exist where parties have qualified an increase in tariffs as a force majeure event, which could lead to the termination of the commercial agreement.
III. Hardship
Hardship allows for the renegotiation or even termination of commercial agreements when unforeseen events make performance so burdensome that it can no longer be expected. In 2023, the concept of hardship was statutorily introduced under Belgian law, but parties can still contractually exclude it. Whether tariff increases will qualify as hardship will depend on the circumstances and the strict conditions under Belgian law.
IV. Applicable (substantive) law
Unless contractually excluded by the parties, an international commercial agreement for the sale of goods will be governed by the UN Convention on Contracts for the International Sale of Goods (“CISG”) by the ratifying States (97 States). Under the CISG, an impediment beyond your control that could not reasonably be expected or avoided, could preclude liability. Whether tariff increases qualify as such an impediment will depend on the circumstances.
V. Incoterms
The International Commercial Terms (“Incoterms”) are widely used commercial terms to define the responsibilities of exporters and importers. Commonly used Incoterms are Ex Works (“EXW”), where the seller makes the goods available at its premises and is not responsible for additional duties; and Delivery Duty Paid (“DDP”), where the seller is responsible for delivering the goods to the buyer, including import duties and taxes. In case of the DDP incoterm, the burden of increasing tariffs will be on the seller.
VI. Price adjustment clauses
Commercial agreements often include price adjustment clauses which allow for automatic price changes. Under Belgian law, price revisions clauses are only valid if they do not exceed 80% of the final price and if they reflect actual cost increases. In addition, unilateral price changes in B2B contracts are unlawful unless objectively justified by external factors such as higher costs for raw material or changes in taxes or tariffs.
VII. Prohibition of selling at a loss
In order to ensure fair competition, selling at a loss is prohibited. Even when there are certain exceptions to this general rule, it is currently not clear whether these can be applied for the increasing trade tariffs.
VIII. Termination for convenience
Commercial Agreements with an indefinite duration (and commercial agreements with a definite duration when contractually agreed) can be terminated taking into account a notice period or an indemnity in lieu of notice.
IX. Commercial negotiations
Even without statutory or contractual mechanisms, it could be in the interest of both parties to come to mutually beneficial solution. Without specific legal recourse, such negotiations are often more difficult in nature.
