The latest measures taken by the United States (US) to introduce increased tariffs on goods imports have caused great uncertainty in the international economy. For the time being, the US has decided to suspend the increased tariffs of 20% against the European Union (EU) for 90 days in order to avoid the next stage of escalation. Regardless of how much the U.S. imposes on the EU at the end of the transition period for goods, one thing is almost certain: There will be higher tariffs.
As a result, it is now more important than ever that companies recognize the risks to current and future trade relationships and take appropriate protective measures against unforeseen cost increases. Sensitivity is required, particularly in long-term supply relationships with a fixed contract term and agreed fixed prices. This article is intended to serve as an initial guideline for companies to identify the necessary measures and steps to take.
First step: Do the supply relationships fall within the scope of the new tariffs?
Every company that exports goods to the US should first and foremost check whether it is affected by the new US tariffs. The US tariffs focus mainly, although not exclusively, on products from key industries such as technology, steel, aluminum, automotive and agriculture.
However, companies should not only look westwards, but also keep an eye on any EU counter-tariffs that have already been prepared by the European Commission. In response to the suspension of increased tariffs from the US for 90 days, the EU Commission has also suspended all EU countermeasures until 14 July 2025. If companies import goods from the US to Germany and vice versa, they should always keep an eye on both sides.
Second step: Who bears the additional costs?
In a second step, companies should determine who has to bear the additional costs for increased tariffs as part of the risk allocation between contractual partners. This can be determined either by law or by deviating contractual provisions.
Statutory risk distribution
The term “customs debt” is defined as “the obligation on a person to pay the amount of import or export duty which applies to specific goods under the customs legislation in force” (see Art. 5 No. 18 of the Union Customs Code (UCC)). From a customs law perspective, import tariffs in the US and the EU are generally borne by the importer, i.e., the person who imports the goods into the country.
If there is no contractual agreement regarding the assumption of additional costs caused by increased tariffs, and the United Nations Convention on Contracts for the International Sale of Goods (CISG) is not applicable, under German sales law the seller bears the costs of handing over the goods, while the buyer bears the costs of acceptance and shipping to a place other than the place of fulfilment [see § 448 (1) of the German Civil Code, the “BGB”]. In the case of cross-border sales involving the carriage of goods, the buyer must bear all transport costs incurred after handover to the carrier [see § 447 (2) BGB].
The additional costs incurred by shipment, such as taxes and tariffs after leaving the place of fulfilment, are therefore usually borne by the buyer, i.e., the importer of the goods.
Contractual risk distribution
The contracting parties are free to agree a contractual allocation of costs that deviates from the statutory model. In practice, contracting parties often use Incoterms® clauses. Incoterms® clauses are not directly applicable law, but rather pre-formulated regulations published by the International Chamber of Commerce (ICC) to interpret certain trade terms, provided they have been included in the contract by the contracting parties.
For example, the Incoterms® clause “Delivered Duty Paid” (DDP) stipulates that the seller bears all costs for import and export tariffs up to the place of delivery, which is usually the buyer’s place of business. In cross-border trade, the seller bears the customs risk with regard to additional costs if this Incoterms® clause is agreed. Contrary to the Incoterms® clause “Delivered Duty Paid” (DDP), the buyer is fully responsible for customs clearance if the “Ex Works” (EXW) clause is agreed. It is therefore clear that companies should carefully check whether and, if so, which Incoterms® clause has been agreed in their supply contracts.
Action options for companies
If the goods to be delivered under existing supply contracts are covered by the new tariffs and it is clear which party is obliged by law or contract to bear the costs of the tariffs, the companies concerned should analyze their options for action.
Legal action options
A statutory right to refuse performance [§ 27 (2) BGB] requires a gross disproportion between the contractually agreed performance and the interests of the other party. In the case of unexpected difficulties in performance, such as an increase in tariffs, which lead to a mere disruption of the cost-benefit ratio between performance and consideration, the defense of impossibility of performance pursuant to § 275, (2) BGB does not apply. A party can therefore generally not refuse delivery of the goods due to increased tariffs.
A contractual claim for adjustment of the contract or cancellation of the contract can only be considered if the conditions for a discontinuation of the basis of the transaction in accordance with § 313 BGB are met due to the higher tariffs. This presupposes that circumstances have changed significantly since the conclusion of the contract and the parties would not have concluded the contract, or would have concluded it differently, if they had been aware of these changes and it would be unreasonable for one party to adhere to the contract. According to case law, the threshold for unreasonableness is only reached if the change is so serious and significant that it has existential consequences. It should be noted here that foreseeable changes are generally part of the normal risk of the affected party and such cost changes must be taken into account. With supply contracts, there is always a certain risk of price fluctuations or increased transport costs, especially if fixed prices are agreed. The implementation of increased tariffs by US President Trump has been frequently discussed in the past and is therefore unlikely to have been completely unforeseeable. In addition, an increase in tariffs of around 20 to 30% is unlikely to exceed the unreasonable threshold.
Contractual adjustment options
The options available under contract law depend on which law is applicable and which contractual conditions apply. For the following considerations, this article assumes the applicability of German law.
Supply contracts typically contain a provision for cases of force majeure (so-called “force majeure clause”). If these conditions are met, the affected party can release itself from its contractual obligations without becoming liable to pay damages to the other party. Force majeure is defined as an external event that has no operational connection and cannot be averted even with the utmost care that could reasonably be expected. Whether increased tariffs constitute a force majeure event depends on the exact wording of the respective force majeure clause. In standard force majeure clauses used in international contracts, higher tariffs are unlikely to constitute a case of force majeure. International economic operators must generally expect that tariffs will change, especially in light of the recent political developments in the US.
In order to effectively protect against the undesirable effects of tariff changes in supply relationships, parties sometimes agree on so-called “hardship” clauses, although these are rarely sufficiently clear and therefore often fail in practice. There are no rigid limits for a case of hardship. Depending on how the hardship clause is drafted and interpreted, increased tariffs are an exception or are not even covered by the clause. Each case must be assessed individually.
Price adjustment clauses can be used to take account of price fluctuations due to increased tariffs in long-term contracts. However, caution is also required here: The case law of German courts places strict requirements on the effectiveness of these clauses. Consequently, companies can only successfully invoke a price adjustment clause if the provision is sufficiently precise and carefully formulated. If the specific case involves General Terms and Conditions (GTC), the standards of § 307 BGB must be taken into account. The provisions of the German Price Clause Act (Preisklauselgesetz) also do not make contract drafting any easier, but require expert and experienced advice.
Conclusion
Overall, it is essential that companies affected by the new US tariffs act proactively now and take the necessary steps to review and adapt their international business models.
Looking to the future, companies should already take increasing US tariffs into account in future contracts with US companies. German sellers generally have the opportunity to protect their interests by agreeing a suitable Incoterms® clause such as “Free Carrier” (FCA), according to which the buyer assumes the costs for transport and tariffs from the place of delivery. Clearly defined force majeure clauses can include increased US tariffs as cases of force majeure. Fair price adjustment provisions, extended delivery times and limited liability clauses offer the contracting parties the opportunity to react more flexibly to changing trading conditions and secure their long-term competitiveness.
Author
Dr. Christoph von Burgsdorff, LL.M. (University of Essex)
christoph.von.burgsdorff@luther-lawfirm.com
www.luther-lawfirm.com
