Legal considerations due to new tariffs
The introduction of increased tariffs may drastically alter the cost structure of goods between parties, and may lead to commercial imbalance, disputes, or exposure to unexpected liabilities and costs.
It is therefore critical for businesses to assess whether goods exported to the U.S. are affected by the relevant tariffs, evaluate how their commercial contracts allocate these risks, and consider and take the relevant actions.
This Insight outlines certain key legal considerations and practical steps businesses should take to mitigate the impact of relevant tariffs when exporting goods to the U.S. or when engaging in cross-border business with U.S. counterparties.
- Mapping of goods: Start by mapping whether exported goods are caught by any of the new tariffs and the origin of exported goods from sub-suppliers to identify if such are subject to increased tariffs.
- Initial mapping of existing contracts: Review and map existing contracts with a focus on (i) allocation of risk for increased tariffs between the parties, e.g. due to agreed delivery terms such as applicable Incoterms, and (ii) pricing and price adjustment clauses covering increased costs, such as increased tariffs.
- Force majeure clauses: If affected by the tariffs, identify force majeure clauses and scrutinize their wording for applicability, noting that economic hardship or increased costs due to tariffs generally do not constitute force majeure under Danish law. If the increased tariffs constitute a force majeure event under the applicable contract, then take the necessary actions such as collect evidence and notify the counterparty.
- Hardship clauses: If affected by the tariffs, identify and assess hardship clauses, hereunder whether they provide for suspension of obligations, renegotiation, termination or different.
- Termination rights: Identify and consider termination rights if the contract is no longer commercially viable, and map the same for the counterparty, if such is responsible for the increased tariffs.
- Dispute resolution preparedness: Consider and prepare for dispute resolution, e.g. due to own or counterparty's breach based on financial strain, hereunder considering relevant dispute resolution, jurisdictional considerations, likelihood and enforceability of damages or injunctions, etc.
- Monitor counterparty behaviour: Keep monitoring counterparties for signs of renegotiation or termination intent and adapt/act accordingly.
- Proactively renegotiate, where needed: Consider renegotiating vulnerable contracts proactively, if commercially feasible.
- Continued fulfilment of contracts: Continue to observe good faith duties while contract is still in effect to avoid unnecessary and unwanted liability.
- Strengthen your contracts going forward and considerations on the choice of the delivery term/Incoterms: Going forward, ensure contracts explicitly address risk allocation of increased tariffs, inter alia by implementing relevant delivery term/Incoterms, price adjustments, force majeure and hardship clauses, termination flexibility and dispute mechanisms, both in your contracts with U.S. counterparties and in contracts with relevant sub-suppliers.
The above shall not be conceived as specific advice. Please reach out, if you need our assistance and advice on how to contractually manage increases of tariffs now and in the future.