In a contract for the direct supply of goods to the United States, will the buyer or seller pay the tariffs?

The party that is responsible for paying the US-imposed tariffs in the above case may depend on a number of factors but it is often the position in international goods contracts that the parties specify an International Commercial Terms (Incoterms), the latest version being the 2020 Incoterms. 

Incoterms are standardised and jurisdictional neutral trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities, costs and risks of buyers and sellers in international transactions.

It is a common misconception that Incoterms only deal with responsibilities in relation to the delivery of goods, but Incoterms do more than that and also specify which party is responsible for:

• Shipping costs for the goods
• Insuring the goods
• Clearing the goods through customs
• Risks of loss or damage

It is also important to note that Incoterms do not deal with when title passes in the goods.

There are 11 different Incoterms that can apply and each Incoterm specifies different responsibilities for the buyer and seller.

Looking at some specific examples of a couple of commonly used Incoterms and broadly how they deal with these responsibilities:

• Delivery Duty Paid (DDP): the seller will bear the responsibility for all the costs and risks associated with delivery of the goods to an agreed location, often the buyer’s premises, including being responsibility for import duties, taxes and fees, including any tariffs
• ExWorks (EXW): the seller makes the good available to the buyer at the seller’s premises and the buyer is responsible for bearing all subsequent costs and risks which would include responsibility for paying any import duties, taxes and fees, including any tariffs

Therefore, the interaction between tariff responsibility and the chosen Incoterm is significant as it will determine which party is responsible for payment of tariffs and other duties unless there is specific provision made otherwise in the particular contract, for example there is a recharge provision or the Incoterm is specifically varied by the contract. 

Next steps – what do I need to do?

You may wish to check your existing contracts to see if there is an Incoterm specified and then consider which party is responsible for paying any tariffs. If there is not an Incoterm specified, then the position may be more complex and require further analysis.

When negotiating new contracts for the international sale of goods, bear in mind that Incoterms deal with a number of issues outside of delivery (but not title) and this is likely to have a material bearing on which party is responsible for paying tariffs.