June 2025
Contract Performance Amidst the Tariff Storm (Mainland China)
During the Trump era, the endless tariff fluctuations seems to be an inevitable risk. In the face of such a tariff storm, some enterprises may encounter situations where the other party requests changes to the original contract, such as termination, adjusting prices, or modifying orders. For sellers or exporters, are these demands from the other party reasonable? Apart from accepting these demands, do sellers have any legal remedies? This article provides a brief analysis of these issues for your reference.
When determining whether tariffs can serve as a reason for non-performance of a contract under Chinese law, the following key issues need to be considered:
I. Has the CISG Been Excluded by the Parties?
This depends on the governing law for contract interpretation. As a contracting state to the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), China will apply the CISG to interpret a sales contract between parties from other contracting states, unless the contract explicitly excludes its application. If the CISG is not excluded, it will be the primary basis for contract interpretation; otherwise, other governing laws agreed in the contract will apply. Under Chinese law, if no governing law is agreed in the contracts, the Law of the PRC on the Application of Laws to Foreign-related Civil Relations (the “Law”) will apply. Specifically, Article 41 of the Law states that in the absence of a choice by the parties, the law of the party’s habitual residence where the characteristic performance of the contract is made, or the law most closely connected to the contract, such as the place of performance or the parties’ common habitual residence, will apply 1 . Due to space limitations, this article will only focus on scenarios where the CISG is not excluded or Chinese law applies.
II. Which Trade Terms Have Been Agreed Upon by the Parties?
The CISG does not explicitly stipulate who bears the relevant taxes and fees. However, Article 54 of the CISG specifies that the buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made. In other words, the CISG still primarily focuses on the agreement between the parties. In international trade, parties generally select trade terms (INCOTERMS) to define their respective rights and obligations. If terms such as EXW, FCA, FOB, CIF, DPU, or DAP are chosen, the buyer typically bears the responsibility for paying import duties. Under Chinese law, courts will primarily rely on the selected trade terms to determine the parties’ customs clearance obligations, while also considering the Customs Law and the parties’ actual customs clearance capabilities 2 .
III. Have the Parties Clearly Agreed on the Burden of Tariffs?
In cases where trade terms are not specified or the allocation of rights and obligations is unclear, how should tariff burdens be allocated? Judicial precedents indicate that courts first examine whether any trade terms apply. If so, the terms are interpreted accordingly. Secondly, courts will interpret the contract based on its wording, relevant clauses, purpose, trade practices, and the principle of good faith to determine the party responsible for tariffs. For instance, in the cases (2013) Sui Yue Fa Min Er Chu No. 4371 and (2014) Sui Zhong Min Er Zhong No. 848, the courts considered the trade terms, the contract’s purpose, and trade practice to confirm the buyer’s responsibility for import duties. In the case (2024) Qiong 72 Min Chu No. 111, despite no explicit agreement on customs clearance, the court ruled that the buyer had an auxiliary obligation to assist with customs clearance, as the seller lacked the necessary capabilities. This was based on Article 509(2) of the Civil Code of the PRC, which requires parties to fulfill notification, assistance, and confidentiality obligations in accordance with the contract’s nature, purpose, and trade practices. Based on the above, trade practices would be a key factor for courts in determining the allocation of tariff burdens.
IV. Are There Relevant Trade Practices between the Parties?
The key issue regarding trade practices is what constitutes such practices. According to Article 2 of the Judicial Interpretation of the Supreme People’s Court on the Application of the Contract Chapter of the Civil Code of the PRC, the following can be recognized as trade practices under the Civil Code: (1) practices consistently followed by the parties in their transactions; (2) practices commonly adopted in the local area, industry, or field, and known or reasonably known to the parties at the time of contract formation. Article 9(1) of the CISG also stipulates that any practices agreed upon by the parties and any established habits between them are binding.
In judicial practice, a pattern of dealings will be deemed trade practices if the parties have engaged in similar transactions over a long period and performed them in a specific manner, if the actual performance is consistent with transaction documents, if specific operational models have been formed during contract performance, if the parties have maintained a long-term cooperation without raising objections to the method of performance, or if a consistent practice has been formed through the court’s comprehensive assessment of multiple factors such as the purpose of the contract and the details of its performance. For example, in the case (2017) Jin 01 Min Chu No. 423, the court found that the use of faxes and emails to conclude contracts was prevalent in international goods sales and recognized under the contract laws and recognized the existence of long-term transactional relationships and stable practices between the parties. In contrast, in the case (2013) Xia Min Chu No. 277, the court rejected the defendant’s claim of a prior practice of delivery before payment, as the parties had also engaged in transactions where payment preceded delivery. Based on email exchanges, the court determined that the sales-before-payment method was a special agreement for specific goods rather than an established practice. In addition, in the case (2018) Min 02 Min Zhong No. 261, the court of first instance held that whether there is a special transaction custom between the parties should be unanimously agreed by the parties or proved by past transaction facts. The e-mails between the two parties regarding the demand for payment and the release of the goods have been listed in detail in the fact-finding section, and it is not clear from these emails that the special trading habits asserted by the plaintiff have been recognized by the other party, and only the plaintiff's unilateral claims can be seen, and the defendant's recognition of the plaintiff's so-called trading habits cannot be concluded. The plaintiff also did not adduce a practice to prove the existence of its assertions in past transactions. In the absence of an agreement in the order and the seller failed to prove the existence of special customs, the parties to the transaction shall seek the basis for resolving the problem in the relevant laws and international business practices. Therefore, the court of first instance finally confirmed that the seller should deliver the goods or documents first, and the buyer should be obliged to pay only after receiving the goods or documents, in accordance with the provisions of Chinese law and the CISG.
Furthermore, for practices commonly adopted in a locality, industry, or field, the party claiming the existence of such practices must demonstrate that they are internationally recognized and have clear rights and obligations，such as 《INCOTERMS》 and 《UCP600》. For example, in the case (2022) Hu 0115 Min Chu No. 78725, the court highlighted that international commercial customs must meet certain criteria, such as being formed through long-term practice, widely recognized, with specific rights and obligations, and non-mandatory. In that case, the court found that the “NCNR” (non-cancellable, non-arrangeable, and non-returnable) clause in the chip industry did not meet the standards for international commercial customs. However, in a subsequent case (2024) Hu 0115 Min Chu No. 18814, where the parties explicitly agreed to apply the “NCNR” clause, the court confirmed its binding effect.
V. Do Tariff Changes Constitute Force Majeure or Change of Circumstances?
If the above remedies are unavailable, i.e., the contract clearly specifies the party responsible for tariffs or the responsible party has been determined based on the specific conditions of the contract, can the affected party still seek to adjust or terminate the contract under Chinese law?
If the parties have not agreed on contract termination methods, statutory termination provisions may apply. Among these, force majeure and change of circumstances are potential legal basis. However, tariff changes rarely constitute force majeure as per the current judicial practices. To establish force majeure, three requirements must be met: (1) a causal relationship between the force majeure event and the non-performance of the contract; (2) the affected party must provide timely notice; and (3) the affected party must provide relevant evidence. Tariff changes, which usually have a buffer period, are difficult to prove as unforeseeable or to establish a causal relationship. For example, in the case (2019) Chuan 0193 Min Chu No. 10989, the court held that the risk of additional tariffs on alfalfa imports from the US was foreseeable at the time of contract signing during escalating trade friction. Thus, the court rejected the claim of force majeure.
Tariff changes also rarely qualify as a change of circumstances. Courts generally consider tariff fluctuations as commercial risks that parties should anticipate. Only when tariff changes lead to fundamental alterations in contract performance that are unforeseeable, non-commercial risks, and when continuing performance would be manifestly unfair, may the change of circumstances apply. A mere change in tariff generally does not constitute a statutory cause for termination or modification of a contract. In particular, a major change in the basis of contract performance and the unfairness caused by the performance of the contract are the core elements for the application of the doctrine of change of circumstances. In the case (2021) Yue 1971 Min Chu No. 12896, the court found that tariff changes did not significantly alter the contract’s foundation, thus not meeting the criteria for change of circumstances. In the case (2023) Gui Min Zhong No. 201, the court emphasized that change of circumstances requires both factual elements (unforeseeable, non-force majeure, non-commercial risks) and result elements (manifest unfairness). In that case, the logistics company, as a professional entity, should have considered exchange rate fluctuations as commercial risks upon the execution of the contract. The gradual evolution of trade wars and macroeconomic conditions requires market entities to anticipate such risks. The company failed to prove that exchange rate changes led to performance disability or significant losses, thus not meeting the core requirement of manifest unfairness.
In summary, when determining tariff burdens under Chinese law and the CISG, the first step is to examine the trade terms. If unclear, other contract terms or trade practices may be considered. In the absence of such guidance, Chinese law and the CISG generally hold the importer, exporter or the owner of the goods as the customs duty payer 3 . Attempts to avoid contracts based on force majeure or change of circumstances due to tariff impacts are unlikely to succeed. It is also important to note that if parties have agreed on trade terms but later discuss tariff burdens, it may constitute a contract amendment, altering their rights and obligations. Therefore, both parties should exercise caution in subsequent discussions to avoid disadvantageous outcomes.
1. See (2024) Xin 01 Min Zhong No.8307; (2024) Yun 0828 Min Chu No. 2674 Judgment.
2. See (2024) Qiong 72 Min Chu No. 111 Judgement.
3. Article 54 of the Customs Law stipulates that the consignee of imported goods, the shipper of exported goods, and the owner of imported and exported goods are the taxpayers of customs duties.
When determining whether tariffs can serve as a reason for non-performance of a contract under Chinese law, the following key issues need to be considered:
I. Has the CISG Been Excluded by the Parties?
This depends on the governing law for contract interpretation. As a contracting state to the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), China will apply the CISG to interpret a sales contract between parties from other contracting states, unless the contract explicitly excludes its application. If the CISG is not excluded, it will be the primary basis for contract interpretation; otherwise, other governing laws agreed in the contract will apply. Under Chinese law, if no governing law is agreed in the contracts, the Law of the PRC on the Application of Laws to Foreign-related Civil Relations (the “Law”) will apply. Specifically, Article 41 of the Law states that in the absence of a choice by the parties, the law of the party’s habitual residence where the characteristic performance of the contract is made, or the law most closely connected to the contract, such as the place of performance or the parties’ common habitual residence, will apply 1 . Due to space limitations, this article will only focus on scenarios where the CISG is not excluded or Chinese law applies.
II. Which Trade Terms Have Been Agreed Upon by the Parties?
The CISG does not explicitly stipulate who bears the relevant taxes and fees. However, Article 54 of the CISG specifies that the buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made. In other words, the CISG still primarily focuses on the agreement between the parties. In international trade, parties generally select trade terms (INCOTERMS) to define their respective rights and obligations. If terms such as EXW, FCA, FOB, CIF, DPU, or DAP are chosen, the buyer typically bears the responsibility for paying import duties. Under Chinese law, courts will primarily rely on the selected trade terms to determine the parties’ customs clearance obligations, while also considering the Customs Law and the parties’ actual customs clearance capabilities 2 .
III. Have the Parties Clearly Agreed on the Burden of Tariffs?
In cases where trade terms are not specified or the allocation of rights and obligations is unclear, how should tariff burdens be allocated? Judicial precedents indicate that courts first examine whether any trade terms apply. If so, the terms are interpreted accordingly. Secondly, courts will interpret the contract based on its wording, relevant clauses, purpose, trade practices, and the principle of good faith to determine the party responsible for tariffs. For instance, in the cases (2013) Sui Yue Fa Min Er Chu No. 4371 and (2014) Sui Zhong Min Er Zhong No. 848, the courts considered the trade terms, the contract’s purpose, and trade practice to confirm the buyer’s responsibility for import duties. In the case (2024) Qiong 72 Min Chu No. 111, despite no explicit agreement on customs clearance, the court ruled that the buyer had an auxiliary obligation to assist with customs clearance, as the seller lacked the necessary capabilities. This was based on Article 509(2) of the Civil Code of the PRC, which requires parties to fulfill notification, assistance, and confidentiality obligations in accordance with the contract’s nature, purpose, and trade practices. Based on the above, trade practices would be a key factor for courts in determining the allocation of tariff burdens.
IV. Are There Relevant Trade Practices between the Parties?
The key issue regarding trade practices is what constitutes such practices. According to Article 2 of the Judicial Interpretation of the Supreme People’s Court on the Application of the Contract Chapter of the Civil Code of the PRC, the following can be recognized as trade practices under the Civil Code: (1) practices consistently followed by the parties in their transactions; (2) practices commonly adopted in the local area, industry, or field, and known or reasonably known to the parties at the time of contract formation. Article 9(1) of the CISG also stipulates that any practices agreed upon by the parties and any established habits between them are binding.
In judicial practice, a pattern of dealings will be deemed trade practices if the parties have engaged in similar transactions over a long period and performed them in a specific manner, if the actual performance is consistent with transaction documents, if specific operational models have been formed during contract performance, if the parties have maintained a long-term cooperation without raising objections to the method of performance, or if a consistent practice has been formed through the court’s comprehensive assessment of multiple factors such as the purpose of the contract and the details of its performance. For example, in the case (2017) Jin 01 Min Chu No. 423, the court found that the use of faxes and emails to conclude contracts was prevalent in international goods sales and recognized under the contract laws and recognized the existence of long-term transactional relationships and stable practices between the parties. In contrast, in the case (2013) Xia Min Chu No. 277, the court rejected the defendant’s claim of a prior practice of delivery before payment, as the parties had also engaged in transactions where payment preceded delivery. Based on email exchanges, the court determined that the sales-before-payment method was a special agreement for specific goods rather than an established practice. In addition, in the case (2018) Min 02 Min Zhong No. 261, the court of first instance held that whether there is a special transaction custom between the parties should be unanimously agreed by the parties or proved by past transaction facts. The e-mails between the two parties regarding the demand for payment and the release of the goods have been listed in detail in the fact-finding section, and it is not clear from these emails that the special trading habits asserted by the plaintiff have been recognized by the other party, and only the plaintiff's unilateral claims can be seen, and the defendant's recognition of the plaintiff's so-called trading habits cannot be concluded. The plaintiff also did not adduce a practice to prove the existence of its assertions in past transactions. In the absence of an agreement in the order and the seller failed to prove the existence of special customs, the parties to the transaction shall seek the basis for resolving the problem in the relevant laws and international business practices. Therefore, the court of first instance finally confirmed that the seller should deliver the goods or documents first, and the buyer should be obliged to pay only after receiving the goods or documents, in accordance with the provisions of Chinese law and the CISG.
Furthermore, for practices commonly adopted in a locality, industry, or field, the party claiming the existence of such practices must demonstrate that they are internationally recognized and have clear rights and obligations，such as 《INCOTERMS》 and 《UCP600》. For example, in the case (2022) Hu 0115 Min Chu No. 78725, the court highlighted that international commercial customs must meet certain criteria, such as being formed through long-term practice, widely recognized, with specific rights and obligations, and non-mandatory. In that case, the court found that the “NCNR” (non-cancellable, non-arrangeable, and non-returnable) clause in the chip industry did not meet the standards for international commercial customs. However, in a subsequent case (2024) Hu 0115 Min Chu No. 18814, where the parties explicitly agreed to apply the “NCNR” clause, the court confirmed its binding effect.
V. Do Tariff Changes Constitute Force Majeure or Change of Circumstances?
If the above remedies are unavailable, i.e., the contract clearly specifies the party responsible for tariffs or the responsible party has been determined based on the specific conditions of the contract, can the affected party still seek to adjust or terminate the contract under Chinese law?
If the parties have not agreed on contract termination methods, statutory termination provisions may apply. Among these, force majeure and change of circumstances are potential legal basis. However, tariff changes rarely constitute force majeure as per the current judicial practices. To establish force majeure, three requirements must be met: (1) a causal relationship between the force majeure event and the non-performance of the contract; (2) the affected party must provide timely notice; and (3) the affected party must provide relevant evidence. Tariff changes, which usually have a buffer period, are difficult to prove as unforeseeable or to establish a causal relationship. For example, in the case (2019) Chuan 0193 Min Chu No. 10989, the court held that the risk of additional tariffs on alfalfa imports from the US was foreseeable at the time of contract signing during escalating trade friction. Thus, the court rejected the claim of force majeure.
Tariff changes also rarely qualify as a change of circumstances. Courts generally consider tariff fluctuations as commercial risks that parties should anticipate. Only when tariff changes lead to fundamental alterations in contract performance that are unforeseeable, non-commercial risks, and when continuing performance would be manifestly unfair, may the change of circumstances apply. A mere change in tariff generally does not constitute a statutory cause for termination or modification of a contract. In particular, a major change in the basis of contract performance and the unfairness caused by the performance of the contract are the core elements for the application of the doctrine of change of circumstances. In the case (2021) Yue 1971 Min Chu No. 12896, the court found that tariff changes did not significantly alter the contract’s foundation, thus not meeting the criteria for change of circumstances. In the case (2023) Gui Min Zhong No. 201, the court emphasized that change of circumstances requires both factual elements (unforeseeable, non-force majeure, non-commercial risks) and result elements (manifest unfairness). In that case, the logistics company, as a professional entity, should have considered exchange rate fluctuations as commercial risks upon the execution of the contract. The gradual evolution of trade wars and macroeconomic conditions requires market entities to anticipate such risks. The company failed to prove that exchange rate changes led to performance disability or significant losses, thus not meeting the core requirement of manifest unfairness.
In summary, when determining tariff burdens under Chinese law and the CISG, the first step is to examine the trade terms. If unclear, other contract terms or trade practices may be considered. In the absence of such guidance, Chinese law and the CISG generally hold the importer, exporter or the owner of the goods as the customs duty payer 3 . Attempts to avoid contracts based on force majeure or change of circumstances due to tariff impacts are unlikely to succeed. It is also important to note that if parties have agreed on trade terms but later discuss tariff burdens, it may constitute a contract amendment, altering their rights and obligations. Therefore, both parties should exercise caution in subsequent discussions to avoid disadvantageous outcomes.
1. See (2024) Xin 01 Min Zhong No.8307; (2024) Yun 0828 Min Chu No. 2674 Judgment.
2. See (2024) Qiong 72 Min Chu No. 111 Judgement.
3. Article 54 of the Customs Law stipulates that the consignee of imported goods, the shipper of exported goods, and the owner of imported and exported goods are the taxpayers of customs duties.
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