The impact of Tariffs on international contracts in China

Article 180 of the Chinese Civil Code defines “force majeure” as “objective circumstance(s) which is unforeseeable, unavoidable and insurmountable.”

The Chinese law and practice, however, seem to adopt a restrictive interpretation of “force majeure” regarding the “imposition of customs duty." To illustrate this position, consider the following: 

• The PRC “Customs Duty Law” provides that “the deferred settlement of Customs duty is possible within a 6-month grace period subject to a successful application filed with competent Customs office and backed by a guarantee provided for such settlement in case the taxpayer is unable to settle the Customs duty due to an event of force majeure or adjustment of national tax policy.” Therefore, an adjustment of national tax policy is not assimilated to an event of force majeure in this national law governing Customs duties.

• An influential Chinese professional association in the Customs declaration sector recently released a guideline opinion shortly after the Trump administration’s decision (released at short notice ahead of its effective date) to impose an additional tariff on imported goods from China from February 4, 2025 EST US. This opinion provides that the said imposition of customs duty shall NOT be considered an event of “force majeure.” It is noteworthy that this opinion was issued upon consultation with the National Customs office and local chapter of CCPIT (chamber of commerce).

Article 533 of the Chinese Civil Code provides that “where the fundamental condition for the contract has undergone a significant change which was unforeseeable when concluding the contract and is not considered as commercial risk and the further performance of such contract is clearly unfair for one party to the contract, the party adversely affected may renegotiate the contract with its contractual counterparty. Should such negotiation fail within a reasonable time period, the party concerned may file an application with a competent court of law or arbitral court for modification or termination of the contract.”

In light of the above, we may understand that the imposition of the duty will not be automatically considered as a cause of hardship, and a case-by-case analysis will be therefore required.

Typically, the local court will ascertain, among others, the following:

• Whether the imposition of tariff remained unforeseeable when the contract in question was concluded;

• Whether the imposition of the tariff will result in a situation that is “clearly unfair” for the affected party (NB: Please note that the Civil Code uses the word “unfair” instead of “disadvantageous”). 

A final judgment rendered by a Chinese high court (Ref No. 2020 Wen Min Shen No. 5023)came to illustrate the above:

In this case, a Chinese food importer and a local buyer entered into an agreement in which the food importer would resell a certain quantity of rice imported from Vietnam to the local buyer. However, during the performance of this contract, the customs duty rate was significantly increased from 5 to 50 percent by Chinese customs. The food importer subsequently filed an application to modify or terminate the contract, arguing that continuing to perform it would lead to substantial losses due to the steep rise in customs duties, which would be its sole burden. 

The Court nevertheless rejected such an application based on the following reasoning:

• The food importer is a professional food trader and shall be familiar with the customs rate fluctuation, which shall not be considered as “unforeseeable”;

• The change of the above tax rate does not significantly raise the market price of rice, thereby creating a situation that is “clearly unfair” for the food importer.

It is likely to entail a right to renegotiate the price under Chinese law. However, the party initiating such renegotiation shall first proceed with its own assessment to ascertain whether it is eligible to resort to such renegotiation in light of the applicable law and the circumstances facing it.