The impact of Tariffs on international contracts in Mexico

Generally speaking, no. Under Mexican law, force majeure is strictly interpreted as an unforeseeable event beyond the control of the parties, such as natural disasters (e.g., earthquakes, floods), war, or government actions of an extraordinary and unforeseeable nature. The imposition of import duties, even if abrupt or politically motivated, is considered a sovereign act of government within its discretionary powers and, as such, does not typically consist of a force majeure.

An increase in duties to be classified as force majeure, would need to be demonstrably extraordinary, completely unforeseeable, and make contractual performance objectively impossible, not merely more expensive or commercially unviable. Mexican courts have consistently upheld a narrow interpretation of force majeure, limiting its application to events that cause contractual obligations practically or legally impossible to perform.

It is important to differentiate force majeure from the distinct legal concept of excesiva onerosidad (hardship), which may apply in certain cases, and is addressed in the following question.

Mexican legal framework recognizes hardship (“teoría de la imprevisión”) as a mechanism to restore contractual equilibrium between the parties. Under Mexican law, this theory applies to extraordinary, nationwide events that were unforeseeable at the time of contract execution and that render the performance of contractual obligations excessively onerous for one of the parties.

The affected party may formally request a modification of the contract to restore the balance of rights and obligations. Such a request must be submitted within 30 days following the occurrence of the extraordinary event and must be duly substantiated with justified reasons. If the parties fail to reach an agreement within 30 days from the receipt of the request, the requesting party may file a petition with a competent court to either adjust the contractual terms or order its early termination.

Mexican law upholds the principle of pacta sunt servanda in applying the theory of unforeseeability, where parties may have agreed to pursue a first attempt to renegotiate the contract in good faith. However, if no agreement is reached, either party retains the right to seek judicial intervention to modify or terminate the contract, ensuring fairness considering the unforeseen circumstances.

To successfully invoke hardship, the affected party must demonstrate that:

1. The tariff increase was unforeseeable at the time of the execution of the agreement.
2. The financial impact is so severe that it fundamentally alters the nature of the agreement, making performance unreasonably burdensome and placing one party at a significant disadvantage.
3. The economic imbalance exceeds normal business risks and is beyond what could have been anticipated by the parties.

Hence, the increase of costs or reduction of profitability do not automatically justify a hardship.

No, not by default. Under Mexican contract law, the agreed-upon terms, including price, are binding unless the contract explicitly provides for adjustments in response to external economic factors. The imposition of a tariff does not inherently grant a party the right to renegotiate prices, unless the agreement foresees:

• Price Adjustment Clauses: Explicit provisions that allow for price modifications based on changes in import duties.
• Hardship or Renegotiation Clauses: Specific terms that provide a structured process for renegotiation in case of an extraordinary economic imbalance.

If the impact is severe, the affected party may attempt to argue a hardship, but this would require meeting the strict legal criteria addressed in the previous answer.

To mitigate the impact of future tariffs, businesses operating in Mexico should proactively implement legal and commercial strategies, including:

• Price Adjustment Clauses: Include provisions allowing for automatic price adjustments if import duties change beyond a certain threshold. For instance, the clause can stipulate that if new duties are imposed, the supplier will adjust the pricing or terms to ensure that the buyer's position remains competitive compared to other customers. This adjustment could involve absorbing the additional costs or renegotiating the contract terms to offset the impact of the new duties.

• Hardship Clauses: Define the conditions under which renegotiation or termination may occur due to excessive economic burdens caused by new tariffs.
• Termination Clauses: Grant a right to terminate the contract if tariffs exceed a pre-agreed level, making performance commercially unviable.

• Dispute Resolution Mechanisms: If a contractual dispute arises due to the imposition of tariffs, consider arbitration or other alternative dispute resolution mechanisms.

By integrating these strategies, businesses can safeguard themselves better against the unpredictability of trade policies, particularly in the current geopolitical environment.

Example of a Tariff Negotiation Clause (Mexico)

“In the event that after the execution of this Agreement, governmental authorities of any jurisdiction having a direct influence in the performance of the obligations under this Agreement, impose, modify, or establish new tariffs, duties, taxes, fees, or other governmental charges that increase the cost of the goods covered by this Agreement in more than [X]% over the originally agreed price, the affected Party may request an immediate renegotiation of the agreed prices.

Such a request must be submitted in writing within 30 days from the date the measure that causes the cost increase became effective. The Parties shall negotiate in good faith to reach an agreement that restores the economic balance of this Agreement and may, by mutual agreement, adjust the established prices.