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On 1 February 2025, Donald Trump announced the imposition of tariffs on imports from Canada, Mexico, and China. According to the White House statement, tariffs of 25% were imposed on goods from Canada and Mexico, while Chinese imports were subject to a 10% tariff. An exception was made for energy resources from Canada, which were subject to a 10% tariff. These measures were introduced under the International Emergency Economic Powers Act (IEEPA) and had a significant impact on international trade.
The affected countries responded with countermeasures. Canada announced the first stage of retaliatory tariffs worth 30 billion dollars on American goods, including a wide range of agricultural products such as poultry, pork, dairy products, fruits, and vegetables. The second wave, which is under discussion, may also cover agricultural products, including meat, dairy products, vegetables, and fruits. Mexico is also considering retaliatory tariffs, while China intends to challenge the US measures at the WTO.
Donald Trump also announced plans to introduce tariffs on the European Union; however, as of the date of this article, details of these tariffs remain unknown.
This article examines whether these new tariffs could be considered force majeure under GAFTA and FOSFA contracts, as well as under English law in general.
Force Majeure in English Law and Contracts
Force majeure is a concept that originates from French law. In English law, it does not apply automatically and requires an explicit contractual clause. If a force majeure clause is absent, parties cannot be released from their obligations due to unforeseen events.
Force Majeure Clauses in GAFTA and FOSFA
The standard contract forms of GAFTA and FOSFA contain force majeure clauses. In both cases, the list of force majeure events is non-exhaustive. For example, under GAFTA 64, an “Event of Force Majeure” includes:
- prohibition of export or other executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the port or ports named in the contract are situated, restricting export, whether partially or otherwise;
- blockade;
- acts of terrorism;
- hostilities;
- strike, lockout or combination of workmen;
- riot or civil commotion;
- breakdown of machinery;
- fire;
- ice;
- Act of God;
- unforeseeable and unavoidable impediments to transportation or navigation;
- any other event comprehended in the term “force majeure”.
English law establishes that, in addition to the occurrence of a force majeure event, the following conditions must also be met:
- Unforeseeability – the event could not have been reasonably foreseen by the parties at the time of contract formation.
- Irresistibility – the affected party must be unable to prevent or avoid the consequences of the event.
- Impact on performance – the event must render performance of contractual obligations impossible, rather than merely economically disadvantageous.
- Alternative performance – the affected party must demonstrate that it attempted to fulfil its obligations by alternative means, but this was also impossible.
GAFTA and FOSFA arbitration panels have previously considered cases where export restrictions or military conflicts were recognised as force majeure.
Can Tariffs Be Considered Force Majeure?
The imposition of tariffs makes contract performance less profitable or even unprofitable, but it does not make it impossible. English law traditionally holds that changes in economic conditions do not constitute force majeure. Furthermore, the force majeure test requires the affected party to attempt to perform its obligations by alternative means. For example, finding a new supplier, modifying delivery terms, or using alternative logistics solutions. If performance remains possible, even at a financial loss, it does not qualify as force majeure.
However, parties can proactively include a force majeure clause in their contracts, explicitly specifying that the imposition of tariffs above a certain level will be deemed force majeure. To ensure the effectiveness of such a clause, it is recommended that:
- The clause clearly defines which tariffs or regulatory changes would qualify as force majeure.
- A specific tariff threshold is set, above which obligations may be suspended or terminated.
- A notification procedure for informing the counterparty of the force majeure event is established.
- The consequences of force majeure are stipulated, including suspension, extension of deadlines, or contract termination.
Prohibition Clauses in FOSFA Contracts
FOSFA contracts contain a separate Prohibition clause, which applies specifically to government-imposed prohibitions on export or other executive or legislative acts restricting trade. This clause allows for an extension of the delivery period in case of an official export prohibition. If the restriction continues for over 30 days, the contract or any unfulfilled portion may be cancelled. Sellers must notify buyers and provide proof if necessary.
Unlike force majeure, which requires proving that an event makes performance impossible, the prohibition clause offers a specific automatic mechanism for handling government-imposed restrictions. However, tariffs do not fall under the prohibition clause, as they do not restrict exports entirely but rather impose financial burdens, making trade more expensive rather than legally impossible.
Frustration of Contract as an Alternative
Frustration of contract is a doctrine in English law that allows parties to be discharged from their obligations if performance has become physically or legally impossible. However, courts rarely apply this doctrine in cases involving economic changes. For example, in Davis Contractors Ltd v Fareham UDC [1956] UKHL 3, the court held that a significant increase in performance costs does not amount to frustration. In the case of tariffs, contract performance remains possible, albeit less profitable or even at a loss, which excludes the application of this doctrine.
Conclusion
Trump’s tariffs pose a political and economic risk but are unlikely to be considered force majeure under GAFTA, FOSFA, or English law. Without a well-drafted force majeure clause, proof of the impossibility of performance, and evidence of attempts to perform by alternative means, parties will not be able to be released from their contractual obligations.
Parties can anticipate this issue by incorporating a force majeure clause in their contracts, clearly stating that the imposition of tariffs above a certain level will be considered force majeure. This approach helps avoid disputes and provides legal certainty in case of such developments.
If you need legal assistance regarding international trade, GAFTA or FOSFA arbitration, feel free to contact me via email, Telegram, or WhatsApp.
