KITA: "U.S. High Tariffs Becoming Routine...Exporters Should Respond with 'Tariff Clauses' and ADR"

KITA Publishes "Surviving the U.S. Tariff Waves: Practical Guide Part 3"

Proactive Design of "Tariff Clauses" and Use of Incoterms Recommended for New Contracts

Phased Use of ADR Advised Over Litigation in Case of Disputes

Despite a U.S. federal court ruling that reciprocal tariffs are illegal, the U.S. government continues to maintain a high-tariff stance through measures such as Section 122 and Section 301 of its trade law. As a result, uncertainty persists for Korean exporters regarding trade conditions with the U.S. In response, it has been suggested that, in addition to government-level negotiations, companies should independently review their trade contracts and establish systems to respond to disputes.

The Korea International Trade Association's Institute for International Trade and Commerce released a report on June 30 titled "Surviving the U.S. Tariff Waves: Practical Considerations and Response Strategies Part 3: Contract and Dispute Management." The report introduces key contract checkpoints to help minimize uncertainty when exporting to the U.S., as well as alternative dispute resolution (ADR) systems that can be used in the event of disputes.

The report advises companies to distinguish between existing and new contracts when managing risk. For ongoing contracts, it highlights the need to first review: ▲which party is responsible for tariff costs according to the terms of trade, ▲whether "tariff imposition" or "changes in law" are included in force majeure clauses, ▲price adjustment or renegotiation provisions, ▲criteria for entitlement to tariff refunds, and ▲dispute resolution procedures. In particular, if the transaction price is fixed, increased costs due to tariffs alone are unlikely to exempt a party from contractual obligations. Therefore, the report stresses the importance of verifying whether government actions, tariff imposition or increases, changes in law, and export/import regulations are included as force majeure events in contracts. It also suggests signing supplementary agreements to clearly define who bears the burden of additional tariffs and the criteria for handling tariff refunds.

For new contracts, the report recommends proactively designing a "tariff clause" that specifies the definition of tariff changes, standards for applying price adjustments, methods for sharing costs, notification deadlines and documentation requirements, and procedures for renegotiation or termination. When choosing Incoterms, it is advisable to actively consider arrangements where the buyer (importer) bears the import country's tariffs, which reduces the seller's (exporter's) administrative burden and risk. The report also emphasizes the importance of clearly specifying in the contract which party is responsible in cases of origin determination or product classification errors.

If a dispute arises due to tariffs, the report suggests utilizing ADR rather than litigation, which could make information public. Since tariff disputes often involve complex issues such as supply chain relationships and business secrets, ADR, which ensures confidentiality and expertise, is considered much more effective. Accordingly, the report recommends that companies design a phased approach to dispute resolution from the contract stage, including "mediation" for swift and flexible settlement and relationship maintenance, and "arbitration," whose decisions can be enforced in 172 countries under the New York Convention.

Lee Jeongah, Senior Researcher at the Korea International Trade Association, stated, "The legal basis and rates for U.S. tariff policies are constantly changing, so it is too risky for Korean companies to respond passively. The most realistic strategy to survive in this uncertain trade environment is to thoroughly manage tariff risks from the contract stage and develop internal risk management capabilities that can be controlled independently."

This report is the third in the "Surviving the U.S. Tariff Waves: Practical Considerations and Response Strategies" series, following the first part (U.S. customs practices and tariff calculation) and the second part (U.S. origin verification and tariff reduction strategies). It includes practical checklists and sample clauses that can be used immediately in the field. Legal advice for this report was provided by attorney Park Jeonghyun of Kwangjang Law Firm and Professor Oh Hyunseok of Keimyung University.

A panoramic view of the Trade Center in Samseong-dong, Seoul.

This content was produced with the assistance of AI translation services.