Incoterms and import tariffs: who pays the bill in Trump's trade policy?

Introduction: a costly misunderstanding

In our daily practice as international business lawyers, we find that many business owners have a fundamental misunderstanding of Incoterms® and the division of responsibilities for paying import duties. This ambiguity is more costly today than ever, as President Donald Trump has announced "reciprocal trade tariffs" against all countries of the world, which would impose a 20 percent (or possibly even 50 percent) tax on all EU products.

For Belgian entrepreneurs trading internationally, a misunderstanding of Incoterms can cost literally thousands of euros. The combination of Trump's aggressive import tax policy and lack of clarity about who should bear these costs creates a legal and commercial minefield that requires careful navigation. VRT NWS recently explained exactly what import taxes mean for Belgian companies.

What exactly are Incoterms®?

Before delving deeper into the complex issue of tariff responsibility, it is important to first understand exactly what Incoterms® are and why they are so crucial in international trade.

Incoterms® - an abbreviation for "International Commercial Terms" - are standardized agreements that define exactly who does what, who pays for what, and who bears what risks during an international transaction. Think of them as a kind of "rules of the game" for international trade.

These terms and conditions are revised every 10 years by the International Chamber of Commerce (ICC) to bring them up to date with modern business practices. The current version - Incoterms® 2020 - went into effect Jan. 1, 2020, replacing the previous Incoterms® 2010. It is crucial to always specify which version you use in your contracts, as there are important differences between the versions. The Belgian customs has an official circular on this subject published.

Suppose you are a Belgian chocolate manufacturer selling a container of chocolate to a customer in New York. Then practical questions immediately arise: Who arranges transportation from your factory to the port of Antwerp? Who pays for the shipping to New York? Who bears the risk if the container is damaged during the crossing? Who arranges the customs formalities in America? And - crucially in the current context - who pays the U.S. import tariffs?

Without clear agreements, every international transaction would become a legal minefield. Incoterms® solve this by offering eleven standardized "packages" of agreements, each with a three-letter code such as FOB, DAP, or DDP. When you agree "FOB Antwerp," both parties know exactly what this means - no matter where they are in the world.

These terms determine not only who arranges transportation and insurance, but also - and this has become essential in Trump's trade policy - who is responsible for customs formalities and paying import duties in the destination country.

The key question: who pays the import taxes?

The seller: only at DDP

The answer is surprisingly simple, but often overlooked. Of all eleven Incoterms® 2020 rules, only one which makes the seller responsible for paying import duties in the destination country: DDP (Delivered Duty Paid).

With DDP (specifying the agreed place of destination), the seller bears the maximum obligation. This means that the seller delivers the goods, cleared for import, at the agreed place of destination. The seller bears all costs and risks associated with transporting the goods to the destination, including (where applicable) all "duties" (including the responsibility for and risks of completing customs formalities and paying formalities, customs duties, taxes and other charges) for importation into the destination country.

Suppose you as a Belgian machine builder sell an installation to your American customer under DDP conditions. Under normal circumstances, you might factor in 5-10% of import duties. But with Trump's new tariffs, this could suddenly become 50% for EU products, or even 25% extra for auto parts. If you sell a machine to a customer in Texas and you don't know exactly how much import duty will be charged, this incoterm obligates you to pay all import duties as well - a costly surprise.

The buyer : all other Incoterms

Under all other eleven Incoterms® (such as EXW, FCA, FOB, CIF, DAP, etc.), the buyer is ultimately responsible for customs clearance at import and payment of related duties and taxes in the destination country. Although under some Incoterms® (such as C rules, e.g., CIF or CIP), the seller arranges and pays for the main transportation up to a particular port or destination, the responsibility for import formalities and costs shifts to the buyer once the goods arrive in the destination country.

• EXW (Ex Works): The buyer bears virtually all costs and risks from the moment the goods are made available at the seller's location. This includes export formalities as well as import formalities and duties.
• F-group (FCA, FAS, FOB): The seller arranges and pays for the export formalities. The buyer is responsible for the main transport, import formalities and related duties.
• C group (CFR, CIF, CPT, CIP): The seller arranges and pays for the main transport to an agreed point. However, the risk passes to the buyer before then. Importantly, costs for import formalities and import duties remain the responsibility of the buyer.
• D group (DAP, DPU): The seller bears the costs and risks of bringing the goods to the agreed destination. With DAP (Delivered at Place) and DPU (Delivered at Place Unloaded), however, the seller is not responsible for import customs clearance and payment of import duties. These remain the responsibility of the buyer.

With all these Incoterms®, the responsibility for import duties therefore lies with the buyer. This practically means the following for Belgian exporters:

• As a Belgian manufacturer, when you supply your U.S. customer under FOB (Free on Board) terms, your customer pays all import duties. Even though your products are now 50% more expensive due to Trump's tariffs, legally this is your US customer's problem, not yours.
• With DAP (Delivered at Place) deliveries to the US, you as a Belgian seller bear all costs up to delivery, except import formalities and tariffs. So the 50% import duty on EU products is formally borne by your US buyer - but economically you feel the impact via reduced demand or price pressure.

The double perspective: Belgian importers hit by EU countermeasures

However, trade tension is working both ways. In response to US import tariffs, the EU is instituting countermeasures worth €26 billion, with duties ranging from 10% to 25% on certain US products. This means that Belgian entrepreneurs who import U.S. products also face new tariff challenges. VRT NWS analyzed Which American products are targeted by Europe with these strategic countermeasures.

For Belgian importers sourcing U.S. products, the choice of Incoterms® now also becomes strategically important:

If you are purchasing under DDP terms: Your US supplier is responsible for all EU import duties, including the new countermeasures of 10-25%. This means he must bear these costs or incorporate them into his price.

If you are purchasing under DAP, FOB, or other conditions: You as a Belgian importer are responsible for paying the EU countermeasures. A product that cost €1000 in import duties last month can now suddenly cost €1250 due to a 25% counter tariff.

How can a specialized lawyer help you in this uncertain climate?

Correctly interpreting and applying Incoterms® has always been important, but in an era of increasing protectionism and trade conflicts, it is absolutely critical. It is more than a logistical matter; it is a legal and strategic issue with direct financial implications. As a law firm specializing in commercial law and international contract law, we can assist you with:

• Advice on choosing the right Incoterm®: Tailored to your specific transaction, taking into account current geopolitical risks and the potential impact of unexpected trade measures.
• Watertight contractual clauses: Ensure correct and unambiguous indication of the chosen Incoterm® (with the correct year reference, currently Incoterms® 2020) and the exact location. We can also advise on specific force majeure or hardship clauses or clauses that address the risk of changed import duties. For example: "If, after contract conclusion, import tariffs in the destination country increase by more than 5%, the seller has the right to adjust the contract price accordingly."
• Risk management and allocation: Identify potential pitfalls specifically related to trade barriers and advise on how best to protect your interests.
• Dispute Resolution: Assistance when disputes do arise over the interpretation or application of Incoterms®, or over who should bear the burden of new charges.

Conclusion: knowledge as a competitive advantage

Choosing an Incoterm® is a fundamental decision in any international trade transaction. Knowing who is responsible for paying customs duties is essential in this regard, especially as these duties can become a political plaything. Remember: only DDP places this burden (and the risk of increases) entirely on the seller. In all other terms, unless contractually agreed otherwise and very explicitly, you as the buyer are ultimately responsible for the import charges.

Anticipate uncertainty and protect your margins. Do you have questions about Incoterms®, would you like to have your contracts screened for risks associated with current trade policies, or are you looking for advice in drafting international trade contracts that can withstand sudden changes in import duties? If so, feel free to contact our office. We would be happy to help you legally strengthen your international trade transactions in these volatile times.