Insight
Tariffs, Trade Disruption and Contract Law: What GCC Businesses Must Address Now
The US effective tariff rate is at its highest in over a century. Supply chains have been disrupted. The legal implications for cross-border contracts in the GCC are immediate and not yet fully understood by the businesses that bear the exposure.
· 3 min read
The Trade Environment: Facts on the Ground
The United States effective tariff rate, following a sustained period of executive action, legal challenges, and a Supreme Court ruling that upheld broad executive authority over trade measures, remains at levels not seen since the 1930s. The global trade architecture that GCC businesses built their commercial relationships around, characterised by low US tariffs, predictable WTO-governed trade rules, and integrated dollar-denominated supply chains, has changed structurally. It has not changed temporarily.
While the United States has been erecting barriers, the rest of the world has been dismantling them. The UAE has concluded or substantially progressed Comprehensive Economic Partnership Agreements with India, Indonesia, Israel, Turkey, Georgia, Kenya, and Cambodia in the past three years. Saudi Arabia, Qatar, and Bahrain are pursuing parallel bilateral agreements. New trade corridors are opening. But those corridors carry their own compliance requirements, rules of origin standards, and documentation obligations that many businesses have not yet mapped.
The commercial consequence for GCC businesses is a simultaneous exposure: existing contracts may have become more expensive or difficult to perform as a result of tariff-driven cost increases, while new opportunities exist in preferential access frameworks that require legal and operational groundwork to capture.
Force Majeure: The Legal Position Under UAE Law
The question most frequently presented to counsel in the current environment is whether tariff-driven cost increases can justify non-performance or price renegotiation under existing contracts. The honest answer is: rarely, and only in specific circumstances.
Article 273 of the UAE Civil Transactions Law provides that where performance of an obligation becomes impossible due to an extraneous cause not attributable to the obligor, the corresponding obligation is extinguished and the contract is dissolved. The operative word is “impossible.” UAE courts have consistently interpreted this provision to require objective impossibility, not merely increased cost or diminished commercial attractiveness. A business that can still perform its contractual obligations but finds them more expensive due to tariffs will not, in most cases, satisfy the Article 273 threshold.
Force majeure clauses in commercial contracts may be drafted more broadly than the statutory position. Some clauses include “government action,” “import restrictions,” or “regulatory changes” as qualifying events. Whether a specific tariff measure falls within a specific clause is a question of contractual interpretation that turns on precise language, and legal counsel should be engaged to review each clause against the specific facts before any position is communicated to a counterparty.
Hardship: A More Promising Avenue
Article 249 of the UAE Civil Transactions Law provides a potentially broader basis for relief where exceptional circumstances arise that could not reasonably have been foreseen at the time of contracting, and where those circumstances make performance excessively onerous such that the debtor faces a threat of serious loss. In those circumstances, the court has discretion to reduce the onerous obligation to a reasonable level.
An application under Article 249 requires satisfying four conditions: the circumstances must be exceptional in character; they must have been unforeseeable at the time of contracting; they must have arisen after the contract was concluded; and enforcement of the original obligation must threaten the debtor with serious loss. Tariff increases that were not foreseeable when a long-term supply contract was signed, and that have produced a material cost escalation that cannot be absorbed commercially, may satisfy these conditions, particularly for contracts concluded before 2024.
Importantly, Article 249 does not automatically entitle a party to walk away from the contract. The court’s power is to adjust the obligation to a reasonable level. Counsel should advise clients that the likely outcome of a successful Article 249 application is a judicially renegotiated contract, not a discharged one.
Practical Steps for Contract Review
Every GCC business with material cross-border supply, distribution, or service contracts should conduct a structured review that addresses the following: whether existing force majeure and hardship clauses are adequate for the current environment; whether pricing mechanisms, material cost escalation provisions, or renegotiation triggers are present and operable; whether the governing law and dispute resolution provisions are optimal given current geopolitical and regulatory conditions; and whether any renegotiation approach to counterparties has been coordinated with legal counsel to avoid inadvertent waiver or repudiatory conduct.
Contracts being negotiated or renewed now should be drafted with explicit provisions addressing tariff and trade regulation changes, extended escalation mechanisms, and, where appropriate, governing law clauses that favour UAE, DIFC, or ADGM law over the law of jurisdictions currently experiencing elevated regulatory volatility.
This article is general information about the law at the date of publication. It is not legal advice and should not be relied on as such. For advice on your circumstances, talk to counsel.
