Hardwire tariffs into contracts without losing control and flexibility (Part 2)

As global trade rules continue to shift and tariff schedules become harder to predict, organizations worldwide are rethinking not just the obvious clauses in supplier agreements, but the structural mechanisms that determine how goods are classified, priced, audited, and disputed.  

Agiloft’s recent report shows that organizations across the U.S. and U.K. see tariffs primarily impacting costs, compliance, and customer-facing outcomes. This highlights the impact of rising input costs, pricing sensitivity, and shifting regulatory frameworks, all of which place new pressure on contract portfolios and signal the need for smarter, more resilient clause design.  

Building on the five foundational clauses from “Hardwire tariffs into contracts without losing control and flexibility”, here are five additional contract clauses that modern teams are using to reduce tariff exposure and avoid costly surprises. 

Customs classification cooperation 

Customs classification cooperation is about making sure both sides stay aligned on how products are classified for customs and tariff purposes. It is an international effort to standardize the categorization of goods in trade, primarily through the Harmonized System (HS) administered by the World Customs Organization (WCO). This collaboration helps avoid surprises like unexpected duties, penalties, shipment delays, etc., and ensures uniform identification of products worldwide for purposes such as assessing duties, gathering statistics, and combating fraud.  

• Buyer-friendly: Seller is solely responsible for classification and duties. 

• Seller-friendly: Buyer accepts Seller’s classification and resulting duties as final. 

• Sample neutral clause: “The parties shall mutually determine the appropriate customs classification (HS code) for all products. In the event of a dispute, the parties agree to consult with customs counsel or seek a binding ruling from the appropriate governmental authority. Costs of reclassification shall be shared equally unless caused by misrepresentation.” 

In 2019, U.S. Customs and Border Protection reclassified imported steel racks under a different subheading, triggering millions in additional tariffs and prompting importers to challenge the ruling. A shared approach to the classification of HS codes can prevent disputes, reduce penalties, and provide defensible documentation if customs authorities challenge the product category. 

Most Favored Nation (MFN) pricing 

MFN pricing clauses are designed to ensure you are not paying more than anyone else for the same goods or services under comparable circumstances. It ensures that a party receives treatment and pricing terms that are at least as favorable as those offered to any other “most favored” counterpart under similar circumstances. This principle promotes non-discrimination and fairness in trade and commerce, acting as a risk-control mechanism.  

• Buyer-friendly: MFN enforced regardless of tariff-driven price changes. 

• Seller-friendly: MFN excludes tariff-based differences. 

• Sample neutral clause: “The MFN clause applies only to base pricing and shall exclude adjustments made solely due to differences in tariffs, duties, or taxes imposed by governmental authorities. Any such adjusted pricing shall not constitute a breach of the MFN provision.” 

According to the World Trade Organization (WTO), MFN means treating other parties equally. “Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favor (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members,” adds WTO.  

Trump’s recent executive order on prescription drug pricing offers a concrete, real-world example of how MFN pricing are used to counter pricing asymmetry. The order took direct aim at global price discrimination, asserting that U.S buyers should not pay materially more for the same products simply because manufacturers can offset lowers prices granted elsewhere. When applied to tariff risk, MFN gives legal teams a durable control mechanism, reducing the need for constant renegotiation and ensures pricing discipline, equitable risk allocation, and defensible outcomes when tariffs shift unexpectedly. 

Currency and tariff adjustment indexing 

Currency and tariff adjustment indexing give legal teams a structured way to manage volatility without reopening commercial terms every time external conditions shift. It involves using economic indices to automatically adjust prices or contracts for fluctuating exchange rates and new import duties. This helps businesses manage costs and risks, with mechanisms like price adjustment clauses in contracts and official data from the Bureau of Labor Statistics (BLS) for import/export prices tracking these effects, balancing importers absorbing costs, passing them to consumers, or reducing profits, and impacting global trade dynamics. 

• Buyer-friendly: Fixed pricing; seller absorbs everything. 

• Seller-friendly: Full indexing to tariff + FX changes. 

• Sample neutral clause: “Prices shall be partially indexed to a composite of tariff and FX movements. A price adjustment may be requested if cumulative tariff and currency changes cause a 5% or greater variance from the baseline cost. Adjustments shall be limited to 50% of the net increase and subject to supporting evidence.”  

Businesses with international contracts face currency volatility that can significantly affect final prices and lead to unexpected losses. The Association of Corporate Counsel (ACC) suggests mechanisms like risk-sharing, trigger provisions, and indexation clauses to manage these exchange rate fluctuations. 

Audit / documentation rights 

Audit and documentation rights clauses in contracts allow a party to review another’s records and operations to ensure compliance, verify calculations, and manage risks. These clauses are crucial for promoting transparency, especially in agreements involving financial metrics or performance.  

• Buyer-friendly: Broad rights to review seller’s cost data. 

• Seller-friendly: No audit rights; buyer must trust seller’s word. 

• Sample neutral clause: “Buyer shall have the right, upon reasonable notice and during normal business hours, to audit relevant records of Seller solely to verify claims of tariff-related cost increases. Any information reviewed shall be subject to confidentiality obligations and used solely for the purpose of validating adjustments under this Agreement.” 

In a major case in the United Kingdom, SAP vs. Diageo (2017), SAP was awarded roughly $54 million in damages after an audit revealed Diageo was using SAP software for “indirect access” (third-party systems connecting to SAP data) without appropriate licenses. This case, though not tariff specific, highlights the importance these clauses are for ensuring transparency, compliance, and risk management in commercial agreements to verify that contractual obligations are being met. 

Dispute resolution specificity 

The American Bar Association (ABA) defines dispute resolution as the “number of processes that can be used to resolve a conflict, dispute or claim.” In the case of tariffs, this means spelling out exactly how tariff or pricing disputes will be handled, clearly defining how, where, and by whom conflicts will be resolved in advance (like in a contract). This ensures the chosen methods (negotiation, mediation, arbitration) fit the dispute’s complexity, value, and need for privacy, leading to faster, cheaper, and more controlled outcomes than traditional court battles.  

• Buyer-friendly: Disputes resolved in buyer’s home courts. 

• Seller-friendly: Arbitration in Seller’s preferred venue. 

• Sample neutral clause: “In the event of any dispute arising from tariff-related adjustments or interpretations, the parties agree to engage in good-faith negotiations for 30 days, followed by mediation administered by [Neutral Body], and if unresolved, by binding arbitration in [Neutral Jurisdiction] under [Institution] Rules.” 

In 2026, many commercial contracts use “step” or Multi-Tier Dispute Resolution Clauses (MDRCs) to keep disagreements out of court, but as legal experts note in the American Review of International Arbitration, these clauses create a major debate over whether skipping a step, like a mandatory negotiation, completely strips a tribunal of its jurisdiction or simply makes the claim temporarily inadmissible. 

Every contract needs political risk planning 

Tariffs will continue to change, often with little warning. What doesn’t have to change is how prepared your contracts are to handle that volatility. By designing agreements with mechanisms like MFN pricing, currency and tariff adjustment indexing, and clear dispute pathways, legal teams can turn uncertainty into something manageable and measurable. The goal isn’t to predict every trade action, but to create contracts that absorb volatility, protect relationships, and give the business room to operate with confidence when trade policy shifts. 

Watch this on-demand webinar titled “Derisking your contracts to protect against tariff turbulence” to prepare your team to tackle tariff-driven complexities head-on, strengthening your business’s resilience as trade landscapes shift. 

The information in this article is provided for informational purposes only. It should not be relied upon as legal, financial, or compliance advice. Readers should consult with qualified professionals and monitor official government resources for the most up-to-date guidance on tariffs and trade-related matters.