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Tariff-driven deal unrolling may lead to lawsuits

The Trump administration’s latest announcement of the imposition of US tariffs on all EU imports is one of the most serious issues faced by the Irish economy in recent years, McCann FitzGerald lawyers have said.

The imposition of a 20% tariff (subject to certain exemptions) on these imports will be felt across virtually all sectors and industries in the Irish economy, and in turn, have significant and complex legal implications.

From 5 April, a 10% baseline tariff will apply to all countries and, from 9 April, the EU will face a 20% reciprocal tariff across a broad product range.

This disparity threatens the competitiveness of key Irish sectors – including food and drink, and medtech – against nations such as Britain and New Zealand, which will maintain the lower 10% rate, the lawyers point out.

While the pharmaceutical industry received a temporary exemption, businesses should proactively assess the legal implications and prepare for potential future tariffs.

The precise impact of the imposition of such wide-ranging tariffs will take time to assess and will hinge on the EU response.

The MF lawyers say that businesses and their legal counsel should consider:

• Impact of the 20% tariff on supply chains and cost of exported products – transfer-pricing arrangements with US entities will come under intense scrutiny,
• Reviewing existing contractual arrangements to identify any potential reliefs, and any exposure to legal action because of unwinding or changing arrangements,
• If companies make changes to their transfer-pricing policies, this is likely to necessitate changes to legal documentation such as inter-company agreements, IP licence arrangements, supplier arrangements, tax, and potentially connected issues such as employment, if functions or people are being moved to tie to new transfer pricing.

A point of particular concern for Irish businesses is that the US tariffs will leave the North in a complicated position and will challenge the Windsor Framework.

Under this framework, goods entering the North must meet EU rules.

Retaliation

Therefore, any retaliation by the EU in the form of counter-tariffs or other countermeasures could lead to a situation in which exports from the North to the US face the same lower tariff rate of 10% as the rest of Britain.

However, US imports to the North are subject to EU countermeasures when the rest of Britain is not.

This is likely to pose significant political, economic, logistical, and potential legal challenges for many Northern Irish industries.

While the situation is a serious challenge to the Irish and wider EU economy, the fact that the baseline tariff has been set at 10% suggests that this is the tariff level which President Trump wants to see in place. 

Uncertainty

However, it is likely to take a long period of negotiation between the EU and the US before there is certainty on how matters play out.

“This announcement is not the end but, more likely, the beginning of a long dance between the EU and the US on tariffs,” write Alan Heuston and James Quirke of MF.

“The imposition of these tariffs undermines the strong transatlantic partnerships on which many Irish businesses rely, and which have been built over many years,” they add.

The lawyers caution that businesses and their legal teams must act sooner to build resilience in facing the future challenges that will accompany this move towards a previously unforeseen high-tariff trading environment.