The FOB Price Was Agreed. The Export Tax Was Not.
Quote from chief_editor on June 14, 2026, 5:30 pmExport taxes on commodities are typically the seller's cost under FOB terms. When an export tax is introduced after contracting, who bears the increase is a contractual question.
A Pakistani cotton seller had contracted to supply 500 bales of extra-long staple cotton on FOB Karachi terms at a fixed price agreed in February. The contract was for April shipment. In March, the Pakistani government introduced a new export development surcharge on cotton exports, effective immediately. The surcharge added approximately $45 per bale to the seller's export cost.
The seller contacted the buyer and requested that the price be increased by $45 per bale to reflect the new surcharge. The buyer declined — the price had been agreed, the contract was fixed, and any cost increases on the seller's side were the seller's responsibility under an FOB contract.
The seller's position: the export tax was a government action beyond their control, analogous to a force majeure event, that had changed the cost of performance. The buyer's position: the FOB price was the delivered price at the ship's rail, all costs to that point being the seller's, including any government export levies that the seller chose to accept.
In English law and under most commodity contract frameworks, the seller is correct in principle that export taxes are a seller's cost under FOB terms. Whether a newly introduced export tax qualifies as a force majeure or change-in-law provision that allows the seller to adjust the contract price depends on the specific contract language. The cotton contract in this case had no change-in-law provision.
The seller performed the contract at the original price, absorbing the $22,500 additional export cost on 500 bales. Their margin, which had been adequate at the time of contracting, became negative. They delivered anyway because their only alternative was breach of contract, which would have produced a larger claim.
Export Tax Risk Under FOB Is Structural and Cannot Be Managed After the Fact
Under FOB Incoterms, all costs and charges to put the goods on board the vessel at the named load port are the seller's responsibility. This includes export customs duties, export taxes, export levies, and any government charges associated with obtaining export clearance. The buyer's cost begins at the ship's rail.
This allocation means that any new or increased export tax introduced after contracting but before shipment is the seller's cost to absorb — unless the contract contains a specific provision that allows price adjustment for changes in export taxes. Change-in-law provisions — clauses that allow contract price adjustment when applicable laws or taxes change materially after contracting — are included in some commodity contracts but are not standard in most commodity trade forms.
In markets where export taxes are politically active — where the government has a history of adjusting export levies in response to domestic supply conditions, currency pressures, or revenue needs — sellers who enter fixed-price FOB contracts without change-in-law protection are accepting the risk that the government will increase export costs after the price is locked.
Industry estimates for the frequency of export tax changes in agricultural commodity exporting countries suggest that major adjustments to export levies occur across multiple commodity classes in emerging market exporters over any three- to five-year period. Argentina's system of retenciones — export taxes on soybeans and other agricultural commodities — has been adjusted multiple times with commercial impact on outstanding FOB contracts. Indonesia has periodically modified palm oil export levies. India has imposed and removed export restrictions on rice and wheat with rapid implementation timelines.
The Protection That Requires Pre-Contract Negotiation
A seller in a jurisdiction with an active history of export tax adjustment who enters fixed-price FOB contracts needs to consider either: pricing the export tax risk into the FOB price (charging more to compensate for the risk of levy increases), building change-in-law provisions into the contract (which buyers may resist), or matching contract duration to the period of export tax stability that can be reasonably predicted.
None of these options is free. The commercial cost of managing export tax risk is borne somewhere in the transaction — either by the seller through reduced margin, by the buyer through higher prices, or by both parties through the complexity and friction of negotiating change-in-law provisions. The option that looks free — the fixed-price FOB contract with no change-in-law provision — defers the cost to the seller in the event that the government acts, which in active export-tax jurisdictions is not a remote possibility.
Export taxes on commodities are typically the seller's cost under FOB terms. When an export tax is introduced after contracting, who bears the increase is a contractual question.
A Pakistani cotton seller had contracted to supply 500 bales of extra-long staple cotton on FOB Karachi terms at a fixed price agreed in February. The contract was for April shipment. In March, the Pakistani government introduced a new export development surcharge on cotton exports, effective immediately. The surcharge added approximately $45 per bale to the seller's export cost.
The seller contacted the buyer and requested that the price be increased by $45 per bale to reflect the new surcharge. The buyer declined — the price had been agreed, the contract was fixed, and any cost increases on the seller's side were the seller's responsibility under an FOB contract.
The seller's position: the export tax was a government action beyond their control, analogous to a force majeure event, that had changed the cost of performance. The buyer's position: the FOB price was the delivered price at the ship's rail, all costs to that point being the seller's, including any government export levies that the seller chose to accept.
In English law and under most commodity contract frameworks, the seller is correct in principle that export taxes are a seller's cost under FOB terms. Whether a newly introduced export tax qualifies as a force majeure or change-in-law provision that allows the seller to adjust the contract price depends on the specific contract language. The cotton contract in this case had no change-in-law provision.
The seller performed the contract at the original price, absorbing the $22,500 additional export cost on 500 bales. Their margin, which had been adequate at the time of contracting, became negative. They delivered anyway because their only alternative was breach of contract, which would have produced a larger claim.
Export Tax Risk Under FOB Is Structural and Cannot Be Managed After the Fact
Under FOB Incoterms, all costs and charges to put the goods on board the vessel at the named load port are the seller's responsibility. This includes export customs duties, export taxes, export levies, and any government charges associated with obtaining export clearance. The buyer's cost begins at the ship's rail.
This allocation means that any new or increased export tax introduced after contracting but before shipment is the seller's cost to absorb — unless the contract contains a specific provision that allows price adjustment for changes in export taxes. Change-in-law provisions — clauses that allow contract price adjustment when applicable laws or taxes change materially after contracting — are included in some commodity contracts but are not standard in most commodity trade forms.
In markets where export taxes are politically active — where the government has a history of adjusting export levies in response to domestic supply conditions, currency pressures, or revenue needs — sellers who enter fixed-price FOB contracts without change-in-law protection are accepting the risk that the government will increase export costs after the price is locked.
Industry estimates for the frequency of export tax changes in agricultural commodity exporting countries suggest that major adjustments to export levies occur across multiple commodity classes in emerging market exporters over any three- to five-year period. Argentina's system of retenciones — export taxes on soybeans and other agricultural commodities — has been adjusted multiple times with commercial impact on outstanding FOB contracts. Indonesia has periodically modified palm oil export levies. India has imposed and removed export restrictions on rice and wheat with rapid implementation timelines.
The Protection That Requires Pre-Contract Negotiation
A seller in a jurisdiction with an active history of export tax adjustment who enters fixed-price FOB contracts needs to consider either: pricing the export tax risk into the FOB price (charging more to compensate for the risk of levy increases), building change-in-law provisions into the contract (which buyers may resist), or matching contract duration to the period of export tax stability that can be reasonably predicted.
None of these options is free. The commercial cost of managing export tax risk is borne somewhere in the transaction — either by the seller through reduced margin, by the buyer through higher prices, or by both parties through the complexity and friction of negotiating change-in-law provisions. The option that looks free — the fixed-price FOB contract with no change-in-law provision — defers the cost to the seller in the event that the government acts, which in active export-tax jurisdictions is not a remote possibility.