Trade Agreements, Trade Wars and Trade Enforcement: How Clients Can Prepare for Coming Changes
Philip Gallas, Esq.
Nelson Mullins Riley & Scarborough LLP
The change of Administrations in Washington signals sea changes in global international trade. U.S. corporations—importers/retailers in particular—have come to rely on duty savings through free trade agreements ("FTAs") and trade preference programs in the sourcing and pricing of their products. Providing consumers with cheaper products has come through importers' strong reliance on the duty savings achieved through such FTAs as NAFTA, CAFTA-DR, Israel FTA, to name only three out of twenty U.S. FTAs currently in force.
Our President-elect has promised to revisit these trade "deals" to obtain better terms for the U.S. and its workers. He has promised to eliminate or renegotiate NAFTA, cancel the Trans-Pacific Partnership ("TPP") which was well on the way to adoption by its member parties, and cease negotiations of the Transatlantic Trade and Investment Partnership ("T-TIP") with the post-Brexit European Union. While these threatened changes cannot happen overnight, U.S. businesses have to start preparations to adapt to what is likely to come, in making strategic sourcing and costing decisions in face of uncertainty. Corporations and trade associations who have benefited from FTAs undoubtedly will mount a vigorous legislative battle to blunt these efforts to eliminate endangered FTAs, and may succeed—at least in part—in tempering what could otherwise be dire outcomes.
With the President-elect's threat of 45 percent duties on Chinese imports comes the likely response of Chinese retaliation that will target U.S. exports such as automotive parts, chickens and agricultural products for starters, based upon past experience. China (and other countries) also are likely to challenge U.S. attempts to alter these deals through World Trade Organization dispute settlement proceedings and seek significant damages against the U.S. Retailers like Wal-Mart may be forced to hike prices to consumers for many products on the shelves to offset higher duties.
Many U.S. companies may seek to rationalize their global sourcing with less reliance on China, exploring potential sources with even cheaper labor costs such as Vietnam. The more risk-averse companies may seek safe harbor in sourcing solely from domestic production where available, that could even lead to re-shoring of some lost U.S. production. With the possibility of U.S. production, however, we are nonetheless likely to see a decline in factory workers, as technology swiftly takes on jobs previously performed by human labor.
Meanwhile, U.S. importers will be facing stepped-up enforcement by U.S. Customs and Border Protection (CBP), pursuant to the Trade Facilitation and Enforcement Act of 2015. The Act assigns a new mechanism administered to combat evasion of Antidumping and Countervailing Duty ("AD/CVD") duties by unscrupulous importers. In addition to AD/CVD and FTAs, CBP's enforcement efforts will focus on other priority high-risk areas that cause significant revenue loss, harm the U.S. economy, or threaten the health of Americans, including: Import Safety, Intellectual Property Rights, and Textiles and Wearing Apparel.
As part of its efforts, CBP has begun putting a significant number of U.S. importers on notice of their ongoing obligations of compliance with customs laws. CBP's Regulatory Audit Division has notified these importers by letter to review their recent trade data and internal customs controls—a prelude to potential CBP audits, surveys and focused assessments.
Importers would be well-advised to promptly conduct internal review of their compliance with customs regulations, even before receiving such letters from CBP, since Regulatory Audit cites the Customs Modernization Act as authority for the proposition that importers have ongoing compliance obligations to exercise reasonable care in their customs transactions. By the time an importer receives such a letter, there will be little time in which to self-audit and submit prior disclosures to mitigate potential penalties assessable for errors. In this stepped-up enforcement environment, importers who pro-actively conduct self-audits on an ongoing basis to prepare for the eventuality of visits by CBP will find their efforts well-rewarded by a short visit and clean bill of health, thereby avoiding a protracted audit with potential for significant penalties.
International attorneys at Nelson Mullins can assist with internal compliance self-audit reviews, compliance manuals, preparation of prior disclosure submissions, training programs and legal assistance. For further information, please contact Phil Gallas firstname.lastname@example.org at 202.689.2994 or Buzz Burwell email@example.com at 864.373.2212.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.