Update on the Trade War with China – May 2019 [Full Webinar]

hi folks welcome to our latest webinar may 2019 tariff update I’m Nick Esposito TR G’s business development manager and I’ll be your host today presenting with me today is Greg Cummings managing partner of Strix and license customs broker many you recognize them from the previous tariff webinars this webinar is being presented by both Strix and TRG we’re located in the heart of downtown Bozeman if you ever in town don’t forget to stop by our shared office space on the second floor of the historic rockin our Barre building both companies operate on a direct importer business model that is unique to the international trade community as an import disclaimer the information presented in this webinar is for information purposes only and is not intended and does not constitute legal advice we’ll be recording this webinar it will be available on YouTube for future reference to be notified the moment it releases and to keep a pulse on TR G’s educational videos I highly recommend you subscribe to the YouTube channel there should be a link in the chat box right now if you have any questions during the presentation submit them via the questions section the webinar interface will review the questions and either answer them at the end of the webinar or shortly afterwards any additional questions can be sent to us at our emails there’ll be a slide at the end of presentation and now let’s hand it over to Greg to kick off the webinar all right Thank You Nick we’ve got a number of important topics today of course that are in the news we’re going to talk a little bit about the current state of tariffs potential section 301 action against the EU current negotiations with China and list 1 exclusions as they’ve been coming out for for section 301 so what’s our current state of affairs I think this about sums it up things just when you think they’re going to get calm and they’re going to change they catch fire again spontaneously combusts so we’re all staying tuned to the current state of Twitter in the middle of the night to see just how our world is going to be affected the next day you know it used to be you tell people you were in the import business and you’d get kind of a yawn sigh and they’d kind of slink away to the bar but now we’re as popular as anyone has ever been out there so stay tuned what’s happening in 232 well if you went home Friday night and sat down for dinner you found out very quickly that it was changing and as of Monday morning Canada and Mexico were removed from 232 sanctions and what’s been going on there has been some very important negotiations as far as the free trade agreement now called the U.S MCA and it’s been a very very important sticking point for both Canada and Mexico to have these restrictions removed in order for that free trade agreement to move forward so someone out of the blue we know there’s been a lot of negotiations going on but all of a sudden they are no longer subject to 232 so that’s hopefully meeting an important requirement that they have to move that trade agreement forward and will be of course staying close to that news to see how how much how quickly that can be arrived at also part of 2:32 are the ongoing review if you will on autos and auto part so they’re important piece of business to a lot of our clients out there today and this investigation goes back an entire year was begun in May of 2018 and in February of this year the DLC did report their findings to the President on May 17th just this week that decision was delayed for another 180 days so next six months we’ve got a little reprieve and during that time talks are going to be held with both the EU and Japan to see if there are some voluntary reduction in imports from those countries can be achieved but if we want to understand where this direction is probably going we take a look at what the DOC’s determinations were and what they showed and what they found was expected that our share of the domestic and global markets has fallen sharply in recent decades and that decrease in both revenues and research and development is necessary for a strong automotive technological division within our country and that points to national defense so again 232 is going at the national defense and depending on how these talks go over the next six months you can expect that something is

going to happen for sure if a voluntary reduction is not found now let’s talk about section 301 section 301 has originally been China-related we’ll talk a minute about the origins of 301 but today we have lists one two and three for China list one and two have to have been 25% they’ve been in effect for over a year or more close to a year and lists three I went into effect in September and of course as we all know recently moved from 10% to 25% the expectation and discussions on a list four have now become very much reality and some those lists have been released for public comment but we now have the European Union becoming part of potential 301 sanctions based on the recent issues and WTO rulings on Airbus and subsidies so let’s take a look at 301 for those of you who are you know certainly find themselves in a world of wondering where your subject TRG does have a really great lookup tool and that will be available to you I think Nick’s going to throw that up in the chat so you’ve got access to that link certainly we’ll send it out an email after this as well but it allows you to put that HTS code in see if you’re subject to a particular list and what the subsequent duty rates would be on that so really great tool really kind of you know makes your time much more streamlined than trying to talk and look them up yourself so section 301 the tariff action against the EU which would now come under 301 now we’ve had a lot of questions what is 301 where does it come from a lot of people thought that 301 was a generated executive move on China specifically and really 301 goes back to the trade expansion Act of 1974 and the US had just come out of a really tough recession slash depression there was an oil embargo and there was the perception that there was a lot of unfair trade practices being implemented against the U.S. so Congress gave executive power to the President to use section 301 to address these potential violations and if you had trade agreements with us bilateral multilateral and something was out of sync with your trade with us unreasonable unjustified discriminatory foreign government practices this is where we found ourselves with China and the recent discussions there but this is an executive privilege or allowance that Congress put in place to be able to increase tariffs against nations we felt were unfairly trading with us so the WTO ruling which goes back to May of 2018 showed that the subsidized financing to Airbus was found inconsistent with the WTO rules and was harmful to US interests so this is a WTO ruling this isn’t just something that we came up with to address potential issues with Airbus this is a WTO ruling so the U.S. requested authority to impose 11 billion worth of countermeasures the EU immediately challenged this but what’s happening right now is we’re waiting for the final decision by the WTO that’s expected this summer so in order to get the process started to set up for what we’ll do under 301 what the duty rates and reaction will be we’ve got a list out there okay and that list identifies eleven billion worth of products where duties will be applied and these additional tariffs are not 10% to 25% some of them could be up to 100% so it’s a very serious response to the subsidies of Airbus now electronic comments on these issues are due by May 28th next week we’ve got the docket signed up here showing you where to get to that on regulations.gov we also have an EU tool so you can you can take a look at whether or not your tariff codes potentially fall under an EU potential 301 and that will be

available in a post email from us as well as expected the EU is preparing retaliation and they’ve got their own list out there what’s interesting is you know this all started with perceptions of subsidies being given to Airbus now the EU has their own view that the U.S. is providing subsidies to Boeing so they’re going to provide a tariff response if you will up to 100% but of course you know as as happens in a tariff war we quickly leave the specific industries that we’re involved in and you’ve got you know everything from fish cheese agricultural goods vegetables wine you know everything else is going to become part of this war so not just imports from the EU but expected those of you who are involved in exports to the EU will become subject to their response so not likely to be a very positive outcome there so let’s talk about 301 as it relates to China on May 10th when the talks broke down and we could probably have a webinar on what happened there but essentially the U.S was prepared to sign a deal which they believed they had a very straightforward framework for and when China showed up they had removed most of the important items and said you have to trust us it’ll take some time but we’ll get these things in place over time and you know we’re all smiles and isn’t this going to be great and of course that broke the talks down almost immediately so we find ourselves moving to 25% as well as adding an additional list four and one of the important things we’ll discuss here is those of you who did have goods on the water how to respond if you can get those goods to arrive here prior to June 1st the goods will still report it under the HTS codes ending in 8803 and 8804 and for those of you who are wondering about 8804 this was thrown out there to actually cover exclusions from three so if you if you are on list three but had an exclusion you would use the o4 tariff code to not be subject to those duties what we found is that now everything that was currently available for exclusion under the 0499 ending and 04 tariff code was now completely in completion added to the new potential list four so we’ll have to wait and see of course when that’s implemented but it’s likely that using the 99 0388 04 will be what will be used for list four and so goods enter for consumption or withdrawn from warehouse on or after 12:01 on May 10 are now subject to 25% duties talking specifically about goods in the water and this was a really nice give to the industry and one I think you know we can all feel somewhat good about in a tough environment but you know if you’re an importer out there and you went to market you bought goods with the expectation of a ten percent tariff and all of a sudden very quickly the tariffs change it could have been subject to contractual arrangements which would have turned those deals upside down so it’s been a very nice gift to at least allow for goods on the water prior to May 10 arriving before June 1st to continue to be subject only the 10% tariff so thankfully customs of course who had to respond to the USTR ruling had nothing in place to do that so we had to wait a day or two for them to come out with the 99 ending an 09 tariff which allows for those Goods to remain at the 10% rate now something really important here because everyone everyone tries to beat the system where they can and it’s important to note that you know let’s say your goods are going to arrive on Monday the 3rd of June but you’re going to make your entry on June 1st because you want to be subject use the 09 and be subject to the 10% tariff what’s gonna happen is the custom system will take your estimated entry date and they will update it based on the conveyance of arrival so if your goods are arriving pose to June 1 you’re not going to be able to beat it and if

you do if you try to enter data at the 10% rate the system will catch it they will update it and you will receive a supplemental duty bill we know this because it’s already happened but that’s how the system works I know it’s not perfect but it’s in place for a reason otherwise everyone could just you know create their own import date for goods that may not be arriving for another week or two so they can be tariffs so that conveyance of arrival when that ship docks enters in the manifest its arrival and that then becomes part of the system so be careful you know and understand what will happen if you try and do that you will be caught all right the list three exclusion process we’ve had a lot of people asking about this and we still have yet to get an official notice on list three exclusions but we expect that that process is going to follow the same procedures we’ve seen for rounds one and two and list one and two okay so we’ve covered this in some previous webinars but we don’t expect that to be different also on the other side a lot of questions we have or when is this thing gonna end and when you start to see exclusion processes be rolled out first of all exclusion processes aren’t fast and we’ll go over that in a minute so you can see what’s been going on with list one too so far but China has also produced their own exclusion process so it really tells us that China is not looking to perhaps get to a remedy anytime soon if at all and we can you know I think be assured we’ve got another year and a half of this via the same the current administration but China doesn’t seem to be coming to the table quickly they’ve decided to take a long view on this and so I don’t think we’re going to see remedies quickly now I would love to be wrong and when 232 ended very quickly for Canada and Mexico you know if things have happened fast things can unhappen fast so we’ll continue to hope for the best but it really looks like both sides are hunkering down so May 14th USTR announced preliminary list for list four essentially this list covers just about everything else that hasn’t been included to date 300 billion dollars of imported goods doesn’t state the exact tariff that’s going to be assigned to it the assumption is that it’ll be at 25% probably not going to start at 10 and move to 25 they’re gonna probably start it right there on 25 and it includes everything from toys apparel home goods shoes Nikes unhappy electronics apples unhappy so you know it’s hitting just about every important business sector that’s out there if you’ve got a country of origin of China now what’s really important there is a there is a time period now when you can file requests to be excluded and the due dates and the process for doing this we wanted to go through because the time to do this is now if you want to wait and enter the exclusion process you’re gonna see that those dates are not exactly short and you’re going to be stuck paying duties for a long time while you wait and hope to get through the exclusion process so get on this now if you can the first date is June 10th that’s for filing a request to appear a summary of the expected testimony that’s going to occur at the public hearing June 17th is the due date for electronic submission of your actual written comments okay I’m gonna tell you get it done earlier than that if you can because on June 17th the committee is going to convene public hearing for U.S International Trade Commission and the due date for the submission of the post hearing rebuttal comments is going to happen within seven days so if you want to have an impact right off the bat get on top of this so the comments the specifics to put this together get the specific tariff subheadings that are going to be subject to the increased duties including whether your sub headings are listed in the annex should be retained to remove whether or not those subheadings are currently on the list should be added okay the level of

the increase in the rate of Duty and the appropriate aggregate level of trade that’s going to be covered by the additional duties when you’re commenting on the inclusion or removal of particular and for those of you are wondering about the semantics I’m using you can make comments on including okay if you are a US company that you believe you’re being harmed by China and Chinese production you would you would ask for certain duty rates or certain HTS to be included you know those most of us I think on the call are looking to to get them removed but the public comment allows you to go both ways so when you set up for your comments you must set out specifically whether imposing increased duties on a particular product would be practical or effective to obtain the elimination of Chinese accent policies and practice okay is what the USTR doing gonna be effective for the products that you’re involved with and whether imposing additional duties on a particular product would cause disproportionate economic harm to US interests you including small medium-sized businesses okay so okay we’re doing this for a reason we’re doing this to try to get China to come to the table and take away some of their unfair trade practices if in doing this are we going to disproportionately harm US business your businesses and the people that you are serving you want to be able to demonstrate that demonstrate it clearly okay very important here’s how you submit the comments and again you’re gonna get you’re gonna get an email with this presentation so you know you don’t have to feverishly write this down right now but you’re going to go to the regulations go page enter the docket number and click comment now okay your submissions have to be in English and sent electronically through the regulations.gov website regulations.gov will allow your user to submit the comments by filling in the comment field or you can attach a document using an upload file field okay you’re gonna see this when you get in there it’s pretty straightforward there’s a preference you submit the comments an attached document and it’s efficient if you just type in see attached in the comment field to so that they’re looking for that and they would prefer the submissions to be in Microsoft Word or a searchable Adobe PDF okay so let’s make it easy on them you know to do what’s preferred and do it in a comprehensive manner so hopefully you can get heard now the speed at which tariffs travel you know as we look forward to the likelihood of a list four how fast can we expect an implementation after the comment period so here’s the history list one first round of comments ended on April 23rd the effective date was July 6th okay the first go-around on this it was we had a little time okay List two much smaller list so there was only 31 days in between the comment and the effective date and list three much larger the largest list to date first round of comments on August 13th we had 42 days till implementation there so expect something between the 30 and 45 day range if history is the same list four will be larger than even list three and as we all remember when we went through this last fall there was a rush to be list four so you can expect the same this time and we all know how tough it was to get containers and get things moving so start now get the goods moving now take a look see if you’re on list 4 and make sure that if you are you are planning and you’re planning now also as we’ve said in the past what are your contractual agreements with your suppliers with your manufacturers do they take into account the potential of added tariffs okay we’re seeing this now in China and so you know times kind of up there because everything’s happened but now it’s stretching to the EU if auto parts come about will that stretch between Japan and the EU so you know be smart with your contractual arrangements put a clause in there that if there is a move to increase tariff rates that your pricing will move in line with those rates another very important thing is bond sufficiency get prepared for an

increase we’ve got we’ve got a dual hit that’s happening now we’ve got both lists three going to 25% from 10% and we have a new list four that’s likely going to come out and probably start at 25% so we saw a huge impact when especially list 3 came out so any increase to the duty rate that you OC BP is going to have a large impact on the sufficiency of your bond especially if you started at 0 then moved to 10 and if and if most of your business comes with a country of origin of China it’s going to be a big deal so you got to keep a close eye on that contact your bond provider if necessary so you can get an idea what to expect because if your bond is deemed insufficient by customs you’re not going to be able to import or there might be a delay you being important you don’t want to have to get single entry bonds and stack those up just to get your goods moving here’s what we’ve seen the impact on bonds sufficiency’s and the increases that have happened as the lists have rolled out started off kind of small with lists one and two because they were not as comprehensive as list three once list three came out tons of insufficiencies came out of customs and a lot of people had to increase their bonds so things have been kind of quiet for a while but now that list three is moving to 25% and list four is on the way you know take a very close look at what you bring in take a look at what your experience has been tariff wise not even for the past year but really for the last 3 months for 2019 in particular because that’s going to tell you and show you how to annualize what the likely impact is then add in the additional 15% of your goods our own list four and also list three and also take a look at how you might you’re likely to be impacted by list four if you know we could do an entire webinar on bonds sufficiency as well the good news is there’s a great YouTube out there the TRG has put out talks to you about what bonds sufficiency is how tariffs impact it and what will happen to your customs bond if it is insufficient very important what stacking liability on a customs bond okay understand that because in this dynamic environment going from 10% to 25% means you may have a bond in place if you put that bond in place at the beginning of the year and have any entries on it then that entire bond is viewed by the surety to be at risk so if you receive an insufficiency notice you must now increase your bond amount essentially put a new bond in place that will add and stack that liability within a one-year period bonds that exceed a hundred thousand dollars in value are likely to be reviewed and underwritten because it’s a greater risk and believe me surety is the next group of our supply chain that’s going nuts right now because you’ve got essentially eight hundred billion dollars of that now has 25% liability to them potential total liability it’s a lot of liability they are very edgy underwriting standards are increasing they will look very closely at your financial wherewithal to be able to to pay all of your duties now in this new environment and most importantly to be able to support the bond amount that they have outstanding with you so in some cases if you’re not deemed to be financially strong enough they’ll ask for collateral be prepared in the worst case scenario if collateral is asked of you already have that discussion with your banking understand what you would need to put in place and how quickly you could do that because if they deem your bond insufficient and it’s required collateral that just doesn’t happen in a couple of days banks don’t move quickly and they certainly don’t understand our industry as well as they need to so it could take a week or two at which point you could find yourself without a bond bringing in product so take a look at that another important part to the bond sufficiency and how liability

stacks up is your liquidation and we’ve been putting this up there and keeping a very close eye on this as the different lists have come out because how long it takes for your entry to liquidate is part and parcel to the risk that the surety maintains on that so if we can see a trend where liquidations are happening more quickly it’s a good thing and here’s what we saw you know prior to the lists coming out you had your normal liquidation day 327 days as the lists have come out thankfully we’ve begun to see a shorter number of days to liquidation now I can’t tell you that this is communication that has come out of customs that they have made this a priority and something that they’re doing this is just what we’re experiencing so we’re letting you know that hopefully that is helpful to us and hopefully that continues and they were liquidate our entries more quickly we we found also data on the 301 lists began at 330 and we’re seeing those some one the 135 day range so again not bad hoping for the best hopefully accelerated liquidations will continue to play a part in what’s you know very unruly environment so what’s next of course everyone’s asking us that well hey what’s what’s going on Greg are things gonna end soon no they’re not going to end soon both sides have moved from negotiation to really not having any talk scheduled right now China in particular is moving towards a much more aggressive stance with us there they’re putting up their dukes and and and when you take a look at some of the rhetoric that’s happening within Chinese media have been very close very careful not to include the words trade war okay recently that’s changed and we’re starting to see that very much become an internal communication to their country you know the U.S. is bad they’re they’re treating us poorly there’s a trade war on think they had a they had a karaoke song out this week which went viral so they’re digging in their heels for what appears to be a long fight and there’s a lot of there’s a lot of pundits out there that have talked about you know what really was happening with especially once list three came out was the was the Chinese negotiation tactic nothing more than just trying to draw out the current administration as long as they could because they never had an intent of changing their laws internally you know we’ll probably never know but that’s some of the some of the information that’s coming out these days you have U.S. recent blacklisting of Huawei that began actually from an entirely different direction based on sanctions with Iran and it was deemed that the particular Huawei executive who’s in custody in Canada was doing some end-around banking to Iran to sidestep the the sanctions so that was the original reason for her to be taken into custody and have a warrant out for her arrest the rest of the issue with Huawei is with their 5g network and the fact that they believe that it’s a straight shot to the Chinese government to eavesdrop and steal secrets from us so Huawei is being hit very hard right now the the original issue that came out on Friday was kind of put on hold for about 90 days but you can expect after 90 days that we’re gonna go back to barring US companies from doing business with Huawei so it’s a big deal everyone from Apple to our chip companies do a lot of business with them and that’s kind of the reason we want to hurt them and keep them from being able to the way they have in order to get some relief so lots of again pundits out there talking about how much they rely on us for technology and you know what does it mean for us to challenge one of China’s most successful companies talks

have stalled there’s been talk about talks but China doesn’t seem to be in a rush to restart them China the you invited a US delegation to Beijing Steve minuchin is open to the offer no schedule is said but it’s uh you know they are coming from the position that they’re being held hostage by us and therefore they don’t want to continue serious trade negotiations under that kind of scenario so it’s tough to it’s tough to say what’s gonna break that potential good news although not many people are feeling like this is going to really amount to anything but the G20 is coming up next month both president Xi and president Trump will of course be there believe it’s held in Japan this year and no doubt they’re gonna sit down and do something try something but that’s kind of the next expectation on when we’re gonna see any talk so in the meantime likely list four is going to move through the comment period and start to have an effective date so unless real concrete things are discussed at the g20 and there’s a there’s a positive outcome from that I think we can expect things to move forward as they’ve been rolling out right now so you know we talked a little bit about exclusions and we want to make sure that that everyone takes the comment period for list for very seriously and gets involved early because exclusions are somewhat few and far between and they also take a long time to happen so we’re still looking at list 1 exclusions there were 10,000 requests 6000 denied but 1,900 have been granted so analyst 1 there was a fair number almost 20% that were granted so there’s still some some being reviewed out there but we’re talking about a list that began well over a year ago okay so lots of time involved the different dates for exclusions and the addition to that list December 28th March 25th of this year April 18th for round 3 and list one exclusions in May 9th for Round four so they’re available if your product fits the product description regardless of the importer so if an exclusion is granted under an HTS it’s not specific to you the importer it’s for everybody so you know kind of like crowdsourcing one person does something well we all get to benefit from it from it now list two a much smaller list only 2900 requests were received for that 956 been denied outright but nothing has been approved yet okay so list three it didn’t follow list one I’m sorry list two didn’t follow list one that far and we’re still a year forward and nothing’s been granted so if you can make comments on four and not be included that’s really going to be the best approach so know again what can you do stay informed we’re going to continue to come out with webinars as things change we can’t things change so fast we can’t hit them all so we’ll try to be inclusive of everything that happens but stick to as I’m sure many of you are the different new sources that are providing us USTR directly with the government as well keep in mind as always CBP is our friend we are in partnership with them they are the enforcers here reluctant as I’m sure if you talk to many of them they don’t want I mean this is a huge amount of work for them this thing is complex it’s lists there’s you know additional ways you’ve got to set up and do entries CBP doesn’t want that they never wanted it they are just the place that enforces it so they’re going to go by the book and by the regs and that’s all they’re doing you know it didn’t start with them so they’re let’s view them as our continued partners because look we want to get our goods in here so let’s do things right where we can if you’ve got specific items or questions complexities that you want to discuss with us directly you can give my team a call course Strix is a customs broker as well as a self filing software provider so we cover a lot of ground

there and we can help you on an individual basis if you’ve got some things that you know that you can’t get to yourself more tariff questions send them through to Trade Risk Guaranty we’ve got a resources link there again this will come out of course in the follow-up email today and you know kind of a follow up we covered kind of everything we think is in the current news list hopefully that won’t change too much over the weekend who knows but we want to want to hit a couple of questions that we’re coming through to us and I think this is one that’s that’s interesting and kind of reflects the sentiment out there the president keeps saying that these tariffs are hurting China as I see it we are the importers and we’re paying the tariffs so how does this hurt China and I think that’s I think that’s well said semantically because when we see a tweet or we see a soundbite see the president saying well hey China’s paying for it there you know like they’re paying the tariffs now there’s a bit of complexity to that and there is a bit of that going on one of the things that they did do was they devalued their currency by almost 8% especially when list three came out so it was deemed that that devaluation covered a bit of that cost we’ve also seen quite a bit of manufacturer participation in lowering of prices to cover that now does that mean they’re actually paying for it well it means that they’re absorbing it somewhat but at the end of the day when the goods come in it is you the importer paying that tariff look what the administration is trying to do is to actually see a reduction in imports of these Goods and items so China’s economy suffers and they they have to face their people for jobs and they don’t want to see their companies moving to other countries that are not subject to this and they’re seeing a lot of that too they’re also seeing a changing and sourcing so you as importers probably the first thing you did was you went out and you said okay well if I can’t get it from China where can I get it where I’m not subject to these duties and so yeah it is hurting China I mean we saw 25% reduction list three items import wise moving into the first quarter this year it’s having an impact there’s no doubt it is but they’re likely not paying for it you know what what we will probably see is list three items as they roll up to 25% list four items that they begin at 25% you and I are gonna pay a higher price it’s gonna happen at the retail level because you view as importers have to pass that on so I think you know there’s going to be pain in a lot of areas I have another question you know what what is if you’ve got a lot of exposure to three and potential list four what can I do you know where can I we’re gonna get to a database where I can see if I’m subject or not and we cover a couple of times today tools that are available through TRG for you to simply type in your HTS and see if you’re subject to a list so it’s a really great quick way to do that and we would suggest start doing that as early as possible so you can fully understand what the impacts going to be to you from a landed cost point of view you want to know that as early as you can because pricing to your suppliers here the people you’re selling to here could be greatly affected you know if you if you come out and you throw the entire 25% on the cost what’s going to happen it’s gonna happen to your orders are they gonna be the same volume are they going to reduce you want to know that as soon as possible the the elasticity of pricing out there is going to be greatly tested here thanks again for joining and we’ll talk to you again soon any questions reach out to Gregory you could reach Greg at inquiry@strixsmart.com or myself at Nick.Esposito@traderiskguaranty.com thanks again