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Attorney: Businesses Should Prepare For Trade War Impacts

By Christina Haley O'Neal, posted Aug 22, 2018
Teresa Polino, a partner in the International Trade Group at Arent Fox LLP, gives a presentation during the N.C. Foreign Trade Promotion Council on the trade war and tariffs. (Photo by Christina Haley O'Neal)
Businesses, whether currently impacted by the status of the nation’s trade war or not, should be keeping an eye on the evolving tariffs situation between the U.S. and other countries.

That was the message during N.C. Foreign Trade Promotion Council’s (FTPC) business breakfast Wednesday. The morning presentation on international trade and tariffs was held in front of a group of more than two dozen community, business and real estate leaders at Cape Fear Country Club.

"If you think [tariffs] will not affect you, you're probably being miss informed," said John Hayes, executive director of FTPC.

Making a product is one thing, but selling it to a foreign country is another, and the current foreign trade situation in the United States is making doing international business a little more complicated, Hayes said.

"The whole concept of trade wars and what we are standing for, the FTPC is here to help any organization -- the county, state, private organizations -- to become more successful globally,” he said.

And that is why Hayes brought in Teresa Polino, a partner in the International Trade Group at Arent Fox LLP, with offices in Washington D.C., to talk about the recent tariffs and what businesses should consider doing to be prepared, he said.

Tariffs on steel and aluminum took effect earlier this summer. The Trump administration imposed a 25 percent duty on steel and a 10 percent duty on aluminum, Polino said.

“The question is, what happens?" she said. “In most cases, [the importer] is not going to be able to absorb all of this.”

These tariffs' effects can move up the supply chain, Polino said.

There are exemptions that can be made through a request of the government for some businesses that are not able to get the quality or quantity of steel or aluminum they need. But, Polino said, “the process has turned into something of a nightmare to tell you the truth."

In addition, the Trump administration has also launched an investigation and discussion on tariffs for the imports of automobiles, auto parts and uranium. The investigation has launched pushback from car manufacturers across the nation, she said.

"Having seen what the administration did with steel and aluminum, I think the auto folks woke up and came forward, and they have been quite vocal in their objection," Polino said.

With the United States' actions, other countries have launched their own retaliatory duties on domestic goods, she said. 

"The world doesn't just sit there and let our president, or the administration, do whatever they want. There are mechanisms where ... they can take action. Now we're talking about U.S. goods ... maybe finding it more difficult to get into countries that have implemented these retaliatory duties as well,” she said of the nation’s current international business climate.

The list of the country’s major trading partners that have implemented retaliatory duties against the U.S. in relation to its tariffs on steel and aluminum include Canada, Mexico, the European Union, China and India. And the list of goods varies for every country, but those duties are strategic to target the U.S. economy, she said. 

On top of the retaliatory duties implemented due to the U.S. tariffs on steel and aluminum, China has imposed several rounds of actions on U.S. exports. These goods include a wide range of products.

For every U.S. action, the Chinese have reacted, resulting in the current trade war situation.

Chinese tariffs on $34 billion in goods from China are currently in effect and tariffs on an additional $16 billion of Chinese goods will take effect Aug. 23. Another round of tariffs are being investigated.

The government has also implemented an exclusion process for these tariffs, she said.

This month the Office of the U.S. Trade Representative (USTR) scheduled public hearings on the implementation of tariffs on $200 billion worth of Chinese goods, according to the USTR. The next is scheduled this Friday in Washington D.C.

"China has been responding, it's just kind of a tit-for-tat thing going on ever since this all started,” Polino said.

On Wednesday, national news outlets also reported that the United States and China were set to take up dialogue in its trade negotiations.

Between the different tariffs, there is a lot for businesses dealing in global trade to consider and some may not know where they land in the tariffs' “domino effect,” she said.

Polino said there are some legitimate ways to mitigate or lower the duties. Those opportunities lie in special provisions, duty refunds or drawbacks and through Foreign Trade Zones (FTZ).

Southeastern North Carolina is included in FTZ No. 214, which is a 22-county zone that has five magnet sites, including the Port of Wilmington and Wilmington International Airport.

A Foreign Trade Zone "can be beneficial. There are a number of things you can do in a Foreign Trade Zone," Polino said.

There is no duty assessed at the time a good comes into an FTZ, she said. A business can store goods there for distribution or manufacture. Duties are paid when the goods move from the FTZ and into U.S. commerce, she said.

There are also benefits in exporting goods out of an FTZ to avoid some of the special duties, she said. These are just some of the ways a company can utilize an FTZ to “achieve some savings,” Polino said.

But the mitigation efforts a company takes are specific to its business, she said.

"Now we know this administration means what they say and they are taking these actions and they might last ... so people need to definitely be more proactive," Polino said.

And depending on where a company sits in terms of the supply chain and what business relationships its involved in, a company might have more or less control over how the trade war and tariffs situation impacts the business, she said.

The best way to cope is to contact the experts or attorneys who can help firms sort out the effects of current or future tariffs and find ways to soften the impact if a business doesn't already have such experts already on its payroll, Polino said.

"There are opportunities to mitigate that ... not necessarily a silver bullet, it might not always work, but there are a lot of options," Polino said of her message to local businesses. "And so you need to explore [options] to see if any of them are going to work for you or which ones will work best for you."
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