This article was written two weeks before its publication, a very risky thing to do in these rapidly and radically changing times. Nonetheless, I will share a few thoughts on what I think we are learning in the COVID-19 environment and where we might go in future in a limited area that our firm has addressed for four decades: international trade regulation and compliance.
Supply Chain Options. Companies diversifying their supply chains may see an increased role for Latin American and African operations.
A highly publicized lesson from the Pandemic is that companies are at great risk if they are dependent upon one supplier and/or one country for its products, components or materials. The shut-down of Chinese factories and ports brought the press and business community to refocus intensively on issues long-talked about: over-dependence on China and movement of manufacturing away from the US.
Prior to the COVID-19 pandemic, supply chains had already begun to shift from China in response to the high tariffs placed on Chinese goods (15 to 25%) as well as increasing Chinese labor costs. Companies moved some or all of their production to other countries in the region (e.g., Vietnam, Cambodia, Laos, Malaysia, Bangladesh).
The Pandemic experience suggests that keeping all production in one “region” (ie., countries bound together by geography as well as interconnected economically and socially), may not sufficiently protect the company. Tariffs can target specific countries; viruses do not. Viruses are more likely to affect many countries within a “region” and less likely to affect (simultaneously) those in other “regions”.
In the post pandemic world, this new reality could be a springboard for more corporate interest in alternative sourcing and distribution based in Latin America and Africa. Of course, that opportunity is is challenged by the unknown: will late eruption and spread of the virus in Latin American and African countries dissuade decision-makers from considering those markets --- and the known: will those countries be able to convincingly demonstrate the stable economic, political and labor environments persuasive to corporate decision-makers.
Tariff and Revenue Policy. Protectionist measures --- high tariffs and Buy America requirements – will continue to grow and drive trade and revenue policy.
Those concepts dominated front page, network and internet discussions about the absence of sufficient PPE for US health care workers: the trade experts in the White House strongly stating that dependence on foreign products is the problem and that “Buy America” is the solution. They also overrode even a minimal relief proposal for importers: extending the due date to pay duty (not to reduce or cancel duty) for 90 days. While the Administration approved a 90-day delay for US taxpayers to pay our most significant revenue source (IRS taxes), it rejected a 90-day delay for US Importers to pay duties, a far less significant revenue source, saying that all duties should be paid timely despite the economic pressures of the pandemic. Before rejecting the delay, it also indicated that a 90-day delay would not be available to ease collection of the “trade war” tariffs (e.g.,anti-dumping, countervailing duties and the 10%, 15%, 25% and 50% duties on products like steel, aluminum, washing machines and virtually anything from China).
In the post pandemic world, will the policies for driving high tariffs remain a tool that smothers and overwhelms the economics of imports, or will we embrace policies encouraging two-way (fair) trade? It appears that protectionist concerns have new momentum and companies will revisit revenue saving programs: tariff reclassification, lowered dutiable values (including first sale appraisement programs), use of preferential programs, duty drawback, foreign-trade zones, bonded warehouses, etal.
Automation: Finally eliminating Paperwork. Our import/export processes are not nearly as well-automated as they need to be.
Original paperwork still needs to be physically presented and filed for too many import and export transactions, often affecting products that are sensitive to delays, and typically regulated by agencies like USDA, Fish & Wildlife – and not just CBP. Efforts to eliminate required paperwork temporarily or permanently – even in the COVID-19 environment --have failed, or been too slow, or have included too many exceptions.
In the post pandemic world, we have a great opportunity to totally (or substantially eliminate) those archaic 19th century requirements.
Automation: Make it Automatic. Our automated systems are not flexible enough to accommodate timely (much less immediate) changes.
Decisions to grant exclusions from the high tariffs (e.g., 25% on Chinese goods) require CBP computers to be reprogrammed to issue refunds of past payments and to accept new importations without depositing the 25% duty. As a result, importers thinking they had been granted “relief” were required to wait months to get refunds, and even more egregiously, were required to deposit the 25% duty on new entries ….. with no specific timetable for refunds. Similarly, some industry experts estimated computer programming for the proposal of a 90-day delay in duty payments would take at least 60 days to implement, eroding if not devastating the intended benefits. The painful, costly and lengthy processes required to obtain or implement relief might be bearable in good economic times, but are unbearable when corporate survival is at stake.
In the post pandemic world, we will have great motivation and experience to revolutionize automation, allowing relief efforts to truly provide relief (as well as new enforcement efforts to provide true enforcement).
Information for the Trade. We are not nearly as well informed as we need to be about the regulations that govern our imports and exports.
Regulations are changed daily by over forty (40) federal executive branch agencies, Congress, federal and state courts and -- most recently -- Executive orders and Presidential tweets. How can anyone efficiently, timely and reliably find the information needed to comply with the law or take advantage of incentives?
Information is available today, if we can find it reported somewhere in the huge volume of public of varying origin, scope, timeliness and reliability. Businesses cannot begin each day by checking each of the official sources, nor can they check (and validate) the huge variety of unofficial sources that have exploded on the internet with its overwhelming and confusing variety of offerings by data-based companies, service providers, associations, bloggers, etc. We are all challenged to determine if our sources are complete or incomplete; factual or interpretative; timely/late/out-of-date; true or fake?
Websites. In the current environment, many websites provide basic information on the new developments coupled with links to the official documents. World Trade Center Miami recently moved significantly in that direction on its website, providing COVID-19 Alerts, Resource Links and Small Biz info to its website. www.worldtrade.org. Our firm provides similar one-stop website services on Tariff Resources (information and deadlines on all US tariff increases and retaliatory tariffs by other nations on US exports during the Trump Presidency) and a “COVID-19 Trade Impact Resource” page. www.strtrade.com. These two websites that complement the thousands of others that businesses are able to navigate in search of the information which directly affects them.
Electronic Newsletters. Newsletters issued on a daily basis pop into inboxes, with information of President Trump tweeted on a Friday that duty on Turkish steel would increase from 25% to 50% effective on the following Monday. Our firm for decades has issued a newsletter on import/export regulatory issues (delivered first by snail mail, then by fax and now by email to 30,000 subscribers). Each business has increasing needs for that immediate information, and must find reliable, timely sources for the information pertinent to their businesses.
In the post pandemic world, will we seize the opportunity to develop information systems which bring relevant and accurate information to affected businesses in a timely and reliable way, and create reliable ways to navigate the internet sources as they continue to multiply.
Information within the Government. Federal agencies have information problems as well. The agency that creates a new rule (USDA FDA, CPSC, FEMA, etc) often doesn’t involve or inform the agency that enforces it (CBP). Most recently (in response to COVID-19) FEMA adopted, effectively immediately, new rules prohibiting export of certain medical supplies described in a way that CBP could not use its existing automated information systems to identify shipments with the prohibited goods, but would be required to detain, inspect and delay the export of a broad range of legitimate exports. The rule was developed with good intentions, but without good intra-government communications needed for effective and efficient implementation.
In the post pandemic world, will we infuse our policy decisions with the intelligence of the operational experts to assure that we adopt programs that can be implemented and allow them to be developed and implemented successfully.
The Pandemic has forced us to rethink our lives and businesses. Hopefully those thoughts will evolve into actions creating positive improvements from this shared, historic and shattering experience.
For heavily trade-dependent locales like South Florida, COVID-19 has been devastating. The state’s $154 billion in merchandise trade (along with $86 billion in tourism) will quickly become relics of the past. Our major trading partners in Latin America and the Caribbean have yet to feel the brunt of the Coronavirus but are expected to see regional GDP contract by nearly 2%, although that is a conservative estimate.
In terms of a post-COVID19 trade environment, we must heed the lessons of the current debacle—the most important being that just as a supply chain is the lifeblood humanitarian assistance, so it is for trade and commerce. Going forward, it behooves every company in the supply chain process, from manufacturer through distributor, to objectively evaluate possible vulnerabilities in their systems and procedures—including in the remote possibility of a “black swan” event like COVID19.
Additionally, “resilience,” “flexibility,” and “agility” are meaningless buzzwords if they are not incorporated in a firm’s business strategy. The continuous assessment and response to risk, incorporated into an integrated and transparent digital supply chain system, is essential in global supply chain management. Finally, producers and distributors would do well to rethink the cost-benefit calculus of inventory management. Having more than sufficient finished goods and/or parts in stock may increase carrying charges; but as we are seeing with hospital ventilators, masks, and personal protective equipment, the costs could be greater not to maintain buffer stocks of excess inventory.