Polsinelli's Deanna Okun: We tell our clients to ignore the noise around tariffs, look at details

Key Concepts:

• Tariffs (EU, steel, aluminum)
• Supply chain management
• Country of origin
• Customs valuation
• First sale rule
• Import of record
• USMCA (United States-Mexico-Canada Agreement)
• Tariff mitigation strategies
• Risk management
• Short-term vs. long-term planning

1. Navigating the Global Trading Order: Corporate Strategies

• Main Point: Companies are facing fast-paced changes in the global trading order due to tariffs and trade negotiations.
• Diana Okun's Perspective:
  • Advocates for ignoring the "noise" and focusing on the details of applicable tariffs.
  • Recommends a dual approach: short-term adjustments based on current deadlines and long-term strategies to secure the supply chain.
  • Emphasizes the need for coordination between the C-suite and logistics teams.
• Example: President Trump's delay of tariffs on European goods from June 1st to July 9th is cited as an example of the fluctuating trade landscape.

2. Legally Minimizing Tariff Payments

• Main Point: Companies are exploring legal strategies to reduce the impact of tariffs.
• John Cowley's Perspective:
  • Completely avoiding tariffs is unlikely.
  • Companies are primarily employing three strategies:
    • Passing the cost on to consumers.
    • Absorbing the cost.
    • Actively working to reduce tariffs.
  • If none of these strategies are successful, companies must re-evaluate the financial viability of importing specific items.
• Strategies:
  • Country of Origin: Determining how to confer origin in a country with lower tariff rates.
  • Customs Valuation: Closely examining customs valuation to potentially reduce it, especially by excluding non-product-related costs.

3. Tariff Reduction Strategies: First Sale Rule and Import of Record

• Main Point: Specific strategies like the first sale rule and renegotiating import contracts can help mitigate tariffs.
• First Sale Rule:
  • Allows importers to use the price of the first sale in a series of transactions to calculate customs duties.
  • Example: Goods shipped from China to Hong Kong and then to the US may be subject to tariffs based on the China-to-Hong Kong price, which is lower than the Hong Kong-to-US price.
• Import of Record:
  • Companies should consider renegotiating contracts to split costs and potentially reduce their tariff burden.
• Steel and Aluminum Tariffs:
  • Companies should assess the actual value of steel and aluminum in imported products.

4. USMCA and Tariff Mitigation

• Main Point: The USMCA agreement offers potential tariff exemptions for companies in the North American region.
• Diana Okun's Perspective:
  • Companies should examine whether their products qualify for USMCA exemptions to mitigate tariffs.
  • Many companies did not pay close attention to USMCA qualification prior to the implementation of tariffs.

5. The Impact of Uncertainty on Business Decisions

• Main Point: Uncertainty in trade policy is affecting companies' short-term and long-term planning.
• John Cowley's Perspective:
  • Companies are making short-term decisions to remain in business.
  • For longer-term capital expenditure (CapEx) decisions, companies need more certainty.
  • They are looking for something solid and reliable before making significant investments.
• Example: Container traffic from China to the US has not rebounded as strongly as expected, potentially due to ongoing uncertainty.

6. The Role of Legal Counsel

• Main Point: Legal professionals play a crucial role in helping companies navigate the complex trade landscape and develop risk management strategies.
• John Cowley's Perspective:
  • Law firms are working with companies to ensure they comply with trade regulations and find solutions to minimize tariff burdens.
  • Companies are seeking advice on tariff reduction strategies and risk management.
• Diana Okun's Perspective:
  • Trade law has become a more prominent focus for companies due to the increased complexity of the global trading environment.

Synthesis/Conclusion:

The global trading environment is characterized by rapid changes and uncertainty, primarily driven by tariffs and trade negotiations. Companies are employing various strategies to mitigate the impact of tariffs, including optimizing country of origin, customs valuation, and leveraging agreements like USMCA. Legal counsel plays a vital role in guiding companies through these complexities and developing effective risk management strategies. While short-term adjustments are necessary, long-term planning requires greater certainty in trade policy.