navigating a challenging trade environment · 2019-10-17 · international trade compliance ....

Navigating a Challenging Trade Environment

Jessica Libby, Managing DirectorOctober 2019

2019 ISM – Twin Cities Conference

2© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 896647

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of Section 10.37(a)(2) of Treasury Department Circular 230.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Notice


Dated material

The material contained in these course materials is current as of the date produced. The materials have not been and will not be updated to incorporate any technical changes to the content or to reflect any modifications to a tax service offered since the production date.


Agenda

Are we in a Trade War?1.

Navigating the Trade Environment2.

Closing Thoughts3.


Trade & Customs professionals at KPMG international covering

450+

80+ Countries with vast Network of Member firms

Former U.S. Customs and Border Protection(CBP) import specialists and field auditors

Former supply chain and logistics directorsfrom industry

Professional Team Dedicated to TradeTeam laser focused on helping multinational companies manage their import/exportcosts and compliance obligations in the United States and around the world.

Fully integrated with KPMG’s service networkAdvisory, International Tax, Transfer pricing, value chain managementForensics, Economic Valuation

KPMG’s Trade & Customs Team

Cross-Sectional Skills Teams comprise of qualified customs attorneys, auditors, licensed customs brokers, and industry specialists and trade technology experts

Commitment to InnovationLeveraging and developing a vast array of technology solutions, toolsand approaches to solve issues plaguing multinationals around the around; creating tailored solutions best suited to each client need without cookie-cutting

Are we in a Trade war?


From the headlines….


$41 Billion


What are Tariffs?


How did we get here?

Protectionist Pivot

―Executive Ordersto investigate traderelated matters

―Withdrawal from TPP―NAFTA re-negotiations―Tax Reform―Trade Enforcement

New Tariffs on U.S. Imports

―Steel and Aluminum Tariffs (Section 232)

―Global safeguards on solarpanels and washing machines (Section 201)

―New AD/CVD cases since Jan 2017 on variety of products

Targeting Chinese products

― Investigation into unfair Chinese trade practices

―Tariffs on Chinese goods to enforce intellectual property rules (Section 301)

―Actions against Chinese Co’s –Huawei – Export Restrictions

Targeting Chinese imports―Threats on hundreds

of US products from EU, Canada, Japan, Turkey

―WTO Challenges―Trade War?

Retaliatory Measures

International Trade Compliance impacts GLOBAL business operations

and should work strategically and Proactively with sourcing, sales, tax, legal and other key functions


International Trade Landscape


Tariff Updates

1) See USTR fact sheet, “Section 201 Cases: Imported Large Residential Washing Machines and Imported Solar Cells and Modules.” 2) See Federal Register Vol. 83, No. 119, pg. 28710. 3) See Federal Register Vol. 83, No. 119, pg. 28710. 4) See Federal Register Vol. 83, No. 137, pg. 33608. 5) See April 27, 2017 White House memorandum to Commerce Dept., titled “Aluminum Imports and Threats to National Security.” 6) See Presidential Proclamations 9704 and 9705 on March 8, 2018. 7) See Presidential Proclamations from March through May 2018. 8) See May 23, 2018 White House memorandum to Commerce Dept. regarding Section 232 investigation related to automobiles.

Steel/Aluminum, Automobiles

Steel/Aluminum: Implemented May/June 2019 tariffs of 25% on Steel and 10% on Aluminum.

AUTOS: Delayed On May 17, 2019, the Trump Administration delayed a decision to impose auto tariffs until December 2019.

National security threat

Section 232

$34B in products

Took effectJuly 6, 2018 at 25%; Response to China for unfair trade practices; potential IP theft, tech transfer, & innovation

List 1

Section 301

List 2 List 3

$16B in products

Took effect August 23, 2018 at 25%

$200B in products

Took effect September 24, 2018 at 10%;

Increased to 25% on June 1, 2019

Solar panels and washing machines

Solar: Implemented February, 2018. The Trump administration implemented 30% global tariffs on imported solar cells and modules.

Washing Machines: Implemented January 2018 at 20%.

U.S. RATIONALE

TARGET

Harming U.S. industries

Section 201

List 4A

$120B in products

Will take effect December 15, 2019 at 15%

List 4B

$160B in products

Took effect September 1, 2019 at 15%

Increasing to 30% on 10/15


US-China: 301 tariffs to continue indefinitely— Dispute is about more than just tariffs: it’s mostly about

technology— Even as negotiations progress, China may have to show

concessions before 301 goes away

Steel, aluminum, and autos (section 232 tariffs)— A truce with the EU, but it may not hold due to National

Security Risks

USMCA— US, Mexico and Canada agree on NAFTA 2.0, but challenges

remain (Timing, ratification)

Global trade tensions will remain elevated— Not everything threatened will happen, but U.S. is

becoming more protectionist— EU Airbus Decision - $7.5b in tariffs pending

Looking Ahead….

Brexit— Critical deadline of October 31st – ongoing discussions

Navigating the Trade Environment


Leveraging Tariff Mitigation to Gain an Edge

“Businesses have come to realize that with geopolitical uncertainty comes either paralysis or opportunity. Most are now choosing opportunity. And those that can read the interconnected, proverbial tea leaves and are willing to take unflinching action are coming out ahead.” Douglas Zuvich, Partner and Global Practice Leader Trade and Customs, KPMG LLP

Companies scramble to ease impact of China Tariffs, CFO.com, June 19, 2019


Trade Developments Operational Impact

232/301 TariffsRetaliatory Tariffs

S. Border IssuesUSMCA

Trade Enforcement

Drawback ChangesBrexit

New Sanctions New RulingsGlobal Manufacturing

Company FinancialsExpansion

Logistics

Corporate Initiatives

Inventory Planning

Trade Compliance

Automation

Customers

Customs Clearance


Client Observations: Who is paying the higher tariffs?


Integrated Mitigation Framework


KPMG Tariff Mitigation Roadmap


Case Study: Tariff Classification


Case Study: Tariff Engineering


How are organizations responding to tariffs?

Companies ranged from less than $1B to over $10B

Industries included retail, tech, media, telecom, oil & gas, medical device, pharma

Greatest promise, furthest from realized: Use of the "first sale for export" valuation method mitigates on average 14% of the total tariff liability; however, only 20% of respondents leverage this strategy.

80% of companies mitigating 80% or more of their tariff liabilities employ a world class or strong compliance program.

KPMG’s Trade and Customs practice conducted a survey of trade and operations executives in the spring of 2019 and found several key findings.

92% of companies that are facing > $5M in tariff liabilities are armed with either a world class or strong compliance program.

Companies implementing tariff mitigation strategies average savings of 59% on tariffs into the U.S.

Top §301 strategies by average amount mitigated:

Trade and operations executives surveyed by KPMG

100+

Companies >$1B Annual Revenue- $74.1M – Use of ‘first sale’ valuation- $16.7M – Reassess HTS and origin- $12.7M – Moving mfg. out of China- $10.9M – Tariff engineering- $7.7M – Use of Chapter 98 programs

Companies <$1B Annual Revenue- $10.7M – Bonded programs, e.g. FTZs- $3.2M – Moving mfg. out of China- $1.8M – Tariff engineering- $1.2M – Procurement/supply chain changes- $1.2M – Use of duty drawback

Closing Thoughts…


Closing Thoughts….

Questions?

Jessica Libby, Managing [email protected]

mailto:[email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 896647

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

navigating a challenging trade environment · 2019-10-17 · international trade compliance ....

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