New Articles

Planning for Survival in the New Normal

supply chain

Planning for Survival in the New Normal

With so much having already been written on supply chain disruption over the past eighteen months – beginning with the initial shut-down of production in China, to fascinating tales of toilet paper hoarding, and now to the current inability to get backlogged demand through our ports of entry — I was initially reluctant to add yet another article to the stack. So what changed my mind? There are actually two reasons, which I’ll explain.

First, the problems and lessons learned from the COVID-19 pandemic are now forcing companies to become more agile, reassessing every element of their existing supply chains in preparation for the “new/next normal”. It’s now blank sheet of paper time as previous playbooks regarding sourcing, inventory levels, placement and risk mitigation plans (if they even had one) – together with any supporting infrastructure of people, processes and enabling technology – are being tossed out the window.

And while COVID-19 can be credited as the catalyst for forcing companies to perform these assessments, it doesn’t take a pandemic to bring a supply chain to its knees. In addition to the exposure contributed by single-sourcing key goods or from maintaining lean inventory levels (i.e., “Just-in-Time” versus “Just-in-Case”), designing a more resilient, risk-averse global supply-chain will require the inclusion of a broader list of potential risks to consider particularly when selecting foreign suppliers. These should include geopolitical conflicts, socio-economic factors including labor, crime and corruption, limited port capacity/infrastructure, weather-related disruptions, and even natural disasters (recall the 2011 earthquake and tsunami in Japan).

Take geopolitical risk, for example. The US’s over-dependency on China for products ranging from personal protective equipment (PPU) to rare-earth minerals has made it a growing concern from both a business and a national security perspective. A sobering report by the Hinrich Foundation (“Strategic US-China Decoupling in the Tech Sector”), states that “the China-US geopolitical competition has reached a competitive tipping point and morphed into a new ‘cold war’”, citing an increase in China’s bold hegemonic policies. The report further highlights China’s years of intellectual property theft, growing labor costs, and the more recent special tariffs levied by the Trump administration, as key reasons for an increase in US supply-chains decoupling from China and either moving into more risk-averse areas in Southeast China, near-shoring to Mexico, or even re-shoring to the US.

In an actual side-by-side near-shoring exercise which compared China with Mexico, the advantages quickly fell to Mexico citing a shorter supply chain with fewer physical touchpoints (damage/theft/service fees), lower freight costs, and eligibility for duty-free entry under the USMCA Free Trade Agreement, as well as side benefits that included ease of communication with vendors and the convenience of traveling to vendor sites.

Risk Management Meets Industry 4.0

The second reason for my writing is that there’s another movement afoot that aligns with supply-chain risk initiatives from the position of enabling technology capable of producing even greater resiliency. Labeled as “Industry 4.0”, this next industrial revolution is the result of the substantial transformation that is occurring through the digitization of manufacturing. For context, the first industrial revolution was through the introduction of water and steam power. Steam would give way to electrical power as the second industrial revolution, with the third being born out of the introduction of computers and their ability to automate previously manual tasks. Fast forward to today where the fourth revolution is now further optimizing that automation by connecting computers with smart machines and “disruptive technologies” such as Artificial Intelligence (AI), Machine Learning, Advanced Business Intelligence, Predictive Analytics and Data Lakes, capable of removing humans from decision-making processes, including applications capable of identifying and even predicting risk.

Where Industry 4.0 supports supply-chain risk initiatives is that the 4.0 movement includes the digitization of global supply-chains. This will translate into unprecedented transparency and connectivity across the entire end-to-end order and shipment process where supporting business functions such as Product Engineering, Procurement, Sales & Marketing, Transportation, Trade & Customs and Accounts Payable traditionally operate in respective silos.

For example, take Trade & Customs operations. Its typical placement near the end of the supply chain process, together with a lack of early visibility to international order, has served for years as a recipe for reactive firefighting as shipments become “stuck in customs” upon arrival until data/documentation issues are resolved. Under a digitized model, silos are replaced with connected supply-chain visibility that would allow Trade & Customs’ participation to move upstream to the earliest stages of new product build/buy decisions. As a result, they’re now in a position to proactively contribute critical advice on regulatory issues, import admissibility requirements, duty/tax minimization strategies such as Tariff Engineering, Foreign Trade Zones, Free Trade Agreements or changes in source countries (e.g., avoiding a 25 percent special tariff on Chinese goods by switching the sourcing to Mexico) – all key factors capable of removing cost, risk and time from their supply-chain.

If you’re currently building a business case to launch your own risk initiative, an interesting report from McKinsey & Company (“Resetting Supply Chains for the Next Normal”), might give you some additional support. For instance, in their survey of 60 senior supply-chain executives across industries and geographies, 85 percent responded that they struggled with insufficient digital technologies, 93 percent plan to increase resilience across the supply chain, and 90 percent plan to increase digital supply-chain talent in-house needed to support that new technology. In short, you’re not alone.

Whether your current project is to address the exposure from disruptions to your supply chain or to digitize the entire enterprise as a result of the increasing disruption caused by technology-driven innovation, what’s becoming clear is that companies will be forced to become agile and adaptive — able to change business models at unprecedented rates of speed in order to survive and thrive in the “new/next normal.”

_______________________________________________________________________

Jerry Peck is the Vice President of Product Strategy at QAD Precision, with over 30 years of experience in Global Trade Management. His career has uniquely encompassed nearly every facet of GTM, including third-party logistics, trade operations within Fortune 300 multinationals, and professional services consulting firms.

FTZs

THIRD PARTY LOGISTICS FIRMS OFFER BENEFITS TO THOSE OPERATING IN FTZs

Companies involved in the import of global products into the U.S. and considering the utilization of a foreign trade zone (FTZ) in their business may want to consult with a third-party logistics firm to get an in-depth look at what access to an FTZ may mean for them—and what a 3PL could offer in terms of benefits and efficiencies while operating within an FTZ.

According to U.S. Customs and Border Protection (CBP), FTXs are secure areas under the agency’s supervision that are generally considered outside CBP territory upon activation. Located in or near CBP ports of entry, they are the U.S. version of what are known internationally as free-trade zones.

Imported products can be brought into the country through an FTZ and no duty is paid on these products until they are moved to their U.S. destination. Products can sit or be warehoused in FTZs for lengthy periods and if it is determined these products are no longer required, they can be returned without duties being paid.

“Most importantly, the FTZ program is a U.S. government program-driven around compliance and is unique in that it covers the full supply chain,” says Trudy Huguet, senior director of FTZ Product at GEODIS in Americas, in an interview.

An international firm with a strong North American presence and operations, GEODIS is a logistics company that offers services in several lines of business: supply chain optimization, freight forwarding, contract logistics, distribution and express, and road transportation.

Huguet offered that the expertise of the 3PL that offers foreign trade services has many benefits but, most importantly, they usually can serve on compliance and efficiencies. For instance, she noted a 3PL may have better access “to operational systems and data flow that is needed for multiple systems to run an FTZ” or systems integrated with a foreign-trade zone system. She said a 3PL may also be able to serve certain shared costs with the availability of facilities such as warehousing, as an example.

“3PLs are driven by customers’ needs, like customization and square footage, along with services, staff and team members to run that FTZ for them,” she said.

Addressing a company’s needs is extremely important, in or prior to a peak holiday season, said Huguet.

She noted that many years ago companies used to administrate their own zones but that meant the expertise had to be in-house, necessitating the need to cross-train employees. However, by contracting with a 3PL, “those risks with these programs go away,” Huguet said.

GEODIS has molded programs to fit customers’ needs “so we will work with customers to determine how they can get the biggest bang for their buck,” and where they can find the greatest savings within the FTZ, she said.

Because the U.S.a U.S. FTZ is a sister program to the global free-trade zone, “We are unique in regulations and how we operate and very strong in compliance and most industries and manufacturers, producers and distributors,” Huguet said. “If they are importing into the U.S., they have the opportunity to benefit from this program.”

Getting involved in an FTZ is “kind of a three-stage process” that, Huguet says, involves consultation with the FTZ board where designation is obtained. Activation with local customs and security is followed by building the operational side of the FTZ to run parallel with in-house systems.

Paul Killea, senior vice president of Freight Services Compliance & Security in Americas for GEODIS, oversees import and export compliance for the U.S., Canada, Mexico, Brazil, Chile, Argentina and Colombia, in addition to running an FTZ product. He stressed that “compliance is very big part of the FTZ.”

“Compliance is the process of ensuring that all of our services and our customers’ services are performed in a compliant manner and adhere to all (government) regulations” in and out of the U.S., Killea says. “So, we are responsible to ensure that we have the right processes in place, the right tools for auditing and reporting and in doing so, create visibility to outside parties, specifically the government and our customers, to show them we are compliant.”

GEODIS provides an array of services such as air freight, ocean freight, warehousing and trucking, and the 3PL has a top goal to be compliant itself and to make sure its customers are, too. “First and foremost, GEODIS has to be compliant but obviously we need to make sure our customers are compliant as well. It is a global principle we hold in high regard at GEODIS,” he says.

Strong compliance would definitely be beneficial to a company looking at the benefits of a 3PL with access to FTZ, he noted.

On the security side, GEODIS has a team that manages various aspects of security. The company is a member of Independent Air Carriers and freight forwarder that adheres to the U.S. Transportation Security Administration regulations. The company not only transports air freight, “we are also a certified screening facility in six locations,” Killea notes. “So, my team manages all of that air freight security which is also beneficial to clients.”

Huguet points out that more companies are becoming interested in FTZs “so what we have seen are more companies trying to improve their supply chain dealing with all the various supply chain challenges and bottlenecking with merchandise. Everyone is looking for a better solution and FTZs will help with that.” 

In addition, they can assist with some of the governmental trade issues that have been put into place, such as dealing with China.

Challenges created by the COVID-19 pandemic and port congestion have created issues for companies that 3PLs with access to FTZs can assist with, such as creating additional warehousing within the FTZ to store products longer.

“Because of port congestion and because of COVID, merchandise is sometimes being delayed and not moving as quickly as it should,” Huguet concedes. “The FTZ program has certainly helped.”

global supply chain

Resilience in the Global Supply Chain: Understanding 5 Key Ingredients

Resilience is defined as follows:

re·sil·ience

/rəˈzilyəns/

noun

1. the capacity to recover quickly from difficulties; toughness. “the often remarkable resilience of so many British institutions”

2.  the ability of a substance or object to spring back into shape; elasticity. “nylon is excellent in wearability and resilience”

In terms of global supply chains, resilience is determined by an ability to adapt, survive and perform despite devastating and unplanned circumstances such as those we have been dealing with since the Covid-19 pandemic enveloped the world in February 2020.

The Covid-19 pandemic has been disruptive to every company, in every business vertical, in all countries, to all companies and for most people in the world.

The impacts of increased delays, cost escalations, unavailable space, reduced inventory balances, and lost sales continued to escalate through 2021, a year that we hoped would have positioned the pandemic in our rear-view mirrors.

By contrast, the economic impact, as well as the personal toll, have been devastating, and as we enter 2022 the residual concerns are lingering and in some business models are worsening.

Delays, cost escalations and uncertainty plague all global supply chains and have made for very difficult daily management and long-term planning.

All these issues are challenges that must be met by the supply chain executives who manage these responsibilities for the companies they operate in.

Having been through numerous disasters that have impacted supply chains, from hurricanes to tsunamis to winter storms … this pandemic has exposed corporations to new and extended vulnerabilities, never previously seen to this magnitude.

Over the last 35 years and especially in the last 20 months, I have witnessed and participated in various strategies, methodologies, and tactics to deal with these challenges.

An individual’s demonstration of “RESILIENCE” has been a key ingredient to surviving these challenges and keeping his or her organization on an even keel through these turbulent waters.

I believe there are 5 Key Ingredients to “Resiliency in Global Supply Chains”.

-Patience

-Pliability

-Information & Research Gain

-Creative Solutions

-Going Back to Basics

Patience

Those that are too quick to respond under the pressure of the issues and under senior management demands will likely make misjudgments that will make matters worse.

As an example: A logistics manager is losing patience with their service provider, who is having difficulty booking space. Instead of trying collaboratively to find a solution … moves the business to another freight forwarder … to only discover that the new forwarder’s senior management team is prioritizing space allocations to older clients and not new ones.

The logistics manager has now created a bigger hole to get out of.

Exercising patience, along with a collaborative approach, would more likely have brought a resolution that could now be in play. The impatience moved the potential resolution to the back of the line.

Patience comes with maturity, confidence, and experience. Junior-level supply chain personnel lacking tenure need to closely observe senior management – who are hopefully setting an example of a more balanced reaction and approach to disaster.

Reactions by instinct alone, hurried responses and not well-thought-out actions will typically lead to poor choices. Poor choices produce bad outcomes.

Through this pandemic, I have observed many company supply chain executives – both young and old – overreact and make some bad decisions, which placed their supply chain in further jeopardy.

“Patience is a Virtue” is part of an old adage that has never rung truer than in managing global supply chains in 2020, 2021 and into 2022.

Pliability

Pliability is the ability to bend, like a willow tree in the wind. It is all about flexibility, like a gymnast performing at this year’s Summer Olympics in Tokyo.

In Supply Chain, the meaning moves us in a direction where our strategies, tactics and decisions must become molded to the new circumstances we face where demand and capacity have been misaligned for over the past 20 months and likely to continue down that road well into 2022.

It means we must adapt to a completely new set of assessments, quantitative data input, expected outcomes, and circumstances mostly out of our control.

Specifically, in companies with a global footprint, this means underperforming suppliers, unreliable freight services, escalating costs and enormous frustrations in promises made by many and kept by few.

In addition to being patient, in this pandemic, the supply chain executive must take well-thought-out risks and approaches that can offer resolutions to all the obstacles and challenges.

And more importantly, it means that we must be pliable in our approach to attempt solutions not previously tried.

Information and Resource Gain

The Supply Chain Executives showing resilience will have to make better decisions. Better decisions will originate with quantitative data analysis, based on robust information flows.

As an example: A procurement manager for a perfume company that has a major supplier in Guangzhou, China, which accounts for 80% of a particular product line.

The Chinese supplier is having trouble meeting demand. The intuitive procurement manager dives deep with the supplier to find out who supplies them with the raw materials that they seem to be having trouble obtaining in the necessary quantities needed to fill their PO’s.

The procurement manager reached into their sourcing staff to see if they can find some alternative suppliers, which they were successful doing.

This new raw material supplier to their supplier made a big difference in having them mitigate the problems of meeting all the PO requirements.

Information, along with collaboration, resolved the problem.

In today’s world, information can make the difference between success and failure, profit or loss. Supply Chain Managers need to spend considerable time in developing resources to gain information.

Some of these resources could be:

-Friendly competitors

-Supply Chain Organizations: CSCMP, ISM, NIWT, etc.

-Consultants specializing in Global Supply Chain: Blue Tiger International & others

-Internet (search, networking)

-Media: Journal of Commerce, American Shipper & SupplyChainBrain

-Industry Trade Shows

-Advanced Colleges & Universities with Supply Chain Modules

Information that provides useful data comes from reliable sources, comprehensive structure, timely subject matter and from qualified expertise.

The “Gain of Information” is invaluable in making informed and well-thought-out decisions.  Resourcefulness is making clever use of the information gained.

Creative Solutions

This is a time one needs to raise the bar of performance in meeting the Covid-19 Pandemic challenges.

Solutions of the past may not have contemporary applications. Current practices may make the problems even worse.

One needs to “put on the thinking cap” and bring new and creative ideas to the table.

This is directly tied into being patient, pliable, and developing information sources and resources, previously discussed.

An example: A NY-based chemical company operating successfully for 40+ years is having difficulty moving cargo timely and cost-effectively from various Asian suppliers.

Their typical move is product in 25 and 50 Kilo bags and boxes, stowed in 20- and 40-Foot Containers.

They are feeling the pain of 90-120 delays in ocean freight and cost escalations from $2700/per 40’ to $22,500/per 40’ from March of 2020 till now in December 2021.

The delay and cost escalation are devastating the cost-effectiveness in an established supply chain that has worked well for more than 40 years.

The potential of customer loss is great along with margin depletion.

They collaborated with a supply chain consultant who suggested they load the product in 500 kilo super sacks at their supplier facilities and “charter” a Breakbulk vessel to move 20’ container volumes of freight.

This was very much out of their wheelhouse, but they diligently, along with their consultant reviewed the risks, quantified, assessed carefully and took steps to mitigate all the challenges that came to light.

Now, 8 months later, they have had 3 successful charters and have actually reduced landed costs by 10-12%. Their margins are in-line, the customers are happy.  The new and creative approach, with well-thought-out risk management steps, came to a favorable conclusion.

In another example: A Houston-based consumer electronics company purchasing finished products from all over the world, specifically from suppliers in Europe, Asia and the Middle East.

In their standard (pre-pandemic) process, they would bring the goods into their 750,000 sq.ft. distribution facility just outside Houston for quality control work before shipping product to customers in all 50 states, Mexico and Canada. Most customers were big-box retailers.

In this case, their supply chain consultant gave them two suggestions which they studied, assessed, and modified to fit their supply chain; both of which ultimately created favorable outcomes.

For the first option, they approached their larger retailers who were building their own consolidations in the countries they were sourcing from.

They offered the retailers pricing discounts to move the sales from CIF INCO Term to FCA Overseas Consolidation Point. Meaning they would deliver the goods to the warehouse/carrier at the outbound gateway of the country of origin. The retailer would take possession of the goods at their consolidation facility and combine it with other orders and ship as a “consolidated shipment”. The benefits could be freight cost savings and affording the control of the cargo directly to the consignee.

The second suggestion was to make the distribution facility in Houston into a Foreign Trade Zone (FTZ), where duties on sales to US entities were deferred until point of sale.  For goods exported to Canada and Mexico, no duties were paid, as the goods passed through the FTZ and never entered the U.S. economy.

This option took approximately 3 months to assess and implement, and an upgrade in their supply chain technologies became a favored solution.

Other creative solutions are as follows:

All these options present potential solutions to the global supply chain management teams to consider in mitigating the impact of disruptions and to lower landed costs.

Going Back to Basics

I was an athlete throughout my high school and college years, rising to “All American” status. I observed many times when athletic prowess waivered, winning subsided, and performance shattered how the coaches brought us back from the “dark side”.

Experience demonstrates that difficult times are likely to occur. Success is not a straight and smooth line. It is curved, bumpy and has roadblocks.

I observed over the years that quality coaches had the ability to turn circumstances around and bring guidance, solutions and resolve to the challenges we faced.

Their number one solution was to bring the team and the athlete back to basics. In soccer, it was dribbling, passing and running. In wrestling it was take-downs, grinding and stamina build-up, in lacrosse, it was throwing, cradling and scooping.

Practice those basic skill sets and once achieved again, move forward onto more robust capabilities and strategies.

It was a formula that worked over and over again. In my adult life, I utilize the same strategy in golf. When my game goes south I go back to basics: slow the swing, keep the head down and work on the short game.

The basics in global supply chain are:

Summary

We believe … like tragic forest fires that ultimately benefit the woodlands as old timber is destroyed allowing new and stronger growth to eventually flourish … that weak supply chains will potentially be lost and stronger supply chains will survive and prosper.

So it will be for global supply chains.  This latest unprecedented disruption will make supply chains ultimately operate with:

-Greater Efficiencies

-More cost-effective strategies

-Enhanced processes, protocols and SOP’s for future disruptions and affording proactive mitigation strategies

All leading to a mindset of “resiliency” … a great management quality allowing not only survival but growth and prosperity … in the most difficult of times.

 ______________________________________________________________________

Thomas A. Cook is a 30 year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida.

The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management.

Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions.

Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management.

He can be reached at tomcook@bluetigerintl.com or 516-359-6232

trading

THE U.S., CHINA, AND THE FUTURE OF THE WORLD TRADING SYSTEM

Victorious after World War II and the Cold War, the United States and its allies largely wrote the rules for international trade and investment. Critically, the United States and European Union drove the creation of the World Trade Organization (WTO) in 1995 with the aim of opening trade in goods and services for their products, ramping up protection for their intellectual property, and transforming national trade-related law and institutions within countries around the world to look more like American and European law and institutions. Developing countries joined the WTO, but often complained that its rules were skewed. As a result, it was argued, the U.S. and European Union could rule the global economy through rules. They were incredibly successful, as WTO norms transformed laws and institutions within emerging economies.

Yet by 2020, 25 years after the WTO’s creation, it was the U.S. that has become the great disrupter—disenchanted with the rules’ constraints, including on its ability to create new rules. It was the U.S. that flouted WTO rules in the name of “national security” and the national interest—even to protect American producers of aluminum siding, and to pressure countries to block migration from Mexico and Central America. It was the U.S. that neutered trade dispute settlement and threatened to withdraw from the organization. Meanwhile, the United Kingdom— the EU’s second largest economy—voted by referendum to leave the European Union. As nationalist parties rose in prominence throughout Europe, the EU was pressed to turn inward to protect its very existence, curtailing its role on the global stage. It continues to defend multilateralism, but it is in a much weaker position following the euro crisis, internal divisions over migration, Brexit and the ravages of the COVID-19 virus, than it was in the 1990s. 

Paradoxically, China and other emerging economies became stakeholders and (at times) defenders of economic globalization and the rules regulating it, even while they too have taken nationalist turns. Before the World Economic Forum in Davos, that paragon of global institutions, China’s President Xi declared in his 2016 keynote address, “We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening up and say no to protectionism.” 

How did this come to be? How did the emerging powers invest in trade law to defend their interests? What has this meant for their own internal economic governance? And what does it mean for the future of the trade legal order in light of intensified rivalry between the U.S. and China, triggering a new economic cold war? 

Many economists write of China’s rise in terms of efficiency—a combination of Western know-how and Chinese wages that triggered a “manufacturing miracle” where China became producer for the world. In his book The Great Convergence, Richard Baldwin explains how the revolution in information and communications technology in the 1990s led Western firms to outsource production of goods and services to countries such as China and India, creating a new unbundling of production through global supply chains. This unbundling “created a new style of industrial competitiveness—one that combined G7 know-how with developing-nation labor.” China became the manufacturer for the world. Its share of world manufacturing surged from 3% percent in 1990 to 19% in 2015. Western firms outsourced services to India, whose services exports increased more than 22-fold from US$8.9 billion in 1997 to US$204 billion in 2018, while its manufacturing grew in parallel. Such growth triggered a commodity boom for Brazil’s highly competitive agribusiness and mining sectors. 

These economic shifts catalyzed dramatic changes in shares of global gross domestic product. In just 29 years, the share of the G7 (U.S., Japan, Germany, U.K., France, Canada and Italy) plummeted 18 percentage points, from 64% (in 1990) to 46% (in 2019) in nominal terms, and to 30% measured by purchasing power parity. In contrast, China’s and India’s share soared. At the start of 2020, the share of global GDP of China, India and Brazil approached that of the U.S. in nominal terms (21% compared to 24%) and almost doubled it in terms of purchasing power (29% to 15%). Within a decade, China should become—once more—the world’s largest economy.

These changes in the share of global GDP gave rise to shifts in power, as political scientists stress. While the U.S. and Europe turned inwards, emerging powers like China gained confidence and became central players in the global economy. The creation of the G20 for global economic governance first reflected this transition. 

The growing U.S-China rivalry now dramatizes it. China, India and Brazil each play a leadership role in regional economic governance, and they aim to play a growing role globally. Although the U.S. wishes to halt China’s rise, the reality is that two-thirds of countries trade more goods with China than the U.S., compared to just one-fifth in 2001, the year China joined the WTO. Simply put, the economies and market size of China and other emerging powers matter, providing the country with negotiating leverage, constituting a form of power. 

So, what about law? Stated simply, it is not just structural and material power that govern the world, but also law, legal institutions and their practices. They are complementary, and they affect each other. Law and legal institutions provide normative resources that actors harness to advance their interests. They simultaneously affect the normative environment in which actors operate, which shapes their understanding and pursuit of interests. The story of emerging powers’ rise and the implications for global trade governance requires a complementary story about law and their deployment of it. My book, Emerging Powers and the World Trading System, provides that story. It tells the past story of trade law’s impact within large, emerging powers and their response to trade law, which, in turn, helps us understand the current context and responses to this context that will shape international trade and economic law’s future. The book shows how emerging powers changed internally to engage better externally.

These countries’ institutional changes and investments in legal capacity shaped the international trade legal order. They learned how to play the legal game to thwart U.S. and European dominance of the trade regime, both in negotiations and in litigation over the meaning of legal texts. This dynamic, in turn, constrained U.S. and E.U.EU policymaking, ranging from agricultural subsidies to industrial protection through import relief law. When the U.S. and European Union turned away from the WTO to create new rules through bilateral and regional trade and investment agreements, China and other emerging powers developed their own initiatives and models as well. 

The challenges for the future of the multilateral legal order for trade are clearly material, structural and ideological, as well as legal. On the one hand, they reflect the growing economic power of China, and the impact of trade from China and other emerging economies within the United States. On the other hand, traditional narratives of the benefits of free trade that ignore the impact on the economically vulnerable, have been destabilized, especially in the United States. 

The development of legal capacity to use, make, shape and apply law are is a critical part of this story, and they will continue to shape the evolving ecology of the trading system. By defining the trade order in terms of rules and judicialized dispute settlement, the WTO system created an opening for emerging economies to invest in trade law capacity and take on the U.S. and Europe at their own legal game. As a system of law purportedly in service of fairness and equal treatment, weaker players could also win. Law’s ideology of rationality and fairness could constrain the powerful, shape the interpretation of norms, and affect their strategies. The legal order for trade, although slanted in favor of the powerful, offered opportunities to weaker parties who could compete through building legal capacity. China’s, Brazil’s and India’s investments in legal capacity help explain the paradox of the U.S. abandoning the legal order that it created.

The U.S. challenge to the legitimacy and efficacy of the international trade regime that it created, and emerging powers’ defense of that regime, is a paradox that cuts across international relations theories.

John Ikenberry, in his book After Victory, published a decade after the end of the Cold War and five years after the WTO’s creation, asked this central political question: “What do states that have just won major wars do with their newly acquired powers.” His answer was a legal one: They create the rules of the game. In this situation, he wrote, states “have sought to hold onto that power and make it last” through institutionalizing it. He called the order that the U.S. created a “liberal hegemonic order” because other states consented to it in the context of American unipolar power, while the U.S. agreed to constrain itself under the rules to “make it acceptable.”

Michael Zurn, in his theory of global governance, argues that such regimes create resistance because they are “embedded in a normative and institutional structure that contains hierarchies and power inequalities.” He thus contends that “counter-institutionalization is the preferred strategy by rising powers.”

And the realist Graham Allison, in his book Destined for War, writes, “Americans urge other powers to accept a ‘rule-based international order.’ But through Chinese eyes, this appears to be an order in which Americans make the rules, and others obey the orders.” The paradox with the trade legal order is that China and other emerging powers became its defenders, while the U.S., under the Trump administration, attacked it as illegitimate and neutered its dispute settlement system. The U.S. became the revisionist power. So far, the Biden administration has continued these policies, although with a more constrained rhetoric and without the 3 a.m. tweets.

Political fault lines over trade are not just between states, but also within them. Such politics shape legal ordering internationally. Developments in China implicate companies and workers in the U.S.; the rise of U.S. economic nationalism implicates companies and workers in China. International law and institutions such as the WTO can provide an interface that helps to shape those interactions, but international law and institutions are also reciprocally shaped by them. International law and institutions are both medium and outcome.

For trade liberals, this has the arc of a tragedy. International trade law rose in prominence and trade law norms permeated deeply within emerging powers’ laws, institutions and professions. Yet, the very success of such legal ordering triggered unintended consequences. As these countries rose in economic importance and built legal capacity to wield WTO law to defend and advance their positions, the U.S. became disenchanted with the legal order it had created. It elected an economic nationalist who became “a wrecking ball,” unsettling the international legal order for trade and broader economic governance.

Effective international legal orders must be grounded in common perceptions of problems that law can address. If perceptions of underlying problems shift in radically divergent ways within the U.S., E.U.EU and these emerging powers, then the WTO as a multilateral institution based on common rules that permeate domestic laws and institutions becomes unsettled. There is no end of history, no unidirectional force toward a particular manifestation, breadth or depth of international legal ordering. Norms settle and unsettle, internationally and domestically, often in parallel. Now the centralized WTO legal order for trade is declining, giving rise to fragmenting, overlapping and competing regional and bilateral legal ordering.

The challenge for states will be how to maintain and adapt the international trade legal order to changing political and economic contexts. To maintain the international trading system to foster economic order, sustainable and inclusive growth, and the pacific settlement of disputes through law, the U.S., E.U.EU, China, India and Brazil will need to collaborate to define rules governing the interface of their economies. International trade law and institutions are no nirvana, but the alternative to them could be dire. We are in the history and make the history with the choices we make today. 

The Trump administration may have neutered the WTO’s dispute settlement system and brazenly ignored WTO rules. So far, the Biden administration has done little to nothing to change this. Its legacy for the multilateral trading system will depend on the decisions it makes in the months to come.

____________________________________________________________________

Gregory Shaffer is Chancellor’s Professor at the University of California, Irvine School of Law and President-Elect of the American Society of International Law. This essay is taken from his book Emerging Powers and the World Trading System (2021, Cambridge University Press).

trade

Take note: Address Global Trade Issues Early in Your Negotiations to Avoid Liability and Costs (Yes, this applies to you).

Premise: Nearly all companies have exposure to international trade laws when doing business. Spotting these risks early when negotiating agreements and transactions will prevent future liability and costs. So, when drafting agreements engaging in mergers or acquisitions, and conducting diligence parties, should be considering a number of important trade risk points that may be sprinkled throughout various business activities.

“Supply chain” is the buzzword right now for a reason, it’s an area where trade liabilities are growing significantly. On top of backups and slowdowns, additional tariffs or duties (import taxes) can make importing from certain locations more expensive than it once was, and more restrictions are being added to this already highly regulated activity. New ESG and human rights restrictions along with an expanding list of prohibited parties make planning a supply chain more challenging than ever. Additionally, if done incorrectly, the penalties associated with customs violations can be quite high, or, in a worst-case scenario, your shipments can also be seized and even destroyed without compensation.

Trade Controls Are Broader Than You Think 

Always screen your transaction for other tangential cross-border issues. If the company is directly or indirectly supplying the U.S. government with goods or services under a procurement agreement, ensure someone has reviewed whether any relevant Buy America criteria are met. Enforcement is on the rise so include proactive requirements for antiboycott compliance and anti-corruption representations in agreements and ensure training is being done as needed for both employees and third parties to decrease the risk of violations. Most trade-related rules and regulations apply to U.S. persons and U.S. companies both directly and indirectly. For example, if a third-party distributor sells your product to a person in Iran without required authorization – you can be liable.

Importing is Getting More Complicated

Before you commit to acquiring, merging with, or working with any business, ensure the security of its supply chain and that it is reporting the correct country of origin, classification codes, and other required information properly. Confirm that it has all relevant IP rights and that there are no infringing marks being used, and determine whether any anti-dumping or countervailing duties might apply to the imported product. If it turns out that additional, high tariffs are due – not only may penalties be imposed, but the government will also demand interest on its unpaid revenue. So, when drafting agreements consider representations from parties to minimize risks of wrong or missing information, changing regulations, and government enforcement cases, limit your liability if possible, and choose INCOTERMS (contract terms that determine which party has responsibly shipped goods at any time during the shipping process) wisely to limit exposure.

Sanctions Apply To all of Your Customer and Supplier Relationships

Like import regulations, U.S. sanctions prohibitions and restrictions are also expanding at a steady rate. To protect yourself and your business in this dynamic and fast-changing environment, ensure that any target companies or business partners already have sanctions compliance programs and are pro-actively complying with economic sanctions and associated mandatory requirements. This is an area in which you want to limit successor and indirect liability, as penalties can be extremely high. You don’t want to learn after the fact that your business partner has been buying inputs from or selling your product to a restricted party in China. So, for your own best interest, take the initiative to educate your partners as needed and get your information and inspection rights regarding the supply chain, indirect sales, and distribution network in writing.

Export Requirements Can Apply in the US Too

Similarly, export laws also carry a specific set of risks and liabilities for exporters. Filing and licensing requirements are complex and the rules apply broadly to all U.S. origin goods and technologies (even online only and SaaS products). Ensure that any target company or potential business partner has determined the correct export classification for its products and technology before you commit to investing, acquiring, or merging. Look out for red flags that products are being transshipped to countries without the proper authorizations. Similarly, if you are going to contract with an agent or distributor, make sure they understand export compliance because your liability does not end when you hand over the product.

Further, export classifications are no longer something companies only need to know if they export physical products to locations outside of the U.S. Export controls is also implicated if you share technology domestically in the U.S. with foreign nationals. and export classification can be a determining factor in whether a CFIUS (Committee on Foreign Investment in the U.S.) filing to the Department of Treasury is required before closing a deal – and this filing requirement may apply regardless of whether the target company exports at all.

Update Your Agreements and Compliance Materials

The government is expanding its enforcement initiatives and broadening its scope of review in corporate criminal enforcement cases. Thus, it is worth your time to slow down and do your homework to avoid bigger problems later. Talk to your Colleagues. Identify whether if you are already addressing these issues, and if not, create a plan to work trade reviews into your regular processes and workflows.

Don’t let simple compliance actions slip through the cracks. If you have compliance materials- read them and ensure they are up to date and are useful to protect the company. If not work with someone familiar with the risks and the law to update, retool, or enhance them.

Make your materials practically employable, set a tone at the top that compliance procedures are taken seriously, and ensure your standard agreements include trade provisions to minimize your risk. Once you’re comfortable that you have a solid compliance program or transaction checklist well-tailored to your business activities, complete an internal audit at set intervals to make sure that it’s being used and working.

Addressing trade risks before closing a transaction or signing a contract may save you not only from headaches but from getting to know the U.S. authorities all too well.

____________________________________________________________________

Abbey Baker, counsel at Lowenstein Sandler LLP, works with businesses and entrepreneurs seeking to expand their market position in the global economy while considering national security, trade regulation, and foreign policy concerns.

Doreen M. Edelman is the chair and founder of the Global Trade & Policy practice. She has more than 30 years of experience advising clients on the risks associated with export controls, customs matters and U.S. sanctions in cross-border M&A and investment transactions, and on the compliance requirements pertaining to technology, software, defense articles and services, and commercial goods.

airfreight

Airfreight Prices Reach New Heights Ahead of the Holidays

Numerous analysts agree that the upcoming holiday season could bring numerous supply chain challenges resulting in sold-out products, delayed replenishments and disappointed customers. Airfreight cost rises are already emerging as an obstacle in the mix.

Capacity Shortages and Rising Demand

Insights from airfreight logistics professionals and other people in the know suggest that reduced capacity on flights coupled with surging demands are two factors contributing to the current conditions.

An analysis of air cargo rates for September 2021 illuminates how all regions could experience the effects of more logistics professionals availing of air cargo services when they can. The push to secure spaces has pushed some major brands to invest in their own planes. However, smaller retailers are often left out because they lack the resources to cope with higher rates, let alone dedicated aircraft.

Global demand levels were up by 9.1% compared to figures collected for September 2019. Unfortunately, available capacity is 8.9% below pre-COVID-19 levels. However, other sources clarified that although volumes are up, not all planes are full.

When the report drilled down into regional situations, it revealed that Asia-Pacific airlines saw international cargo volumes rise by 4.5% compared to September 2019 figures. European carriers saw a similar 5.3% volume increase, and demand went up by 6.9% for the North Atlantic trade lane.

African, Middle Eastern and Latin American carriers felt even more intense pressure during the studied period than in September 2019. African airlines coped with a 34.6% jump in international cargo demand, while those in the Middle East and Latin America had overall upticks of 17.6% and 17.1%, respectively. The capacity shortage was particularly pronounced for Latin American air cargo specialists, with availability down more than 24% on 2019 levels.

Air Cargo Still an Appealing Option

Since goods often travel incredibly long distances to reach their destinations, intermodal transportation is increasingly necessary. It involves using at least two methods, such as a ship and a truck, to get cargo to the right places. However, it’s not always easy to choose the best options. That’s because airfreight is not the only sector saddled with extra demand.

In the United States, March 2021 container volumes for the Long Beach and Los Angeles ports were up 97% on the previous year, resulting in the busiest March recorded so far.  Also, the United States, Europe and Great Britain are among the places dealing with truck driver shortages.

While facing those obstacles, logistics professionals may understandably conclude air cargo carriers are among the best options, provided they’re willing to pay the associated rates. One issue is that many experts believe port backups won’t resolve anytime soon. A proposed solution to keep some United States ports open 24 hours may not be enough to make significant impacts, either.

Those realities have pushed more people to consider air cargo as a possibility. Bruce Chan, a senior analyst at investment bank Stifel, said, “Terminals and container yards are full. Drayage capacity is tight due to structural driver supply issues, as well as compounding disincentives to pick up from ports as a result of the delays.”

He continued, “As such, we believe there is a contingent of inventory that will not arrive in time for the seasonal rush via ocean and that freight may be converted to air.” Numerous logistics professionals have nonetheless warned consumers to expect product shortages this year. Some have recommended that shoppers take pictures of items and put them into holiday cards in case the actual products show up late.

A Few Things to Know Before Considering Airfreight Options

Shipping things by air is often the most desirable method when speed is a priority. Plus, delicate items, such as electronics and designer clothing, are among the products that most commonly travel in planes.

Airfreight cost averages were typically higher than other transportation methods even before these recent rises. Therefore, shipping more expensive items by plane was a popular choice because the hope was that the higher product revenue would justify the expenses.

However, carriers don’t accept goods in all cases. For example, aerosols with an aggregate weight of more than 150 kilograms cannot travel in a passenger aircraft. People should take the time to verify that cargo specialists will accept their products rather than assuming that’s the case. All forms of product transportation require considering things like weight and flammability to ensure safety.

It’s also more complex to prepare products for shipment by air versus sea. The cargo gets loaded onto a pallet in a warehouse, wrapped with plastic, and secured with cords and ropes. Packing the products together as tightly as possible is critical because shifting significantly during a flight could cause the plane to crash.

These details mean that even if someone is prepared to deal with rising airfreight costs, they must take the time to check that plane-based shipments are right for their products and their overall needs.

Passenger Air Travel Increases Could Decrease the Crunch

Even if there are no significant airfreight cost decreases on the horizon, an expected bump in passenger flights could ease the current capacity issues. For example, the United States recently reopened its borders to many international travelers who can show proof of their COVID-19 vaccinations.

The largest cargo holds in passenger planes’ bellies accommodate the equivalent of two 40-foot freight containers. At one time, they carried as much as half of the total air cargo capacity. Many airlines expanded their cargo space during the pandemic, but it still did not compare to levels seen previously.

Part of the reason was that airlines most dedicated to expanding cargo capacity limited the changes made. Representatives worried that demand could dry up in the future, meaning any efforts to expand cargo space might only bring short-term payoffs. However, the anticipated passenger flight boom won’t universally affect available areas.

Logistics professionals expect the most benefits to come from planes carrying people between the United States and Europe. However, the effects will not be as notable for transpacific flights.  For example, many pandemic-related travel restrictions remain in effect for China. Plus, more passengers originating in Europe traveled to the U.S. than to Asian destinations even before the pandemic.

Airfreight Logistics Are Continually Complex

People considering shipping goods by air have many pros and cons to weigh, and that was the case before rates began climbing. Being aware of those aspects will help them conclude whether the cost is worth the money when considering all other factors.

_____________________________________________________________________

Emily Newton is an industrial journalist. As Editor-in-Chief of Revolutionized, she regularly covers how technology is changing the industry.

HFCs

EPA Issues Final Rule to Phase Down HFCs as White House Announces Measures to Prevent Illegal Imports

The United States Environmental Protection Agency (EPA) has finalized a rule intending to reduce the production and consumption of hydrofluorocarbons (HFCs) in the United States by enforcing a cap and phasedown program under the American Innovation and Manufacturing (AIM) Act. According to the EPA, the final rule will phase down U.S. production and consumption of HFCs by eighty-five percent over the next fifteen years. Beginning January 1, 2022, allowances will be required to produce or import HFCs. The first of such allocations are to be announced by the EPA by October 1, 2021. The AIM Act instructs the EPA to issue a fixed quantity of transferrable production and consumption allowances, which producers and importers must hold in quantities equal to the amount of HFCs they produce or import. Alongside the EPA’s final rule, the EPA and other federal agencies under the Biden Administration announced additional actions intended to reduce consumption of HFCs, with a focus on curtailing and controlling illegal imports.

The final rule establishes HFC production and consumption baselines, a statutory phasedown schedule of allowed production and consumption, and the EPA’s approach to allocating and allowing transfer of allowances. According to the EPA, a global HFC phasedown is expected in order to avoid the most severe consequences of climate change. Producers and importers of HFCs should begin to consider how to adapt their businesses to the phasedown and how to take advantage of potential HFC alternatives. According to the phasedown schedule, steep reductions in allowances are planned for 2024 and 2029 to bring HFC production and consumption down to thirty percent against the baseline.

The EPA will set the initial allocation for each producer and/or importer based upon the individual entity’s production and/or import for the highest three-year period during the 2011-2019 period. The AIM Act had originally established the baseline to be the three-year period of 2011-2013, but the proposed rule published by the EPA in May 2021 had modified that to 2017 to 2019. Now with the final rule, the EPA has determined that using the average of the highest three years in the 2011 to 2019 window would ensure an equitable phasedown consistent with prior phasedowns.

The Administration announced the formation of an interagency task force consisting of the EPA and the Department of Homeland Security (DHS) to prevent and disrupt illegal importation of HFCs into the United States. The announcement of measures to prevent illegal imports follows reports of a surge in illegal trade in HFCs in Europe due to the European Union’s strict regulation of the greenhouse gases. The White House nods to this issue in its fact sheet on the matter, referring to “rates of noncompliance similar to what has been observed in other countries…” With the issuance of the EPA’s final rule, the U.S. has adopted a similar policy on HFCs but aims to avoid the enforcement issues observed in Europe, which have undermined the purpose of HFC regulations.

_______________________________________________________________________

Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

guinea

Bauxite Prices in China Leap Up After Military Turmoil Took Hold in Guinea

IndexBox has just published a new report: ‘China – Bauxite – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

In September, the price for Guinean bauxite in China reached its highest point in 18 months. The military coup in Guinea has caused concerns that shipments from the country will decrease and instigated the spike. Guinea is the world’s primary bauxite supplier, making up more than half of all exports. In case there is a decline in supply from Guinea, China may expand imports from Australia. An increase in bauxite prices could lead to costs for aluminum on China’s domestic market to grow as the country imports nearly 57% of the bauxite it consumes.

Key Trends and Insights

Prices for bauxite in China spiked due to concerns that the recent military coup in Guinea may cause shipments from the country to fall. Guinea is China’s main source of bauxite. In 2020, China imported 53M tonnes of the Guinean product making up 47% of all its bauxite imports.

In September, Guinean bauxite reached $50.50 per tonne on the Asian Metal exchange, its highest point since March 16 last year. Despite no information indicating an interruption in mining activities, the stock market responded to the political situation in Guinea with a spike in prices. Key players operating in Guinea´s bauxite industry, such as Compagnie des Bauxites de Guinee (CBG) and Société Minière de Boke (SMB), did not announce any possible suspension of works.

Guinea is the world’s largest source of bauxite accounting for 50% of global exports. A reduction in supply from Guinea would inevitably result in a deficit in the global market and increase bauxite prices from other countries.

If bauxite shipments from Guinea fall, then China is expected to expand imports from the two other main countries supplying it, Australia and Indonesia. Australia is the top bauxite producer in the world and would most likely grow exports to China. Together, Guinea, Australia and Indonesia supply 97% of all imported bauxite to China.

Bauxite is the main source of alumina or aluminum oxide, which is used to produce aluminum metal. China produces over 60% of the world’s aluminum and is the largest consumer of bauxite. The country’s bauxite imports account for 77% of the global total. An increase in bauxite prices will cause costs for Chinese aluminum products to rise as the country imports nearly 57% of the bauxite it consumes.

Bauxite Production in China

China ranks third in global bauxite production, following Australia and Guinea. China accounts for 16.2% of the world bauxite production.

In 2020, approx. 60M tonnes of bauxite were produced in China; with a decrease of -14.3% compared with the year before. In value terms, bauxite production dropped dramatically to $1.6B in 2020 estimated in export prices.

Bauxite Imports into China

In 2020, the amount of bauxite imported into China expanded sharply to 112M tonnes, picking up by +11% from the previous year’s figure. In value terms, bauxite imports reduced to $5.1B (IndexBox estimates) in 2020.

Guinea (53M tonnes), Australia (37M tonnes) and Indonesia (19M tonnes) were the main suppliers of bauxite imports to China, with a combined 97% share of total imports.

In value terms, the largest bauxite suppliers to China were Guinea ($2.5B), Australia ($1.5B) and Indonesia ($873M), together accounting for 96% of total imports.

Indonesia saw the highest growth rate of the value of imports (+29% y-o-y), among the main suppliers over the period under review, while purchases for the other leaders experienced a decline.

In 2020, the average bauxite import price amounted to $45 per tonne, reducing by -11.3% against the previous year. Average prices varied noticeably amongst the major supplying countries. In 2020, the country with the highest price was Indonesia ($47 per tonne), while the price for Australia ($42 per tonne) was amongst the lowest. In 2020, the most notable rate of growth in terms of prices was attained by Indonesia, while the prices for the other major suppliers experienced a decline.

Source: IndexBox Platform

AD/CVD

Commerce Issues Final Determination in AD/CVD Investigation on Utility Scale Wind Towers from India

The Department of Commerce published its Final Determination in the antidumping (“AD”) and countervailing duty (“CVD”) investigation of Utility Scale Wind Towers from India on October 13, 2021, which investigation was initiated in November 2020. The AD/CVD petition was filed by Wind Tower Trade Coalition (“Petitioner”). The mandatory respondent selected by Commerce in both the antidumping and countervailing duty investigation was Vestas Wind Technology India Private Limited (“Vestas”).

The additional producers/exporters Commerce included in the antidumping investigation were: Anand Engineering Products Private Limited, Windar Renewable Energy Private Limited, and GRI Towers India Private Limited.

The additional producers/exporters included in the countervailing duty investigation were: Naiks Brass & Iron Works, Nordex India Pvt. Ltd., Prommada Hindustan Pvt. Ltd., Suzlon Energy Ltd., Vinayaka Energy Tek, Wish Energy Solutions Pvt. Ltd., and Zeeco India Pvt. Ltd.

In its final determination, Commerce found that (1) imports of wind towers from India are being, or are likely to be, sold in the United States, at less than fair value and (2) that countervailable subsidies are being provided to producers and exporters of wind towers from India. As a result of these findings, Commerce instituted:

-A 54.03 percent weighted-average dumping margin on exports by Vestas and the five other producer/exporters from India;

-A 2.25 percent countervailable subsidy rate for Vestas and all others that were not specifically investigated; and

-A 397.70 percent countervailable subsidy rate for the seven other producer/exporters.

The factsheet detailing these amounts can be found here.

In the anti-dumping investigation concerning whether Vestas and the other producers/exporters were selling or likely to be selling at less than fair value (“LTFV”), Commerce based its calculation of the dumping margin “entirely on the basis of facts available with the application of adverse inferences (“AFA”).” This decision was mainly due to a lack of documentation and cooperation from Vestas and the five other producers/exporters. Despite many briefs filed by parties opposing the use of AFA, Commerce upheld its Preliminary Determination and adopted it in full.

Notably, Commerce did not receive the necessary information from Vestas or the five other producer/exporters by the agreed-upon deadline. While Vestas did eventually submit the information requested, Commerce stated that it would only accept untimely filed information in extraordinary circumstances. Vestas argued that the COVID-19 pandemic had hindered it from timely filing its responses. However, Commerce noted that Vestas was using a U.S. based law-firm and that the filings were made by the law firm from the law firm’s U.S. office location. Therefore, the extraordinary COVID-19 impact in India was not affecting Vestas’ ability to timely file.

In the countervailable subsidy rate calculation, Commerce reversed its Preliminary Determination to use AFA to calculate the subsidy rate for Vestas. Commerce stated that for the Final Determination, based on the information it received in lieu of its onsite investigation, Commerce was able to investigate and verify all of the information provided by Vestas and “[agreed] with Vestas that use of facts otherwise available is no longer necessary because all necessary information is on the record.” However, Commerce maintained that AFA was the correct calculation for the other producers/exporters to calculate the countervailable subsidy rate due to a lack of cooperation. Specifically, none of the seven other producers/exporters responded to Commerce’s quantity & value questionnaire; therefore, Commerce held that AFA was the correct calculation because the companies “failed to cooperate to the best of their ability….”

The next step in this process will be for the International Trade Commission (“ITC”) to complete its investigation and make a determination “as to whether the domestic industry in the United States is materially injured, or threatened with material injury.” If the ITC decides that the domestic industry is being harmed, then Commerce will issue AD/CVD Orders and instruct Customs and Border Protection (“CBP”) to implement the duties described above. If the AD/CVD orders are issued, they will remain in force for a period of five years after which there will be a mandatory sunset review to determine the continuation of dumping and/or subsidization. Also, for the next five years, Commerce will continue to conduct annual reviews of the AD/CVD rates on an ongoing basis, which might be an avenue to providing relief for certain manufacturers and exporters.

_____________________________________________________________

Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

china

Biden Administration Shows Signs of Addressing China Trade Wars

On October 4, 2021, Ambassador Katherine Tai, the United States Trade Representative, addressed the state of U.S.- China trade relations and the upcoming plans for the Biden Administration to improve foreign trade policy. Since taking office in January, the Administration has spent time reviewing the trade policies put in place under the Trump Administration. There has been little movement until now as to the stance the Biden Administration would take, which created uncertainty regarding U.S. trade policy with China. Speculation grew as many questioned what would happen with the tariffs imposed on Chinese imports (under Section 301), how the administration would address the shortcomings of the “Phase 1” deal, and whether the product exclusion process would be re-instated.


Ambassador Tai’s announcement confirmed that the Biden administration plans to have direct communication with China to re-enforce the Phase 1 deal.

In her announcement, Ambassador Tai explained the history of failed attempts at a bilateral agreement with China and explained that this ultimately led to the U.S. taking a unilateral approach to trade with China by instituting the Section 301 tariffs in 2018. She emphasized that the U.S. is open to exploring all options and tools to enforce meaningful trade reform moving forward, but that a first step would be to hold China accountable for the commitments that it made to settle the Section 301 trade dispute. It is important to note that negotiations have just now re-commenced and that there is no concrete action that the U.S. has said it will take; therefore, any speculation in the media about increases in tariffs, any retaliatory action, etc. are just that – speculation. Husch Blackwell is monitoring these events and will provide regular updates.

The Administration plans to explore a targeted Section 301 exclusion process to provide tariff relief.

Ambassador Tai indicated that part of the next steps would be to consider new exclusion processes and other trade remedies to strengthen American competitiveness. In particular, USTR announced on October 5, 2021, that it is opening up an opportunity to comment on new exclusions for previously excluded items where the exclusions had expired. Comments can be filed between October 12, 2021 and December 1, 2021. Certain factors will be considered by USTR in deciding whether to reinstate the exclusion, such as:

-The product’s availability from other sources in the United States or other countries.

-Supply chain changes that have impacted certain products or industries since 2018.

-What efforts have been made by the importer since 2018 to obtain the product from the U.S. or other third countries.

-Capacity to produce the product domestically in the U.S.

-Whether any economic harm may result from reinstating the exclusion either directly to businesses, employers, or supply chains, and the impact of the exclusion overall.

There are ongoing discussions on opening the exclusion process to additional products, but any process for such exclusions has not yet been announced.

The Administration intends to address broader policy concerns.

A source of concern among American workers for years has been China’s use of subsidies and other non-market trade practices that create unfair competitive advantages. Ambassador Tai pointed out the impact of China’s harmful practices in the steel, agriculture, solar, and semiconductor industries, to name a few. Within the steel industry in particular, it was noted that China’s monthly production of steel exceeds the amount of steel produced in the U.S. for an entire year. In the solar supply chain industry, the Ambassador noted that China’s practices have led to it dominating 80% of global production in that arena. To address this, the Biden Administration plans to address issues such as overcapacity and create additional opportunities to discuss issues that were not included in the previous agreement. If the U.S. and China cannot reach some resolution, it could mean new trade measures to address these concerns in the future. For now, the Administration is focused on working with its allies and collaborating with the G7, G20, and the WTO.

_________________________________________________________________

Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell. He leads the firm’s International Trade Remedies team.

Jasmine Martel is an attorney in Husch Blackwell’s Houston office.