U.S. President Donald Trump has signed two executive orders on trade which could have important implications for the shipping industry. The thinking behind the orders is to attack the U.S. trade deficit as well as address some of the long-standing issues surrounding the abuse of trade laws. The two orders broadly concern the enforcement of antidumping laws and countervailing duties.
The U.S. has been accusing China (directly and indirectly) of breaking anti-dumping laws. These executive orders were announced by the White House just before the US President was due to meet his Chinese counterpart Xi Jinping.
Executive Order Number 1: Antidumping
Dumping is a practice in international trade where one country (in this case China being an implicitly named country) exports goods and services at prices which are not competitive. This price undercutting means that the locally manufactured goods (say in the U.S.) end up losing market because there are cheaper alternatives from a foreign market.
Existing statistics indicate that the biggest U.S. trade deficit is with China so it is not unreasonable to conclude that the President had China in mind when signing the order. The timing may raise some eyebrows but there is no doubt that it makes sense when consideration is given to the existing trade dynamics.
As a preamble to the orders, the President highlighted the existence of up to $2.3 billion worth of countervailing and antidumping duties which the U.S. government has not been able to collect since 2015. Such figures represent a violation of the rules of the game and a loss of revenue to the US government. The U.S. Customs and Border Protection (CBP) is the one that is responsible for enforcement and evasion issues in this field.
By the end of 2016, CBP had seized more than 31,500 counterfeit shipments leading to nearly $40 billion worth of fees, taxes, and duties. This means that the CBP is in effect the second most important revenue source for the US government. The order references the property rights law as justification. For the shippers, this means that they are liable for some of the fees and fines. At the same time; they face the real possibility of significant delays at ports as the CBP undertakes its verification and validation exercises. Importers must now pay attention to the implications of the orders in addition to the standard laws or rules of procedure.
Executive Order Number 2: Countervailing duties
The second issue focuses on duties and some of the measures that are taken in order to avoid paying them. Whereas the President is at pains to emphasize the importance of free trade to the security and prosperity of his nation; he is also concerned that the current arrangements are putting his country at a disadvantage. The order is meant to ensure enforcement of the existing laws as well as improving the conditions for international trade. Currently, the trade deficit in goods is over $700 billion whereas the overall deficit was over $500 billion by the end of 2016.
The order instructs various government departments to prepare an Omnibus Reports on Significant Trade Deficits for the President to review. Those trading partners (countries) with which the U.S. holds a significant trade deficit may face certain measures. These include identification of causes of the deficit, assessment of culpability on the part of the trading partner and an examination of the impact on the U.S. economy. In effect that might mean that further measures are imposed on those nations that are found to be culpable of encouraging the growth of trade deficits with the U.S.
One of the important definitions for the shipping industry within the orders is that of a “covered importer”. These are entities that will be required to pay all the security liability bills and fines on imports. This could significantly increase the cost of doing business in the shipping industry. For example; they may be required to pay a security deposit which is subject to forfeiture if found to be culpable in dumping or countervailing activities. The mechanism for these security deposits include bonds and a host of alternative legal measures.
An at-risk criterion will be developed in order to identify those importers that are liable. There are three major criteria that determine whether one is a covered importer:
- If the importer is a first-time importer
- The importers past record on failing to pay antidumping and countervailing duties
- General risk based on other factors relating to the nature and record of the importer
Some have referred to this as a sort of credit scoring system for the shipping industry. The newest importers are going to face the brunt of being assessed as being a covered importer. That might discourage the smaller and newer shipping industry players from taking advantage of the US market. Given the fact that the U.S. is one of the biggest exporters and importers of shipped goods; it seems that compliance will effectively be compulsory.
One of the areas of contention might be whether those long established freight forwarders or even NVOCC will be assessed under the same criteria despite their record. Certainly, this is an additional requirement for participation in the shipping industry whose effects are not yet fully understood. Those who are currently operating in the shipping industry or hoping to join it need to understand how the two executive orders will affect their operations. They also need to take precautions and preventative measures accordingly.
First of all; shippers must not panic. This is one of many rules and regulations that govern import and export trade. Secondly, they must study the country of origin and destination so as to ensure that they are not missing any rule that could affect their operations. Where appropriate; shippers must raise contingency funds or make insurance arrangements so that they are covered just in case the U.S. assesses them as being a covered importer. Some of the resultant costs might need to be calibrated within the pricing structure of the industry.