Trump, Trade and 2017 #1

I know I promised to do a piece on Trump and his potential impact on global trade in 2017. The problem is, everyone beat me to it! No really – I lost count of how many trade compliance law and consulting firms aired web casts and blog posts about “2017, and the impact of a Trump presidency” (or something along those lines) …. To be honest, I feel a little silly just sending out a “me-too” post about what the Trump Presidency will mean for global trade.
With that said, I think the most value I can offer my readers is a closer look at specific issues, and what it will mean to the rank and file involved in trade compliance. Enough talks, posts and presentations have already covered the potential future of NAFTA, TPP and TTIP, but maybe I can offer some more personal insight, for those responsible for compliance with such programs.
The first one I’d like to cover is the big umbrella term of “Buy American”. As anyone involved in US Government procurement knows, there is more than simply one governing piece of legislation, and many relevant regulations, regarding “Buy American”. The key ones I personally encounter most are:

- 48 CFR 225 “Buy American” provisions, enacting 41 U.S.C. 83, found in the Federal Acquisition Regulations
- 49 CFR 661 “Buy America” provisions, enacting 49 U.S.C. 53
- Other US origin procurement rules at the State level
- Municipal procurement funded by the Department of Transportation and as such subject to 49 CFR 661

These programs often differ and have unique requirements, but the consistent theme is an attempt to push publicly funded procurement to solicit US origin goods. Readers quite likely have run into other programs not listed above, but similar in intent.
There is one other key factor to mention, and that’s the Trade Agreements Act. Under the Trade Agreements Act there must be provisions for the sourcing of non-US goods if they are eligible for a signed Free Trade Agreement. For example, there are provisions in the Buy American rules for the acquisition of NAFTA eligible goods. Buy America (49 CFR) does not allow for TAA exemptions, but has a much more limited scope applying to Transportation projects.

With all of the above in mind, what can we expect to see in 2017? Well, a recent tweet from the President elect offers a little clue:

https://twitter.com/realDonaldTrump/status/814484710025994241?lang=en

For those without Twitter the tweet actually only contained a link to an Instagram post, which is the important part:

https://www.instagram.com/p/BOmuafXjnVB/

“Buy American and Hire American”.

If that doesn’t offer you a clue than you’re thinking this through too hard. What exactly can or will his administration change? To be honest: just about anything they want to. The Trade Agreement Act could be scrapped/modified. The core procurement rules themselves can be made stricter. Most importantly, enforcement can be ramped up ensuring that existing rules are enforced 100% of the time. That’s the first thing the executive branch can do, with no help from congress: just enforce existing rules.
Since I mentioned congress, a quick note on that. Anyone thinking that a push for increased protectionism regarding procurement will be blocked by the Democrats, should think again. Here’s why:

Recently the Democrats chose Chuck Schumer as minority leader of the Senate. Senator Schumer is a name I recognize, and the main reason was the following link:

https://www.schumer.senate.gov/newsroom/press-releases/schumer-feds-are-currently-listing-flatware-and-other-products-made-by-companies-as-american-made-when-they-are-actually-produced-overseas-putting-companies-that-manufacture-in-us-like-sherrill-manufacturing-in-central-ny-at-a-disadvantage_senator-pushes-feds-to-review-made-in-america-listings--immediately-remove-companies-that-are-falsely-listed

Have a look at that press release, and ask yourself if it’s likely the Democrats would challenge any effort to strengthen Buy American provisions. Furthermore, remember Bernie Sanders? He is now arguably a very influential force within the Democrats. Here’s what he has to say about working with a Trump administration on trade:

http://www.washingtontimes.com/news/2016/nov/17/bernie-sanders-i-could-work-donald-trump-infrastru/?utm_source=RSS_Feed&utm_medium=RSS 

What’s the bottom line? We have an incoming administration that is advocating for more Buy American. We have a Republican majority in both houses which (in theory) will work with the President. We have a loyal opposition that is showing no signs they will oppose Buy American efforts. Sounds like a slam dunk to me. If I were you, and you have any exposure at all to US government procurement and associated protectionism provisions, I would get up to speed fast. I predict 2017 to bring us an increased amount of requests related to Buy American. If there’s any doubt you understand them or are ready to comply, make that a New Year’s Resolution to fix the situation.

Oh, and it may also be worth watching how Canada responds, as this develops….

Happy New Year! And I look forward to sending more posts in the 2017! It's truly an exciting time to be involved in international trade compliance!

An unexpected outcome of the rise of populist protectionism?

Anyone paying attention has noticed a significant trend this year in Western politics: protectionism. In international trade references, the definition of “protectionism” is:

“the theory, practice, or system of fostering or developing domestic industries by protecting them from foreign competition through duties or quotas imposed on importations”[i]

I can cite several examples this year of protectionism in Western politics:

1.       The “Brexit” vote by Britain to leave the EU

2.       The appeal of Donald Trump’s anti-free trade message in the USA

3.       The rise of the National Front in France

In case you are getting worried – don’t! I will not be making any comments on the value of any of these political movements! This is a trade compliance blog, and I intend to leave it at that…. This political movement is real, and I just want to focus on what impact it may have on us trade compliance folk.

With that said, you have probably already formed a conclusion about where this is going: clearly he is going to talk about free trade, specifically the TPP and the TTIP, right? Well, as much as that deserves its own post (hmmmnn…) I actually wanted to talk about something a little different: existing US country of origin product marking regulations.

Many in our industry can recite from memory the country of origin “marking rules” found in 19 CFR 134[ii]. These rules govern what country of origin must be shown on an imported foreign good, and how that needs to be shown. These rules explicitly only apply to goods of non-US origin (19 CFR 134.11 directs an importer to ensure that any “article of foreign origin” is appropriately marked with the country of origin). These regulations actually make no requirements or even offer guidance about the marking of a US origin good. Does that mean that you are free to mark a US origin good however your marketing group prefers? Not according to the Federal Trade Commission (FTC).

According to the FTC, for most items of US origin[iii], you have absolutely no obligation to state that US origin. However, they caution that if you choose to do so, then the “FTC Made in USA standard applies”. I fear that too many businesses are making claims of US origin on their packages, without fully understanding this FTC standard.

The FTC standard for a Made in USA claim is extremely strict. Their standard is:

“For a product to be called Made in USA, or claimed to be of domestic origin without qualifications or limits on the claim, the product must be "all or virtually all" made in the U.S”[iv]

What does this mean? It means that:

“all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no — or negligible — foreign content.”

I don’t know about you, but I have a feeling that a walk around your local big box retailer will find many items marked “made in USA” that actually contain more than a “negligible” amount of foreign content…. So how can this be? Surely any businesses in violation of the requirements would be penalized and ordered to change their label? The truth is, the FTC has not enforced this standard very much historically. A quick look at the press releases in the FTC web site will show you that they have a long way to go, to catch up with other trade regulating agencies like BIS, Customs and State in the enforcement game….

Ok, so you can take a breather right? This is not a big deal. Well, historically that may be true. However, in an environment of increased protectionism, and public distrust of globalisation and multinational corporations, can you be sure these rules will continue to be ignored? As we have seen with the recent US Customs seizures of goods manufactured with forced labor, sometimes the rules don’t need to change: they just need to be enforced more (See here: http://intltradecompliance.blogspot.ca/2016/04/import-controls-on-products-produced.html).

I think now is an excellent time for any company making US origin claims to have a good look at their products and ensure they are compliant. Waiting for the political winds to change is not great risk management, in my opinion…. Something else to keep in mind is the recent rise of False Claims Act enforcement. This sure sounds like a pretty close fit with the False Claims Act, and those penalties are significant.

Oh – and one final parting shot. If you make products that you sell globally and need to mark their US origin for other national requirements (i.e. Canada or Mexico country of origin marking rules) you have a real decision to make. Do you make two separate skus? (One with “Made in USA” on it and one without) Or come up with another creative solution? Whatever your personal solution, I recommend you start thinking about it now: 2016 could be a big deal in trade compliance.

Kevin Riddell

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[i] http://www.dictionary.com/browse/protectionism

[ii] http://www.ecfr.gov/cgi-bin/text-idx?rgn=div5&node=19:1.0.1.1.28

[iii] As they state at the following link, some products of US origin such as textiles are in fact required to state their origin due to other regulations: https://www.ftc.gov/news-events/media-resources/tools-consumers/made-usa

[iv] https://www.ftc.gov/tips-advice/business-center/guidance/complying-made-usa-standard