As the U.S.-China trade war escalates, corporate legal departments are growing increasingly interested in finding ways to avoid getting dinged.
“The number of clients we have is going to multiply tenfold. There are going to be a lot of people looking to deal with this,” Ronald Oleynik, head of the international trade practice at Holland & Knight in Washington, D.C., predicted. He spoke with a reporter shortly after China clapped back Tuesday at President Donald Trump’s proposal to impose a third round of tariffs on $200 billion in Chinese imports. If that happens, the U.S. will have imposed tariffs on about half of all imports from China.
China vowed that it would slap tariffs on another $60 billion in American products if Trump’s proposal takes effect as planned on Sept. 24.
The initial round of tariffs applied to industrial and high-tech products from China as part of a reported effort to quell intellectual property theft. But the latest action casts an extremely broad net into an equally expansive pool of U.S. companies that are now seeking advice.
They primarily want to know how they can get the products they import from China excluded from the tariff list, Oleynik said. “Clients are asking, ‘What are the criteria and do we have a case?’” he said.
“My answer is that the criteria are difficult. If you’re the right U.S. company with the right facts—you’re going to lose many employees, it’s going to hurt the company … you can put in an application for an exception,” he added.
Instead of focusing solely on getting an exclusion, Oleynik has been advising companies to focus more on bringing down value-based duty rates. Those rates have been relatively low, about 2 percent to 2.5 percent on average, according to Oleynik. But he said it’s now worthwhile to consider ways to reduce the value of imported goods for customs purposes, including reduced duty rates.
“You’ve got to do it legally and the rules are complicated,” he said. “But one way is, you don’t have to declare the value of U.S. components.” For instance, if a company imported a speed boat from China that had a motor made in the U.S., it could deduct the value of that engine from the overall customs value of the boat, thereby bringing down the duty rate, according to Oleynik.
Companies are also getting more serious about the possibility of importing products from other countries, according to Oleynik and Judith Alison Lee, an international trade lawyer and co-chairwoman of the international trade group at Gibson, Dunn & Crutcher in Washington, D.C.
“In the beginning, people were hesitant to look elsewhere. They thought this was going to blow over,” Lee said. “Now, they’re looking at Vietnam and other countries for sourcing.”
“The ability to re-source in this kind of trade war takes a fair amount of time, as it does for most integrated components,” she said. “There’s quite a bit of investment that has to come in to re-source. It takes time.”
Loeb added that companies should be “looking at this from a component-by-component basis.”
“Some of these components have been carefully engineered and tested,” she said. “You can’t just plug in one widget for the next.”