Canadian business leaders greeted President Trump's announcement that the exemptions for Canada (and Mexico) from the double-digit Section 232 tariffs on certain steel and aluminium imports will be extended by an additional month or until May 31 2018.
What happens next is anyone's guess. That in and of itself is disturbing, especially for the hundreds of companies across Canada that produce, distribute or consume these critical sources of raw materials, let alone the thousands of companies in the United States and Mexico that must be able to rely on long-term and uninterrupted supply commitments.
The US Customs and Border Protection (CBP) has already taken a strong enforcement approach to ensure that importers do not try and evade these new tariffs. No countries or companies are immune to this.
In an April 10 2018 interview, CBP Executive Director of Trade Policy and Programmes John Leonard signalled that, various country exemptions aside, the CBP will scrutinise all imports from all countries.
When asked how the agency will enforce these new tariffs, Leonard made clear that the CBP has many new and powerful tools in its arsenal to detect efforts to evade these tariffs, including technology and import audit powers. Specifically, he warned that the CBP will be focusing on product classification, valuation and country of origin declarations. "Classification is a way to play with it, valuation as well but these are things we will have to look at", he stated.
Leonard's colleague, Executive Assistant Commissioner in CBP's Office of Trade Brenda Smith, furthered that: "I think we are ready (for these new tariffs) with our regulatory auditors, and our import specialists are on the alert, our National Commodity Specialists certainly are very engaged".
These remarks should not be surprising. Chilling perhaps, but not new news. They should however underscore that the CBP will be closely watching for instances of tariff evasion by companies masking import declarations or using exempted countries as transhipment avenues.
Trade compliance and company prestige have become the new corporate risks for many business executives. The US marketplace is not the market of 1994. The pending North American Free Trade Agreement (NAFTA) re-write, possible new US tariffs on imports from China, the use of Section 232 tariffs and possible product expansion will cumulatively focus renewed attention on import transactions from all countries and all products.
No company should feel comforted by any talk of exemptions. Everyone should be taking steps now to protect their audit risk exposure during the messy months ahead.
Audits are expensive and intensely resource consuming, even when no fraud activity has been found.
These are turbulent times and company executives will need to stay well apprised of their cross-border transactions and take all necessary steps to mitigate the risk of border delays, import audit or NAFTA verification.
The trade community is in crisis mode. Executives must manage that crisis. When the call comes from the truck driver at the border or the notice from the CBP arrives at the company, executives will want well informed and thoughtful response options.
Smith could not have made the point any clearer: "There's not a lot of places you can go to evade."
For further information on this topic please contact Birgit Matthiesen, David Hamill, Teresa Polino or Emily Leongini at Arent Fox LLP by telephone (+1 202 857 6000) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Arent Fox LLP website can be accessed at www.arentfox.com.
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