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The large-scale shift to telework brought on by the COVID-19 pandemic is prompting businesses around the world to explore new avenues to engage with clients and friends. Harris Bricken is no exception, and we are proud to announce our new podcast series: Global Law and Business, hosted by international attorneys Fred Rocafort and Jonathan Bench.
If you have comments on this episode or if you’d like to suggest topics for future episodes, please email globallawbiz [at] harrisbricken [dot] com.
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This podcast audio has been transcribed by an automatic transcriber.
Fred Rocafort 0:07
Global law and global business go hand in hand, but never seem to keep pace with each other, developing and developed nations wax and wane in their importance in the global stage while consumption and interconnectedness both increase, laws and regulations change incessantly, requiring businesses to stay nimble. How do we make sense of it all? Welcome to Global Law and Business hosted by Harris Bricken International Business attorneys. I’m Fred Rocafort
Jonathan Bench 0:37
and I’m Jonathan Bench. Every week we take a targeted look at legal and economic developments in locales around the world as we try to decipher global trends in law and business with the help of international experts. We cover continents, countries, regimes, governance, finance, legal developments, and whatever is trending on Twitter. We cover the important, the seemingly unimportant, the relatively simple and the complex.
Fred Rocafort 1:02
We hope you enjoy today’s podcast. Please connect with us via email and social media to comment and suggest future topics and guests.
Today we are joined by Andrea Holtan, an adjunct professor at the Albers School of Business and Economics at Seattle University, where she has taught international marketing since 2012. Andrea is a licensed customs broker, and has been working in the field of international trade for over 20 years. Currently, she is the president of Rafiki Trade Group, consulting with international companies on US import and export laws. Previously, Andrea taught business ethics at Daystar University in Nairobi, Kenya, and she has also taught through Bible study fellowship for 16 years. She enjoys teaching, and mentoring students to be excellent ethical leaders. Andrea holds an MBA from Seattle University, as well as a BA in finance from Seattle Pacific University. Welcome to Harris Bricken’s Global Law and Business podcast.
Andrea Holtan 2:10
Thank you. It’s a pleasure to be here with you.
Jonathan Bench 2:13
Andrea, welcome. We’d love to kick things off by asking you to describe your career trajectory. And could you please explain what a customs broker does for listeners who might be unfamiliar with that?
Andrea Holtan 2:23
Sure, absolutely. I must say when I first started school, back in the late 80s, I really didn’t know exactly what I wanted to do. But I wanted to do something in business and I wanted to do something with people and, and helping. And I started out as an accounting major, and realized that I just could not be an accountant for the rest of my life. So I switched to finance and from there started into working with banking, and then landed my first kind of big job with a Japanese Import Export company. And that’s really where it all started. The company was Pac-Maru, which is a subsidiary of the second largest seafood company in Japan, Toyo Suisan Kaisha. And I worked for them for several years. And during that time, I learned Japanese I was the only woman and I was the only American in the office. So really was a part of that culture, and got my MBA, and then realized that I was really drawn to teaching. And so with with their support, I ended up taking what I thought would just be a year off to go teach and got a job in at Daystar University in Nairobi, Kenya. And I taught there for about a year and at the same time, on my off time worked with an NGO world concern doing project cost based analysis. And during that time, I really was helping import export, I was helping with cultural understanding, I was working with veterinarians and actually learning about goats and chickens and cows. And it was an amazing experience that I’m so thankful for. But when I came back to the States, I had a lot of other things going on. And I decided to put kind of the teaching thing on hold. And I started doing some consulting and ended up getting hired by Costco Wholesale to be their compliance manager and eventually director and I was in charge of all Import Export compliance for North America. And it was really during that time that I became a licensed customs broker and started fully developing my understanding of compliance and how it was working in that in the global trade environment.
Fred Rocafort 4:50
So Andrea, just for our listeners who might not be familiar with the the role of a customs broker, could you could you tell us a little bit about what what occurred broker does and how their functions differ from, say, customs attorney or other trade professionals. And I’d like to point out that one of our colleagues took the exam last week. So we’re all anxiously waiting for, for her results to come through.
Andrea Holtan 5:19
Well, that’s excellent. It’s, it is quite the exam. So it’s been a federally licensed customs broker, you have to understand, you know, the the import and export regulations, the import regulations really. And there, when I took it, I think there was a 7% pass rate. So it’s, it is quite the exam. So hopefully, she will, she will do well, I’m sure she will. But being a licensed customs broker, it gives you the authority to import and export product over the borders of the US. So you have to be an American citizen in order to be a licensed customs broker. And you have to have a very thorough understanding of all of the codes and laws, doesn’t mean I can’t go into a courtroom, I could be a witness. But being a customs broker, it also allows you to petition the government on behalf of an importer, to change a classification. And I’ll probably talk about that more fully. But every item that’s brought into or out of the US has a 10 digit classification code. And that code determines the duty rate or other laws regulations that would apply to that product, including, we’re going to be talking about dumping and anti dumping, I think later. But you have to have a thorough understanding of classification of different trade agreements, and how to get that product in and out of the country successfully, efficiently and compliantly.
Fred Rocafort 6:55
We’ll be coming back to trade issues later in the podcast. But before we do that, given our interest in Africa, we we’ve had a couple of guests already who have who have talked about different regions of Africa, we just have to ask you about your experience in Kenya, how was that experience? And what are your thoughts on where Kenya and perhaps the region, the continent more broadly are heading?
Andrea Holtan 7:24
So I’ve always had a really a love of Africa, I would say, and so I was, I was privileged to go my first foray into to Africa was in 1988, into South Africa working to abolish apartheid, we went in, and we did a lot of training and cultural training in South Africa. And that was a real real privilege to be able to be a part of that. And so when I had the opportunity to go back to Kenya and teach, I really jumped on it. Africa is, it’s amazing, the people are amazing. You know, just I love the culture and the, the feeling of community. That is in Kenya and there there, I still feel like there’s so much untapped potential. You know, in when I was there, it was, you know, back in 98. So there was still, you know, phones were very unreliable methods of payment, were still very archaic, super high crime. And, you know, a lot has changed since then. So, you know, for example, you know, in 2019, Kenya’s economic growth average, I believe, about 5.7%. It was one of the fastest growing economies in Sub Saharan Africa. And we’re seeing increased economic expansion. There’s a resilient, I would say, confidence that’s happening in East Africa, especially right now. I think the when the new constitution came into Kenya in 2010, a lot of things changed. There became a different type of judiciary and electoral body. And so I think a lot changed in 2010. And we’re seeing the results of that now. Of course, we know with COVID that they’re that Kenya has been hit hard, as most of Africa has. There is, you know, the the supply and demand shocks. There’s the interruption of the supply chain. We’re seeing, I’m sure you’re aware of the Locust attacks, which started in early 2020. They affected many parts of Kenya, especially the Northeast, and it’s had a negative impact on the food security and growth of the agricultural sector. And so, we’re actually seeing the the real GDP decelerate which is just kind of heartbreaking actually to see this. But, you know, I do believe that once a lot of this is under control that that we will see a bounce back. Because I think that, you know, we know the World Bank is supporting Kenya’s pandemic response and doing emergency funding. So, I think I think that there’s still a lot of good things that are on the horizon for them.
Jonathan Bench 10:22
So let’s turn back to international trade. We do quite a bit of work at our firm involving the section 301 tariffs. But it’s really the first time that we’ve had a trade specialist on the podcast. Could you explain what the section 301 tariffs are? Why they were imposed on so many Chinese products? And then also what’s the practical impact on US companies and consumers? Do you think we can expect a change in policy in the aftermath of the November election under a Trump two, or the Biden administration?
Andrea Holtan 10:51
Well, we know that the section 301 tariffs, the investigation started, I believe it was in August of 2017. And they began to investigate really, China’s acts and policies and practices mainly related to technology transfer, intellectual property and innovation rights. And then in March of 2018, the President issued his memorandum about whether or not they were going to increase it. And then of course, we know that in 2018, they did. And there’s four separate lists that came out, the first list came out. Now, these are lists of classification codes. And these, each classification code is related to a different type of product. So the first list came out, I believe it was about worth about 34 billion in trade action. And the point of this was trying to basically put pressure on the Chinese government, and on their policies related to these technology transfers and intellectual property. And then we saw another list come out because they didn’t really see full compliance. And then the third, list, and the fourth list come out. So it’s basically additional duty rates on top of current duty rates. So if you’ve got a product that’s coming into the US, and it’s most favored nation duty rate is 10%, we’re gonna see in some of these lists an additional 15 to 25% duty, on top of that, 10%. So what ends up happening is it makes it very, very costly, then to import that product. And, you know, in some industries, the hope, I think, was to look more towards domestic production. But But some of these things, we don’t really have any domestic production anymore. So that that’s a huge issue. And I will say, in March of 2020, they went into the list, and they excluded medical care products that needed to be dropped to address the covid 19 outbreak. So they did take those products off the list. And they were excluded from any additional duties. And the practical impact is just everything for expensive. Um, and of course, we know that these companies are passing along those costs to the consumer, making other products more expensive. So they did allow companies to apply for exclusions. So a lot of companies that I worked with, asked me to help them to file for an exclusion for against additional duties, saying, basically, we can’t produce this in the US or we can’t get this from anywhere else. This is proprietary to this factory, or it’s proprietary to, you know, this manufacturer, we need this. And, and the government has allowed quite a few exclusions from these additional duties. The other thing that’s happening right now is the the last two lists, so list three and list four some companies are calling that it was an illegal action. And so some companies are joining a coalition of other companies petitioning the government to not only stop the additional duties, but actually to refund duties that have been paid for products coming in under list three or list four. and can I expect a change? I don’t know, honestly, under Trump two or Biden, not under Trump two for sure not. And under Biden, I don’t know. You know, I think the underlying policies for this, I understand, but if, if Biden is going to turn around, he’s already said he’s going to reverse some things that the Trump administration has done. He may try to do that.
Fred Rocafort 15:03
Well, I can tell you from from some of our experience applying for for exclusions, but also just tracking what the US Trade Representative is doing in that regard, I think the consensus is that there’s very little in the way of logic to, to what is being done. Obviously, as Sandra mentioned, after the pandemic started, there was a focus on medical products and products that that were connected to the to the, the response to to COVID. But But beyond that, at least, at least as my personal experience there, there really is very little, by way of a unifying thread. You know, you you look at some of these exclusion requests that have been that that look, you know, well drafted, and certainly well supported. And then you look at some others that don’t seem to have been drafted with with a lot of care. And yet the results are, are sometimes very unexpected. I I, I imagine that part of it is simply the the particular examiners that are looking at things that are maybe maybe coming up with their own criteria. But yeah, that at least has been my experience. Andrea, I don’t know if that sort of squares with what you’ve seen that there does seem to be a sort of mysterious quality to what’s going on at USTR.
Andrea Holtan 16:42
And I completely agree, such a wide variety of items. And there doesn’t seem to be a consensus and, and even how, seems like a beat, if you go through the exclusion process, and you jump through all the hoops, then they’ll exclude your product.
Fred Rocafort 16:57
Sticking to trade. Our firm also does a lot of work, representing clients that have been impacted by anti dumping and countervailing duty petitions, sometimes the foreign producers, sometimes US importers. Could you explain to our listeners in general terms, what, what anti dumping and countervailing duties are for? And what what trends, if any, are you seeing in the way that that these duties are being imposed by by the US government?
Andrea Holtan 17:32
Well, of course, we know that anti dumping, dumping occurs when foreign manufacturers sell goods in the US at less than fair value. And I would say significantly less than fair value of what I’ve seen. So for example, when I was working at Costco, we would get these surveys of at least a couple times a month, citing a product that a US manufacturer had went to the government and said, hey, you know, this products being dumped into the US and I’m losing my business. And so then the government sends out these surveys to say, So who are you buying from? Where are you buying it from? And what are your prices, and importing into the US is a privilege, it’s not a right. And so the government can really control what’s happening and importing and exporting. And so you’re required as an importer to fill out these surveys. So we would fill them out. And with dumping, it’s, it’s really company specific. So they, they look at what each company is doing. So you may have one company that’s dumping in another company that’s not dumping, for example. And then what’s going to happen is the industry is found to indeed be dumping product into the US market at less than fair value. Then the US government will flag that HTS number that classification code, and they will say, okay, for this product, it’s being dumped into the US. And then companies specific, they will actually assign an additional duty specific to that company. So let’s say you have the industry is dumping but you’ve got three companies coming out of all just say Canada, because dumping happens all over the world we have we have dumping anti dumping orders against companies and you know, every time every country, pasta, Italy, tomatoes out of Canada, tissue paper out of China, chlorine out of China, just you know, it’s really is worldwide. But let’s say we’ve got you know, three companies out of Canada that are dumping tomatoes, and one is really undervaluing their product and the other one is not, well, the one that’s really undervaluing their product, the government can say okay, so for you. The duty rate is now 420%. But for the company that’s not doing it so much your increased duties 50% So what they end up doing is, you know, who’s going to pay 420% of the value. I mean, now you just made the product just way too low. And they watch to see if there’s any type of discounts. Or if the company says, Well, I’ll charge you higher, but you can pay me back. You can’t do that either. So that’s really dumping. And it does hurt US businesses and US manufacturing. And the government takes it really, really seriously. And these anti dumping orders can last. For a long time, I think ball bearings are still under an anti dumping order. And that’s, that’s been decades that that’s been on the books. And the other problem with dumping is if you bring in a product that’s subject to anti dumping that entry, you have to keep all the documentation on that entry, in perpetuity, like forever until that anti dumping order goes away, which they don’t have a tendency to go away. And so you have to keep all the paperwork and it stays open. And what I mean by that is it never liquidates. What I mean by that is that, at any point in time, the government can come back and change the duty rate that you paid. So you purchase this product, you bring it in, you sell it, you make some money on it. And then five years later, they say, Oh, actually, we need 10% or 100% more duty on that product, well, that you’ve already sold that product, you don’t have the profit from that product anymore, you can adjust the price because it’s already all sold.So I always talk with my clients, and I really encourage them not to be the importer of record, if there is a product that’s subject to anti dumping, because it’s just really, really risky to have just that risk sitting out there that can come back and bite you later. And of course, countervailing is a little bit different countervailing is when a foreign government provides enough, like a subsidy or tax benefit for their manufacturers to sell their goods more cheaply than a US manufacturer. And we are seeing that actually right now with Boeing, and Airbus. So we just saw on the news, just this week about how the EU is talking about raising and doing countervailing for Boeing planes coming into Europe, because the US did that for Airbus planes coming into the US. Um, so in both the situations of dumping and countervailing it really leads to the foreign undercutting of us manufacturers prices, and it does for us manufacturers. So countervailing duties are determined on a country specific level, because it’s the government’s that are supporting the manufacturers. So it really is more of a government and country specific level. And the increase in duty rates is supposed to really counteract that subsidiary or foreign government assistance value. It’s supposed to level the playing field, and the trends, especially under the Trump administration, we’re seeing increased focus.
Fred Rocafort 23:06
You bring up a couple of interesting points that I think are worth worth highlighting. First of all, like, as you said, the anti dumping and countervailing duty orders really do cover a broad range of products, and also countries of origin that that really span the globe and are in no way limited to, let’s say, quote, unquote, trade adversaries of the US, Canada, for example, Mexico, countries, which we have a healthy trade relationship, without some of the issues associated with with China, in particular. And, you know, when when these orders come out, right, I mean, you sometimes see these long lists of countries, small countries in Europe, countries in the Middle East, it’s very, could be counterintuitive, perhaps for some, and the other thing I just wanted wanted to mention is that this is not a the US is not the only country in the world that that has these trade remedies. So, um, as you alluded to, I mean, US products can find themselves on the, on the pointy end of the stick when it comes to anti dumping and countervailing orders, but also there are often actions between between third countries, right? So let’s say for example, Brazil might Institute proceedings against certain products from from China, you know, countries, countries in Europe, of course can can can have these these proceedings against third countries, so it’s not a uniquely American phenomenon.
Andrea Holtan 24:56
Jonathan Bench 24:58
I’ve got a side question now. got me thinking about the the idea of precious metals, right. And we know China is a leader in certain kinds of precious metal extractions, in part because China’s one of the only countries willing to go through the environmental degradation to get those elements out of the earth. Do you think that, that the, you know, tariffs or other other trade related policies can be a mechanism to help other countries that want to step into that supply chain where China very much has a stranglehold on on some of the key elements, for instance, that go into our, our ubiquitous technology products?
Andrea Holtan 25:40
You know, I do, and the US government also has, you know, their GSP program, of course, a lot of countries do, but with the, the GSP, generalized system of preferences, it really isn’t an aid program, where if products are wholly mined, or manufactured in a country, that is a developing nation, oftentimes, that product can be brought in duty free. So Kenya is a member of GSP. And so we see quite a few products being brought in from Kenya under the GSP program. And I think that that could be a way by either using the GSP program, or, or again, making the product coming out of China so expensive, that then us manufacturers are forced to look somewhere else.
Jonathan Bench 26:31
So sticking with China. Now, the issue of forced labor has been in the news quite a bit lately, especially involving workers from ethnic minorities. And it’s really becoming probably the major sticking point now in the bilateral relationship between the US and China. So in addition to the obvious human rights concerns, we’ve got implications for trade policy, can you tell us about the response of the US government and what additional actions might be taken against Chinese entities?
Andrea Holtan 27:00
Well, under Section 307 of the Tariff Act, it actually prohibits the importation of merchandise mine produced or manufactured wholly or in part in any foreign country by forced or indentured labor, including forced child labor. And so the government, when they find out about these things, that merchandise is immediately subject to exclusion or seizure. And it can lead to criminal investigation of the importer, if the importer had any clue that this was happening. And so we are seeing this being a more focus of Customs and Border Protection. Right now, we are seeing more inquiries into it for sure. China’s a little bit harder. I know that Stevia was found in actually August of this year, have a bringing in imports made with forced labor out of China. And I believe CBP collected funds in excess of about a little over half a million dollars from Stevia. And then in 2019, out of China, it’s called a withholding release order. But it basically prevents merchandise from coming in. And this was from a group called the Hero Bast Group, they import garments. But they found out that they were being manufactured with prison labor, in China. And so, I mean, there’s a cup, those are a couple examples of China, and where the government’s been able to, you know, ascertain that indeed, these products were being used with forced labor. And like I said, it’s really is becoming more of a focus for Customs and Border Protection right now. And if you go onto the CBP website at cbp.gov, it actually has information on companies in specific countries that have been found to use force labor. So importers really need to do their due diligence and make sure they’re not contracting with any of these manufacturers. They need to have boots on the ground, they need to have people that go out and check these factories. And, and really confirm that, that their product is not being made with forced labor.
Fred Rocafort 29:15
Absolutely. This this is a point that we try to drive home when we, when we talk with our clients. And just more broadly, when we write about about China on on our blogs, and and through through this podcast, as you pointed out, it’s certainly an issue that is increasingly in in on cbps radar. And I think many companies really underestimate the risks. They they also underestimate the possible consequences. One very common reaction that companies have is to say, Well, you know, we don’t we’re not manufacturing in Xinjiang. You know, we’re we’re not there. This is not going to be a problem for us. And I mean, number one, as you pointed out, there are issues involving convict labor which which can track which do transcend any any particular location with within China or any particular group, right, there have been instances of prison labor all over China. Also the fact that it’s not limited to factories in these hotspots, it’s well documented that there are factories elsewhere in China that are, quote, unquote, employing employees from shinjang, at locations elsewhere. And moreover, even if you’re, even if the manufacturer with whom you’re dealing appears to be clean, they’re part of a larger supply chain, right, as a as a company, as a responsible company, you really have to look deeper into your supply chain, and not just at that one factory with whom you’re dealing, right, you have to look into where they are getting their, their, their components or parts. So definitely a very, very critical issue for for American companies. So before we finish, we’d like to ask you for any recommendations that you might have for our listeners, whether something you’ve read or something you’ve listened to, or something you’re watching on Netflix, anything that you really think is worth sharing, we would we would welcome those those recommendations?
Andrea Holtan 31:29
Well, I would say, you know, kind of leaning on on what we were just talking about, even with forced labor, you know, things can happen that you that you don’t see coming necessarily, so you, you have to exercise what customers would calls reasonable care. And that is making it very clear to all of your suppliers and manufacturers what your expectations are. And, you know, there’s CBP has some good documentation on their website. The USITC is where I go for all the anti dumping information. There are a lot of really good government websites out there that that give a lot of information on the topics that we’ve covered on going international global. I really like the book, Kiss, Bow, or Shake Hands you the author for that is Terry Morrison and Wayne Conway. That’s an excellent book. I would, you know, highly recommend all of our importers and exporters of having a third party come in and conduct an import and export compliance audit. These are if you let if you wait for the government, I was a part of an audit compliance audit from the government that lasted almost two years. And so making sure that you’ve got a really strong compliance program that’s documented and that all the key players in the supply chain are in the loop or have annual training and you know that you’re listening to podcasts like this, that there’s a lot of different resources. And you need to vet them, make sure that they’re coming from a reliable place. But, you know, just staying informed is so important. You know, no matter what your product is, if you’ve got product that is subject to FDA rules, you need to be sure that you know about the FDA bioterrorism act, including prior notice. There’s different groups on LinkedIn and different industry specific associations that publish information on what is happening globally. So looking in your specific industry, and looking for those can be of great benefit to you.
Fred Rocafort 33:51
Thank you lots of valuable advice there for sure. Jonathan, what about you? Do you have anything you’d like to recommend this week?
Jonathan Bench 34:00
Recently, I read an article called why China’s recovery is not what it seems. It was a guest post in the Financial Times by a finance professor at Peking University named Michael Pettis. He’s also a senior fellow at the Carnegie Ching Hua center. And I actually saw a presentation by him when I was in law school at George Washington in my Chinese law class. And I was blown away. He was speaking at such a high level, I couldn’t digest even what he was saying about the Chinese economy other than I figured out that he was some kind of financial wizard who really understood all the levers that needed to be pulled around China and the effect that those had, right, a real serious economist, you know, driven by numbers. So this article is, it’s fairly short. It’s quite digestible if you’ve had any foundation in economics. And it’s interesting because he says, it looks like you know, everyone’s kind of in the media saying, hey, China’s recovery has really started because they’re the consumption has increased, he says, but if you if you kind of overlay that domestic consumption with the amount of domestic industrial production, you can see that, that this, these retail sales are just being boosted by domestic production, not actually by real. In a real organic domestic consumption, he says the only way that China is really going to recover is if they get back to real domestic consumption. And really what what we’ve talked about quite a bit on the blog is that China’s The only way that China survives the trade war or anything at all is to offset the losses, the International export losses by domestic consumption. And it’s not clear that that’s even possible, because of China’s demographic, downward trend, and, and the way that Chinese consumers like to save more than they like to spend as a general rule, so very interesting. You know, I don’t consider myself an economist, but I like to dabble and appreciate other experts in who understand how economies work. So I recommend that article. Fred, what do you have for us?
Fred Rocafort 36:06
I’d like to recommend a foreign policy piece title is Beijing Believes Trump is Accelerating American decline. So I’m sticking with the with the China theme. This was published yesterday, October 12. And the author is Rush Doshi, basically, as the title suggests, the the article is about the Chinese government’s perception of of us power and how the the current administration is impacting the author makes a convincing argument that that China is constantly reassessing power dynamics between itself and the US and talks about the different the different stages that have have marked that process of assessing relative strengths. And one of the things that resonated with me is that the author points out to the financial crisis of 2008. He he points at that as a, as a watershed moment in in China’s reevaluation of its of its relationship with with the US and that definitely, I’m flying sub with, with what I witnessed living in China during during that time period. And and seeing how there was a marked change in the attitudes, you could almost see in real time this move away from America’s all powerful to growing sense of confidence on the part of the Chinese and then not just the government, but society at large. And that that, that does make me think that, indeed, We are now in the middle of a new step in that process. One in which China thinks that the time is ripe to step up, its efforts to become more prominent. So again, Beijing believes Trump is accelerating American decline. We will of course, provide links to all of the recommendations in our blogs when we when we roll out the podcast. And with that, Andrea, I’d like to thank you very, very much for for having joined us really enjoyed the conversation with you. And there’s certainly a lot more than we can talk about. So I’m just gonna put it out there that we will we will be inviting you again before too long.
Andrea Holtan 38:45
Right. Thanks, Fred and Jonathan. It was a real pleasure being with you guys today.
Jonathan Bench 38:51
We hope you enjoyed this week’s episode. We look forward to connecting with you on social media to continue discussing developments in global law and business. and tune in next week for another episode. We’ll see you then.
Transcribed by https://otter.ai