With U.S. President Donald Trump's potential 25 percent tariffs on neighboring countries Canada and Mexico being on pause for 30 days (aside from the 25 percent aluminum and steel tariffs imposed on imported product last week), it can be a time of uncertainty for growers and shippers all across North America. Tiffany Comprés, founding partner and co-chair of the International Practice & International Disputes at Pierson Ferdinand LLP weighs in on how companies can navigate what's ahead.
Undoubtedly, those tariffs, namely on steel and aluminum, that have been put in place already will be felt by the produce industry, albeit more indirectly. "Imposing tariffs on items that affect energy will be felt because we rely on energy. Even if food is exempt from tariffs, tariffs on other items that impact produce, we'll still feel the effects. That's a major issue," says Comprés. The most directly concerning for our industry is the "universal baseline" tariff of 10 percent or 20 percent that President Trump has floated and the "reciprocal" tariffs he has proposed.
Precautionary moves
She says companies are already starting to react to tariffs being levied–some are preemptively pausing hiring and expansion initiatives for example. That said, this may be the time to rethink expansion in another way. "I'm suggesting to clients that they be creative and preemptively diversify their markets," she says. Or the commodities they grow. "If tariffs do come into play, we can expect retaliatory tariffs. If you have growing operations and can no longer export, look at domestic markets and maybe crops that don't have a five-year ramp-up cycle like apples. What can you plant that's going to give you more immediate returns that you can sell domestically?" she says.
She also has concerns over tariff fraud ranging from undervaluing the product to changing the growing country of origin. "This would be a crime so be careful of any companies you work with who say they can get around tariffs–you may not realize what they're doing it's illegal," says Comprés. Especially vulnerable would perhaps be small, sometimes family-run, or newer companies. "Because they're new to the market or they may not have access to information or counsel, they may not realize this and inadvertently get into a dangerous situation," she says.
On a more macro level and also factoring into the uncertain future ahead is the fact that other countries are challenging tariffs–Canada had planned on filing a claim with the World Trade Organization around the tariffs pre-pause, as had China, though the World Trade Organization's dispute settlement process is stalled as the U.S. has blocked the appointments of judges to the appellate body reviewing appeals. Countries are also threatening counter-tariffs–Canada had initially planned to tariff goods such as orange juice, melons, peaches, and more for example.
There are also domestic legal considerations. The administration's use of the International Emergency Economic Powers Act (IEEPA), a 1977 statute that provides the president with extensive powers to address national emergencies, is unique – this statute has never before been used to implement tariffs and it does not specifically authorize tariffs or taxes. The IEEPA requires few procedural hurdles, meaning the tariffs can take effect within days instead of the months or years it would take under the Trade Act, making it a very attractive alternative. It remains to be seen whether courts will agree that the statute allows the president to impose these tariffs, a power that the Constitution expressly gives to Congress. That said, U.S. courts have increasingly given the president significant latitude in international trade and emergency matters.
The tariffs may also violate other trade agreements, such as the United States-Mexico-Canada Agreement (USMCA), but this would likely not prevent the tariffs in the near future. The complaining states would have to go through the dispute resolution process provided in the treaty, similar to the WTO dispute resolution procedures.
Moving ahead
So how to proceed? "I would tell those in the industry to be careful. Don't panic, proceed thoughtfully," says Comprés. "Talk to your legal counsel about ways you can reduce any burden from the tariffs. For instance, if you have packaging made in the U.S. and sent to the grower to use in packaging products that are then imported into the U.S., you may be able to deduct that from the value that's subject to tariffs. Little things add up."
Also, give thought to Incoterms used in shipping goods such as FOB. "These Incoterms have a real impact on who pays the tariff," says Comprés. "Think about it when setting up your contracts for the next season because if one side is trying to change a term–what does that mean for you? Ultimately, however, whether or not that tariff is paid by the importer or exporter, that's just going to increase the price and be passed on to the consumer."
Finally, she encourages the industry to exercise its voice by speaking to representatives in Congress or joining industry groups such as the IFPA. "For lobbying purposes and for speaking to representatives, numbers are very important. These are the moments when it's most important that we as an industry have a voice," says Comprés.
For more information:
Tiffany Comprés
Pierson Ferdinand LLP
Tel: +1 (786) 577.8913
[email protected]
https://pierferd.com/