Putting all the hyperbole and posturing to one side, the recent agreement between Mexico and the U.S. which averted the tariffs can be found in the U.S. – Mexico Joint Statement released June 7, 2019. It consists of a few broad policy statements:
- Mexico will deploy its National Guard throughout Mexico, giving priority to its southern border – meaning the border with Guatemala;
- Mexico will take “decisive” action to dismantle human smuggling and trafficking organizations and their illicit financial and transportation networks;
- The U.S. and Mexico will strengthen bilateral cooperation, including information sharing and coordinated actions to better “protect” and “secure” their common border;
- The U.S. will immediately expand the existing Migrant Protection Protocols so that those crossing into the U.S. to seek asylum will be “rapidly” returned to Mexico where they “may” await adjudication of their asylum claims;
- Mexico agrees to “authorize” the entrance of those individuals for humanitarian reasons, in compliance with its international obligations, while they await adjudication of their claims;
- Mexico will offer jobs, healthcare and education to those individuals according to its principles; and
- The U.S. commits to “work to accelerate” the adjudication of asylum claims and “conclude removal proceedings as expeditiously as possible.”
Upon announcing the agreement, President Trump stated Mexico agreed to the deal so as to “greatly reduce, or eliminate, illegal immigration [coming] from Mexico into the United States.” The Joint Declaration goes on to state: “Both parties also agree that, in the event the measures adopted do not have the expected results, they will take further actions. Therefore, the United States and Mexico will continue their discussions on the terms of additional understandings to address irregular migrant flows and asylum issues, to be completed and announced within 90 days, if necessary.” More recent general press stories talk in terms of a one page document Mr. Trump was carrying around that shows a 45 day period, but that document has not been publicly released. It could be nothing or it could be significant, we simply do not know at this point.
Against this backdrop, the threat of the tariffs being imposed remains. Companies would, therefore, be wise to consider what action they need to take to prepare for that possibility. As of late on Friday, June 7th, the last working day before the tariffs were due to take effect, clear instructions had not yet been given to Customs and Border Protection (CBP) as to how the tariffs would be applied. This leads one to question whether the computer programming needed to start collecting the tariffs could be implemented so as to be fully operational by Monday morning. The point being, companies would be wise to anticipate this last minute timing could be repeated.
So, if you are an international trader who imports goods across the U.S.-Mexico border, it would be prudent for you to take a handful of steps now:
- Ramp up your production, if possible, and get as many goods across the border into the U.S. before the 90 (or maybe 45) day window expires.
- Coordinate with your customs broker the establishment of an ACH account through which whatever revenue due to CBP can be paid. Since these accounts take several weeks to establish, setting them up now allows goods movement to continue should the tariffs be imposed. The alternative is expect your broker to require that you wire money prior to the release of your shipments, and no one wants that cash flow or logistics headache.
- Consider how many service providers (customs brokers, freight forwarders, truckers, etc.) you currently use, and whether it would be prudent to shorten the list to a handful of key supply chain partners who are highly proficient and know your company and goods well.
- With your customs broker’s assistance, calculate the size of the bond you will need if the tariffs are imposed as originally announced, and figure out what documents the bonding company will require to increase your bond to that amount. Consider whether increasing your bond now in some degree as a proactive measure is advisable? Are your financial records in order and your financial statements current? If it becomes necessary to provide a personal guaranty to the surety, who will sign? Does that person have sufficient assets? If not, what is the maximum bond amount you will be able to obtain to continue your business?
- If you ship goods without benefit of any NAFTA claims, or have no U.S. input (think here 9801 and 9802 – the circumstances where some or all of the returned goods are duty free), then whatever happens in the future, the impact on you takes the form of more duty across all your goods. The primary reason unambiguous instructions were needed in CBP’s hands well before late on the last business day prior to implementation is to settle the question of whether or not the threatened tariffs applied to goods which enjoyed the benefits of NAFTA, 9801 and/or 9802? Each has a myriad of complications, so the programming must be accurate and complete along with adequate testing performed, or goods and documents will back up at the border. If the tariff applies to NAFTA, 9801 and/or 9802 goods, that outcome also has a profound effect on importers of goods which have been fully or partially free of duty for many years. Can your line of credit handle that? Should you increase it now?
- Finally, and equally importantly, start having conversations now with your business partners. Who is going to pay how much of the price changes that will result? While it is true that moving goods across the U.S.-Mexico border is quite distinct from importing goods from China, what steps companies have taken when impacted by the China 301 tariffs is worth considering regarding the possible Mexico tariffs.
Whether or not you agree with the use of tariffs to deal with an immigration issue, if tariffs are going to be imposed, that should at least be done in a way that allows the system to continue to function properly – but, given past history, be prepared for the chaos which is likely to ensue!