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Companies Struggle While Awaiting Rulings on Tariff Exemptions

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10/10/2019 | 02:45pm EDT

By Anthony DeBarros and Josh Zumbrun

WASHINGTON -- Like about 2,500 other business owners and executives in the U.S., Crystal Morris is in tariff limbo, waiting for the government to rule on their requests for exemptions from 25% tariffs on Chinese imports.

Since the appeals process opened June 30, the companies have filed more than 31,000 requests for exemptions from the $200 billion tranche of tariffs implemented last year on Chinese goods. The U.S. Trade Representative's office has ruled on 439 requests so far, denying 86% of them.

While many of the 31,000 requests were filed close to the September deadline, 7,700 requests have been waiting between one and two months for a decision and more than 5,000 requests have received no decision in more than two months.

Ms. Morris is CEO of Tampa, Fla.-based Gator Co., which imports speaker stands, guitar cases and other audio accessories from China. She says the uncertainty has made it a struggle to make decisions on hiring, business planning and inventory.

"It's a complete game-changer for our business," she said. "It really is all of our margin."

Gator also manufactures in the U.S. and Canada, but imports nearly half its products from China. It filed exemptions for nine products between Aug. 21 and Sept. 5. Like other companies, it must pay the tariffs while it awaits a ruling on exemptions.

Ms. Morris declined to say how much Gator has paid so far in tariffs, which come on top of base import duties it pays of 4.2% to 17.6%. But she said the cost extends far beyond the dollar amount levied by the U.S. government.

"We hired five or six new people," Ms. Morris said. "Normally, we would be looking to put them in sales and marketing and development roles, and they're really all helping us on the sourcing. And figuring out how to file tariff exclusions, and all the back end work in our systems when the pricing needs to change."

The company, which has about 200 employees, was also hobbled by President Trump's decision a year ago to put off plans to raise the tariffs, which had been due to take effect Jan. 1 of this year.

The company had stocked up on Chinese inventory to avoid the tariffs, then was stuck with excess product and storage expenses until it could find space for the goods at its warehouse in Columbia City, Ind.

David French, the senior vice president for government relations at the National Retail Federation, said President Trump generally deserves credit for seeking to reduce government regulations on business.

"But this is one area where he's exposed a lot of companies to the meat grinder of the federal bureaucracy," said Mr. French.

"For the companies that have been granted exclusions it can be a life raft, but the frustration is that they don't know if they're going to get an exclusion," Mr. French said. "They don't know. It's not very predictable that it's going to come through and it's very slow."

Mr. Trump has argued that the tariffs are needed as leverage to get China to compete fairly on world trade. Senior trade officials for the U.S. and China began two days of scheduled meetings Thursday in Washington. Both China and U.S. business groups hope the talks can lead to a decision by Mr. Trump to hold off higher tariffs set to take effect Oct. 15 and new tariffs set for Dec. 15.

The U.S. Trade Representative's office didn't respond to requests for comment on the length of the appeals process. The appeals process for the $200 billion tranche of tariffs closed Sept. 30. Those tariffs are set to rise from 25% to 30% on Oct. 15.

In the 12 months through August 2019, the Treasury has collected $68.5 billion in tariffs from U.S. importers. That compares with about $35 billion a year before the Trump administration's tariffs against China began to take effect.

Tariffs on Chinese goods have cost Rupert, Idaho, irrigation-products manufacturer XCAD USA about $300,000 so far, said its CEO, Roger Duffin. XCAD filed 277 exclusion requests under the $200 billion tranche of tariffs and has received no decisions yet.

The cost has led XCAD to stop construction on a building that was part of a plan to make certain plastic components in Idaho. The new manufacturing process would have added about 10 jobs paying $20 to $30 an hour over five to 10 years, Mr. Duffin said. The company now has a tentative plan to manufacture those pieces in India using tooling built in China.

"We can't afford the infrastructure cost," Mr. Duffin said. "We have let a few workers go and we have delayed almost all investment."

Meanwhile, some companies are waiting simply for the chance to ask for an exclusion from tariffs. The USTR has yet to announce the opening of the exclusion process for products covered under the fourth tranche of China tariffs. That tranche is divided into about $111 billion in products that took effect Sept. 1 and about $156 billion in goods scheduled for Dec. 15, according to a Wall Street Journal analysis.

Meanwhile, Heida Thurlow, founder and president of Chantal, a Houston maker of cookware, has sent two letters directly to U.S. Trade Representative Robert Lighthizer explaining that the company raced to have 31,000 electric tea kettles leave China before Sept. 1, when 15% tariffs took effect. She sent a third letter asking for a general reprieve for the product.

The reason for the rush, Ms. Thurlow said, is that her company hoped the trade office would grant the same sort of extensions it announced twice earlier this year under the $200 billion tranche. Those extensions gave companies more time to get previously ordered product into the U.S. before tariffs took effect. Five containers with the kettles arrived the U.S. on Sept. 19.

She hasn't heard back.

The company paid about $60,000 in tariffs on its shipment of tea kettles and took a loss when selling those to its customers, who are mainly large retailers.

"Anything you want to know about pots and pans I can tell you, but I know nothing about tariffs and nothing about communicating with the U.S. Trade Representative," Thurlow said. "We will want absolutely to ask for a long-range exclusion because...I've been looking left and right to find out if there are any electric tea kettle manufacturers in the United States that would produce our tea kettles, and I haven't found any."

--Chad Day contributed to this article.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

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