WASHINGTON D.C. – U.S. Commerce Assistant Secretary Ian Steff joined the U.S. Commercial Service Baltimore to recognize the Maryland-DC District Export Council (DEC) for its significant contribution to helping Maryland and DC firms sell internationally. In 2017, Maryland firms exported over $11 billion to foreign markets including Canada, Germany, and the UK, among others. ​

Utilizing its vast network of experienced chief executives, lawyers, and consultants, the District Export Council successfully supported Maryland companies through international business counseling, mentoring small and mid-sized companies, and supporting overseas trade missions.

Bobby Patton, CEO of Gaithersburg-based manufacturer of Unified Communications, Cloud, and IoT-enabling solutions, Patton Electronics, said “The volunteers on this DEC are among the best in their respective fields, giving their time and energy to help other Maryland businesses develop their own export market competence.”

This past year, the Maryland-DC District Export Council received and administered its first federal grant, created a private sector affinity network, discussed trade policy with Maryland Congressional leaders, and served as a key member of the Maryland Partners in International Trade alliance supported by Maryland Department of Commerce and the University of Maryland.

“The DEC should be applauded for its new partnership with the State of Maryland to support the state of Maryland’s Defense Diversification ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​Assistance Program (MDDA) by providing training and services to help eligible defense dependent companies expand internationally,” said Baltimore U.S. Commercial Service Director Colleen Fisher. Awarded by the U.S. Department of Defense’s Office of Economic Adjustment, the Defense Diversification grant is designed to mitigate potential, adverse changes in federal defense spending.

 “Twenty-six companies graduated from the DEC-supported ExporTech program over the past three years. Of these graduates, twenty-one companies have since reported results or engaged in market exploration with the Commercial Service,” Commerce Assistant Secretary Steff said.
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The Maryland-DC District Export Council, one of more than 60 District Export Councils throughout the United States, is a volunteer organization of approximately 30 local business leaders appointed by the U.S. Secretary of Commerce. MD-DC DEC members use their extensive knowledge of international business to educate and counsel local firms on how to export overseas.

Welcome to the niche world of offset and countertrade policy and program execution. Termed ‘offset’ in the US and ‘countertrade’ in much of the rest of the world, it is the 21st Century’s sophisticated form of barter. In essence, a country publishes a policy that requires foreign companies to invest in the country in exchange for a major procurement. The devil is in the details.
 
To start, the WTO and its predecessor organization, the GATT, have a regulation that supposedly prohibits governments from levying offset in government contracts except for reasons of national security. This would presumably (and in practice generally does) restrict the practice of offset to defense related products. However, many countries have government-owned enterprises in the civil sector and, for major infrastructure projects (think rail, ports, extractive industries) will levy – formally or informally – offset requirements.
 
Since 80+ countries require offset in either a formal or an informal policy, companies going abroad should at least be aware the potential exists. Normally there is a kick-in threshold value for a contract below which offset is not required. The most common threshold values are between $5M and $20M of contract value, though a sizable percentage go as low as $1M. Once a threshold is crossed, the next issue is the value expected for the offset. The most common range is 20% to 80% of contract value (e.g., $100M contract, $50M offset required at 50% offset). However, 100% of contract is fairly common, as is ‘negotiable deal on deal.’
 
How, you may ask, can a company be expected to offset a contract at 100% of value? This leads to the concept of project multipliers. Some areas of investment or purchase will be rated more important by a country than others. For these projects, they will provide a 2x, 5x, even 10x multiplier to the actual value proposed. For example, if local work / employment is desired, and a company offers to place $1M of work with local companies, a country may give a 5x multiplier, making that work ‘worth’ $5M in offset credit.
 
The challenge is that no two offset polices are alike, just as no two countries are alike. All have different requirements, goals, local industries and interests. So, on approaching a country for a major deal (i.e., over $1M), it behooves a company to research the potential offset policy to be ready to comply. This is especially important, as offset has a cost. Countries typically will not allow offset to be costed in a proposal. Therefore, a company must build into its proposal the cost of offset carefully hidden in the numbers. The worst-case scenario is to be in the lead position for landing a major international program … and to be asked, prior to contract award, “So, what does your offset proposal look like?” No time to research, no chance to re-price to cover the costs. The only bleak choices are to refuse the contract, or go ahead and hope the costs of the offset program are well within the projected profit margin.
 
Research offset before you go. Many countries have increasingly transparent offset policies, and there are several organizations (Global Offset and Countertrade Association, Defense Industries Offset Association to name two) and a host of consultants who can help.
 
Dr. Alan S. Colegrove, P.E., Ph.D., President, Offset Collaboration, Incorporated
Website:www.offsetcollaboration.com

The Section 301 Trade Measures - In Plain English
 
In August 2017, the President asked for an investigation into certain practices by China regarding the alleged theft of U.S. intellectual property.  On March 22, 2018, the investigation concluded that China’s practices target and harm U.S. companies.  To pressure China to stop, the President proposed an additional duty of 25 percent on 1,333 tariff lines representing $50 billion worth of imports.  This means that a product valued at $100 is assessed an additional charge of $25 at the U.S. border. The money collected is deposited in the U.S. Treasury. 
 
An interagency committee held hearings and accepted written comments on whether to implement the additional tariff.  They considered whether imposing duties on the imports would (1) help eliminate China’s practices or (2) harm U.S. small- or medium-size businesses and consumers.  515 tariff lines of the proposed 1,333 were removed, and the final list represents a total of $34 billion worth of imports.  Because the President proposed a tariff affecting $50 billion, a second list of 284 tariff lines representing $16 billion was proposed.  When the first list (List 1) went into effect on July 6, China retaliated against $34 billion of imports from the United States.  This prompted the President to propose an additional tariff of 10 percent on $200 billion worth of imports from China.  The tariff was increased to 25 percent to match the tariffs affecting Lists 1 and 2.  In the interim, 5 lines were removed from List 2.  Here is where we are (as of September 5, 2018):
 

• List 1 is $34 billion.  Additional 25% duties.  Became effective July 6.
  
• List 2 is $16 billion.  Additional 25% duties.  Became effective August 23.
  
• List 3 is $200 billion.  The administration proposed 10% additional duties; this was increased to 25% duties.  The deadline for making requests to appear and testify was August 13.  Roughly 300 persons requested the opportunity to be heard, making this perhaps the largest-ever U.S. trade hearing.  The hearing started August 20 and lasted 6 days.  46 panels of 5 to 8 per panel were heard.  Written comments are due September 6.  Although there is no deadline on when the list will be finalized, best guess is that it will be published in October 2018.
  
• Exclusion.  Companies affected by List 1 can file an exclusion request before October 9.  If granted, products will be excluded from the additional 25% duty, the exclusion is retroactive to July 6, and it remains effective for one year.  The details for exclusions from Lists 2 and 3 have yet to be published but are expected to closely follow the requirements set out for List 1.

 
Venable is actively advising clients affected by Lists 1, 2, and 3, and we have helped clients argue successfully to remove certain tariff lines from these lists.  As supply chains and costs of production are shifting under the weight of this increasingly expensive trade war, we stand ready to assist and advise on the impact affecting corporate sourcing, M&A, FDI, and other core business decisions.  We are also following closely other issues impacting business, such as the 232 Steel and Aluminum tariffs, NAFTA 2.0, and the revamp of the Committee on Foreign Investment in the United States (CFUIS) rules.  We would be happy to assist you or field an introductory call to explain – in plain English – what is happening and how it affects your business.