Trade Expert Bullish on DST Solution, Bearish on New FTAs

A PricewaterhouseCoopers trade and tax expert told an audience at the U.S. Fashion Industry Association Virtual Washington Trade Symposium that while the prospect of trade liberalization in the next few years is low, he does not think that threatened tariffs on apparel and other goods from European countries, Turkey and India will be levied in November, in retaliation for digital services taxes. Scott McCandless, who spoke July 14 at the virtual conference, said that although it will be "a complicated dance both internationally and domestically" to arrive at an agreement on the intertwined issues of minimum corporate taxes and digital services taxes, he thinks it's more likely than not that Congress will pass a tax bill this fall that would give countries the right to levy taxes on multinationals that do business in their countries. If that happens, he said, "The DSTs likely go away, and the proposed tariffs on countries that have DSTs will go away as well."

McCandless said that at the beginning of the year, he predicted that there would not be a sharp break from the status quo trade policy in the Biden administration, and many were skeptical. He said he feels vindicated in that regard. He said there is "not a huge amount of daylight between America first and American worker first." However, he said he was wrong to think the Biden administration would move promptly to restore Section 301 exclusions on imports from China. He thought the application process would have returned by now, and he said it's somewhat surprising that they haven't given companies that option.

He said granting exclusions is a way for the Biden administration "to make some friends among the importing community" without having to weather "a public relations blow by looking like they’re being soft on China."

But he said perhaps legislation that would require exclusion applications will be part of an omnibus bill in December, along with a renewal of the Generalized System of Preferences benefits program and the Miscellaneous Tariff Bill.

He said he doesn't rule out the possibility that some of the Section 301 tariffs on Chinese exports will be lifted or reduced, but if they are, it won't be in the near term. He said that President Joe Biden has to figure out what his negotiators can ask from China that would be significant enough to roll back tariffs, and if that request is something "that China can also reasonably give."

PwC Managing Director Maytee Pereira, who interviewed McCandless at the conference, said that while importers don't know what's happening with China or whether suspended DST tariffs will raise the cost of imports from many other countries, the new NAFTA does provide some certainty.

But, she said, "companies [are] being caught a little bit flat-footed" on the new labor provisions under USMCA, the NAFTA replacement agreement. Apparel factories are not a "priority sector" under the rapid response mechanism, but the changes in Mexican union contracts that are meant to strengthen workers' bargaining power apply to every company with a union.