U.S. tariffs update and tools to address them

2019 UPS® Tradenomics Webinar Series
U.S. tariffs update and tools to address them
January 29, 2019
Today’s webinar will begin shortly

2019 UPS® Tradenomics Webinar Series
U.S. tariffs update and tools to address them
January 29, 2019

Proprietary and Confidential: This presentation may not be used or disclosed to other than employees or customers, unless expressly authorized by UPS. This document is for informational purposes only. It does not constitute legal advice –
please consult with your own legal counsel for such advice. Also, do not rely on this information without performing your own research.
© 2018 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown are trademarks of United Parcel Service of America, Inc. All rights reserved.
2019 UPS® Tradenomics
Webinar Series
3
2019 Program to Date
• January 29 - U.S. Tariffs Update and Tools to Address Them
• March 6 – Brexit Update
• March 20 – Duty Drawback Under the New Rules
• April 17 – U.S. Trade Policy and Trader Implications
• May 14 – Impact of USMCA on Importers
Dates are subject to change

8_21 6_84
Current tariffs: Update and options to address them
Presenters
• Host
• Greg Maddaleni,
LCB
• Customs Brokerage
Sr. Manager
• Panelist
• Stuart Schmidt, LCB
• Trade Compliance
Manager, UPS
Customs Brokerage
• Panelist
• Corey Wright
• Product Manager, UPS
Capital

Agenda
5
Any questions?
Ask our panelists using the “Q&A” function
Section 301
Section 232
Section 201
What is Next?
Sec. 301 List 3
Current Status
Tariffs in Place
Sec. 301 List 4?
Sec. 232 - Autos
Tools to Address
FTZ
Duty Drawback
Financing Options
1 CCS/CES/MES Credit
First Sale
Sec. 201 - Quotas

Please note
This presentation will be available upon check out to all attendees as well as a link to the event
recording.

Please note
This presentation is for informational purposes only. It does not constitute legal advice – please
consult with your own legal counsel for such advice. Also, do not rely on this information without
performing your own research.

The impact of the tariffs
+83% increase over same period last year
https://www.cbo.gov/publication/54905
Oct–Dec 2018 (Q1 FY 2019)
+$8 Billion customs duties increase
Largely due to the tariffs

Tariffs Overview
Basis
Action
initiated
What
Countries
Duration
Imported goods that
threaten national
security
3/23/2018
Steel & Aluminum
World except
Argentina, Australia,
Brazil, and South
Korea.
No specific end date
Whether country’s/
countries’ policies
burden / restrict U.S.
Commerce
7/6/2018
Various (See Below)
China
No specific end date
Section 201 Section 232 Section 301
U.S. industries
injured by imported
goods
2/7/2018
Solar Panels /
Washing Machines
World except
developing
countries and
Canada
3-4 Years
https://www.cbp.gov/trade/programs-administration/entry-summary/section-201-trade-remedies
https://fas.org/sgp/crs/row/IF10708.pdf
https://www.cbp.gov/trade/programs-administration/entry-summary/232-tariffs-aluminum-and-steel

Section 301 – China tariffs
The USTR has taken the following duty actions:
List 1 (Annex A) List 2 (Annex C) List 3
Import
Value
HTSUS codes
Duty
Status
Timing
$34B
818
25%
Taken
Effective a/o July 6th
$16B
279
25%
Taken
Effective a/o Aug 23rd
$200B
5,745
10%
(25% a/o March 2, 2019)
Taken
Effective a/o Sep 24th
https://www.strtrade.com/f-tariff-actions-resources.html

Exclusions Update
(Importer
specific)
(Importer
Specific)
1 Year
(renewable)
Yes
12/28/18
20 HTS
1 Year
(from 12/28)
Yes
Sec.
201
Sec.
232
Sec.
301(1)
https://www.cbp.gov/trade/programs-administration/entry-summary/section-201-trade-remedies
https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/ustr-releases-product-exclusion
https://www.bis.doc.gov/index.php/all-articles/224-232-investigations/1449-232-faq
Sec.
301(2)
Sec.
301(3)
Decisions
Pending
No process
(not while at
10%; not prior
to March)
What
When
Duration
Retroactive?
9/19/18
Add’l
Exclusions
Indefinite
No

12
Exclusions can be specific to the item or to both the item and
the importer
https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/ustr-releases-product-exclusion
Section 201 Section 232 Section 301
Specific
Importers
No Yes No
Specific items Yes Yes Yes

13
Section 301 (1) exclusions update
• Dec 28th: USTR published an initial list products
• Exclusions are retroactive to July 6th
• Within 20 HTS numbers
• 7 are fully excluded
• Only certain products that are excluded under the other 13 HTS numbers
Fully Exempt Partial Exclusions
8412210075 8407210080 8420109080
8418690120 8421190000 8439991000
8480718045 8421210030 8466925010
8482105044 8425390100 8481909040
8482105048 8428320000 9022140000
8482105052 8428330000 9032100030
8525601010 8419902000
https://www.federalregister.gov/documents/2018/12/28/2018-28277/notice-of-product-exclusions-chinas-acts-policies-and-practices-related-to-technology-transfer

What’s next for 301?
When does the current
List 3 extension end?
• The extension to delay the List 3
increase to 25% ends March 1st
• Starting March 2nd, List 3 tariffs
increase to 25% unless there is
another extension
• Exclusions then potentially possible
Will there be a
“List 4”?
• The administration has previously
alluded to tariffs on the
remaining $267B in goods from
China
https://www.strtrade.com/f-tariff-actions-resources.html
https://www.wsj.com/articles/trump-says-hes-preparing-tariffs-on-further-267-billion-in-chinese-imports-1536340041

Background: May 23, 2018 investigation announcement
What: Potentially place additional tariffs or quotas on
automobiles and automobile parts
When: Report still pending - February 18, 2019
Update: Legislation being introduced to place limits on
current presidential authorities under Section 232
https://fas.org/sgp/crs/misc/IF10971.pdf
https://www.axios.com/chuck-grassley-trump-tariffs-section-232-national-security-613bb759-acac-
4a36-9703-9a2ee1958f28.html
Automobiles?

• Nothing anticipated.
• Current action is limited to a 3-4 year timeframe (to end February 2021/2022)
• Low Duty rates quota opens on Feb 7, 2019

17
UPS® Tradenomics

UPS® Tradenomics
The economic impact of trade on your business
Options to deal with some of the negative impacts:
• Financing options
• First sale rule
• FTZ options
• Duty drawback options

19
UPS® Tradenomics
Objects in the mirror are closer
than they appear

20
Hidden Costs?
Facilitate discussions within your business
about the hidden costs of tariffs
UPS® Tradenomics
Strategies to combat increasing tariffs
Tariffs can be more costly to your business
than they appear

21
1. Pass the entire cost on to
your customer?
2. Mitigate the increase through
other cost reduction initiatives?
3. Reconfigure the supply chain?
If your business is faced with a new or
increased tariff rate, what is your strategy?
All options can create new costs.
Can you identify the hidden costs?
UPS® Tradenomics
Strategies to combat increasing tariffs
Common Options

22
v
Tariffs can negatively impact cash flow
In addition to straining cash reserves, timing of payments will strain cash flows
The Challenge:
• Import tariffs have to be paid at some
point between 10-45 days after import
• This payment immediately reduces
cash on hand
Consider:
• Does your business have the cash to
pay the tariff?
• What was that cash previously allocated to?
• How many days later will your customer pay?
• What is the impact to the cash to cash
conversion cycle?
The impact to business:
• New or increased tariffs can seriously
disrupt existing cash flow models

So what are businesses doing about it?
23
UPS® Tradenomics

24
Scenario 1: Passing the full costs of tariffs to customers
Disruption to cash flow can create a need for additional working capital
Pay supplier
$100k
CASH OUT TARIFF
Pay Treasury
$25k
CASH IN
Day
1
-$100k
Day
30
+$25K
Increased outflow
consumes cash
Recuperate cost
of tariff
+$25K+$25K +$25K +$25K100%
Day
10-45
-$25k
CUSTOMER
PRICE
INCREASE
What’s the hidden cost?

25
Scenario 2: Mitigating tariffs with cash reserves
Pay supplier
$100k
CASH OUT TARIFF
Pay Treasury
$25k
CASH IN
Day
1
-$100k
Day
30
+$20K
Increased outflow
consumes cash
$25K short due to tariff.
You’ve only collected $100k.
How do you make up the shortfall?
+$20K+$20K +$20k +$20k0%
Day
10-45
-$25k
CUSTOMER
PRICE
INCREASE
What’s the hidden cost of using cash reserves?
Savings
+$25k

26
Scenario 3: Mitigating the cost with financing
Pay supplier
$100k
CASH OUT TARIFF
Pay Treasury
$25k
CASH IN
Day 1
-$100k
Day
30
+$20K
Increased outflow
consumes cash
+$20K+$20K +$20k +$20k0%
Day
10-45
-$25k
CUSTOMER
PRICE
INCREASE
What’s the hidden cost of financing?
Debt
+$25k

27
Scenario 4: Changing your supply chain to void tariffs entirely
Pay supplier
$100k
FIND NEW
SUPPLIER CASH OUT CASH IN
Day 0 Day
30
+$20K
+$20K+$20K +$20k +$20k0%
Day
10-45
-
$100k
CUSTOMER
PRICE
INCREASE
What’s the hidden cost of finding new
suppliers and modifying the supply chain?
(no tariffs)
Increased outflow
consumes time,
money and resources

28
All options will likely create new costs and hidden costs.
All options will likely disrupt your current cash flow model.
To maximize strategy flexibility, additional working capital may be needed.
Financial options can help.
UPS® Tradenomics

29
• Bank loans
• Invoice factoring
• PO financing
• UPS Capital Cargo Finance®
UPS® Tradenomics
The economic impact of trade on your busines
Primary financial options to reduce the impact of tariffs

Note: Businesses must be based in the U.S., have a minimum of $2MM in annual revenue, 3 years of operating history and import goods. Loans are made in California pursuant to a Department of Business Oversight Finance Lenders
License. Products may not be available in all areas and may be modified based on requirements. Check with your UPS Capital representative for local availability. Businesses must be based in the U.S., have a minimum of $2MM in
annual revenue, 3 years of operating history and import goods. Credit availability is subject to approval.
The best-kept secret in alternative financing
A company’s biggest assets – and one very often overlooked – is in-transit inventory. Wouldn’t it
be great if you could help turn that inventory into working capital? With UPS Capital Cargo
Finance ®, you can.
UPS Capital Cargo Finance unlocks working capital earlier and faster in the supply
chain than can usually be achieved through many traditional lenders, so you can grow
at the speed you’re capable of.

UPS Capital Cargo Finance
Achieve greater liquidity and growth by
leveraging the value of in-transit
inventory.
Reduce COGS or even increase sales with
better terms.
Product Features and Benefits
• Advance rates of up to 100% of the cost of the
goods
• Lines of credit from $300K - $1.5M
• Unsecured loan
• Payment terms up to 90 days
• Freight forwarding through multiple carriers
• Funds available at time of departure from origin
• Supports air/ocean and N. America freight imports
© 2018 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are
trademarks of United Parcel Service of America, Inc. All rights reserved.
Sources: (1) http://www.eulerhermes.us/credit-insurance/infographics/Pages/credit-insurance-basics.aspx (2)
http://www.eulerhermes.us/credit-insurance/infographics/Pages/optimizing-cashflow.aspx (3) UPS Capital Finance Customer Study
UPS Capital Contact: Bryan Williams,
877-242-7930

Compliance and Finance
1. Compliance officers
 Stay ahead of the changing
regulations
 Ensure the business complies to the
rules
2. Finance officers
• Help reduce the financial impact of
tariffs
• Help protect the business’ bottom line
32
A winning team amid trade
uncertainties

33
What is it?
• A first sale program establishes the value of an import from the time of
the first transaction, which sometimes happens prior to the import
transaction
What is the benefit?
• Generally, a prior transaction is at a lower cost which means a lower
basis for duty
• Please note that the use of first sale for customs entered value is highly regulated
and fact specific, so please consult with an expert to determine if your import
transactions qualify. Please also review this link for additional information.
Implementation of a First Sale Process
UPS® Tradenomics:
https://www.usitc.gov/publications/332/pub4121.pdf

Primary FTZ Options to reduce the impact of tariffs:
34
UPS® Tradenomics:
FTZ
• Defer
• Export
• Scrap
Export
Scrap
UPS®
Zone Solutions
T0 T1 T2
FTZ U.S. Commerce U.S. Commerce
Primary FTZ Options to reduce the impact of tariffs:

35
UPS® Tradenomics:
Are duty drawback refunds available on Section 301
duties?
• Historically, drawback has been paid for previously imposed 301 duties
• USTR Federal Register Notice specifically states that drawback is allowed of
Section 301 duties
• Bottom line: Section 301 tariffs can be recovered through drawback under
19 USC Section 1313

In summary
• Tariffs remain in place
• Possibly a percent increase to come in some tariffs
• List 3 of Section 301
• Possibly new items to be subject to tariffs
• “List 4” of Section 301
• Automobiles under Section 232
• Plan accordingly
• Make use of the tools available to you

Questions?
1. Compliance officers
 Stay ahead of the changing
regulations
 Ensure the business complies to the
rules
2. Finance officers
• Help reduce the financial impact of
tariffs
• Help protect the business’ bottom line
37
A winning team amid trade
uncertainties

Thank you for your participation!
Tariffs Update and Options to Address Them
• Check Out:
• NCBFAA: CES/CCS/MES continuing education credit
• Feedback / value
• Inquire about your own Tradenomics discussion
• For more information contact:
– Greg Maddaleni at gmaddaleni@ups.com
– Cory Wright cdwright@ups.com

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