Daily Archives: December 3, 2009

“Surprise” Tariff Increase on Solar Panels

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

The October 1 New York Times has an interesting article on a tariff increase on solar panels. While the panels came from China, that’s not the interesting part of the story. The interesting part is that CBP (The US Customs and Border Protection department — successor to the US Customs Service) announced the tariff increase eight months ago and nearly the entire solar panel industry missed it.

To summarize, one US company asked CBP for a classification ruling that would set duty rates for the solar panels they were importing. The company proposed using a semiconductor classification, as the rest of the industry was doing. CBP replied that solar panels were more complex and should be classified as DC generators. CBP published this ruling through normal channels and almost nobody noticed. Here are a few key paragraphs in the article:

“It is somewhat unusual for an industry to take as long as eight months to become aware of a customs ruling that affects it,” said Mel Schwechter, a partner at Dewey & Leboeuf in Washington and a former president of the Customs and International Trade Bar Association.

Customs decisions, even for a single importer, are made public on the agency’s Web site and on commercial Web sites, said Mr. Schwechter, who is not advising any of the participants in the dispute.

Mr. Resch said the growing industry lacked the resources to constantly track tax and regulatory decisions.

Duties will be doubled if customs officials determine that companies have been negligent in not paying them earlier.

Importers might also be liable for duties on all solar panels brought into the United States in the five years before the ruling if customs officials decide that the companies were guilty of “material misstatement or omission” for failing to notice sooner that solar panels had evolved to the point that they no longer met duty-free rules.

The duty on semiconductor devices is zero. The Times said the duties on DC generators is 3.5%. I think it’s 2.5% but my opinion is should not be relied upon for reasons I’ll explain below.

So what went wrong here? Mr. Resch is right, the industry “lacked the resources to constantly track tax and regulatory decisions.” What does that take? In the US, it takes a relationship with a very professional customs brokerage firm who would be under retainer to keep a client informed of regulatory decisions impacting the products a company imports. This is getting more difficult due to structural shifts in the customs brokerage industry. There used to be large, stand alone customs brokerage companies. Many importing companies had different companies doing their freight forwarding and customs brokerage. However, about five years ago two major customs brokers were purchased by UPS and Fed Ex respectively. The remaining customs brokers are much smaller companies. Importers can and should change freight forwarders if there are performance issues, but customs brokers are harder to change. They need detailed knowledge of their clients’ business and the learning curve can be steep.

Why shouldn’t you rely on my opinion on duties on generators? CBP can increase penalties for non-compliance if they determine an importer didn’t use “reasonable care” in their customs decisions. They look for an audit trail back to either a licensed customs broker or a customs attorney. I’m neither, so taking my advice wouldn’t meet the “reasonable care” test. I still think I’m right though.

Dick Locke, Global Procurement Group.

Share This on Linked In

There are Analysts and There are Analyst Firms … Guess Which One You Really Need to Understand?

Recently Dan Gilmore, Editor of Supply Chain Digest, published a “first thoughts” piece on Understanding Supply Chain Analysts. In it he made a number of valid points, including:

  • Analysts can provide useful information and insight
  • Analyst research / opinions can have a significant impact on how a company views specific technology vendors and options.
  • Technology vendors often change product roadmaps and messaging to match what they think the analysts want to hear.
  • Some analysts are primarily vendor focussed on their client base while others are “consumer” focussed and others still sit somewhere in the middle.
  • Most analysts today will not write any “negative” research/opinions on a specific vendor for fear of the fire and brimstone it would bring.

The last point is both scary and true. Printed negative opinions in the analyst community are going extinct. However, negative opinions are still strong in many of the top analysts in our space. So what gives?

What gives is the analyst firm. Today, most of the top analyst firms frown seriously on quoting or printing any negative opinions and, in some case, have steadfast policies banning the public iteration of a negative opinion about any past, present, or potential client in fear of the fire and brimstone wrath that could result in the termination of funds or, where some of the more successful analyst firms are concerned, a frivolous lawsuit against their flush bank account.

Before you engage an analyst you need to understand, at a minimum, the following about their firm:

  • Revenue Model: Vendor-Driven, Enterprise Buyer Driven, Consumer Driven, or some combination thereof
  • Management Team: Primarily Former Analysts or MBAs
  • Ownership: Management &/| Employees, Private Equity, or Public Equity
  • Clients: Who are they?

Why? Each of these will have an impact on organizational policy and, as such, on the analyst focus and their freedom of speech. For example:

  • Vendor Driven Revenue Model
    The analyst firm will likely be very careful in what it allows to be conveyed about any of its clients.
  • MBA Management Team
    The analyst firm will likely be more focussed on profitability metrics than on quality research.
  • Private Equity Ownership
    The bottom line will likely be the most important success metric the analyst firm is judged against.
  • Vendor X is a Client
    Any “research” produced will likely echo the importance of whatever the vendor says in its marketing and positioning, regardless of what is said.

In comparison:

  • Consumer Driven
    Since none of the vendors being reviewed are clients, and since the analyst firm’s revenue will likely be linked to the credibility of their research, the analyst firm will be less likely to censor itself.
  • Former Analyst Management Team
    The analyst firm will be more focussed on quality research than on profitability metrics.
  • Employee Owned
    The analyst firm does not have to meet external success metrics and can set their own agenda.
  • Vendor Y is not a Client
    The analyst firm does not have to worry about subscription renewal fees.

Essentially, if you understand the firm, you understand the level of trust can you put into an analyst report and, more importantly, the level of openness you can expect if you engage the analyst in a one-on-one conversation. In the second case, a good analyst will likely give you the full monty.

Share This on Linked In