Category Archives: Dick Locke

“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 and Global Supply Training.

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A North American Near-Shoring Obstacle

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.)

It appears that Mexican drug cartels are taking advantage of the US’ C-TPAT program to occasionally put marijuana into trucks that have been granted expedited clearance into the US. How serious is this?

Here are a couple of articles:
* Trucker Program Attracts Drug Smugglers
* Mexican Drug Smugglers Taking Advantage of New Program That Speeds Truckers Across the Border

If you dig into the articles you will see that there are about 5 million north-bound truckloads crossing the Mexican border annually. In two weeks CPB found four shipments containing marijuana. They say that ten percent of the trucks are inspected, but it’s not clear if that’s ten percent of all trucks or ten percent of the C-TPAT certified trucks. Worst case, that’s 20 trucks carrying marijuana per week, or 1,000 per year. That comes to 200 trucks per million. Your judgements will vary on how serious this is.

C-TPAT was not designed to catch drug smugglers. Of course, the obvious question is whether terrorists could substitute a weapon of mass destruction (WMD) for the marijuana. Theoretically it’s possible of course. However, I don’t think the Mexican drug cartels would do so voluntarily. A cynic would say that their customer base in the US is too valuable to them, and there are probably other reasons as well.

But the articles do raise some questions. Certified trucks are only required to notify the US Customs and Border Protection (CBP) staff 30 minutes ahead of reaching the border. This is in marked contrast to the Container Security Initiative that applies to ocean freight. For ocean freight, CBP must be notified of the contents of all containers 24 hours before a US bound container ship is loaded.

CBP is also finding trucks where secure seals have been broken or circumvented by removing doors at the hinges. That’s disturbing. These are the same seals that are used on ocean freight containers.

My thought is that there will probably be more delays at the border. One sensible approach would be to require trucks coming from further into Mexico than the immediate border area to provide more advance notice. CBP tries to judge security risks at least partly based on the names of the shipper and receiver and more time to react would help them select riskier for further inspection.

Dick Locke, Global Procurement Group and Global Supply Training.

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Dick Locke on “Training Supply Management Personnel on Quality Assurance Basics”

Well, I’m glad the Doc is publishing his material on cultural differences. I’ve promised a blog entry on international topics every two weeks, but I’ve been suffering from blogger’s block. I’m tired of debating whether China is manipulating currency or not. I’m sure the ‘cultural differences’ series will generate lots of comments. This gives me a chance to write something on a more general topic: training supply management personnel on quality assurance basics.

What brought this to my attention was a discussion over on Strategic Sourcing and Procurement’s discussion board. It struck me how many KPIs (Key Performance Indicators) referred to quality as a KPI. It also struck me that many of them were phrased in terms of “good enough” quality. A few got it. No one should see incoming material with any quality defects as “good enough”. Intermediate standards other than zero defects may be necessary steps on the road to perfection, but they should be improving annually, and the performance measurement should count all defects, not just abnormally high defect levels.

I wonder though, if quality is so important, why there is so little training on the topic in the various training and certification companies. ISM has a two hour course on basics, and a two day course on six-sigma. APICS seems to have nothing. Neither does Nahabit and Associates or Next Level Purchasing. That’s probably why HP resorted to an in house-developed training program when I worked there.

Our director of corporate procurement had his quality engineers write an eight hour training program that he attended with all his senior staff. It had almost no math in it, but relied on drawings and concepts. Lots of us were engineering undergrads and that helped. In my case it almost offset the 6AM start time that my morning-person boss insisted on. I even remember the basic take-aways. Here they are:

  1. You’ll never get better than about 1% defective if you rely on inspection. You need statistical process control to get better than that.
  2. AQL inspection plans have a very high probability (like 90%) that you will accept a lot with the specified defect level. Some entire industries still use AQLs. (Shame on them.) LTPD plans are better if you are using sample inspection.
  3. Never let your supplier use a sampling plan that allows a lot that had a defect in inspection to be shipped without 100% re-screening. (Jargon version: use c=0 plans.)
  4. Know what a control chart is and how to make one.
  5. Insist that your suppliers control chart key processes. That will define their process variation.
  6. Compare your specification limits to the suppliers process variation. If the supplier’s variation isn’t a whole lot less than your specification, you and the supplier are in trouble. The supplier is going to build scrap and some of it will find its way to you. This comparison is called Cp or CPk. Higher numbers are better.

OK, it’s not really that simple. But I wonder why training programs are so scarce? Are the quality wars over and quality won? It did in some countries and some industries but not others. What does your company do about training its procurement professionals?

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Buick: Designed, Made, and Sold in China

Here are a couple of eye openers from a New York Times article:

For the first nine months of 2009, for instance, Buick sold 312,798 vehicles in China; in the United States, it sold 72,389.

— and —

The idea of creating a new Buick in a design studio in China, as General Motors has done with the 2010 LaCrosse, is not as loopy as it might sound. Buicks have a certain cachet in China, dating back some eight decades to when the emperor bought one.

So, there are 1.346 billion Chinese. They like Buicks, they design Buicks, and they build them too.

Do you have the feeling US efforts to keep our economy moving are misguided in the long term? Our government messes around protecting manufacturers of steel pipe while the higher value-add, higher technology, higher skilled jobs are slipping away. Anyone for education?

Oh, and the car looks good.

Just a Tiny Tax

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.)

In the September 24th New York Times, there’s an op-ed column advocating a “tiny tax” on foreign exchange transactions. The author, Phillipe Douste-Blazy, proposes a tax of one two-hundredth of one percent on foreign exchange transactions of the most-traded currencies. That small tax would raise $33 billion dollars per year. He proposes using it for global health improvement programs. The tax itself looks like a good idea to me, although there is a huge number of competing uses for the revenue. Just looking at global issues, there is of course also a need for money to address climate change. And each country involved has its own domestic needs. But let’s just look at the math for a minute.

He estimates global foreign exchange transactions to be 800 trillion US dollars per year. (That’s a U.S. trillion, one million million.). According to the World Trade Organization, total trade in goods and services was approximately 20 trillion dollars in 2008. That multiple–foreign exchange transactions are 40 times actual trade in goods and services– is in line with what I’ve seen in several places. Foreign exchange transactions dwarf international trade.

What do we traders get as a side benefit of this huge market? We get a very transparent market and really small costs to exchange money. This is a good deal. How much would a transaction tax reduce transaction volume? I don’t know, but even if it reduced it 50%, actual international trade would still be tiny compared to financial trade. We’d still get a benefit. And humanitarian projects around the world need the money.

Dick Locke, Global Procurement Group and Global Supply Training.

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