Will China-Specific Tariffs Impact Irish/NI Exports to US?

My last post discussed the potential (but likely very small) impact of the relatively new U.S. steel and aluminum tariffs on Irish and Northern Irish exports to the U.S. In this post, I turn to the related question of whether proposed U.S. tariffs against China could impact Irish and Northern Irish exports to the U.S. The answer is ‘maybe.’ In fact, U.S. tariffs on Chinese products could have a larger impact on U.S. imports from Ireland and Northern Ireland than the steel/aluminum tariffs.

U.S. tariffs are applied on certain imports that meet the (i) relevant country of origin test; and (ii) the relevant HTSUS code test. In other words, the tariffs hit certain products (each item imported into the U.S. is given a multi-digit Harmonized Tariff Schedule number) from certain jurisdictions–in this case, China. In general, the jurisdiction of product’s ‘last substantial transformation’ will be the product’s country of origin for U.S. customs purposes. And that could be an issue for some Irish/NI companies that source their product from China.

Let’s assume for a minute that an Irish company sources a widget (I remember my college economics) from China, imports it into Ireland for labeling and packaging, and then exports the packaged widget to the U.S. Let’s assume further that the U.S. has just placed a 50% tariff on all Chinese origin widgets. Are the Irish company’s subject to the tariff? In this scenario, yes. If the product is sourced from China and not substantially transformed elsewhere (and packaging/labeling almost always will not be a substantial transformation for U.S. customs purposes), then the product is determined to be–again, for U.S. customs purposes–of Chinese origin. It doesn’t matter that the exporter/seller is an Irish company–the relevant questions focus on the product(s) at issue.

Of course, the precise scope, and timing, of U.S. tariffs on Chinese products remains a bit foggy. But we have some indications as to scope from U.S. government pronouncements.

Irish and Northern Irish exporters should, sooner rather than later: (i) determine if their products are included within the HTSUS code of products subject to tariffs; and (ii) check their supply chain to determine if their products would be considered to be of Chinese origin under relevant U.S. customs rules. If their products are subject to tariffs, affected companies have few options; (i) continue to sell to the U.S. market at a higher cost; (ii) alter their supply chains to source from a place other than China and/or have the last substantial transformation of the product happen outside of China; or (iii) seek a tariff exemption from the U.S. government. None of these options is particularly attractive, easy or inexpensive.

The First Thing You Should Do…

Well, after taking the survey at http://agglaw.polldaddy.com/s/irelandnisurvey that is…

The first thing you should do when considering whether to export your product to the United States is determine whether the product can be marketed or sold in the United States, or if there are license or registration requirements in connection with marketing or selling your product here.  From time to time, I have seen companies go through the time and expense of setting up operations here or take other significant steps, only to discover that their product either needs prior approval/registration to be marketed or sold in the US or can’t be imported here at all.

There is an obvious reason to think of this issue first–you don’t want to waste time, effort or money if they US market is closed to your product, or if your product needs a license/registration to be sold here.  You should take into account the time and cost of a license/registration process when building and analyzing the economic/business case for expansion to the US market. Another, perhaps less obvious, reason is timing–you want to build enough lead time for your product launch in the US to account for any licensing/registration issues. You don’t want to leap into the US market without having a properly registered/licensed product.

Many products don’t need a license or registration to be marketed and sold here. But several products do, including products in areas where Irish and Northern Irish companies do well:

  • Pharmaceuticals and medical devices require authorization from the FDA to be imported, marketed, and sold here.
  • Certain ingredients in cosmetics are not allowed in the US (some ingredients may be banned on a state-by-state basis).
  • Food and drink imports may need prior approval from the US Department of Agriculture.
  • Medicinal foods require prior approval from the FDA.
  • Certain consumer products–especially those that are used by children–may need to be reviewed by the US Consumer Products Safety Commission.

There are other products that require license/registration to be marketed and sold here.

The primary observation of this post is that you should be sure whether, and on what terms, your product may be imported, marketed, and sold in the US before you set up a affiliate, create a distribution network or take any other substantive step to expand here. It’s a small up-front expense compared to the expense of finding out later and having to correct a mistake.



The Survey Says?

The good news is that we’re going to re-start our webinar series on US legal topics for Irish and Northern Irish businesses expanding to/operating in the US. But we need your help: we’re looking for feedback on the topics that might be of interest to an audience of Irish/Northern Irish businesses, their advisors, and other interested parties. The survey is at http://agglaw.polldaddy.com/s/irelandnisurvey

Please take a moment to give us some feedback, and please feel free to forward along to your colleagues and contacts. Thank you in advance for your help.


What Irish and Northern Irish Companies Need to Know Now: Doing Business in the U.S.–Free Webinar

Thursday, June 30, 2016 at 3:00 pm Dublin/Belfast.

The attorneys of Arnall Golden Gregory’s International Business Practice invite you to attend a complimentary, 60-minute webinar “What Irish and Northern Irish Companies Need to Know Now: Doing Business in the U.S.” The webinar will be held Thursday, June 30, 2016 at 10:00 am EDT (3:00 pm Dublin/Belfast). The United States is an attractive, and expanding, market for Irish and Northern Irish goods and services. Despite suggestions to the contrary, the U.S. can be an easy market for business expansion—with a little bit of planning. This webinar will examine key legal issues for doing business in the U.S., including:

  • Protecting the Irish and Northern Irish parent company, its investors, and capital from U.S. legal risk;
  • Avoiding branch profits tax issues;
  • Reducing payment risk by ensuring prompt payment from customers, and other U.S. contract essentials;
  • The product liability risks that may attach to selling in the U.S. market;
  • Navigating which jurisdiction’s laws govern the sale of Irish and Northern Irish-origin products in the U.S. market; and
  • Intellectual property protections.

Register now to hear AGG Partner Michael E. Burke discuss a business sensible, proactive approach to doing business in the U.S. while minimizing risk to the Irish and Northern Irish parent company and its investors.

Mike has an AV Preeminent™ Rating from Martindale-Hubbell, and has been named a Washington, DC Super Lawyer by Thomson Reuters since 21015. He also is a former chair of the American Bar Association Section of International Law, was named in 2014 by Business & Finance Magazine/IrelandInc.as one of the 100 Global Irish Business Leaders, and has been named three times to the Irish Legal 100.

Everything You Need to Know About Forming a US Corporation (for free!)

Lawyers are often of two minds about providing ‘free stuff.’ Some look at it as a straight economic loss; others look at it as a service that can build to something even bigger. One of my good friends was, as he has said, ‘in the room’ when the first model forms from the International Swaps and Derivatives Association were drafted. Several US West Coast law firms have free online forms libraries/generators for startups. That got me thinking—where are the online forms/resources for Irish and NI companies looking to expand to the US? Well, they’re here.

One of the first questions I get from Irish and NI companies is whether, as part of their US expansion strategy, they need to or should form a formal business entity and if so, what kind of entity and where. If you want a more fulsome discussion about why forming a US entity is a good risk-mitigation strategy for the Irish/NI parent, take a look at my earlier post, https://irishexportinsights.com/2015/03/03/effectively-using-a-lightning-rod/. The second question is usually about how much that formation would cost.

For purposes of this post, let’s assume that the Irish/NI company will form a Delaware corporation (which is what I’d recommend in about 90% of the cases). For a proper/complete formation, the Irish/NI company would need to draft (i) articles of incorporation (to be filed with the Delaware Secretary of State’s Corporations Division); (ii) bylaws; (iii) an initial action/consent of the incorporator; (iv) initial consent of the Board of Directors; and (v) SS-4/application for an employer identification number (to be completed and filed with the IRS). The filing with Delaware requires payment of a filing fee—and a filer can pay more for expedited service and other items; also, since the Irish/NI company is, well, in Ireland/NI, they will have to engage a registered agent (the registered agent serves as a point of contact between the company and the State of Delaware). And, filing can be made directly by the Irish/NI company—no real need to incur third-party filing or convenience fees.

Here’s the relevant information:

  1. Start with an entity information document, like this one, to gather the information you would need.
  2. The Delaware certificate of incorporation form is fairly simple/straightforward, and a sample can be found here. This contains the bare minimum required by the Delaware statute. If you have any questions about the certificate—like about the number of shares you may need or the indemnification provisions—consult a lawyer (preferably me!).
  3. The Irish/NI company will have to appoint a registered agent –we use National Registered Agents. They charge $95/year.
  4. The certificate needs to be filed with the State of Delaware. The fee structure is available at http://corp.delaware.gov/Julyfee.pdf; as of today, the filing fee is $89, and I’d recommend that companies spend the extra $50 to get a certified copy of the filing, for corporate records. The Delaware Secretary of State Corporations Division generally takes about two days to complete a filing—as indicated on the fee structure, you can pay extra for expedited service. In terms of filing logistics, the company should use this covering memo, http://corp.delaware.gov/cvrmemo.shtml, to file the articles. You can mail or fax in the filing request, and pay for it using a credit card.
  5. Draft a set of bylaws—a sample/template is here. These are internal to the company and do not need to be filed with any regulator, but should be included in the company’s minute books/records.
  6. The incorporator (the signatory on the articles of incorporation) should use this sample/template to appoint the initial board of directors of the company, and to resign. This also is internal to the company and does not need to be filed with any regulator, but should be included in the company’s minute books/records.
  7. The first meeting of the board of directors can happen without an actual meeting, using this consent in lieu of meeting template. Perhaps the most important provision of this form is the authorization to open a bank account, which is required by banks as a condition of opening an account. This document does not need to be filed with any regulator, but should be included in the company’s minute books/records.
  8. Lastly, (although required before opening a bank account), the company needs to obtain an employer identification number (EIN) from the US Internal Revenue Service. Additional information about this process, and the SS-4 form, can be found at https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online. Irish/NI companies should be aware that they can only apply for an EIN via mail or fax, since the person likely making the request—filing the SS-4 for the company—is not a US citizen or permanent resident.

Of course, these are the basic documents/forms and your specific situation may require specific solutions or considerations. You should always consult with a lawyer and your tax accountant if you have any questions or concerns about this process. I’m posting this to help educate Irish/NI companies on this process.

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I expressly disclaim all liability, loss or risk incurred as a direct or indirect consequence of the use of the blog or the documents. By using the blog and the documents, you waive any rights or claims you may have against me in connection therewith. The information contained in the blog and the documents is provided only as general information and may not reflect all relevant business or legal issues; accordingly, information therein is not promised or guaranteed to be correct or complete.

Making US Arbitration Work for Irish and NI Companies (Really!)

Foreign investors increasingly complain that US arbitration is morphing in to a process closer to full-blown litigation. I’ve always found it interesting that ‘full-blown’ is used to describe ‘all-in’ litigation and ‘all-in’ infectious disease. But I digress. The fact remains that many of the advantages of arbitration—speedier resolutions at a lower cost—are being lost to a variety of interim challenges, enforcement questions and other processes that defer prompt resolution of disputes. The good news for Irish and Northern Irish companies is that Delaware offers a way to make arbitration ‘work’ again. Continue reading

Protecting Your Trade Secrets in the US

Remember earlier posts about non-disclosure agreements, and the role they play in defining and protecting trade secrets? Of course you do—but in case you don’t, one of them is here. I even drafted a brief two-page outline for NDAs, here.

The macro point of those posts, at least as to protecting trade secrets, is that in the US, a trade secrets owner must take all “reasonably available steps” to protect their trade secrets. In an unpublished opinion filed on May 8, 2015, the US Court of Continue reading