January 26th, 2017 10:00 a.m. – 4:00 p.m.

Washington, D.C.

Customs Update & Comprehensive Discussion of 2017 FDRA Footwear

Customs Priorities

Matt Priest, President & CEO, FDRA Andy Polk, Senior Vice President, FDRA

Thomas Crockett, Director, Government Affairs, FDRA John Pellegrini, Counsel, McGuireWoods LLP

Customs Update & Comprehensive Discussion of 2017 FDRA Footwear

Customs Priorities

Matt Priest, President & CEO, FDRA Andy Polk, Senior Vice President, FDRA

Thomas Crockett, Director, Government Affairs, FDRA John Pellegrini, Counsel, McGuireWoods LLP

ü  House Republican Border Adjustment Tax

ü  Customs Law Update

ü  Highlights from the Customs Reauthorization

ü  Background on Issues for Agency Meetings Today

ü  Tariff Simplification

What We Will Cover

Customs Update & Comprehensive Discussion of 2017 FDRA Footwear Customs Priorities

House Republican Border Adjustment Tax Proposal

House GOP plan would shift corporate tax from a 35% income tax to a 20% destination-based cash flow tax

Source:  A  Be+er  Way,  “Tax  Policy  Paper,”  June  24,  2016

Issue Proposed  change  in  House  GOP’s  “A  Be8er  Way”  Blueprint Federal  corporate  tax  rate Decrease  corporate  rate  from  35%  to  20%  

Corporate  Alterna9ve  Minimum  Tax

Repeal  the  AMT

Deprecia9on •  Immediate  expensing  for  new  investment  in  equipment,  structures  and  intellectual  property  •  No  deprecia9on  for  land  •  Inventories  subject  to  last-­‐in-­‐first-­‐out  (LIFO)  accoun9ng  •  Eliminate  deduc9bility  of  net  interest  expense  

Border  adjustments Exports  exempt  from  tax,  imports  subject  to  tax  

Carry-­‐forward  of  net  opera9ng  losses

Net  opera9ng  losses  can  be  carried  forward  indefinitely,  adjusted  for  infla9on  (under  current  law,  the  nominal  value  of  net  losses  in  one  year  can  be  carried  forward  in  the  subsequent  20  years)

Special-­‐interest  deduc9ons  and  credits

•  “Generally  eliminate”  special-­‐interest  deduc9ons  and  credits,  such  as  the  domes9c  produc9on  (sec9on  199)  deduc9on,  in  favor  of  lowering  corporate  rate  

•  Create  business  credit  to  encourage  research  &  development

Interna9onal  corporate  income Exempt  dividends  from  foreign  subsidiaries  from  taxa9on.  Repatria9on  of  foreign  income  taxed  at  8.75%  for  cash  and  cash  equivalents,  otherwise  taxed  at  3.5%

Pass-­‐through  business  Income Tax  rate  on  income  earned  by  a  partnership,  sole  proprietorship  or  S-­‐corpora9on  is  capped  at  25%,  rather  than  taxed  at  ordinary  income  tax  rate

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Revenue  from  the  sale  of  US  goods  to  nonresidents  (exports)  would  not  

be  included  in  taxable  income  

Cost  of  goods  purchased  from  nonresidents  (imports)  would  not  be  deducIble  from  taxable  income  

A destination-based cash flow tax uses a border adjustment to exempt exports from domestic taxation

Source:  Kyle  Pomerleau  and  Stephen  J.  EnGn,  “The  House  GOP’s  desGnaGon-­‐based  cash  flow  tax,  explained,”  Tax  FoundaGon,  June  30,  2016

ExplanaIon  of  desInaIon-­‐based  cash  flow  tax  system  

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A  desInaIon-­‐based  cash  flow  tax  is  applied  where  a  good  ends  up,  rather  

than  where  it  is  produced.    

Essen9ally,  cross-­‐border  transac9ons  are  ignored  

when  calcula9ng  a  corpora9on’s  tax  base.  

Source:  Jim  Nunns,  Len  Burman,  Ben  Page,  Jeff  Rohaly,  Joe  Rosenberg,  “An  analysis  of  the  House  GOP  tax  plan,”  September  16,  2016

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Border adjustment proposal would raise $1.2 trillion in tax revenue over 10 years  

Tax Policy Center estimates of tax revenue from border adjustments

Billions  of  dollars,  FY  2017-­‐2036  

Responses to border adjustment tax proposal

Sources:  Ryan  Rainey,  “Koch  Industries  alarmed  over  GOP  tax  plan’s  border  adjustment,”  Morning  Consult,  December  7,  2016;  Steve  Lohr,  “New  approach  to  corporate  tax  law  has  House  GOP  support,”  New  York  Times,  December  12,  2016. 9

“[It  is]  an  exo9c  economics  lab  experiment.  [Retailers  are]  very  

concerned  about  prac9cal  effects  of  this  on  profits,  jobs  and  opera9ons.”  

—David  French,  Na5onal  Retail  Federa5on

“While  companies  like  Koch  who  manufacture  and  produce  many  products  domes5cally  would  greatly  benefit  in  the  short-­‐term,  the  long-­‐term  consequences  to  the  economy  and  the  American  consumer  could  be  devasta5ng.  

The  proposed  border  tax  adjustment  will  distort  the  market,  increase  consumer  prices  

and  create  an  uneven  playing  field  for  companies  and  consumers  alike.”

—Philip  Ellender,  Koch  Industries

“[Border  adjustment  is  a]  key  provision  that  improves  our  global  compe99veness  and  helps  level  the  playing  field  for  exports  and  imports.  It  also  

meets  our  shared  goal  to  eliminate  any  tax  incen9ve  to  move  our  jobs,  headquarters  and  innova9on  

offshore.”  

—Rep.  Kevin  Brady  (R-­‐TX),  House  Ways  and  Means  Chairman

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Companies relying on imports could potentially see lower net incomes under GOP border-adjusted tax law  

■  Under  current  law            ■  Under  proposed  border-­‐adjusted  tax  law  

Estimated net income of five US retailers Millions  of  dollars  

Source:  RBC  Capital  Markets;    “Retailers  risk  mulDbillion-­‐dollar  earnings  hit  under  GOP  tax  plan,”  Wall  Street  Journal,  Jan  6,  2017  

“Anytime I hear border adjustment, I don’t love it. Because usually it means we’re going to get adjusted into a bad deal. That’s what happens.”

President Trump, January 16, 2017  “It’s certainly something that’s going to be discussed. I would say, over the next

month-and-a-half, two months we’ll be having more concrete discussions. Right now, we’re really focused on health care more than anything else.”

President Trump, January 18, 2017

Customs Law Update

Protecting economic security through trade enforcement Strengthens  enforcement  capabili9es  and  methods  —  including  increasing  bonding,  enhanced  targe9ng  of  high-­‐risk  important,  and  swie  and  thorough  review  of  allega9ons  to  befer  enforce  US  trade  laws  and  regula9ons  

Establishes  a  new  administra9ve  procedure  for  inves9ga9ng  allega9ons  of  evasion  of  An9dumping  and  Countervailing  Duty  (AD/CVD)  orders,  including  an  ability  to  draw  adverse  inferences  for  failing  to  provide  informa9on    

Enhances  CBP’s  efforts  to  combat  the  import  of  counterfeit  goods  and  protect  intellectual  property  rights  holders,  and  to  improve  enforcement  of  AD/CVD  laws  

Prohibits  all  products  made  by  forced  labor,  including  forced  or  indentured  child  labor,  from  being  imported  into  the  United  States    

Customs Bill The  TFTEA  was  signed  into  law  by  President  Obama  on  February  24,2016.    It  is  the  first  comprehensive  authoriza5on  of  US  Customs  and  Border  Protec5on  (CBP)  since  the  crea5on  of  the  Department  of  Homeland  Security  in  2003

Streamlining and modernizing the CPB through business transformation

Extends  the  funding  through  2018  for  the  Automated  Commercial  Environment  (ACE)  —  the  backbone  of  the  U.S.  government’s  “Single  Window”  system  of  imports  and  exports  —  which  transmits  the  private  sector’s  import-­‐export  data  to  47  PGAs,  elimina5ng  over  200  different  forms,  and  streamlining  trade  processes

Supports  CBP’s  efforts  to  develop  and  implement  the  Centers  of  Excellence  and  Exper5se  —  na5onwide,  industry-­‐specific  centers  that  enhance  our  enforcement  of  trade  laws  and  regula5ons,  provide  uniformity  of  trade  prac5ces  across  US  ports  of  entry,  and  build  industry  exper5se  within  CBP

Recognizes  the  authority  to  establish  and  maintain  CBP's  preclearance  program  for  interna5onal  travelers,  authorizing  immigra5on,  customs,  and  agriculture  inspec5on  of  each  U.S.  bound  traveler  prior  to  boarding  a  direct  flight  to  the  United  States

 Raises  the  de  minimis  value  for  du5es  and  taxes  on  shipments  of  merchandise  imported  by  one  person  on  one  day  from  $200  to  $800

Customs Bill

ü  CBP Enforcement Activities

ü  Fish & Wildlife ACE Pilot Program

ü  New MTB Process

ü  Athletic Footwear Classification

Background on Issues for Today’s Meetings With Agency Officials

Tariff Simplification

CBP Enforcement Activities Update

Jerry Malmo, Director Civil Enforcement Division

Office of International Trade U.S. Customs & Border Protection

Key Updates on Global Customs Issues

Kerry Rasmussen, Farrow Hung Lee, Amber Road

Melissa Irmen, Integration Point

U.S. Fish & Wildlife ACE Pilot Program and

Footwear Impact

Phil Alegranti, Senior Special Agent Office of Law Enforcement

United States Fish and Wildlife Services

Tamesha Woulard, Supervisory Wildlife Inspector United States Fish and Wildlife Services

Miscellaneous Tariff Bill (MTB) Process

Laura Rodriguez International Trade Analyst

U.S. International Trade Commission

Jennifer Rohrbach Program Manager, MTB Process

U.S. International Trade

Clarifying Classification with CBP

Stacey Kalkines National Import Specialist, Footwear

U.S. Customs & Border Protection

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