Tariff troubles

May 01, 1999 9:30 PM  By

What do cut flowers, cashmere, and candles have in common? All of them could cost catalogers a lot more to import from Europe.

In March, the U.S. government imposed a 100% tariff-a tax equal to the cost of the imported merchandise-on 17 products from the European Union (EU), includ ing some Italian and French cheeses, Irish linens, and cashmere from Scotland. The reason for the tariff: A spat over the EU’s policy regarding banana imports and a long-standing ban on importing U.S. beef containing growth hormones.

Last year, the U.S. filed a trade restraint complaint with the World Trade Organization (WTO) citing the EU’s preference for importing bananas from the Caribbean rather than from Latin America, where crops are farmed by U.S.-owned Chiquita. The U.S. government estimates that its loses $520 million every year due to the banana- import policy. It also contends that it loses $900 million a year because of the EU’s ban on U.S. beef made from animals treated with any of six hormones that the U.S. says have been proved safe.

The WTO found the EU in violation of trade policies and gave it until Jan. 1 to revise its banana-import policy, and until March 2 to end its ban on U.S. beef. But the EU missed both deadlines-and the U.S. retaliated with the tariff. In the meantime, the WTO has extended the EU’s compliance deadline to June 1. If the EU doesn’t comply, the U.S. plans to expand the 100% tariff to cover an additional 81 products, including Danish hams and cut flowers from the Netherlands.

The real victims The U.S. government reasons that the 100% tariff will dissuade U.S. companies from buying goods from these European nations, thereby hurting their economies. But stateside companies that rely heavily on merchandise that cannot be produced anywhere but in the EU may be hurt even more.

For instance, if the EU refuses to meet the June 1 deadline, $4 million cataloger Scottish Lion Import Shop will have to eliminate a significant portion of its merchandise line, says president/owner Jack Hurley. The Conway, NH-based mailer sells Scottish woolens and gifts in its flagship book, and Irish linens, apparel, and gifts in its three-year-old Irish Edition catalog. “It costs enough to import from Europe as it is,” Hurley says. “We just can’t pay the additional tax.” Hurley declines to say how many products it will stop selling or how much the move could ultimately cost the company in lost sales.

Because the U.S. is the target market for Scotland’s cashmere textile industry, some Scottish wool manufacturers are trying to include nylon in their cashmere products to circumvent the tariff, which taxes only apparel made of 100% cashmere. Other manufacturers will consider paying the tariffs themselves once U.S. Customs bills the catalogers. “Often international trade partners can work out tariff negotiations to satisfy both parties. The company with the power”-in this case, the importer-”usually gets the other partner to pay,” says Charles Prescott, senior vice president of international development for the Direct Marketing Association.

But if the trade war goes on too long, the consumer will suffer, says Sharen Jester Turney, president/CEO of NM Direct, the $284 million catalog division of Neiman Marcus Group. “Suppliers might be able to eat the cost for a season, but a company won’t be able to stay in business for very long if the tariff continues,” she says. “The end result is that prices will increase, and consumers will end up paying.” While NM Direct doesn’t plan to increase the prices of the imported cashmere and bedding items in its Neiman Marcus and Horchow Collection catalogs, the company is “definitely keeping a close eye on the situation,” Tunney says.