International Trade and How It Is Changing
During the 25 years of his experience, throughout Europe and in the US, Renaud Roquebert has witnessed and taken part in some of the major global economic events: the inception of emails and the internet for everybody, the dot com boom and bust, the dramatic increase of globalisation and cross border trade, the enlargement of the EU, the rise of China and the other BRICS, the 2008 financial crisis. He almost always found himself in the heart of the event from a geographic perspective.
After founding his own law firm and transforming it into a global firm and as an entrepreneur and a lawyer, Renaud knows first-hand, and thus, speaks to us about what international trade means and how the tax, customs and various legislation impacts on international trade.
How did that experience shape the way you practice law at your firm?
My personal international experience has certainly influenced the way my firm is shaped and brings benefits to our clients. This international exposure has enabled me to identify trends and to anticipate what was coming in terms of the needs of clients with global operations. When global trade really started to boom (in the 2000s), I knew that the concerns of international businesses would be indirect taxes, such as, VAT and customs duties. These are the initial indirect taxes encountered by most business involved in international trade as these taxes are levied at border clearance, in pretty much any country. The legislation is often uncompromising and has not kept pace with the development of global trade. There are also very few experts who possess the experience and knowledge needed to deal with these matters on a multi-national basis. We have been pioneers in this area, which explains our position as leaders.
From a cultural perspective, I’ve shaped my firm based on the best practice of what I experienced in the various countries in which I have lived and worked. One of the key differentiators between us and competitors is our experience and knowledge of the local culture which makes us different on pretty much all levels of our profession. For example, business lawyers traditionally build the financial relationship with their clients based on profitability calculated on time spent (and billed). As far we are concerned, we not only deliver the highest technical quality, but our objective is mainly to facilitate the life of our clients by becoming part of their team: trust, transfer of know-how, responsiveness and support, rather than time spent. It is the intrinsic value of our service that counts, not the hourly cost. The relationship with our clients is therefore more healthy, efficient, relaxed and above all more profitable for them!
Likewise, our internal organisation is characterised by the enthusiasm of the teams and the elimination of traditional constraints such as time sheets, fixed hours, a single workplace, limited holidays, etc. We also use original tools such as ‘walk and talk meetings’ in the open air, cultural and artistic training, innovation bonus, etc.
With your extensive experience, how have you seen international trade develop throughout the years?
International trade has dramatically changed in the last 15 years or so. This is due to the development of technology, the decrease of logistics cost, the availability of lower cost work forces in developing countries, and hundreds of millions of “new” middle class consumers throughout the world.
For example, production of goods used to be linear and incremental. An illustration, would be the traditional production of consumer products; the raw material was first extracted, then it was used to manufacture components, and those components were assembled to form a semi-finished product, which in turn was finished and sold to consumers. At each step of this value chain, there was a specific know-how, and step 2 was not possible until step 1 was achieved, and so on. Most steps occurred in the same location. Now, production of a product is almost completely simultaneous: pretty much all steps occur at the same time. In other words, production is quicker and the added value is in design, marketing, and distribution capacities rather than production itself. From a tax and legal perspective, this has a major impact: where is the value created and so, where it should be taxed become blurred. Is it in the country where manufacturing takes place, or where the design is created? What if a product is being 3D printed in a country but sold by a company based in another country; is the 3D printer a permanent establishment of the vendor, where is the value taxed, and is the value based on printing cost or on the IP licensing, etc.?
Do you think international trade is becoming more restrictive due to current worldwide tensions? There have been many movements that could affect international trade, such as Brexit, the new President in the US and the Italian referendum (etc.); how do you see this affecting international trade?
It’s been a few years that the commercial competition between states is fierce. Following the Organisation for Economic Co-operation and Development’s (OECD) considerations on the base erosion of profits (BEPS) we have seen many countries introduce legislation to attempt to tax large multi-nationals. In this respect, this has led some States to use the tax & customs policy to protect or give preferential treatment to their home industry. This is now discussed in the main stream media, and some countries ‘advertise’ on this and ‘name and shame’ those companies that they believe are not paying their fair share of tax. Donald Trump announced that he will raise customs duties at importation in the US of products coming from China or Mexico. What will happen when the UK effectively exits the EU? It’s quite likely that most VAT and customs regulations that currently apply in the UK will have to be amended. Similar trends, or events, also take place in Asia, South America or Africa. This will certainly change the way global companies source their products, manufacture and distribute them. Businesses must not only keep up with the changes of legislation but they must also adjust their business model to this new reality.
As a law firm, we thus advise our clients both on daily and strategic plans. We are often involved with general management of our clients to advise them on their international affairs in the broadest sense. In this capacity, we are favoured by boards, seeking expert advice on the global trends and new opportunities.
From a pure tax and customs perspective, we have developed a specific expertise in dealing with tools used by governments. These tools are mainly global measures for commercial defence which allow the States to recreate a “level playing field” (i.e. an environment in which all the companies are subject to the same rules and have therefore the same competitive abilities) between the domestic goods and the imported goods, by imposing restrictions on ‘unfair’ imports.
The measures most often used and in first place by the States are the anti-dumping, the anti-subsidy and the safeguard measures.
LightHouse LHLF has developed solid experience and advanced expertise in commercial defence matters. This is what businesses have been demanding and need, since they must not only be in compliance with the laws enacted by government authorities, but they want to make the most efficient use of opportunities created by the governments.
Is there anything consumers and traders should acknowledge when starting up to do trade internationally?
Businesses should be aware that buying or selling across borders can give raise to taxes and customs duties which may make the cost of international operations higher than anticipated, which may affect the margins. If VAT may be recovered by the operator in most (but not all) cases, customs duties are a bottom line cost. One of the key messages when entering new markets is that planning ahead of time is critical. It’s necessary to fully understand the taxes and duties position before importing, as those taxes and duties must be taken into account in the cost of goods sold. Not doing this in advance would be a major flaw, and may make an otherwise viable business opportunity at risk both financially and legally.
Businesses should then monitor their international operations to ensure that their procurement and supply chains are optimised for tax and customs efficiency. Often procurement teams will determine best price on a unit cost basis without considering the total landed cost of acquiring the product. In some cases, this has resulted in the cost rising by 25% to 55% when Customs Duty and irrecoverable VAT/GST is factored in.
Last but not least, the development of artificial intelligence, big data and machine learning solutions will allow both the lawyers and their clients to work differently: we will become ‘augmented professionals’, working with powerful tools at a lower cost, thereby enhancing effectiveness to identify risks and opportunities to reduce the impact on businesses. At LightHouse LHLF, we will be pioneers and leaders again on this subject since we’re working on designing and building these new tools.
