WEBVTT 00:00:11.370 --> 00:00:12.490 Welcome to Global Tax Talk. 00:00:12.490 --> 00:00:15.601 I'm Will Morris, and we're here filming in Hong Kong at 00:00:15.601 --> 00:00:19.601 PwC's Asia Global Tax Symposium, where I'm delighted to be joined by my 00:00:19.601 --> 00:00:23.101 old friend Frank Debets, who is PwC's Asia-Pacific Customs and Trade Leader. 00:00:23.101 --> 00:00:23.490 Frank, 00:00:23.800 --> 00:00:24.440 welcome. Hi 00:00:24.880 --> 00:00:25.200 Will. Thanks 00:00:25.280 --> 00:00:25.960 for having me. Great. 00:00:26.040 --> 00:00:26.280 Okay, 00:00:26.760 --> 00:00:28.120 so let's dive straight into this. So 00:00:28.120 --> 00:00:33.060 trade decisions now cut across customs, tax, supply chains, geopolitics, all 00:00:33.060 --> 00:00:34.360 of these things. So 00:00:34.360 --> 00:00:38.431 what are businesses, in your view, still underestimating about how connected these 00:00:38.431 --> 00:00:39.720 issues have become? I 00:00:40.440 --> 00:00:42.699 like the fact that you use the word now, right? Because from 00:00:42.699 --> 00:00:42.960 my 00:00:42.960 --> 00:00:46.793 perspective, I think they've always cut across all these areas. But 00:00:46.793 --> 00:00:47.480 the reality 00:00:47.840 --> 00:00:52.058 is that many, many companies have gotten used to a world that has 00:00:52.058 --> 00:00:57.032 been on a one-way path to further trade liberalisation over the past 70, 80 years. 00:00:57.032 --> 00:00:58.040 And therefore, they've 00:00:58.360 --> 00:01:02.200 gone and forgotten how trade decisions, so whether it's 00:01:02.200 --> 00:01:06.518 where you purchase, where you manufacture, how you distribute, how you price 00:01:06.518 --> 00:01:11.000 products, that they all have an impact on business performance. And so a lot 00:01:11.360 --> 00:01:14.945 of companies are still struggling to get ahead around this because they haven't had to 00:01:14.945 --> 00:01:16.880 deal with it. And ironically, the companies that 00:01:16.880 --> 00:01:19.652 have been used to dealing with high tariffs are 00:01:19.652 --> 00:01:23.784 actually better placed because they had teams in place to deal with this. 00:01:23.784 --> 00:01:25.040 the companies that hadn't are 00:01:25.360 --> 00:01:29.694 now kind of scrambling in a way for resources and a strategy to deal with this. 00:01:29.694 --> 00:01:31.280 So this has proved to be 00:01:31.440 --> 00:01:33.480 a real stress test from that point of view. Correct, correct. Okay, so 00:01:33.480 --> 00:01:34.280 companies are 00:01:34.760 --> 00:01:36.813 being asked to make decisions faster while the rules 00:01:36.813 --> 00:01:39.800 keep changing, as we all know. So are businesses using data, 00:01:40.520 --> 00:01:44.614 technology, AI, and practice to model scenarios, manage risk, and respond in real 00:01:44.614 --> 00:01:47.200 time? How's that going? In theory. I could say 00:01:47.200 --> 00:01:47.760 yes, because there 00:01:49.280 --> 00:01:52.671 are some businesses. But to be honest, it's still few and far 00:01:52.671 --> 00:01:55.280 between. And the way I see it, we launched our 00:01:55.280 --> 00:01:59.435 Trade Advisory Web in Singapore, which was really to do with trying to help companies 00:01:59.435 --> 00:02:02.474 down that path end to end. And it's a 00:02:02.474 --> 00:02:05.080 famous consultant term, end to end. What does 00:02:05.080 --> 00:02:07.360 that mean? So companies tell us, first and foremost, 00:02:07.360 --> 00:02:08.160 in the case of 00:02:08.320 --> 00:02:11.506 customs and trade, they don't even know what they have to comply with. Because 00:02:11.506 --> 00:02:14.908 the regulations are, they're not published, they're hard to understand, sometimes they're deliberately vague. 00:02:14.908 --> 00:02:17.320 So they don't even know what to comply 00:02:17.320 --> 00:02:21.263 with. Once they kind of understand what they should be complying with, 00:02:21.263 --> 00:02:21.520 they 00:02:21.680 --> 00:02:24.337 don't have the data. And we talk a lot about data, 00:02:24.337 --> 00:02:25.360 tax data, and other data. 00:02:25.360 --> 00:02:28.480 Customs and trade data are even more diverse, less structured than all the 00:02:28.840 --> 00:02:31.321 other data. So it's kind of hard to 00:02:31.321 --> 00:02:33.480 know, does a company even have them? 00:02:33.480 --> 00:02:35.600 Does somebody else have them? So only by the time you have some 00:02:35.600 --> 00:02:36.520 data to deal with what 00:02:37.000 --> 00:02:41.130 you now know you have to comply with, can you start talking about technology. And so what a 00:02:41.130 --> 00:02:43.800 lot of customs and trade teams have done, 00:02:44.160 --> 00:02:48.006 they've kind of, I wouldn't say knee-jerked, that's a bit unkind, but they've bought things 00:02:48.006 --> 00:02:50.483 that were most relevant to them at a particular 00:02:50.483 --> 00:02:54.856 point in time. So they might buy a tool that is denied party screening, or 00:02:54.856 --> 00:02:55.120 they 00:02:55.120 --> 00:02:59.338 might buy a tool that helps them classify products. But those tools don't really communicate with 00:02:59.338 --> 00:03:03.296 their existing systems, with each other. And so you are starting 00:03:03.296 --> 00:03:05.640 to see now that becoming a problem, 00:03:05.920 --> 00:03:10.193 because there's no coordinated platform that links all those technologies. And therefore, companies are kind 00:03:10.193 --> 00:03:14.740 of running behind trying to upgrade what they already have, try 00:03:14.740 --> 00:03:18.520 and say, well, okay, if we have some information that we need 00:03:18.520 --> 00:03:21.750 for tariff classification, but for origin determination as well, and perhaps for pricing, 00:03:21.750 --> 00:03:25.182 we don't have that in a single place. So most 00:03:25.182 --> 00:03:28.160 companies are really still in that space where they're trying to 00:03:28.320 --> 00:03:32.048 work out, well, what could we do and what technologies exist. The companies that 00:03:32.048 --> 00:03:34.469 have been more successful are the companies that have 00:03:34.469 --> 00:03:34.760 had 00:03:35.400 --> 00:03:39.817 a better AI, I would say technology more than AI, but a 00:03:39.817 --> 00:03:43.024 better strategy already. And often those are the companies for 00:03:43.024 --> 00:03:44.840 which the financial impacts or 00:03:44.840 --> 00:03:48.091 excisable industries, for example, tend to be a bit better because excise is 00:03:48.091 --> 00:03:50.807 such a big deal for them. But all the others are 00:03:50.807 --> 00:03:51.960 learning. And my concern is that they 00:03:52.720 --> 00:03:56.527 would end up doing the same thing, that they apply AI and new technology in 00:03:56.527 --> 00:04:00.532 all parts of their business but not necessarily the trade management. And that might be 00:04:00.532 --> 00:04:03.103 an afterthought. So that would be my 00:04:03.103 --> 00:04:03.400 warning 00:04:03.400 --> 00:04:05.120 to them to say, well, build 00:04:05.120 --> 00:04:08.480 the trade management in, coming back to your first question. Yeah, I mean, I 00:04:08.480 --> 00:04:11.338 think this is not a phase. I think this is 00:04:11.338 --> 00:04:13.280 like the new normal. Yes, correct. Okay, so look, 00:04:13.360 --> 00:04:15.720 so as I was saying, trade friction, sorry, friction. Trade 00:04:15.880 --> 00:04:16.760 friction is 00:04:16.840 --> 00:04:17.240 beginning 00:04:17.560 --> 00:04:21.193 to look like a permanent cost to doing business. So what are 00:04:21.193 --> 00:04:25.080 companies finding the biggest opportunities to rethink supply chains, to sourcing, market 00:04:25.080 --> 00:04:29.394 strategy in response to this. Yeah, so I think two things stand 00:04:29.394 --> 00:04:32.880 out to me. So one is, actually one is harder 00:04:33.400 --> 00:04:36.360 than the other. So we talk in PwC about transformation and 00:04:36.360 --> 00:04:39.240 reinvention. So from a transformation perspective, it's looking at what 00:04:39.480 --> 00:04:42.600 you do today and could you do it better or 00:04:42.600 --> 00:04:46.200 more efficient. Actually, there's a huge opportunity there because as I said 00:04:46.200 --> 00:04:48.000 a bit earlier, companies have gotten used 00:04:48.160 --> 00:04:50.885 to a tariff-free, somewhat frictionless free, if 00:04:50.885 --> 00:04:54.305 I could say, world, and therefore they've become a little bit inefficient 00:04:54.305 --> 00:04:56.710 because it didn't matter so much. But 00:04:56.710 --> 00:05:01.092 now it's starting to matter. So better planning around intercompany pricing and 00:05:01.092 --> 00:05:01.520 valuation of 00:05:01.520 --> 00:05:03.040 products, better planning about tariffs to 00:05:03.320 --> 00:05:08.022 use, better planning around benefiting from free trade agreements and 00:05:08.022 --> 00:05:12.916 so on and so forth. Things that in the past maybe 00:05:12.916 --> 00:05:15.840 they looked at but saying, well, it's not really 00:05:16.120 --> 00:05:18.492 worth the effort are now worth the effort. So that's some 00:05:18.492 --> 00:05:20.680 easy wins that I think every company should pursue. And so 00:05:20.680 --> 00:05:24.200 the second part which is much harder, is to rethink the 00:05:24.760 --> 00:05:29.589 markets where you want to do business from a market entry, from a tariff 00:05:29.589 --> 00:05:34.759 and trade restriction perspective. And that's where we talk about reinventions, so finding new 00:05:34.759 --> 00:05:36.800 trade corridors, new 00:05:37.120 --> 00:05:40.641 corridors of value that perhaps in the past they weren't looking 00:05:40.641 --> 00:05:43.892 at. So, I mean, US is a great example. A 00:05:43.892 --> 00:05:45.680 lot of Asian companies would love 00:05:45.680 --> 00:05:48.586 or do love to sell to the US because it's a big 00:05:48.586 --> 00:05:52.975 market, it's a profitable market. If tariffs take some of that profit away, they might 00:05:52.975 --> 00:05:54.400 need to rethink and 00:05:54.720 --> 00:05:58.585 say, well, where are other markets? Are there elsewhere in Asia? Are there in 00:05:58.585 --> 00:05:59.760 the Middle East and 00:05:59.760 --> 00:06:02.200 Africa? And so that's where companies start finding opportunities. And I would 00:06:02.520 --> 00:06:05.600 say the companies that do this now will 00:06:05.840 --> 00:06:09.865 definitely have an advantage because when you start looking at new distribution networks, new 00:06:09.865 --> 00:06:13.835 customers, if you're looking by yourself, right, it's easier than 00:06:13.835 --> 00:06:16.406 if 100 other companies are down the 00:06:16.406 --> 00:06:20.600 same path. And they're also saying, we need new customers, we need new 00:06:20.600 --> 00:06:23.428 suppliers, we need new trade corridors. Great, that's a lot of 00:06:23.428 --> 00:06:24.560 food for thought. Okay, so 00:06:25.880 --> 00:06:26.040 one 00:06:26.160 --> 00:06:27.600 final question. So some businesses do seem able 00:06:27.960 --> 00:06:29.120 to turn this disruption into 00:06:29.600 --> 00:06:33.780 opportunities, while others are just left reacting. What are the companies 00:06:33.780 --> 00:06:35.760 who are navigating this environment, what 00:06:36.240 --> 00:06:39.000 are they doing well that enables them to do 00:06:39.000 --> 00:06:43.210 that? Other than listening to PwC. Well, of course, and in particular, Frank Debets, 00:06:43.210 --> 00:06:43.480 just 00:06:43.480 --> 00:06:45.692 to be clear about that. Yeah, no, 00:06:45.692 --> 00:06:47.040 I think they're connecting the dots 00:06:47.040 --> 00:06:50.440 much better. And as I say, so they have an appreciation, 00:06:51.080 --> 00:06:53.807 and it goes into their strategic planning. I work a lot 00:06:53.807 --> 00:06:55.840 with my colleagues in our international 00:06:56.360 --> 00:07:00.028 growth practice that look at strategic supply chain planning. And that's kind of telling 00:07:00.028 --> 00:07:01.840 me it's kind of odd that 00:07:02.080 --> 00:07:06.006 companies have teams and processes in place to plan for natural disasters and pandemics 00:07:06.006 --> 00:07:09.828 and wars, but not for tariffs, which on the grand scale 00:07:09.828 --> 00:07:13.075 of things seems something that should be quite easy. And so 00:07:13.075 --> 00:07:14.960 the companies that are actually appreciating 00:07:15.240 --> 00:07:19.228 that there's real value to be made in this, And perhaps because 00:07:19.228 --> 00:07:22.307 they had the experience, but also because they're quick, they are 00:07:22.307 --> 00:07:25.640 creating the most value. Now, for example, during the first Trump 00:07:25.640 --> 00:07:28.908 administration, I worked with a company that was very 00:07:28.908 --> 00:07:33.230 concerned about a potential bifurcation in trade between the US and China. 00:07:33.230 --> 00:07:35.280 And they did a lot of preparation to 00:07:35.280 --> 00:07:39.400 say, well, should we need it, we can split. So that is few and far between, 00:07:40.160 --> 00:07:42.120 but the companies that do that are 00:07:42.240 --> 00:07:45.640 well positioned to weather the current storms. OK. Well, again, I mean, a 00:07:45.960 --> 00:07:46.200 lot 00:07:46.680 --> 00:07:49.165 of what I take away from this is that some companies are well 00:07:49.165 --> 00:07:51.320 prepared, some aren't. But I do also take 00:07:52.120 --> 00:07:56.198 away the message that this is something which is, as I said, the new normal. And 00:07:56.198 --> 00:07:59.920 more and more companies are going to have to do that. So Frank, this 00:07:59.920 --> 00:08:01.000 has been great. We will look 00:08:01.000 --> 00:08:04.760 forward to getting you back and hearing how things are progressing. But thank 00:08:04.760 --> 00:08:05.840 you very much for joining us. Happy 00:08:05.840 --> 00:08:06.360 to do so. Thanks, 00:08:06.560 --> 00:08:08.905 Will. And thank you for joining us. And come back 00:08:08.905 --> 00:08:11.160 next time so that you stay global tax ready.