If skyrocketing energy and raw material prices weren’t painful enough, supply managers may soon need to grapple with another nemesis: higher tariffs on key imports. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) last week parted with his party’s free-trade ways and threatened to boost tariffs on materials and goods coming from some of the most popular low-cost nations.

Claiming that India and Brazil filibustered recent World Trade Organization’s (WTO) Doha Round trade talks, the disgruntled Grassley is threatening two counter offensives — both of which would increase supply costs for U.S. companies. Grassley is calling for the White House to put the kabash on U.S. tariff breaks to India and Brazil. If not, the senior Senator says he will block renewal of the $1 billion program that makes imports from 140 developing countries duty free. And my time as procurement policy wonk inside the Beltway suggests that the Finance Committee chief usually gets his way.

Grassley’s target is the 30-year-old Generalized System of Preferences (GSP) program, which allows lower duty imports for products from 140 countries, including 13 upper middle income countries, including India and Brazil. The senior Senator is pushing to revoke India’s and Brazil’s GSP privileges when the program expires at year end. Grassley’s demands are in direct response to the countries’ role in denying the U.S. greater access to their markets during the stalled Doha Round talks.

Such sanctions could throw a wrench in the supply chains of multiple industries – from retail and food and beverage sectors to the automotive, construction, and industrial manufacturing. Top imports from India include jewelry, spices, and leather products. I am aware of at least one major food and beverage company that currently imports more than half of its spices from India. The impact of higher tariffs could be devastating. Supply execs at this company are scrambling to set up alternative supply lines, most likely in Mexico or South America.

Sanctions against Brazil could have more widespread ramifications. Automotive parts are a top import from Brazil. Added costs to vehicle production could cripple an already ailing auto industry. Other leading imports from Brazil include wood (just ask Sting) and electrical equipment parts.

If favored duty status is not removed for India and Brazil, Grassley says he will block renewal of the entire GSP program, which also includes low-cost country sourcing hot spots, such as South Africa, Russia, Philippines, Romania, Argentina, Croatia, Indonesia, Kazakhstan, Thailand, Turkey, and Venezuela.The trade program is currently under review, with comments due by September 5th. In the interim, the Bush Administration is recruiting China to help jumpstart the WTO’s Doha Round of trade talks.

Commodity managers should watch developments closely and do a preliminary assessment of how any changes in tariffs might impact total supply costs.   

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