The following is an exclusive IBNewsmag.com interview with Bjoern Krempel, Managing Director of Paulson Manufacturing’s Paulson International, Gmbh, in Frankfurt, Germany, pictured left.
Knowing you have a DC in the EU, which EU countries do you sell to?
Since 2004, we have sold products to all EU countries, except for one, Estland.
What is your largest export product or product line to EU countries?
It is our unique Arc Shield product line, to protect workers against the hazard and risks of an electric Arc Flash. 85% of our sales to EU countries is with this product line.
Are you experiencing any tariff barriers in exporting to those EU countries?
An import tariff applies when importing products into the EU. The exact amount of this import tariff depends on the imported product, like in all other countries.
When shipping products from Germany to other EU countries, however, no tariffs apply. Shipping within the EU is tariff-free.
Besides the import tariff, there is the Import Sales Tax that importers of goods have to pay to the Tax Authorities of the country of first entry, however, this tax is refundable for companies with registration in the EU
Have you encountered any non-tariff barriers by any EU countries, such as more cumbersome certifications, etc.?
In some countries, like the UK, special product certifications were required for selling products. Although these product certifications are very similar to the existing EU product testing requirements, the administrative challenges were enormous to overcome.
Specifically, in the period after the Brexit, customers and suppliers were struggling because of the complexity and uncertainty of the new rules in the UK. This led to decreasing sales numbers for most companies doing business with the UK. Meanwhile, the UK also accepts the EU product certifications, so that the sales numbers will restart to regrow.
What do you see as your biggest obstacle(s) to export sales growth in the EU other than tariff and non-tariff barriers? (competition, strong dollar, uncertain global economy, other?)
In the EU and its associated members, we face strong competition from European and Far East manufacturers. This is in larger countries and established markets like Germany, France and the UK, but, also in Eastern Europe, where the need for PPE is underdeveloped and where pricing matters the most. Despite being the market leader in Europe with our high-end Arc Shields, some competitors offer low-cost products in these markets and therefore still have reasonable market shares.
In view of our other product lines, like for Firefighters and the Police, it is complicated to attain greater sales in the EU. This is due to the preferred product designs. For example, in the EU, firefighters discontinued the use of goggles and now mostly use helmets with integrated face shields. Since we do not manufacture this kind of helmet, this market vanished for us.
In the Tactical market for the Police and Military, EU end users prefer products manufactured domestically in the home country or in the EU. While there is neither an official rule to favor such local products in public tenders nor are there tariffs on foreign products, end users traditionally decide in favor of local products.
Other constraints are the EURO-USD exchange rate, which forces foreign manufacturers to adapt pricing structures frequently, causing uncertainty in customers. Such uncertainty almost automatically leads to lower sales.
Another aspect are tariffs in some of the associated members of the EU, like Turkey. In Turkey the import tariff for US made products is very high, with up to 60% in recent years. In contrast, there is no import tariff on products made in the EU. Therefore, many Turkish customers have begun buying from EU manufacturers instead.
Last but not least, there is this relatively confusing topic of the Import Sales Tax, when importing to the EU, and the so-called Value-Added Tax or just VAT.
Let’s talk about the Import Sales Tax first: To import from non-EU countries to Germany, for example, the importer must pay 19% Import Sales Tax on the import, in addition to the regular import tariff (see also pt. 2).
While the import tariff won’t be returned, the 19% Import Sales Tax can be refunded by the German Tax Authorities. However, only companies with special registration in Germany (or in another EU country) can apply for the refund. The same procedure applies to all EU countries, whereas the rate of the Import Sales Tax varies from country to country.
Also note that once the product is imported to any of the EU countries, the product can ship to all other EU countries without paying the Import Sales Tax
(and the import tariff) again. It therefore only needs to be paid at the first point of entry into the EU.
The VAT is the tax that the supplier of products (or services) must charge to its customers and collect the corresponding tax for onward payment to the German Tax Authorities through VAT filings. In different words, the seller adds the VAT to its invoice and collects the VAT from the buyer for paying it to the Tax Authorities.
Like the Import Sales Tax, the VAT is refundable to companies with VAT registration in Germany (or in another EU country). That means that the buyer will get a complete refund of the VAT that the seller had collected from him.
Note further that the VAT only applies to the sale of products within a country. If you ship products from one EU country to another EU country or to a country outside the EU, no VAT applies.
The exporter of products, however, must document the corresponding export by submitting a special proof from the courier agency or the freight forwarder that the product really got exported. Otherwise, the Tax Authorities demand payment of the VAT from the exporter afterwards.
The VAT in Germany is currently at 19%, like the Import Sales Tax.
To sum up, while the Import Sales Tax and the VAT require cautious handling and increased administrative efforts, both taxes are only pass-through items for a company. They first must be paid, but they will be refunded upon application by an EU-registered company.
Therefore, these two taxes do not disadvantage US manufacturers doing business in the EU.
The import tariff though is a disadvantage for Paulson International against EU manufacturers, because all products Paulson Int’l sells are imported from the United States. Thus, the import tariff needs to be added to the final sales price and makes our products more expensive in relation to local manufacturers.
Another heavy disadvantage for Paulson Int’l against EU manufacturers is that the high freight charges to ship products from the United States to Germany must be added to the final sales price as well.
Both of these items, are therefore, major downsides for Paulson Int’l in competitive markets like the EU.
For more information about Paulson based in Temecula, CA, visit www.paulsonmfg.com
