By Sharon Lindstrom, Managing Director
Manufacturing and Distribution Industry Leader
It took the new Trump administration essentially no time to start issuing executive orders and presidential memoranda designed to ease regulations on U.S. businesses. Certain changes the administration is advocating would be welcome news for manufacturing and distribution companies, such as:
- A presidential memorandum that is intended to streamline federal permitting processes for, and to reduce regulatory burdens that affect, domestic manufacturers.
- An executive order that orders a review of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA). Scaling back these financial regulations, which were instituted in 2010 following the financial crisis, would reduce reporting requirements for many businesses.
Potential Suspension of DFA Section 1502
One DFA-related change that the Trump administration is reportedly considering could benefit many manufacturing and distribution companies: suspension of Section 1502. The so-called Conflict Minerals Rule requires certain public companies to disclose whether they use specific conflict minerals that originated from the Democratic Republic of the Congo or nine adjoining “Covered Countries.” Conflict minerals, such as tin, tantalum, tungsten and gold, are used to manufacture products across a wide range of industries, including technology and consumer products. Section 1502 required companies to assess whether any manufactured products contained such minerals and determine whether these materials originated in the Covered Countries by conducting supply chain due diligence and reporting annually.
Overtime Exemption Rule on Ice
The future is also uncertain for the controversial Fair Labor Standards Act overtime rule, which was introduced during the Obama administration and was supposed to go into effect on December 1, 2016. The rule increased the threshold for overtime pay whereby salaried workers who earn less than US$47,476 annually would be eligible for overtime pay when they work more than 40 hours a week. Companies must either compensate these workers with overtime pay or raise their salaries so they are above the threshold.
The National Association of Manufacturing’s Center for Manufacturing Research has estimated that overtime costs for manufacturers will reach $24 billion within the next 10 years under the Obama overtime regulations. However, the final overtime exemption rule under the Fair Labor Standards Act was blocked by a federal court in Texas one week before its effective date. In January, the Trump administration essentially put the rule on ice following a regulations freeze.
Regulatory Risk: It’s Still Out There
Manufacturing and distribution executives must consider the potential risks that accompany regulatory changes that are already in the works or that may be on the horizon. Industry executives who took part in the latest Executive Perspectives on Top Risks Survey from Protiviti and North Carolina State University’s ERM Initiative cited the following as a top risk for their companies in 2017: Regulatory changes and regulatory scrutiny may heighten, noticeably affecting the manner in which our products or services will be produced or delivered.
Change takes time, and many of the regulatory changes proposed in recent weeks could take years to fully play out. As The Wall Street Journal noted in a recent article about Trump’s executive order stipulating that government agencies eliminate two regulations for each new regulation they introduce: “[Any] effort to scrap a regulation triggers its own process, complete with draft rules, comment periods, and regulation rewriting. That process [also] can be subject to litigation.”
While certain changes would be welcome by manufacturing companies, the changing global trade landscape must be monitored vigilantly, as well. The Trump administration’s approach to trade and negative view toward multinational trade agreements are likely to create previously unanticipated challenges, costs and risks for manufacturing and distribution companies inside and outside of the U.S. For some of these businesses in the U.S., any potential regulatory relief may be offset, at least in the short term, by revisions to free trade agreements that could impact the ability to conduct business with trusted partners in other countries.
Still, for now, manufacturing and distribution companies have a lot to be optimistic about. Even before Trump took office and started taking steps to ease regulations, there were signs that the U.S. manufacturing industry was beginning to grow again. The Institute for Supply Management Index hit 56 percent in January, rising 1.5 percentage points from December and exceeding many economists’ expectations. This is the fastest pace of growth in more than two years.