Philip Sutter, U.S. Global Trade Management Governance
The global trade trend is for governments to move toward the coalescing of their trade programs, processes, and procedures. This is an evolutionary process that began after World War II with the General Agreement on Tariffs and Trade (GATT), continued with the World Customs Organization (WCO) Safe and Fast Environment (SAFE) Framework of Security Standard[1], moving forward at present with the World Trade Organization (WTO) Trade Facilitation Agreement (TFA), large free trade agreement (FTA) trading blocs, and many other programs and organizations to promote supply-chain efficiency, compliance, and cost avoidance. Companies in the international supply-chain must find ways to keep up.
The concept of a “trusted trader” is the ultimate vision of a global supply chain. A trusted trader is one that self-monitors its security and compliance activities as a force-multiplier for the governing authorities. That trader may receive benefits such as expedited border clearance and other perks. This risk-based approach allows the authority to concentrate available resources on the rest of the population.
It began with Customs-Trade Partnership Against Terrorism (C-TPAT) in the United States (US) and progressed to other regions, for example the European Union (EU) Authorized Economic Operator Program. The WCO provided SAFE to give consistent guidance to other security aspiring countries to follow. Despite SAFE, each program was siloed. Through mutual recognition arrangements, the various governmental parties are coming together toward a true common set of requirements and recognition equivalence.
Going to the next logical step, the idea goes beyond security to include compliance. The global goal, therefore, is to modernize and simplify customs data elements and formats. A core part of this will be to go to a “single-window” that covers all border-crossing requirements and make the idea of “a good export equals a good import” come to reality. Although the basic elements of a supply-chain are common, the data requirements, other government agency admissibility regulations, and formats vary significantly between countries. The WCO supports the effort to bring commonality between its members by maintaining the WCO Data Model[2]. The WCO is promoting and tracking its adoption among members[3].
As United States’ traders know, getting to data conformity takes time and resources. The Automated Commercial Environment project is just now getting closer to reality after two decades and millions of dollars. Other countries such as Mexico have implemented single-windows successfully. Canada is launching its Single-Window Initiative. The EU is now moving ahead with its Union Customs Code, it includes a single-window for the EU, and it is based on the WCO Data Model. Globally, the WTO TFA[4] is nearing ratification. The TFA promotes the single-window idea and encourages the modernization and capacity building of this model across all members including the developing countries.
From a free trade perspective, what began with the GATT took further shape with the most favored nation concept. Notwithstanding programs like the Information Technology Agreement and Environmental Goods Agreement, WTO-wide duty reductions have lost momentum. The trend shifted to bi-lateral FTAs and several multi-lateral agreements like the North American Free Trade Agreement, Association of South East Nations, and Pacific Alliance. At present, there are several large multi-lateral trading blocs (Trans-Pacific Partnership, Transatlantic Trade Investment Partnership, and Regional Comprehensive Economic Partnership) in negotiation or up for ratification. With the various overlaps of nearly 300 FTAs and the large trading blocs, it is a complex web of opportunity for international traders. The challenge is to develop duty avoidance and sourcing strategies that best take advantage of these changes ahead of the competition.
Technology plays a big role in each of the foregoing topics. New systems and processes are a necessity to facilitate these changes. But, it is costly, not only for the governments but also for the international businesses that must change databases and interfaces. Since, these paradigm shifting changes rarely come in one phase, it is difficult for the trade to keep up, let alone become a first or early adopter. In the case of FTAs, it requires significant effort to collect and maintain content and expertise to program the unique rules for the extensive list of FTAs that may apply to a company. Companies may find it difficult to fund technology to support such slow moving, yet sometimes politically abrupt changes.
What actions can global companies take to deal with the evolution of customs and trade?
- Keep Informed – Awareness is critical to understand and prepare for new programs and regulations that impact the supply-chain and business plans. This includes both the awareness of trade and regulatory changes, but also internal company programs that may impact or change a border crossing transaction in some way.
- Conduct Training – Compliance and supply-chain efficiency are people intensive. It is important that analysts and decision makers alike understand the impact of global trade trends and how changes will impact their company. An informed executive will be able to understand the risks and take appropriate action.
- Participate in Pilot Programs – The launch of ACE necessitated the participation of the trade community in pilots. For example, the significant changes due to the electronic requirements of participating government agencies challenged brokers and importers. Many companies worked together in cooperation with CBP to enable ACE to get as far as it has today. Even in China, there are pilot programs to promote their implementation of the Collective Duty Settlement Program and Customs Clearance with Paperless Automatic Import Licenses. Those companies that are able to participate are better positioned for a smoother transition.
- Improve Product Databases/ERP Systems – the onset of single-window programs and advanced customs entry systems have seen many companies begin to design or amend their product databases and systems to accommodate the flow of the various information required to make a timely entry. Compliance departments should watch for internal, system-upgrade opportunities to add customs data to the plan.
- Construct Free Trade Agreement Solutions – As happened when NAFTA came into force, companies are planning their strategies for being able to take advantage of new FTAs like TPP and TTIP. Uncertainty of the details during negotiation and unclear ratification dates make it difficult to have programming lead time, but companies are building these programs as contingencies into their business plans.
- Collaborate with Supply-Chain Partners – Global enterprises; producers, buyers, or intermediate supply-chain partners need to work together for their mutual best interests. This could be through joint projects, trade management engagements, consulting, or simply sharing international trade techniques and best practices. It may not be wise to go it alone. Connect with global trade management business partners and work together to find mutually beneficial solu
[1] http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/~/media/2B9F7D493314432BA42BC8498D3B73CB.ashx
[2] http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/pf_tools_datamodel.aspx
[3] http://www.wcoomd.org/en/topics/facilitation/instrument-and-tools/tools/~/media/WCO/Public/Global/PDF/Topics/Facilitation/Instruments%20and%20Tools/Tools/Data%20Model/Globla%20adoption%20of%20the%20WCO%20DATA%20MODEL_EN.ashx
[4] https://www.wto.org/english/news_e/news16_e/fac_10may16_e.htm