International trade compliance: your strategic advantage
How to minimize risk, optimize trade operations and improve your bottom line
By: Lisa Zajko
Companies engaged in global trade face a maze of complex trade regulations and tough competition. Today, the efficient and strategic integration of import and export processes into overall business goals, tax planning and supply chain management is crucial to every multinational company’s success in the marketplace. Here are four key ways to gain a competitive edge by minimizing risk, optimizing trade operations and improving the bottom line.
Effective management of export controls
What are export controls? Countries around the world, including Canada, maintain a comprehensive set of export control regulations that restrict the movement of certain goods, software and technology across borders, regardless of the means of delivery. This includes, for example, the provision of technical support or even accessing servers from abroad in cases where controlled technology is involved.
Export controls impact companies operating in a variety of different industries. In fact, it’ may not always be obvious that goods or technologies are subject to export controls, or that a particular action constitutes an export. For example, in addition to military-related products, export controls apply to many commercial “dual-use” goods, software and technology widely used in oil and gas, mining, nuclear, technology and telecommunications, aerospace and defence, life sciences, chemicals and manufacturing.
Penalties for violating export controls can significantly impact the bottom line. Over the past few years, export control agencies have taken a more aggressive approach to enforcement, both in the number and size of fines levied against companies. It’s not uncommon to see enforcement agencies imposing fines in the seven to eight figure range. Earlier this year, a large Canadian company was fined $75M US and statutorily debarred for violating US export controls.
In addition to financial penalties, corporate violators also face significant business disruption and reputational damage, including loss of contracts and supply chain delays which can significantly impact their ability to compete in the marketplace.
In light of these trends, it is easy to see why export control compliance has become both a strategic issue and an operational imperative for companies. Those companies that consider export control compliance as part of their corporate goals and embed compliance into their day-to-day operations are ensuring that the movement of goods and technology enables their overall business strategy.
Taking a strategic approach to advanced commercial information
The Canadian Border Services Agency (CBSA) is going to require all importers and commercial transportation companies to electronically transmit cargo information before the arrival of all shipments to Canada (e-Manifest). The time to submit this information depends on the shipping method (sea, air, rail or highway). Any inaccuracy in the information provided in the e-Manifest may result in administrative sanctions and monetary penalties.
Don’t wait until e-Manifest is mandatory for importers. To avoid unforeseen delays and other operational setbacks take a proactive approach to ensuring your supply chain and transportation partners are ready and equipped to transmit accurate e-Manifest data.
Although the e-Manifest may present a higher initial cost to importers and the entire global trade management industry, it presents a hidden opportunity. It’s the perfect opportunity to optimize inefficient processes in global trade management operations and create a competitive advantage by improving supply chain planning and collaboration; reducing inventory requirements, and improving visibility and controls for international transactions.
Back to basics: tariff classification
The importance of correct tariff classification isn’t as fully appreciated by importers and exporters to the same degree as when relatively high rates of import duty were the norm.
Correct classification is, however, a legal responsibility for importers, and non-compliance can mean shipment delays, increased inspections, fines and other administrative penalties. Also, correct classification often saves money, both in the short and long term, by applying the correct duty rates and identifying origin preferential treatment opportunities.
The CBSA conducts audits to ensure importers are compliant and that they observe all rules and regulations. Tariff classification is one of the programs audited by the CBSA and classification errors are often found. Many companies for example rely on their customs broker for the goods classification without verifying the correctness of the classification, or they assume that, since they’ve been importing/ exporting products for years without issue, they are fully compliant when, in fact, this may not be the case.
Trade globalization, automated tools and the new electronic reporting requirements represent a great opportunity for companies to review their tariff classifications. This can help identify opportunities for savings on duties, reduce exposure to sanctions and penalties, and develop a global trade compliance framework that enables all parties in the supply chain, regardless of location, to apply the same tariff classification.
Realizing the benefits of free trade agreements
Free Trade Agreements (FTAs) provide for the trade of goods between countries free of duties (or at reduced rates). The goods must meet the rules for determining their country of origin. FTAs can be complex and difficult to navigate. And for some companies, the task of managing requirements – such as understanding the complex rules of origin and determining the country of origin for all parts, components and end-items – can be daunting.
Yet for many organizations, failing to take advantage of FTAs can potentially result in missed cost savings and they may be at a disadvantage with respect to competitors able to offer more competitive prices because their goods are certified under an FTA.
From procurement and sourcing decisions to shipping and billing, the integration of FTA management into everyday processes can help streamline requirements and make it easier to realize the benefits of these agreements.
Even for companies where imports and exports do not represent the main business focus, non-compliance in any of the above areas can present a significant challenge to operational effectiveness. Businesses that have invested in advanced internal compliance programs (ICPs) and automated tools to manage global trade will understand the benefits of approaching this subject strategically and enjoy a competitive advantage over companies that continue to view global trade compliance solely as an administrative issue.
Given the strategic importance of trade compliance and management, as well as the multidisciplinary expertise required to properly develop and implement effective ICPs and automation solutions, more and more companies are turning to outside advisors to build or enhance compliance programs and to optimize global trade strategies.
When approached strategically, managing international trade can minimize risk, improve performance and reduce costs. And at the end of the day, isn’t that what running a business is all about?
Lisa Zajko is a Senior Manager in the Indirect Tax practice in Vancouver. She offers clients over 15 years of experience in indirect tax, specializing in GST/HST, PST, QST, as well as Customs and Global Trade services.