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Trade Compliance Process is Critical in Volatile Marketplace

Talk of tariffs and trade wars between the U.S. and its trading partners – especially China – continues to capture headlines across the international trade landscape. While this is not a completely new development, the volatility in the trade compliance arena has significantly intensified in recent years. The impact on importers and exporters is widespread. Tariffs on imports of raw materials and finished products, product seizures for international property rights violations, and de minimus value thresholds on e-commerce shipments all add complexity to an environment that is already difficult to navigate.

Although policy shifts fueled by changing political sentiments and global economic trends have the potential to affect international trade regulations for importers and exporters around the world, the reality is that with every modification to U.S. Customs and Border Protection (CBP) trade regulations and processes, shippers of all shapes and sizes can be financially impacted. It is safe to say volatility in trade compliance environments is here to stay and companies that are involved in any level of international trade cannot wait until the next policy pivot to get their house in order.

Failure to do so at any level of activity can be costly.

Trade Enforcement at a Glance

CBP’s latest trade statistics hint at the impact trade enforcement can have on an organization. The U.S. Government’s efforts to collect revenue through duties and quotas on imported goods are bolstered by implementation of a variety of “trade remedy” measures. Among these, duty assessments since February 2018 through July 2 have generated significant revenue streams, often at the expense of businesses relying on international trade. Listed below is a fractional list of the financial impact:

  • Section 301 Duty Assessment on imports from China: $20.3 billion*
  • Section 232 Duty Assessment on steel: $5.8 billion
  • Section 232 Duty Assessment on aluminum: $1.8 billion.
  • Section 201 Duty Assessment on washing machines: $164.8 million.
  • Section 201 Duty Assessment on washing machine parts: $1.1 million.
  • Section 201 Duty Assessment on solar panels: $720 million.

*Implemented July 6, 2018

Beyond duty assessments, organizations operating in complicated trade compliance environments are also susceptible to audits, financial penalties and product seizure. In 2018, CBP completed 435 audits that resulted in $42.2 million in collected revenue. U.S. Customs officers also issued 1,385 trade penalties – an increase of nearly 49 percent over prior year. CBP trade enforcement measures resulted in 50,952 total import seizures, including international property rights violations (33,810) and safety seizures (7,880).

Meanwhile, as e-commerce continues to expand across the global economy – accounting for more than $137.75 billion in U.S. retail revenue during the first quarter of 2019 and $512.58 billion in 2018, (up 14 percent over prior year)  – CBP continues to take a focused look at small packages entering the U.S. economy through international trading ports. Motivated by concerns over the potential for safety threats (e.g., illicit drugs, unhealthy products and counterfeits) intermingled with legitimate business amid more than 2 million e-commerce shipments entering the U.S. daily, CBP launched the 21st Century Customs Framework initiative to “stay modern in order to meet the challenges of an evolving trade landscape.” Alongside its E-Commerce strategy published in 2018, this initiative illustrates CBP’s continued emphasis on properly enforcing trade compliance violations and addressing complexities emerging as e-commerce platforms continue to expand in business-to-business and business-to-consumer marketplaces.

Clearly, CBP is working to keep its house in order on all fronts. Shouldn’t you?

In today’s business environment, organizations can ill afford to allow international trade volatility to expose backside operational risk that exists in their trade compliance processes. Common practices that were acceptable in the eyes of U.S. Customs in the past may no longer be representative of the reasonable care standards international traders are expected to uphold. Ignorance to the law – and any changes – is not an excuse.

That’s why it has never been more important for a business to have its compliance management processes in order. Companies relying on the import and export of products cannot delay their review of standard operating procedures until tariffs increase, trade agreements change or political policies shift. Adhering to a “wait and see” approach to compliance process review has the potential to significantly jeopardize profitability, working capital, inventory management and even public perception of the brand. As our friends in CBP remind us, the involvement in global trade is a privilege, not a guaranteed right. CBP has the authority (and responsibility) to remove or restrict that privilege to organizations that do not manage their legal responsibilities properly. Stated again, ignorance of the laws and regulations is not an excuse.

Conversely, organizations that do demonstrate a disciplined approach to international trade compliance positioned themselves to understand quickly how trade regulation changes can affect their business. While tariff increases and trade policies are nearly impossible to predict, an organization with a responsible trade compliance process in place is best position to manage what can be managed when marketplace changes occur. Furthermore, exerting this level of reasonable care also empowers organizations to respond effectively if any trade enforcement inquiries arise.

Trade Compliance Partner Critical to Risk Mitigation

Transportation Insight works with shippers to ensure their trade compliance house is in order. As an expert second set of eyes, we offer our clients an in-depth assessment of trade compliance procedures. Our assessment process focuses on the same items that are in the crosshairs of U.S. Customs, including:

  • Supervision and Control – Can you identify the person in leadership or department who owns oversight of the organization’s compliance platform? Can you specifically articulate your company’s program for ongoing education to meet your responsibility to maintain a state of informed compliance?
  • Process Documentation – CBP’s reach extends from the point of purchase negotiation all the way through the movement of that cargo to the U.S., the customs clearance process, the disposition of those goods and including payment to the supplier. Do you have documented and defensible processes that extend across that range? Are those processes communicated within your organization to all affected departments? Do associates involved in the process understand their level of responsibility?
  • Recordkeeping – Does your process for recordkeeping include a thorough audit process to insure all documentation is in place? And does the record-keeping process include the capability to produce specific documents upon request … for a period of 5 years after the date of entry?

If your organization cannot answer affirmatively to the items above (and many others), your organization has financial exposure - at a minimum. If you are able to answer affirmatively, your organization is not only able to verify but also validate best practices. The Transportation Insight assessment process is able to identity process gaps that can imperil a shipper’s trade status and, as a result, its overall business performance. In an era where constant change is the expected norm, our trade compliance assessment can be a key component in a broader Enterprise Logistics Solution that mitigates financial risk, drives out non-value-added costs and transforms the end-to-end supply chain into a strategic competitive advantage.

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