We’ve all seen the statistics on how much global trade is expected to grow in the next few years. With that growth comes a multitude of free trade agreements: there are more than 500 FTAs today. William Methenitis, Global Director of Customs and International Trade at Ernst & Young, told Treasury & Risk this week that the pace at which new agreements are being put in place is accelerating.
Each agreement establishes different rules for different types of products, so companies that export or import goods face quite a challenge. “It’s a huge data exercise to be able to analyze them,” Methenitis said.
Since most FTAs seek to promote manufacturing in the countries signing them, the agreements deal with complicated designations like country of origin. For example, a product made in the United State with parts from the US qualifies for US origin, but that is rarely the case. In today’s completely connected world, companies import parts and then export composite goods, which makes it much more difficult to qualify for certain FTAs.
When companies figure out the applicable FTAs, they can save tons in duties and fees. That’s not the whole picture, though, says Anthony Hardenburgh, VP of Global Trade Content at Amber Road. Trading goods globally also involves “a multifaceted spectrum of rules and regulations,” including rules restricting the import or export of certain types of goods and lists of prohibited trading partners.
In short, you could wind up losing as much in fines as you save in fees.
“If you’re leaving a country with an item, the first thing you need to know is who you’re doing business with,” Hardenburgh said. “Many of the Fortune 2500 companies around the world are aware and have trade compliance offices, but as you start to come down the chain, not everyone is aware that you have to be screening or that there are tools out there that let you screen who you’re doing business with against the various lists out there. A lot of times, they’re not aware of all the lists. They have operations around the world, and they’re not always certain of the regulatory environment.
“Oftentimes folks aren’t aware of the export classification and reporting requirements and whether a license is needed for their items,” he added. “And all of these tend to get companies in trouble.”
New trade agreements are in the works as well, and some of the most notable, like the Trans-Pacific Partnership or the Transatlantic Trade and Investment Partnership, are more ambitious in scope than ever before. Many companies have invested in trade automation software to aid in managing FTAs and other regulations; what does your organization plan to do?
This post was published on August 9, 2013 and updated on August 8, 2017.