Even with all of the potential free trade agreements (FTAs) companies can take advantage of, it’s little surprise that many U.S. importers are spinning when it comes to qualifying goods based on the restrictive regulations for sourcing inputs and raw materials.
FTAs, like the politically controversial Trans-Pacific Partnership (TPP), offer an attractive opportunity for manufacturers, but many feel discouraged because of the complex protocols and paperwork involved. Recent surveys show that the trade industry does not utilize duty and preferential trade programs because of the difficulty navigating the regulations. The share of U.S. apparel imports entering under all FTAs has been declining since 2013 and dropped to 15.4 percent in 2015, the lowest since 2006.
Add to that origin rules such as the Yarn-Forward qualification - where yarn used to form the fabric must originate in one of the FTA-participating regions - and supply chain executives would prefer to avoid the convoluted exercises to qualify for a tariff break.
Specific to the TPP, there is great concern that not all of the 30-plus chapters are realistic, especially the chapter with specific rules of origin that require the use of yarns and fabrics from the TPP region, intended to promote regional supply chains and investment. Even though a “short supply list” mechanism allows the use of certain yarns and fabrics not widely available in the region, the rules of origin will be difficult to adhere to given the source of most raw materials is China, a non-TPP country.
Right behind China, Vietnam is the second-largest clothing provider to the U.S., accounting for 10 percent of all U.S. apparel and textile imports. With the Yarn-Forward Qualification, companies are already investing heavily to improve Vietnam’s fiber and textile capabilities, but there’s rising concern that Vietnam may struggle to ramp up production to meet spikes in demand. The country is already showing signs of a textile shortage to support apparel manufacturing which means non-TPP countries like China will need to step in.
Companies looking into making the most of FTAs can lose some of the complexity and fear of solicitation and qualification processes by leveraging technology solutions. Automation of origin rules like the Yarn-Forward Qualification is necessary, but requires a combination of logic and deep product knowledge, but human intervention is also a puzzle piece. The biggest problem most businesses have is getting the right data promptly that doesn’t expose them to unpleasant surprises.
By automating the process, they can keep better track of sourcing subtleties to ensure they’re obeying the rules by seeing automatically whether the yarn producers meet the eligibility requirements. Software should have the additional logic that enables supply-chain partners to ‘answer a question’ in the application and force them to confirm that the cutting, sewing, or knitting is taking place with the proper resources.
The supply chain today requires that companies use technology to manage day-to-day operations, and also provide visibility at every turn in the product lifecycle. The key is having the right system in place that bridges the functional areas of product development, sourcing and trade compliance, along with connecting all of the subsequent parties that are involved in the intricate supply chains of today.
Interested in learning how you can automate the solitictation and qualification processes to take advantage of FTAs? Check out this white paper, Leveraging Free Trade Agreements to Achieve the Next Level of Savings from Global Sourcing.
This post was published on November 15, 2016 and updated on November 15, 2016.