The growing protectionism and modernized trade enforcement have significant impacts on importers and exporters. Increased protectionism results in higher landed costs for imported goods. Companies not keeping up with complex trade documentation requirements may experience longer cycle times due to improved customs systems. Global companies often overlook global trade compliance when considering digital supply chains. However, for a truly digital supply chain, trade compliance must be an integral part of their strategy. It should be more than just having the right documentation and paying duties accurately.
Trade compliance, though it may seem tedious, is crucial for a company’s strategic sourcing programs. A good global trade compliance (GTC) system serves not only as a governance tool but also as a critical risk management tool. It helps companies adhere to restricted party lists, which dictate whom they can legally do business with. Additionally, subscribing to watch lists aids in making informed decisions about potential business partners based on their financial strength, involvement in criminal activities, or alignment with sourcing goals.
Complying with trade laws can be challenging, especially for foreign companies doing business in the US. They must ensure they don’t import goods from sanctioned entities into the US or any other country they operate in if they want to maintain business relations in the US. Other nations often base their own sanctioned party lists on the US list.
The regulations concerning whom a company can or cannot do business with are not straightforward. For instance, the US Treasury’s Office of Foreign Assets Control (OFAC) 50 Percent Rule imposes sanctions on companies with 50 percent or more ownership by sanctioned parties. Companies with ownership stakes just below 50 percent might face increased scrutiny at customs, affecting their products’ clearance.
QAD has implemented import “admissibility flags” that alert customers when a particular product is targeted for customs review. Ensuring proper documentation in such cases is essential to avoid delays and additional inspections. Furthermore, creating a foreign trade zone (FTZ) strategy can add strategic value to a company’s trade compliance department. FTZ entries do not incur duties, and companies can perform manufacturing within the FTZ, leading to lower tariffs on finished products.
Exporting from an FTZ in one nation to other countries can reduce landed costs due to tax advantages. For instance, importing from China may be more expensive than exporting from Mexico due to different tax rules. FTZs offer various benefits, such as lower administrative costs, avoidance of state or local inventory taxes, and reduced broker fees. Ultimately, strategically constructing a global supply chain can optimize duty costs.