Trade Compliance

5 Questions to Ask When Implementing Trade Compliance

Ned Blinick
January 27, 2021
min read
5 Questions to Ask When Implementing Trade Compliance5 Questions to Ask When Implementing Trade Compliance

Trade Compliance struggles to get the respect and recognition it deserves from its organization. This is unfortunate for there are opportunities for trade compliance to deliver real value in terms of corporate reputation, cost reduction, simplified compliance processes, lower risk, and improved trade regulatory compliance. As a result, we constantly hear that the trade compliance activity is under-serviced by technology. It is very common for trade compliance departments to still be highly reliant on spreadsheets or simple databases to manage the basics such as HS codes, ECCN/USML codes, Licenses, and Supplier or Customer and 3rd party profiles.Trade Compliance touches virtually all areas of the business involved in international trade. It impacts:

  • Product records (HS classification and tariff rates
  • Product registration numbers [ECCN/USML]
  • Accounts (account registration numbers, denied parties control, documentation)
  • Licenses and visa management
  • Most operational functions of the global supply chain (sourcing, purchasing, sales, import/export logistics, and customs)

It is a significant supporting activity but is very often ignored or undervalued. If your organization is considering implementing trade compliance, here are 5 questions that need to be answered:

1. Why implement trade compliance management (TCM)?

Trade compliance is a necessary requirement for international trade. The responsibility of complying with the import/export laws and regulations lies with the importer or exporter. This responsibility for trade compliance cannot be delegated to 3rd parties (customs brokers, freight forwarders) although the execution can be. Under the 1993 Customs Mod Act, the importer or exporter is ultimately responsible for using reasonable care for all interactions with Customs, Census, FDA, USDA, EPA or any other PGA.Failure to comply with trade compliance laws and regulations exposes the importer/exporter to delays at the border for their shipments, the possible imposition of significant penalties, and impairment of reputation for the organization and/or its management.However, the best argument for implementing a strong trade compliance program is that it provides management with the ability to align trade management with overall corporate governance policies and compliance practices. It makes the organizations operational units better and more effective and contributes positively to the bottom line by reducing import costs. By understanding the rules that govern import and export compliance, best-in-class companies take advantage of tariffs, special programs, FTZs, and In-Bond programs. These opportunities enable the company to reduce costs related to import product and support export sales pricing and customer service.A trade compliance program in conjunction with new TCM software provides clear and structured processes that result in improved record management, analysis and reporting. It provides effective and practical opportunities to significantly reduce reliance on and costs associated with Customs Brokers and Freight Forwarders. New TCM solutions allow organizations to manage trade compliance much more easily than in the past and take advantage of automating the interaction with Customs and PGAs.

2. Who owns the trade compliance responsibility in the organization?

The answer to this question lies in the leadership, size and structure of the organization. The ultimate responsibility for implementing an effective and responsible trade compliance program lies with senior management.In small/medium size organizations trade compliance often is applied informally without any specific direction or leadership from top management. In larger organizations, where management identifies trade compliance as an area of regulatory or reputation risk the operational responsibility lies with senior legal counsel, supply chain “C” level or VP executives, or under the IT umbrella. However, the actual responsibility for day to day trade compliance is often led by a trade compliance manager or specialist who understands the fundamentals of customs import/export compliance at the product, account and regulatory level.In most organizations, trade compliance gets short shrift, is often ignored or is treated very cavalierly by senior management. Three reasons explain why senior management is not on board:a) Senior management may be unaware of the risks associated with trade non-compliance because they have not been held accountable to date.b) They feel that they are acting in a compliant manner.c) They intentionally ignore the need for a meaningful trade compliance regime.

3. Who has the authority to impose trade compliance across the organization?

In organizations that have dedicated trade compliance teams, the authority for trade compliance resides with the C-level executive or director. Titles often associated with the responsibility and authority for the trade compliance activities are Chief Supply Chain Office, Director of Global Supply Chain, Legal Counsel, COO, Director of Operations, and Director of Global Sourcing. However, even in these organizations, the value or trade compliance as a valuable and integral part of their global supply chain design and execution is not understood and underappreciated. The lack of appreciation often results in the department being short funded, short staffed, and without the requisite IT support. In almost all organizations trade compliance is given a cursory nod as to its importance but without any authority to impose process and procedures on operations. In the majority of import/export organizations trade compliance is often minimized and the responsibility outsourced to a customs broker or freight forwarder with the misconception that they will keep the company compliant with Customs and OGA regulations.The dictum - responsibility without authority is futile is relevant to trade compliance. Without the authority to impose and enforce procedures on the cross-functional operations that trade compliance impacts, the results will be modest at best. Herein lies the greatest challenge to implementing a successful trade compliance program. Because trade compliance is often seen as a burdensome but necessary function in the organization, it does not receive the full support from top-management that is required to give it the authority to enforce its responsibilities on the operational units.

4. What is the role of software in supporting trade compliance?

Software and IT are increasingly important factors in supporting trade compliance within and across the organization. In many organizations, managing trade compliance without supporting software or IT is inefficient, ineffective and prone to errors and omissions. Trade compliance software provides structure resulting in streamlined operational processes. Trade compliance software should not only support the requirements of the trade compliance group in managing product, party and country information but should integrate with the cross-functional global operations to ensure that trade compliance is a seamless part of the global supply chain team.In many organizations, trade compliance practice is still rudimentary. Where companies have implemented trade compliance programs, many struggle with the basics, such as managing their master data, i.e. Product classification, compliance party screening, or country or origin programs. If managed internally the product classification is mostly managed in the ubiquitous spreadsheet or simple Access database and require significant manual effort to maintain and update records. The process is heavily labour intensive, inefficient and prone to error. Denied party screening, embargoed country management, visa and license management are all difficult to manage in a manual process.Currently, a variety of trade compliance software solutions are available in a SaaS (Software as a Service) environment. These applications allow organizations to export their trade compliance information to a managed service which maintains and updates the product, party and country details. The information is then accessed on-demand or integrated back into the ERP system for operational use. Some of these SaaS solutions have extended global trade management capabilities that include shipment visibility and payment processing. New generation software solutions are evolving which allow for trade compliance to be more open and collaborative. Open trade compliance solutions:

  • act as a comprehensive platform for trade compliance information and are open to accepting and provisioning compliance and operational content from/to any authorized provider.
  • allow for the trade compliance team to configure their applications in a way that supports their needs and can be reconfigured to their needs as they change.
  • free the trade compliance team from any specific content provider and gives them the flexibility to configure the trade compliance content and deployment environments.

5. What should you look for when selecting a Trade Compliance Management solution?

Functionality is Table Stakes.When it comes to selecting a TCM solution, functionality is table stakes. By table stakes we mean that any trade compliance solution must support the basics of Product Master Data Management [Classification (HS/Schedule B, ECCN, USML codes, etc), License Control and Management, Country of Origin management], Account Master Data Management [Sanctioned Party Screening, Registration Code Management].If the TCM solution doesn’t have the basic functionality they should not be considered.The UI/UX is the Differentiator.The User Interface (UI) and the User Experience (UX) are what separates the impact of a TCM solution. Trade compliance is a complex and ever-changing environment. It requires information to be acquired and aggregated from multiple actors across the organization and the supply chain. How this information is acquired and managed is key to simplifying the trade compliance work process and driving effectiveness with Customs and PGAs for both import and export compliance.The UI/UX is what separates trade compliance solutions. Really well-designed solutions are architected to:a) Integrate information from all data sources simply and with minimal user data entry.b) Provide workflow support so that users are guided through all aspects of the trade compliance process - from content management (product classification, sanctioned parties, license management) through entry preparation, validation, and filing.c) Deliver status visibility to the trade compliance process.d) Provide alerts and exception reporting to errors or omissions in the entry processe) Deliver flexible reporting and analytics

Everyone should implement Trade Compliance

There is no good reason why a company cannot implement a highly automated and comprehensive trade compliance program. The new trade compliance software solutions available on the market today are often scalable for functionality and price. The cost of implementing a trade compliance program has been reduced dramatically and is within the reach of any organization of any size. The benefits are many, and being trade compliant is only one of the benefits.

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