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Trade Compliance

Observations from ICPA (2018)

During my attendance at ICPA (2018) this week in San Diego, I had the chance to speak with many trade compliance lawyers and consultants.

Ned Blinick

Chief Product Officer at 3rdwave

Automating Trade Compliance is the Most Essential Element to Limiting Corporate Risk

Any importer or exporter that thinks we have not seen a sea change - no, make that a “tsunami” change - in the importance of trade compliance to limiting corporate risk is either naively unaware or in total denial of what is happening with Customs (CBP) and other related government agencies (PGAs).

During my attendance at ICPA (2018) this week in San Diego, I had the chance to speak with many trade compliance lawyers and consultants.  Universally these professionals agreed that Customs has incredible powers to profile importers and exporters and target those companies that they feel are violating regulations and reporting infractions (both large and small).  To add to this there is the growing awareness of the PGAs that they can increase there reach in compliance of imported and exported transactions.

Observation 1)  ACE is a Game Changer - for better and worse

We have previous blogged (Reducing Risk and Cost in an Increasingly Complex and Hostile Trade Compliance World) about how ACE is a game changer.  This is work in progress because CBP and PGAs are now gathering huge amounts a data on importers and exporters.  And there is a lot of wonderful data on import and export entries.  With this information Customs, in particular, is now sharing information with the import and export community through the ACE portal.  This is indeed a positive outcome as it allows an importer to see exactly the information that is being declared on their entries.  While this information is truly an asset, it takes constant vigilance, analysis, time, and effort to use it effectively.

On the downside, CBP and PGAs now have incredible accessibility to an ever increasing amount of data and analytic power.  This means they are profiling importers and exporters in ways not previously possible.  CBP and PGAs are focusing more on enforcement than at any other time.  This is evidenced by the increasing number of CF28s and CF29s being issued (see Trade Compliance Automation - Reducing Supply Chain Risk in an Increasingly Complex World).

Observation 2)  Customs and PGAs live in an interconnected world - and it increases trade compliance risk

A primary result of the ACE implementation is that CBP and PGAs are tightly interconnected.  They are collecting and sharing oceans of information on importers and exporters.  With this information they easily analyze every entry detail and catch errors or anomalies in entry activity, whether intentional or not.  And there are a lot of errors on entries, whether you know it or not.  These errors, particularly if they have revenue implications, are manifested in supply chain performance, financial penalties, executive risk, and an organization's reputational risk.  In some rare instances organizations have faced bankruptcy because of the penalties levied.

CEEs (Centers of Excellence and Expertise) are another game changer.  CEEs provide assistance and expertise around product classification and other issues involving the border and regulation.  However, because of their expertise CEES are able to more quickly analyze and understand when importers and exporters are in violation or the regulations.

Observation 3)  Customs Brokers are not insurance against entry or Reasonable Care violations

All, (read: ALL!!!), the trade compliance lawyers and consultants I spoke with strongly agreed that importers and exporters are overly reliant on their Customs Brokers.  This over reliance runs against reasonable “responsible care” practices.

Relying on customs brokers to classify products is probably the most egregious issue and exposes the organization to real risk.  The fact is that no custom broker is as familiar with your products as your organization.  It is the responsibility of trade compliance to ensure that products are properly classified and that anyone involved with the development of the product is consumed so that a correct determination can be made.  Secondly, the customs broker often will rely on administrative support and they, in turn, don’t have the time or capability to accurately assess a product.  Mis-classification can lead to serious consequences - going back many years on entry reviews.

Not having a strong SOP for customs brokers is another egregious error that importers and exporters make.  This is closely followed by the lack of regular reviews of your customs brokers' processes and entry activity.  Failure to have Customs Broker SOPs in place and reviews is a major red flag for Customs when reviewing an importers performance and Reasonable Care activity.

Observation 4)  Spreadsheets are friendly but not Best Practices

Without exception, the legal and consulting community commented that using spreadsheets is no substitute for managing and controlling product and account information in a centralized manner.

However, the number of large and sophisticated organizations relying on spreadsheets to manage their master data is truly astonishing.  This is a real issue because the management of master data is fundamental to good trade compliance best practices and outcomes.  Spreadsheets are great for manipulating data but as a master product record system they are definitely flawed and lead to all kinds of errors downstream when managing trade compliance control and execution.

Observation 5)  Automation is the missing link in trade compliance best practices

The challenge for most trade compliance professionals is that they don’t understand the options for resolving these issues.  The problem is that many trade compliance professionals don’t understand:

  • the extent to which automation resolves these issues.
  • the affordability of current trade compliance automation tools.
  • the simplicity with which these trade compliance automation tools can be implemented - without virtually no IT support.
  • the risk that the organization and its executives are increasingly exposed to in the way of penalties, fines, and reputation.
  • how to make the case for trade compliance automation to their executive team.

Conclusion:

Customs and PGAs have moved into a “big data world”.  With ACE, this gives them incredible capability to analyze, determine, and enforce.  Most importers and exporters are ill-prepared to meet the trade compliance challenge that ACE represents.  The execution of trade compliance, in most organizations, is operating in an old technology world.  This asymmetry with respect to the way data is managed has dramatically tilted the playing field to Customs and PGAs.  Organizations, and their management (read V.P.s, and "C" level), that depend on imports or exports of raw materials, components, or finished products are at significant risk.  They must understand this imbalance and the ramifications that it portends.  And they must initiate meaningful actions to counterbalance the current imbalance of capability..

The over-riding takeaway from my ICPA 2018 discussions with the legal and consulting community is that trade compliance needs to up its game and take a stronger message to management as to why they need automation to allow them to do their job better and protect the organization from financial, supply chain, reputational, and personal risk.

About 3rdwave:

3rdwave simplifies global trade through automation. 3rdwave is a GTM platform that delivers total global supply chain visibility, minimizes manual data entry, streamlines business process, and provides contextual information enabling its users to make informed decisions to reduce global supply chain risk. It's a cloud-based platform that requires minimal IT resources for quick implementation.  3rdwave ensures that companies meet the highest levels of GTM execution and Trade Compliance conformance.

Ned Blinick is Chief Product Officer of 3rdwave.co.  He has been involved in global trade for too many decades.  Ned loves making the global supply chain simpler for everyone.  He can be reached at (416) 510 8800 ext 234 or at eblinick@3rdwave.co