Creating a Global Trade Compliance Program

Relying on spreadsheets and decentralized data can leave a company vulnerable to a global trade compliance misstep. In this QAD Precision Report, we look at how having the right systems in place help enterprises avoid violations.

In October 2020, it was reported that over 16,000 coronavirus cases went unreported in England. The problem? The reliance on spreadsheets, legacy file formats and human error.

Health reporting and global trade compliance may be very different disciplines. However, a dependence on spreadsheets is not. 

Some of the world’s largest enterprises rely on spreadsheets to manage their global trade and supply chain operations. Unfortunately, that leaves them vulnerable to compliance violations. Lack of version control, typos and other unwitting mistakes could mean that critical processes are not met.

Then there is the data itself. Any organization that uses decentralized data risks time redundancy and duplication when different teams work from different, potential outdated data — thus undermining corporate oversight. If the data is sensitive, and shared such as by email or USB, the risks are even greater in the event of a security breach. Decentralized data and lack of trade secret security could lead to legal vulnerability.

Globalization, international business and the trend towards world markets introduces complexity for business. In addition, geopolitical tensions and increasingly labyrinthine laws and regulations can make ongoing trade compliance a serious challenge. Having said that, no matter how difficult compliance may be, companies must abide by the law. 

Here we look at how companies can meet the demands of global trade compliance and avoid missteps.

Establish an Enterprise-Wide Compliance Program

The first critical step is to establish a compliance program for the entire enterprise. What does your business look like, and what is it that you need to do?

• Correctly classify imports so that your payment of duties is no more or less than it should be?

• Establish ongoing compliance with free trade agreements, including FTA determination?

• Screen trading partners against restricted party lists and other governmental or international watch lists?

• Export controls so that all export licenses, permits and customs documentation are correct?

Establishing a compliance program is necessary for two reasons. Firstly, it helps to mitigate the risk of a violation. Secondly, and equally importantly, it shows due diligence. If a company has taken reasonable steps to be compliant, authorities are likely to view any compliance issues or missteps as “negligence” instead of willful non-compliance. 

Your compliance program also needs to take into account the depth and breadth of your organization. If you trade in high-risk geographies, your compliance program must reflect that. However, for low-risk regions, a compliance program that is unnecessarily restrictive could mean lost business.

Consider the Gaps

When establishing your compliance program it is important to consider potential gaps. One example is parcel and non-production shipping. Front office personnel often handle parcel shipments. However, administrative staff may be less knowledgeable about compliance procedures and customs regulations than warehouse personnel. 

If you manufacture or distribute dual-use goods or controlled substances, this is even more important. Staff could mistakenly send samples or sensitive materials to denied parties or without the correct documentation.

Ensure You Have The Right Technology

A compliance program without systematized processes is unlikely to be robust enough to protect a company from human error. Ongoing compliance with global trade regulations is significantly easier with the right technology.  For example, item and material codes can be matched to regulatory requirements and corporate policy. As a result, enterprises can check compliance requirements at any stage in the inbound or outbound material movement.

Automating trade compliance processes reduces manual processes and human error. These include:

• Import admissibility flags

• Denied party screening

• FTA regional value content calculations

• The solicitation of certificates of origin

• License determination

• License management

• Customs declarations and export documentation

• Import and export declaration preparation

Automation also frees up trade compliance managers and personnel to work on value-added tasks. 

In addition, enterprises should consider the benefits of integrating compliance with transportation. A robust transportation execution solution will create and maintain an audit trail for all shipping and compliance documentation. Furthermore, access to electronic documentation creates efficiencies and more accurate reporting.

When evaluating the technology your company needs for ongoing compliance, ensure your vendor can provide the following features:

• Smart classification of goods

• Sourcing comparisons to identify advantageous duty rates, such as eligibility under a free trade agreement

• Ongoing automatic access to updates of government denied party lists and other regulation changes

• Screening of trading partners, embargoed countries, sanctioned parties, watch lists and more

• License determination and management

• Product-related compliance checks 

• Audit trails and reporting

A robust compliance program backed up by technology is not simply about avoiding fines and penalties. Instead, done correctly, international trade compliance is a source of competitive advantage. Companies that flout the rules and regulations are likely to experience delayed cycle times, increased oversight from customs authorities and unhappy customers. Whether you import or export, ensuring your goods glide through customs is critical.

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Further Reading

TRADE COMPLIANCE FOR TRAVEL COMPANIES? AREAS OF RISK YOU SHOULD KNOW
3 MINUTE EXPLAINER: WHY YOU SHOULD AUTOMATE TRADE COMPLIANCE
THE IMPORTANCE OF COMPLIANCE WHEN WORKING IN EMERGING MARKETS