In 2017, world trade looked healthy. The World Trade Organization
reported that global
merchandise trade volumes grew by 4.7 percent — the strongest growth
in six years. Perhaps even more importantly, the ratio of trade
growth to GDP growth was back to its historic average of 1.5. During
the years following the 2008 economic crash, the ratio was 1.0.
This expansion was due to growth in across most regions of the world,
but especially in developing economies. In 2017, exports from
developing economies grew an impressive 12 percent. As a result,
together the developing economies reached a 43 percent share of world
trade. Significantly, more than half of that trade was between
Fast forward to 2019, and the picture looks somewhat different.
Geopolitical tensions and uncertainty slowed world trade volumes to 3
percent during 2018. This downward trend is likely to continue during
2019 and 2020. In April, the WTO
forecast that merchandise trade volume growth would slow to 2.6
percent this year. However, WTO economists also argued that 3
percent growth was possible in 2020, should geopolitical tensions abate.
The alleviation of tensions between some of the world’s largest
economies seems unlikely to happen any time soon. This May, trade
talks between the US and China ended in Washington without a deal —
despite both sides making optimistic statements. Consequently, the US
more than doubled tariffs on $200bn of Chinese imports, from 10 to 25
percent. China responded by announcing higher tariffs on $60bn of US
goods from 1 June. Following hot on the heels of this announcement,
the Office of the US Trade Representative released a list of further
Chinese imports worth $300bn that could, in future, face tariffs up to
Tariffs are an ongoing theme. In April, the US announced that it was
considering penalizing the European Union for subsidizing Airbus by
imposing duties on about $11bn worth of goods. The US contends — and
the WTO agrees — that Airbus subsidies negatively impact the US.
Nevertheless, the EU responded by drawing up a list of potential
retaliatory tariffs on $20bn worth of US products. Although the US and
EU reached an accord in July 2018 to work towards a limited trade
agreement, relations between the two have been fractious. It is
possible that the US will decide to impose duties on EU cars — and
should that happen, the EU has threatened tariffs on $22.5bn worth of
The US, the EU and China are the world’s largest economies by GDP.
Retaliatory tariffs — and the threat thereof between large economies —
can significantly hamper global trade and disrupt customer relations,
impacting importers, exporters, manufacturers and consumers around
much of the world.
There have been beneficiaries though. Brazil is a case in point. In
cases where US products face duties, Brazil
benefitted and exported just under $6bn worth of additional goods
relative to the previous year. The EU also managed to increase
exports to both the US and China as the two giants duked it out.
Global enterprises have a number of ways that they can respond to
these threats. These include holding back on purchase orders in the
hopes that tariffs will be removed or reduced after further trade
talks, moving production facilities, or applying for tariff remedy
programs. None of these are easy options. Cancelling orders or not
fulfilling contracts can come with penalties and damaged supplier
relationships. Moving production facilities is time-consuming and
expensive, even if you already have a location in a country not
subject to tariffs. Applying for tariff exemptions where possible is
smart, however, this can take several months or more.
If you cannot move the production of your goods, you might be able to
change the classification of them. Changing the design or assembly of
a product to minimize tariffs is known as “tariff engineering.” This
allows manufacturers to classify their products with a different
Harmonized Tariff Schedule (HTS) code to take advantage of more
favorable duties. Manufacturers may also assemble separate parts of
their products in different regions to leverage free trade agreements
Tariff engineering — when done correctly — is legal and should be
taken into account at the start of the design process. As well as
favorable duties, manufacturers should also consider the costs of the
materials, the cost of making the goods, transportation and the
resources needed to comply with regulations. Authorities will take a
dim view of companies that use artifice to classify products to obtain
When you work across different regions of the world, leveraging all
the free trade agreements that you are entitled to makes good business
sense. If your products qualify for low or zero import duties, you are
a more competitive supplier. The majority of global enterprises do not
take advantage of all the FTAs that they could, largely because of the
complexities of remaining compliant with them. Moreover, there are
also significant penalties for violations.
Qualifying products under FTAs is a complex process (read our primer
To qualify their products, manufacturers need to pull production bills
of material, perform respective content calculations, then prepare and
distribute potentially thousands of FTA Certificates of Origin.
Manufacturers cannot qualify products just once. It may be necessary
to qualify products several times every year, such as if there are
changes to the costs of materials or when you add new vendors.
Furthermore, with each new qualification, manufacturers will have to
produce and disseminate new Certificates of Origin too. For some
enterprises, remaining compliant with FTAs may seem too burdensome a task.
Difficult trading conditions, tariffs and other geopolitical
uncertainties, such as Brexit, can hamper operations and negatively
impact profitability. An enterprise facing such challenges should
examine their trading policies and procedures. In many companies,
including industry giants, strategies that have been in place for a
long time often go unexamined. Accordingly, a mindset of “that’s the
way we have always done things” prevails. However, “good enough”
processes are not the same as “best in class” — and may not be robust
enough for current trading conditions.
Manufacturers looking to optimize trade operations and drive
efficiencies must first consider critically examine their procedures,
map processes and see where gaps exist. Once this exercise is
complete, a company will have a clearer idea of what technologies they
could use to support their operations.
Technological solutions can help manage and simplify global trade.
International shipping and manufacturing comes with an array of
regulations and paperwork — none of which shippers should ignore.
Missteps can result in customs hold ups, lost shipments, missed
delivery deadlines, loss of export privileges and fines.
Enterprise-level software solutions should automate the most time
consuming processes of global trade by ensuring all export and import
processes are met, including trade compliance, documentation
production and customs reporting. By automating compliance checks,
manufacturers can perform due diligence, mitigate risks and create
audit-ready electronic reports.
Automating free trade agreement compliance will allow manufacturers
to verify thousands of products across multiple FTAs quickly and
according to current preferential Rules of Origin legislation. In
addition, the solution should automatically solicit for inbound
Certificates of Origin from suppliers and generate outbound
Certificates of Origin to customers, create detailed audit trails and
comply with record retention rules.
Global enterprises benefit from integrating compliance and
transportation. This is because switching between a compliance and a
transportation solution is time consuming and may require you to
re-enter information with the risk of keystroke errors. Furthermore,
manually switching between carriers looking for the best rates,
transit times and service levels is labor intensive. This is not
feasible for high volume shippers, since you must ensure that each
shipment is compliant with that carrier’s specific requirements. A
transportation solution should also adhere to your business specific
rules and include a configurable routing guide to streamline the
Simplifying global trade and transportation with integrated solutions
offers significant benefits. These include shorter cycle times, an
ongoing compliance and risk mitigation strategy, a competitive
advantage through low or zero tariffs and increased efficiencies. With
integrated solutions, your enterprise works smarter — not harder.
QAD Precision (Precision Software), a division of QAD Inc., provides
industry-leading global trade management, transportation execution and
multi carrier shipping software solutions from a single, integrated
platform. Preeminent industry leaders in every region of the world
rely on QAD Precision’s global support centers to leverage thousands
of carriers and manage millions of shipping transactions every day.
Our open architecture easily integrates with Enterprise Resource
Planning, Warehouse Management Systems and legacy solutions. An
ISO-certified company, QAD Precision assists companies to minimize
shipping costs, optimize first mile and last mile deliveries, automate
free trade agreement compliance, avoid customs delays and mitigate the
risks associated with dynamic trading environments to maximize their
competitive advantage. QAD Precision’s customers span multiple
industries including banking and finance, life sciences, high
technology, retail, industrial, automotive, higher education and
public sector as well as logistics providers. For more information
about QAD Precision, visit www.qadprecision.com.
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