Free Trade Agreements have become more popular (and challenging) than ever

We’ve all seen the statistics on how much global trade is expected to grow in the next few years. With that growth comes a multitude of free trade agreements: there are more than 500 FTAs today. William Methenitis, Global Director of Customs and International Trade at Ernst & Young, told Treasury & Risk this week that the pace at which new agreements are being put in place is accelerating.

Each agreement establishes different rules for different types of products, so companies that export or import goods face quite a challenge. “It’s a huge data exercise to be able to analyze them,” Methenitis said.

Since most FTAs seek to promote manufacturing in the countries signing them, the agreements deal with complicated designations like country of origin. For example, a product made in the United State with parts from the US qualifies for US origin, but that is rarely the case. In today’s completely connected world, companies import parts and then export composite goods, which makes it much more difficult to qualify for certain FTAs.

When companies figure out the applicable FTAs, they can save tons in duties and fees. That’s not the whole picture, though, says Anthony Hardenburgh, VP of Global Trade Content at Amber Road. Trading goods globally also involves “a multifaceted spectrum of rules and regulations,” including rules restricting the import or export of certain types of goods and lists of prohibited trading partners.

In short, you could wind up losing as much in fines as you save in fees.

“If you’re leaving a country with an item, the first thing you need to know is who you’re doing business with,” Hardenburgh said. “Many of the Fortune 2500 companies around the world are aware and have trade compliance offices, but as you start to come down the chain, not everyone is aware that you have to be screening or that there are tools out there that let you screen who you’re doing business with against the various lists out there. A lot of times, they’re not aware of all the lists. They have operations around the world, and they’re not always certain of the regulatory environment.

“Oftentimes folks aren’t aware of the export classification and reporting requirements and whether a license is needed for their items,” he added. “And all of these tend to get companies in trouble.”

New trade agreements are in the works as well, and some of the most notable, like the Trans-Pacific Partnership or the Transatlantic Trade and Investment Partnership, are more ambitious in scope than ever before. Many companies have invested in trade automation software to aid in managing FTAs and other regulations; what does your organization plan to do?

Take Advantage of Free Trade Agreement Benefits

Manufacturers can spend almost 50 percent of revenue on purchasing parts alone, which places low-cost sourcing at the top of any business strategy. To maximize your company’s savings, look no further than free trade agreements (FTAs).

FTAs allow your company to source from countries that have agreed to reduce their export duties with whatever country you are trading from, in turn reducing your landed costs.

Navigating these agreements can be tricky, however. You’ll often need a certificate of origin, as well as a Trade Program certificate, to prove a claim. You may also want the ability to compare your potential savings from several vendors as part of a multi-sourcing strategy. Lost already? Check out these 5 tips for using FTAs in your supply network, from Amber Road’s VP of Global Trade Content Anthony Hardenburgh.

“Armed with the right process and supporting technology, your company can achieve the next level of low cost country sourcing in your global operation,” Hardenburgh notes. Indeed, automating the FTA process can reward your company with significant savings and save you more than a few documentation headaches.

Has your organization taken advantage of an FTA to reduce your landed cost?

U.S.-Brazil trade to strengthen

Brazil and the United States made significant strides to bolster the economic relationship between the two countries at the eighth meeting of the U.S.-Brazil CEO forum, which was held this week in Brasilia.

“It is clear that both the Obama and Rousseff administrations recognize that our two countries must continue to build on the strength of U.S.-Brazil economic relations,” said U.S. Deputy Commerce Secretary Rebecca Blank said in a statement.

At the forum, representatives from both countries heard from private sector leaders on how they could help business in both nations succeed. The recommendations ranged from tax issues, to cooperation on infrastructure, to educational exchanges.

Trade between the U.S. and Brazil has skyrocketed in recent years – exports to Brazil totaled $65 billion in 2011, and the U.S. is Brazil’s largest source of imports. However, doing business in Brazil requires intimate knowledge of the local environment, known as the “Custo Brasil,” and infrastructure limitations pose a logistical challenge.

The Consul General of Brazil, Luiz Felipe de Seixas Correa, will be speaking on these trade issues at Amber Road’s free Retail Seminar, “Financial Returns in Global Trade,” on April 17 at the Gansevoort Park Avenue Hotel in New York City. Aside from hearing a top expert discuss trade with Brazil, you can learn new strategies for delivering financial returns on your global supply chain and network with your peers at the beautiful Gansevoort Hotel.

Retailers looking to learn how to improve their global trade operations should register here!

US-Led Trans-Pacific Partnership May Have Chinese Competition

The Obama administration is looking to finalize its much-anticipated Trans-Pacific Partnership, an 11-nation regional trade agreement that, if successful, will expand American exports and economic influence in Asia.

As we noted previously, the TPP is still facing many challenges as negotiations draw to a close. The Association of Southeast Asian Nations recently unveiled plans for the Regional Comprehensive Economic Partnership, which would be the world’s largest-ever regional trade agreement.

The partnership includes ASEAN’s 10 member states as well as Australia, China, Japan, India, South Korea and New Zealand. Its creation raises several questions for the future of the TPP – namely, can the US-led agreement thrive alongside Asian-organized, competing trading blocs, especially if those blocs include China and exclude the US?

Some believe that competing pro-China and pro-US treaties may escalate current economic tension in the region, rather than alleviating it. The potential conflict also presents an especially tricky situation for Australia, whom the US sees as playing a key role in nurturing American economic activity in Asia.

Amber Road Launches TradeWizards.com, a Free Cloud-based Portal for Global Trade

Amber Road, a leading provider of Global Trade Management solutions, announces the launch of its latest trade compliance product, TradeWizards.com. TradeWizards.com is a suite of nine different research tools that helps companies import and export goods more quickly and affordably, while staying compliant with country specific trade regulations.

TradeWizards.com will enable users to instantly perform numerous global trade activities including: restricted party screening, product classification, and landed cost calculations. What used to require hours of manual interpretation of trade rules is now an automated process achieved instantly via TradeWizards.com.

Sign up now on TradeWizards.com.

Management Dynamics FTA Solution Poised to Assist Importers and Exporters to Capitalize on Reduced Duties

On October 12, the United States Congress ratified several landmark free trade agreements (FTAs) with South Korea, Colombia and Panama. While still awaiting the President’s signature, which is expected, these agreements are sure to usher in a new level of trade activity with these countries.

Proponents list a host of benefits from FTAs, including:

- Expanded access to markets for both goods and services

- Greater protection of intellectual property rights, and a

- Growth in jobs that would accompany the opening of new markets

Taking this into consideration, Management Dynamics offers a comprehensive Free Trade Agreement (FTA) management solution that provides solicitation and qualification in order to determine if a company’s product is eligible for preferential treatment. This can have a significant impact on the applicable duties for their products resulting in reduced total landed costs.

To learn more about the Free Trade Agreement Solution, read the full press release here.

Last Chance to Register for Tomorrow’s Webinar: Best Practices in Integrating Logistics and Compliance Management

Broadcasting live on Wednesday, August 24 at 2pm EDT, “Best Practices in Integrating Logistics and Compliance Management” will take a close look at the ins and outs of integrating logistics and compliance management.

During the one-hour webinar, key industry experts will discuss the market dynamics driving importers to consider this strategy, and Management Dynamics customer Leggett & Platt will share their success story. Other topics will include:

- The benefits of integrating logistics and compliance

- Challenges importers will have to overcome

- The key role technology play

- Actionable advice for importers exploring this idea

Register today!

An Update on NEI and the Control Angle from BIS

Was recently at BIS Update and wanted to share what is new on the National Export Initiative.

What NEI Is

On March 11 of this year, President Barak Obama signed the National Export Initiative Act (NEI) (http://www.whitehouse.gov/the-press-office/executive-order-national-export-initiative) as an Executive Order, thus following up on his January State of the Union promise to double U.S. Exports within five years and create new NEI-related jobs. The Act Designated a top-level Export Promotion Cabinet—composed of Secretaries of the Cabinet and all relevant Department Directors—to develop and coordinate NEI’s implementation.

  • A month later Defense Secretary Robert Gates outlined the Obama administration’s proposed reforms of the U.S. export control system, which included:
  • The creation of a single export control list by consolidating the U.S. munitions and commerce control lists to provide a single, frequently- updated listing of unrestricted trading partners
  • The establishment of a single export licensing agency with jurisdiction over both defense articles and dual-use items and technologies to streamline the review process and enhance consistency in licensing approvals
  • The creation of a single enforcement coordination agency to strengthen global enforcement, and enhance cooperation and coordination with the intelligence community
  • Develop a single, unified IT infrastructure that would receive, process and help screen new license applications and end-users to reduce the redundancies, incompatibilities, and costs
  • Encourage and assist small business exports.

Among other priorities included were federal export assistance, trade missions, increasing export credit, enforcement of intellectual property rights, increased coordination between government agencies and collaboration with the private sector and export promotion of services.

And… it seems like there is actually a plan behind this to make it work…

UPS–On February 19, the Commerce Department announced a partnership with UPS to increase trade by identifying small-and medium-sized companies that currently export to a single market. UPS will then analyze company data to recommend new markets based on industry, geography, currency, and market access opportunities. From there, the U.S. companies will be directly connected with trade specialists from the Commercial Service (part of Commerce’s International Trade Administration), to design targeted strategies to identify new market opportunities and increase customers in existing markets.

Since the president announced the NEI, the Department of Commerce’s Advocacy Center has assisted American companies competing for export opportunities, supporting $11.4 billion in exports and an estimated 70,000 jobs. The department’s commercial service officers stationed around the world have helped more than 2,000 companies generate $3.8 billion worth of exports. To date, the Commerce Department has coordinated 18 trade missions with over 160 companies to 24 countries.

The USPS–In July, the U.S. Postal Service’s Global Business team announced the launch of a New Market Exporter Initiative with the Department of Commerce’s International Trade Administration and U.S. Commercial Service to help USPS small to medium-size business customers expand their reach to international markets by offering logistics expertise and other support resources.

Doubling Exports Needs Redoubling of Effort

Remember the Obama Administration plan to double exports as a way to rebuild the US economy? Well it looks like the one part vision and a pinch of desire to change is not enough.  The New York Times has analyzed the progress so far, with mixed results, and highlights the many barriers to achieving the goals of the National Export Initiative (NEI).

The challenges include:

  • Manufacturing Leadership. We are becoming more and more of a service economy.  As the country is fighting to exit the recession, companies are uncertain of their ability to access capital and invest in the US in this time of increasing regulation and taxes.  Simply put,  manufacturing capacity and jobs are being exported (but unfortunately don’t count towards the doubling objective).  So if you aren’t producing more how do you export more?
  • The Rising Strength of the Dollar. The Euro bottomed with the banking crisis and has caused the dollar to appreciate.  While China has talked about slowly appreciating the renminbi, it is still promoting a steady flow of exports to world markets, and increasing competition for US Exports.
  • The Political Sensitivity of Trade Agreements.  As the election year approaches, I can’t see Congress getting too aggressive on trade agreements.  Clearly from a State-level there are winners and losers when trade agreements like NAFTA are implemented.  Who is going to fire up the old job debate now when the economy is stuck in neutral and slowly rolling backwards?

Exports in the first four months of 2010 have increased by 17 % versus the same period in 2009. However today we learned that the real trade deficit increased in June from $46bn to $54bn.

Clearly we aren’t playing on a level field and struggle with trade barriers erected by countries around the world.   For example, a wine industry expert says, “The single most restrictive barrier to wine exports remains the high import tariffs of most of the major markets buying U.S. wine today.”

Read more about the barriers to increasing exports at the New York Times: Hurdles Deter Obama’s Pledge to Double Exports.

Thanks to Lauren for the inspiration for this post.

Interested to Benchmark Your Export Operations?

I ran across this report from Management Dynamics.  Check it out.

Benchmark Report: Export Compliance Management

This report profiles export compliance programs of large, small, & medium-sized enterprises in many industries to reveal challenges companies face in managing export compliance. Receive a copy of the Export Compliance Benchmark!