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Should Five Percent Appear Too Small? The Penny Lane of E-commerce.

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Should Five Percent Appear Too Small? The Penny Lane of E-commerce.

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Benjamin Franklin may not have predicted the internet, but he got it right (inspired by Christopher Bullock’s 1716 insights) when he wrote that, “…in this world nothing can be said to be certain, except death and taxes”. On that note and in related news: buying that inflatable yellow submarine just got more costly! Slowly but surely, shopping from the hopefully convenient home sofa is becoming more expensive: what used to be a ‘tax-free experience’ is now a joyful web-shopping outing until the very end when you see a surprise invoice that includes taxes you’ve never heard of. That surprise now extends to Consumer to Consumer (C2C) sales that historically never used to incur taxes.

Probably not invited and (therefore?) a little late to the internet party, tax authorities found the long and winding road on how to subject e-commerce sales to sales and/or other taxes. With more than 50% of government income depending on taxes in most countries (up to 80% in some, according to ourworldindata.org) and booming internet sales (39% growth in Q1 2021 in the U.S., according to statista.com) nibbling away at that revenue, it’s a surprise that it took this long for the taxman to issue comprehensive legislation to get back to what once belonged. Over the last few years, as more tax authorities found the right tune for enforcing taxes on e-commerce (Australia, New Zealand, and the U.S. were recently followed by the EU and other countries), more and more taxes have appeared in that cute little checkout cart. It progressed from customs duties on international sales over a certain threshold to sales tax (or its local equivalent like consumption tax or value-added tax (VAT)) on B2C sales and, recently, many countries (including the EU) went all-in and now tax practically all internet transactions.

From a compliance perspective, multiple e-commerce platforms have been quick to implement tools for sellers to apply taxes. In many instances, taxes are automatically collected and submitted, with the seller only responsible for filing monthly or quarterly reports/returns on sales and taxes charged. And, as a considerable percentage of transactions are routed through a small number of major platforms (e.g., Amazon, eBay, Shopify, Magento), conducting audits is not reaching for Lucy in the sky. Compared to decentralized in-store retail sales, authorities have a relatively easy job with enforcement for online sales. Obligatory penalties and the threat of shutting down the seller—or even the site—when regulations are ‘forgotten’ make it easier to get taxes accounted for.

But what about those low-value exemptions? Glad you asked. The low-value exemption (Section 321 Type 86 shipments in the U.S.) may still apply on the customs duty portion of a purchase, or even on the local tax part, but e-commerce legislation in many countries requires the seller to charge taxes on every transaction, no matter how small—which is why a 5% tax on a $10 purchase is no longer impossible. Keep those pennies coming! For example, on that eBay purchase of some fine Portuguese stamps, the seller will either charge local Portuguese value added (e-commerce) tax or be required to register in the country of destination and charge that country’s sales/consumption/value-added tax—not good for the buyer’s wallet (especially as VAT can be as high as 25%), yet excellent for the tax authorities.

And the news for the Revenue Service is only getting better: e-commerce is projected to grow to $4.88 trillion in 2021, with McKinsey predicting growth of 8-9% annually in countries like Germany and France and 20% for countries in Asia. That adds up nicely, especially since taxes, as mentioned, are now collected on C2C transactions that were previously never taxed. Furthermore, with the e-commerce model having struck a serious chord with Gen Z, C2C growth is projected at 35% annually for the next four years (C2C e-commerce: Could a new business model sell more old goods?, McKinsey), which in total adds up to quite the lucrative revenue source. Quick note: this is different from the revenue related to the taxation of digital services, for example, digital marketing or reselling of user data.

While many traditional retailers, other than perhaps the barber showing photographs, have had to close due to the pandemic and the never-ending wave of e-commerce, the tax authorities are in a much better position than before to both collect and increase tax revenue on e-commerce and other sales—leaving them to safely count even more pennies from their own hopefully comfortable sofas.

Anne van de Heetkamp, is the VP of Product Management GTC at Descartes

HS ocdes classify shipments of export cargo and import cargo in international trade.
Archives, Features, Imports/Exports, International Trade

KNOW YOUR DIGITS

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With every import or export comes at least one question: What is the correct Harmonized System (HS) code associated with that product? Even with standards accepted by more than 200 member countries that participate in the World Customs Organization (WCO), the answer to that question is far from simple. But cost-efficient and effective solutions for the challenges of classifying and shipping products among countries do exist.

HS codes revisited

Each tangible product has an HS code, and depending on the country of import, it is typically an 8- or 10-digit code that starts with the 6-digit standard heading established by the WCO. The HS is organized logically by economic activity or component material into 21 sections, which are subdivided into 96 chapters. The 96 HS chapters are further subdivided into approximately 5,000 headings and subheadings. The result is a lengthy list from which to choose; for example, the U.S. tariff includes descriptions for around 16,000 HS codes.

An HS code is required for import declarations and is used to identify the appropriate duty rate and possible application of additional duties, such as those for anti-dumping. In a variety of countries, it also establishes which licensing requirements apply to the import. In addition, HS codes are used for reporting and statistical use, to identify status of products, etc. All in all, the HS code is critically important in clarifying the classification of goods and duties that apply to them.

Challenges of determining HS codes

To have duty rates and compliance answers instantaneously available, a company’s complete catalog would have to be classified for all possible import countries without any guarantee that the classified product will actually ship to any or all of those countries. That’s especially challenging for companies with a large catalog that ship to multiple countries and whose customers want to know total landed costs before making a purchase.
Another potential challenge is uncertainty over whether local authorities will accept classifications provided by a company. The costs to obtain definitive approval from local authorities on HS codes prior to shipping can add up. They can amount to at least $400 per binding tariff information, not counting staff time and possible payment for external assistance.

Considering those challenges, it is clear that a solution that requires less upfront investment but still allows for proper total landed cost estimates and compliance indications can be nothing short of creative. That is, unless the WCO and its members recognize each other’s HS codes or apply a global HS system through to 10 digits.

Even with global 6-digit headers, products still are often classified completely differently depending on their location of origin. Even the first digits can be different between countries. For example, one of the recurring themes when it comes to classifying under different headers is whether to classify parts by their individual characteristics or simply as “part of” the car, machine, TV set or anything else it is used in. Going through official channels to sort out issues requires a significant amount of money and time.

Solutions to mitigate risk

The route to complete certainty is lengthy and expensive, and not a practical option for web stores, e-commerce companies or sellers with high turnover in SKUs. However, correct tariff classifications are critical in some instances: when disputes are expected because previous customs opinions have differed from internal classifications, when stakes are high because possible classifications have vastly different duty rates, and when product prices are high and duty rates are applicable. In those cases, applying for a Binding Tariff Information (BTI) decision is the recommended route.

For other instances, there are ways to inform customers, mitigate risks and be cost-efficient when obtaining the appropriate classifications for large volumes of products shipped to numerous countries.

First, tell customers you’re providing an advice and estimate scenario, not a definitive answer on the classification. Even if you’re committed to a Delivered Duty Paid (DDP) model, and the landed costs risks effectively fall back on the seller, risks can be limited by including a feedback loop on actual duties paid to compare against estimates. In that case, incorrect classifications can be corrected and discrepancies regarding future duties paid can be avoided.

Another easy way to reduce efforts is to group products and SKUs. Items with the same description, characteristics and material composition are very likely to be classified identically. For example, a women’s round neck 100 percent cotton t-shirt is classified identically regardless of size or color. If there is an emblem or logo on the shirt, the HS code is the same no matter what the logo is. Focus initially on product groupings that need more attention because of higher volumes, higher values or a history of misclassifications. Tackling those groups first will pave the way. In similar fashion, use earlier mappings; new versions of an existing product don’t usually need new classifications. Be smart and reuse codes where possible. Of course, a critical review of re-used HS codes is needed before you apply them.

Use available tools, or be creative and develop some. Some vendors, carrier services and even partners may have solutions at a reasonable price. They will likely have ready-to-go mappings available, access to the tariffs of the relevant importing countries, and tools to further speed up classifications. Or ask a broker, carrier or importer to provide HS codes that were used and compare them to the ones you have on file. Adjust as needed and review if similar products exist and also need adjustments.

Lastly, account for HS code updates. Legislatives updates may render classifications invalid and classification advisories may be a cause for reclassification. In both instances, reclassification for the involved countries and products is required. Local customs authorities or specific companies that collect global trade content can assist in identifying such updates.

To support your classification needs, it’s important to remember that shortcuts are bad, focus is good, and expertise doesn’t hurt.

Anne van de Heetkamp is director, Tradebeam at Aptean.

Risk management practices for shipments of export cargo and import cargo in international trade.
Archives, Features, Global Logistics, Imports/Exports, International Trade

50 SHADES OF GRAY AREA

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Entering new markets is exciting, filled with new opportunities, fresh starts and hopefully an endless new customer list. Whether establishing a physical location, using third parties or simply expanding the demand base by allowing customers from new countries to order your product online, new markets come with new obligations.

Doing business in developing markets, such as Eastern Europe, can be especially challenging. Not only are there tax regulations, product standards and languages to consider, these markets also come with additional compliance requirements to be followed. One obligation that is sometimes forgotten is Restricted Party Screening (RP Screening or RPS). In a region where politics and economics are closely intertwined, RP Screening is critical.

It is the responsibility of every organization to know its customers; if the organization engages in global trade, part of that obligation is to ensure that who you are selling to or, in an even broader sense, anyone you are partnering with, is not on a Restricted Party list. And that is where things can potentially become difficult. On a global basis, the number of RP lists has grown dramatically over the years, and the number of people, parties and entities on the lists is easily over 60,000. Lists are maintained by the State Department, the Treasury Department and the Department of Commerce, as well as international entities such as the United Nations, the European Union and Interpol. Failure to comply can lead to civil or criminal prosecution resulting in hefty fines and potential prison sentences, as well as denial of exporting privileges.

Fortunately, RP Screening is mostly the “straightforward” lists; when there is a match you definitely cannot do business with the named party. A potential match, where the RPS engine matches a name on a given list to one in the transaction, can be identified as a “true” or “false” positive fairly easily–either by determining the quality of the match or by performing additional research to identify whether the person or company matched is truly the one with whom you are about to do business. It gets more challenging when a match is made with a name that is on a list of exposed parties, not necessarily fully restricted parties. In short: What do you do when the person or party you are about to enter into business with is known to have political ties, thereby significantly increasing corruption and fraud risks associated with the transaction, possibly leading to violation of the Foreign Corrupt Practices Act (FCPA) or other regulations?

In many Eastern European countries where politics and economics are closely tied together, whether that dates back to state-owned enterprises or not, it is a challenge to properly assess if the potential match is to lead to an allowed or denied transaction. Major corporations are sometimes still government-owned, have board members in the government, or major stakeholders are related to government officials. Disallowing all those flagged transactions would result in not much of a market presence. So, where is the line drawn between an approved and a denied transaction? How do you assess, mitigate, document and continue the risk analysis?

The use of RP Screening should not be seen as the end station in these situations, but as the beginning point of a compliance trail. If a match is made based on a Politically Exposed Person (PEP) list, it does not suggest that you cannot legally do business with this person. It is, however, an indication to tread much more carefully and lower the threshold for discontinuation of the current transaction or future business. In case of doubt, the best course of action is to deny the transaction. If after careful assessment, which should include a local inquiry and perhaps conversations with U.S. compliance officers, it is concluded that the transaction can continue, it should not be assumed that the green light is on forever. Most Restricted Party applications facilitate approving or denying transactions and/or parties anywhere between “once” and “indefinitely.” When in doubt, approve only once. Another option is to use continuous screening, also known as reverse RP or ongoing screening, in which case if the party is showing up on additional lists, it will get flagged right away, even if it was approved earlier.

Obviously, it is imperative to document the entirety of your Restricted Party Screening process carefully: Add notes to the records, if conversations outside of your organization were had, document those as well. If the situation locally changes, the company must be able to change the relationship as well, meaning any contracts should have provisions for various compliance requirements. It is difficult to change direction if there is no contractual basis for it, and the named party is not present on a denied listing. Other than in false positive matches or true positives that are denied indefinitely, these gray areas require ongoing attention.

Continuous monitoring of changes to RP lists, local information, feedback from legal counsel and common sense are the key ingredients to making the right decisions when it comes to knowing and doing business with your customer

Anne van de Heetkamp is director of TradeBeam, a SaaS GTM solution at Aptean.

Compliance issues in emerging markets for shipments of export cargo and import cargo in international trade.
Archives, Features, Global Logistics, Imports/Exports, International Trade

Restricted Party Screening to Minimize Risk in Developing Markets

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Entering new markets is exciting, filled with new opportunities, fresh starts, and hopefully an endless new customer list. Whether establishing a physical location, using third parties, or simply expanding the demand base by allowing customers from new countries to order your product on-line, new markets come with new obligations.

Doing business in developing markets, such as Eastern Europe, can be especially challenging. Not only are there tax regulations, product standards, and languages to consider, these markets also come with additional compliance requirements to be followed. One obligation that is sometimes forgotten is restricted party screening (RP screening or RPS). In a region where politics and economics are closely intertwined, RP Screening is critical.

It is the responsibility of every organization to know its customers; if the organization engages in global trade, part of that obligation is to ensure that who you are selling to or, in an even broader sense, anyone you are partnering with, is not on a restricted party list. And that is where things can potentially become difficult. On a global basis, the number of RP lists has grown dramatically over the years, and the number of people, parties, and entities on the lists is easily over 60,000. Lists are maintained by the State Department, the Treasury Department, and the Department of Commerce, as well as international entities such as the United Nations, the European Union, and Interpol. Failure to comply can lead to civil or criminal prosecution resulting in hefty fines and potential prison sentences, as well as denial of exporting privileges.

Fortunately, RP screening is mostly the straightforward lists; when there is a match you definitely cannot do business with the named party. A potential match, where the RPS engine matches a name on a given list to one in the transaction, can be identified as a true or false positive fairly easily – either by determining the quality of the match or by performing additional research to identify whether the person or company matched is truly the one you are about to do business with.

It gets more challenging when a match is made with a name that is on a list of exposed parties, not necessarily fully restricted parties. In short: what do you do when the person or party you are about to enter into business with is known to have political ties, thereby significantly increasing corruption and fraud risks associated with the transaction, possibly leading to violation of the Foreign Corrupt Practices Act (FCPA) or other regulations?

In many Eastern European countries where politics and economics are closely tied together, whether that dates back to state-owned enterprises or not, it is a challenge to properly assess if the potential match is to lead to an allowed or denied transaction. Major corporations are sometimes still government-owned, have board members in the government, or major stakeholders are related to government officials. Disallowing all those flagged transactions would result in not much of a market presence. So, where is the line drawn between an approved and a denied transaction? How do you assess, mitigate, document, and continue the risk analysis?

The use of RP screening should not be seen as the end station in these situations, but as the beginning point of a compliance trail. If a match is made based on a list politically exposed person (PEP) list, it does not suggest that you cannot legally do business with this person. It is, however, an indication to tread much more carefully and lower the threshold for discontinuation of the current transaction or future business. In case of doubt, the best course of action is to deny the transaction. If after careful assessment, which should include a local inquiry and perhaps conversations with US compliance officers, it is concluded that the transaction can continue, it should not be assumed that the green light is on forever.

Most restricted party applications facilitate approving or denying transactions and/or parties anywhere between once and indefinitely. When in doubt, approve only once. Another option is to use continuous screening, also known as reverse RP or ongoing screening, in which case if the party is showing up on additional lists, it will get flagged right away, even if it was approved earlier.

It is imperative to document the entirety of your restricted party screening process carefully – add notes to the records, if conversations outside of your organization were had, document those as well. If the situation locally changes, the company must be able to change the relationship as well, meaning any contracts should have provisions for various compliance requirements. It is difficult to change direction if there is no contractual basis for it, and the named party is not present on a denied listing. Other than in false positive matches or true positives that are denied indefinitely, these grey areas require ongoing attention. Continuous monitoring of changes to RP lists, local information, feedback from legal counsel, and common sense are the key ingredients to making the right decisions when it comes to knowing and doing business with your customer.

Anne van de Heetkamp, director of TradeBeam, a SaaS GTM solution at Aptean.

DPP provides service to buyer in transactions involving shipments of export cargo and import cargo in international trade.
Archives, Commentary, Global Trade Daily, Imports/Exports, International Trade

An Examination of the Delivered Duty Paid Model

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While the Delivered Duty Paid model is not the latest invention, it is definitely gaining ground in Global Trade Management (GTM). The DDP model is based on the Delivered Duty Paid (DDP) Incoterm and provides benefits to all participants in crossborder transactions. The key questions with this model are who ultimately pays for the service, and what are the associated benefits and risks?

What is the DDP Model?

The DDP model is focused on making the transaction as easy and as transparent as possible for the customer. It is defined by the seller taking on all responsibility related to product delivery, including the fulfillment of compliance requirements, duty payment, shipping, and handling. The buyer/customer simply pays and receives the goods. The customer still pays for the import duties, but they do so upon checkout – making it a transparent transaction rather than a wait-and-see game.

Why is it popular?

The transparency associated with the DDP model relates to two key components: the buyer only pays a single time for all product, shipping, handling, and duties. There are no surprises when it comes to payment of import duties or documentation once the product is at the customer’s doorstep. In addition, assuming the seller applies the low value thresholds correctly, the buyer would not incur any unnecessary fees, once again providing the buyers with a much needed service. The seller, now managing all of the supply chain from sale through delivery, has full insight into every step of the delivery, which allows them to make adjustments as needed. This model is particularly popular in B2C markets, as the seller limits the risk of product abandonment, dissatisfied customers, and instead improves user experience and brand loyalty.

For larger and bulk shipments, the DDP model seems to fill less of a need. The value of shipments, contractual obligations, and overall division of responsibilities is much further defined, and the risks and opportunities the DDP model entails are less applicable.

What makes the model work?

In order for the DDP model to work, it is necessary that the seller be able to calculate the total landed costs upon checkout and know about any and all compliance requirements that may come into play in shipping the goods from the seller ‘s warehouse to the buyer‘s doorstep.

For each product, the duty rate, and any other import duties or fees such as value-added tax (VAT) associated with import into the foreign jurisdiction is required, which means that the Harmonized System (HS) Code is needed. The seller would need to have all products available for international sale classified for each specific jurisdiction without knowing for certain that the product will actually be sold into those countries. That upfront investment is one that many sellers shy away from and is considered an obstacle to the DDP model. Luckily, some services and methodologies are available to minimize this effort, for example word based automated classification, average duty rate, etc. These applications may not be 100% accurate, but will suffice when it comes to supporting a reasonably well working DDP model.

Additionally, the seller must be aware of products for which compliance requirements like licenses or certifications apply, or products that may not be shipped at all to certain countries, such as t-shirts with particular language going into Malaysia. This information can be HS code related or associated with other local regulations. Having this data is critical to avoid disappointing the customer. Certain widgets can even prevent customers from the relevant countries viewing these items in the storefront.

What are the challenges?

Besides trade content necessities, additional challenges need to be ironed out. The traditional B2C model would transfer title from the seller to the buyer somewhere around the border, making the buyer responsible for import duties. The DDP model breaks that mold, and the seller is responsible for duty payment. However, in specific countries, this would require the seller to become importer of record, register in that country for VAT and other tax purposes, and bring along multiple tax filing requirements.

These requirements are not favorable for small and medium companies, and definitely not attractive for those limited shipments into smaller markets. Supply chain collaboration is the key. The seller could benefit from the assistance of a forwarder, such as an express delivery service. Whether this support includes a full transfer of title or not, express forwarders like DHL are extremely useful when it comes to facilitating the DDP model.

What remains are the usual challenges and opportunities regarding checkout procedures (currency, credit card acceptance), assuring the buyer is not on any restricted party (RP) list—an RP screen through the ecommerce platform or upon checkout can be performed while calculating total landed costs—customer support (which is simplified with the customer’s reliance on only the seller’s support desk and not on the shipper, importer, or government), and of course shopping cart abandonment (which is a commercial component that global trade is less involved in).

Conclusion

The DDP model allows each link in the supply chain do what they do best, and the customer to benefit from the transparency. Avoiding unwelcome surprises, highlighted by unexpected duties due upon delivery, increases customer satisfaction and improve competitiveness, especially in a B2C setting.

Anne van de Heetkamp, director of TradeBeam, a SaaS GTM solution at Aptean.

TFA is meant to lower the costs of shipments of export cargo and import cargo in international trade.
Archives, Commentary, Global Logistics, Global Trade Daily, Imports/Exports, International Trade

WCO Adopts Trade Facilitation Agreement

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Recently, the World Customs Organization (WCO) and its members agreed to implement the Trade Facilitation Agreement.

Will this simplify crossborder trade?
The Trade Facilitation Agreement (TFA) is an agreement both World Trade Organization (WTO), with its 164 members, and WCO members, representing 180 countries, subscribed to in order to simplify procedures and provide further transparency when shipping crossborder. Its components include commitment to publish trade regulations (including duty rates, restrictions, and required documents) on the internet, facilities for complaint handling, and opportunities to obtain relevant rulings from the authorities.

Is the TFA different from current facilitations?
Hans-Michael Wolffgang and Edward Kafeera argue convincingly that the TFA is not all that new and that the revised Kyoto convention has had all the components necessary, despite regarding it a soft law. The similarities notwithstanding, the renewed focus and common ground is perhaps the best part of the TFA.

What is the expected impact?
The benefits of reducing global trade costs, which is the goal of the TFA, are evident: in 2013 the OECD estimated that a one-percent reduction in global trade costs would result in over $40 billion in worldwide income. Developing countries would benefit from 65 percent of that $40 billion.

The key to the success of broad legislation is oftentimes the enforcement. This area is where the TFA, while better than previous directives, is lacking. The TFA has too much reasonable in it. The members are not punished for not publishing regulations on-line, and they are not necessarily held accountable when their release times are out of sync with the WCO’s Time Release Study, which is the recommended standard for transit/handling times for the authorities.

The TFA does include timelines for when implementation countries need to publish, but no penalties are in play, other than trading partners possibly less willing to conduct business. Therefore, the TFA’s impact will likely be limited unfortunately, especially in those countries that have historically struggled with transparency.

Complaining about trade facilitation and trade barriers is as old as trade itself. But a closer look provides evidence that even in 2017 transparency and simplification still has ways to go. WCO members have committed to implementing Harmonized System changes according to the WCO advisories (every five years, the latest one this year). But, a quick survey across 210 countries finds that almost half of the countries (47 percent) are not yet using the 2017 tariffs, with 34 percent still using 2012 HS tariffs and a surprising 13 percent that did not even implement beyond the 2007 WCO directions. That makes efforts to maintain global catalogs difficult.

In addition, although many compliance requirements are verified and checked upon importation and therefore associated with HS codes, not all countries have implemented legislation where compliance is directly linked to HS codes (i.e. part of the Tariff). Research shows almost 20 percent of countries do not issue legislation that includes compliance codes in its Harmonized Tariff, and even the countries that do typically still have additional regulations outside of the tariff that require compliance. Product and import/export requirements, such as documents, quality standards, and licensing information, are issued by different authorities than customs, and as such these standards are typically product based and not HS or Export Commodity Control Number (ECCN) based. From there, they need to be mapped to HS codes for exporters and importers to be able to comply. If this step seems time consuming, it is. And it can be avoided if clearance (import or export) legislation is required to be directly linked to the unique identifier used for each imported good: the associated HS code.

Conclusion
Although the TFA without a strong enforcement policy may not generate the desired impact, it is a step in the right direction and provides importers and exporters with an additional tool in their demand for transparency and their quest for reduction of global trade costs.

The pressure should be kept on local governments to commit to implementing the TFA to the fullest, and for bodies like the WTO and WCO to expand its scope and include enforcement language, as well as paragraphs regarding the relationship between local legislation and import and export classification codes.

Anne van de Heetkamp is director of Tradebeam, an SaaS GTM solution at Aptean.

2017 predictions for policies govenring shipments of export cargo and import cargo in international trade.
Archives, Commentary, Global Trade Daily, Imports/Exports, International Trade

Global Trade Management in 2017

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In 2016, the world was surprised by the passing of Brexit and Donald Trump winning the United States presidential election.

Looking to 2017 from a global trade perspective, these events make one prediction certain: trade barriers in the Western Hemisphere will not be lowered. To what extent there will be an increase in tariff and non-tariff barriers is unclear, but there is no time like the present to speculate a little.

An interesting year is ahead, and it was kicked off on January 1 with the 2017 Harmonized System (HS) Nomenclature overhaul per the latest World Customs Organization (WCO) directions. These changes to the HS Nomenclature will be one of the largest in recent years, with more than half of the changes impacting codes in the agricultural and chemical sectors. In total, there will be 233 sets of amendment revisions. These revisions are meant to address growing global concern around environmental and social issues as well as the importance of collecting HC trade statistics.

With customs professionals expressing a growing concern about their supply chain compliance/Global Trade Management (GTM) challenges, the recent political events in the UK and U.S. have led to increasing uncertainty in the industry. Be prepared for an exciting 2017!

More Duties?

Average global rates have decreased over the years, and the question is whether 2017 will buck that trend. Will the U.S. walk away from bilateral or multilateral Free Trade Agreements (FTAs), ban countries from General System of Preference (GSP), or increase duty rates for certain countries of origin to protect domestic manufacturing? Will Brexit have an effect on UK-EU duty rates? How will the UK re-create its own external tariff and will it be able to break off UK FTAs from the current European Union FTAs? A step further, it remains to be seen if any of these events will affect duty rates (initially) on a unilateral basis, if there will be repercussions, and whether a tit-for-tat culture will initiate a tariff war? It’s all not too likely. Negating FTAs is not easily done, and the UK will be cautious not to create any economic upheaval that may negatively affect their status as a financial leader in the market.

However, the prospect of an increase in duty rates is realistic as a number of large economic forces will be closely reviewing their trade agreements and tariff structures. Who would have thought the General Agreement on Tariffs and Trade/World Trade Organisation (GATT/WTO) bound rates books would ever have to be dusted off to check possible rate increases would not violate these agreements?

Two other events could also impact duties in 2017. It can be expected that the U.S. will increase pressure on low-cost manufacturing, which would lead to a significant number of new antidumping/countervailing duties (ADD/CVD) cases as unilateral duty increases are possibly too obvious. Lastly, China’s growing debt may threaten current economic stability, but the association with duty rates will likely not be seen in 2017.

More paperwork?

Most likely there will be additional paperwork required for goods to move between the UK and the EU, and equally likely there will be UK FTA specific documentation requirements once it is clear how the UK will rearrange its trade relationships with current EU FTA partners.

On the artificial side of trade barriers, some token reactionary measures may be taken to hamper certain trade lanes (read: importing from China), but expect additional non-tariff barriers to be more in the security, trademark, and consumer marking areas, specifically security around additional compliance measures for dual-use goods (a global trend), a stricter enforcement of trademarked goods, and closer reviews of consumer marking where safety of products containing certain materials is concerned. For example, accidents like smart phones catching fire will pave the way for more agencies ensuring all imported products are safe for handling.

Some 2017 predictions

Common ground will be found and China manufacturing will continue as is, although there will be a face-saving announcement about increased market accessibility of foreign products into China. This agreement will bear little result.

FTA utilization rates will improve. A common compliance standard (i.e. proof of eligibility) will be agreed on and this will boost the use of FTAs.

Hopefully, the WCO announces that in 2022 they will randomly make products obsolete by no longer allowing them to be classified (i.e. any logical or possible HS codes will specifically exclude these products). Under consideration are items such as flip phones, satchels, Yanni CD’s, and toy panda bears holding cactus plants.

One thing is for certain: 2017 will prove to be an interesting year in the Global Trade Management space.

Anne van de Heetkamp, is director for TradeBeam, an SaaS GTM solution, at Aptean.