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If Trade Compliance Was a Soccer Team…

trade compliance

If Trade Compliance Was a Soccer Team…

The Olympics, Gold Cup, Copa América, Euro 2020: most soccer fans will have a team or two to cheer for this summer. For those, as well as for those who prefer trade compliance over soccer (so, basically everybody in global trade), here the definitive Summer of 2021 Global Trade Intelligence starting lineup (in a traditional 4-3-3 system). Pretty sure we’d beat those ERP, CRM, and (despite the overlap) TMS teams at the Software World Cup.

Goalkeeper: Export Compliance. A non-plussed, stabile, robust lock on the door is needed to stop penalties (yes, a global trade pun!) and set the standard for the team. Thoroughly, prepared for set plays (like license determination) and deflections (like transshipped exports). Nothing falls through the cracks; errors can be fatal for a compliance program.

Right Back: Origin. You want reliability in your backs plus, ideally, one that can also make progress forward and save some duties. Origin is both: the solid paperwork to verify your claims and the forward approach to benefit from the preferential rates where possible. A sometimes aggressive yet always reliable origin program can bring significant benefit to the company.

Center Back: Restricted Party Screening (RPS). It’s simple: your center back doesn’t let any opponent slip through and that’s the same for your Restricted Party Screening solution. Nothing gets through or there will be consequences. RPS sets the tone and, with a solid RPS application, everyone feels more secure doing their part.

Center Back: Brokerage. Another solution that stands or falls with reliability. Your brokerage application must be strong, solid, reliable, scalable. It bends but doesn’t burst. It’s steady when needed but can accelerate if there’s a lot to do. With just that, there is a perfect center foundation for some solid compliance work.

Left Back: Import Compliance. Completing the back four of compliance, the left-back may be where you used to stick the weak link, but no more. This includes document, permit, license requirements. Import compliance programs (think OGA/PGA requirements but also VAT registrations, packaging requirements) are gaining momentum. Ecommerce plays a role in all this as well. As for the right-back position, it is nice to have a left-back that can also create opportunities, for example, by anticipating B2C compliance requirement changes (like changes to VAT exemptions or licensing exceptions).

Right Midfield: Objectives and Key Results/Key Performance Indicators (OKRs/KPIs). The barometer is of course in midfield—making sure holes are filled, needs are met, focusing on where there is a little shortfall or supporting where things are moving along. OKR/KPI reviews keep everything balanced and ensure that attention is paid to areas where improvements can be made and that strengths are praised and leveraged.

Center Midfield: Classification. The center of it all. The core challenge according to multiple surveys, classification is the ongoing challenge of getting it right all the time and with ever-changing HS codes (hello 2022 WCO Updates!). Only a number 10, central player can figure it all out (the greats co-function as parts master as well). And, when they do, it’s a joy for the whole team. Without classification, there’s no offense or defense—only loose ends.

Left Midfield: Duty Deferral and Saving Programs. The left midfielder is creative (with that subtle left foot), somewhat looking for that through ball but still solid when it comes to defending completed work. Welcome to duty-saving options. Foreign Trade Zones, processing reliefs, drawbacks: you name it, the left midfielder has them all in the pocket and is ready to launch.

Right Forward: Valuation. Better get it correct (must be able to defend when questions are asked) but not impossible to get really creative with it. Think First Sale, non-transaction value-based valuation, the excitement when working with the transfer pricing teammate. The six valuation methods are like the six ways the right-winger can leave the opponent behind.

Center Forward: Supply Chain Resilience (SC Resilience). Arguably, if it were a 5-3-2 system, SC Resilience would be a wingback—new and fancy but still doesn’t always have a spot. But, in a 4-3-3 system, it’s great to have something fresh and sometimes unpredictable to make a good impression. SC Resilience encompasses all the exciting elements a forward-thinking operation needs: anticipating the market and logistics flow, staying ahead of the competition, and surging towards new goals.

Left Forward: Visibility. The left-wing position is made for volatile players. Sometimes everything works, sometimes nothing. The same way it sometimes feels with supply chain visibility—one day the dashboard is packed with useful information and the next there are huge gaps, but the collaboration with SC Resilience, in particular, helps to build expectations.

On the Bench: Implementations, integrations, audit support (reporting), and disaster recovery plans. What to do with the coach? For being the best trade compliance expert I have met and loads of other reasons, I’ll take Ruud Tusveld as the coach—even though he used to play goalie.

Trade compliance for the win!

global trade

Global Trade Trends: What Will 2021 Unwrap?

2021 is a handful of oliebollen away in the rearview mirror and it’s time to prepare for new events. What will global trade unwrap? A number of nuggets below.

Think Green

No, not that green. Real green. As in: will the U.S. and European Union’s green initiatives put pressure on their trading partners to invest in more environmentally friendly manufacturing, transportation methods, or forms of energy? For example, will U.S.–Mexico relations be strained because of the demand for greener solutions in manufacturing plants?


It is expected that sanctions will remain a prime measure to put pressure on political regimes. When countries improve their standing, however, sanctions can get lifted: the Sudan sanctions are already lifted, and the question is if more will follow. Iran will demand a reprieve if the nuclear treaty is to be put back in place and Cuba may get another look with a Democratic administration. Anticipating the impact, or perhaps the opportunities, is important. 


Lead by retail growth at a high rate of ~20-23% until 2020, ecommerce exploded last year (Forbes noted the May 2020 year-over-year growth was 77%) and will stay a part of every company’s selling strategy. Forced or accelerated by the pandemic, companies have adjusted their customer interactions, and ecommerce strategies will remain an integral part of all global businesses. No longer confined to specific market segments, this change drastically affects how global trade is conducted and where resources will be spent. Shipping directly to customers affects many aspects of the global supply chain and companies now must account for shipping and compliance aspects that are different from previous models.

Various governments (e.g., EU, Australia) already implemented or announced changes regarding treatment of low-value shipments (value-added taxes are no longer waived) and, with more revenue at stake, more governments will follow that trend. Additional scrutiny on the compliance front is another logical step. The ecommerce burst included markets outside of the traditional ecommerce heavy retail products. Industries with a heavier compliance burden (e.g., dual-use goods) have also shifted to online models and are dealing with non-traditional importers that will be less familiar with required compliance measures. New legislation/procedures will certainly make their entry in 2021 to ensure products do not end up in the wrong hands.


No surprises here—the shadows Brexit threw ahead are now being caught up with. One thing perhaps underestimated in the mayhem of new regulations and immediate requirements is that the Free Trade Agreements (FTAs) that were mostly copied and pasted to avoid disruptions will get a closer look around Q3 2021. This may result in new Rules of Origin (i.e., requirements to meet preferential thresholds) or even different duty rates.


Countries such as Vietnam and Cambodia made significant infrastructure investments and it looks like efforts are paying off. Manufacturing in South East Asia (and, for example, in the Philippines, Indonesia and Laos) is growing exponentially and with new locations come new compliance requirements. New Rules of Origin, documents, shipping lanes and trading partners make for exciting yet busy changes.

Besides South East Asia, Africa is also making strides. With large investments from China (among others in South Africa, Alegria and Zambia), infrastructure and capabilities improve, and the next global shift is in the works.

Tariff Measures

Regarding the additional duty rates the Trump administration put in place on imports (either on specific goods and/or from specific countries), it is to be expected those will be reduced if not nullified over the next months or years. That does not mean things will go back to how they were prior to 2016. The U.S. is expected to continue operating more forcefully when it comes to supporting U.S. businesses and industries against unfair third-country competition, and that includes protectionary measures. Perhaps there will be an uptake in the more traditional Anti-Dumping/Countervailing Duty cases through the WTO as a preferred path over unilateral actions.

US Changes

Undoubtedly the change in administration in the U.S. will have a significant impact on its position towards global trade. Balancing the need to keep a tight grip on foreign trade (especially with crucial partners such as China, the U.K. and the EU) with a more outward-facing policy will be an interesting affair for new Secretary of State Andrew Blinken. Expanding and re-establishing trade relationships will also be on the agenda. This will likely include a fresh effort to revisit the Trans-Pacific Partnership (U.S. – ASEAN), the review of a few other FTAs that were slowed down and, further down the line, even a Trans-Atlantic (U.S. – EU) pact, possibly spearheaded by a U.K. – U.S. agreement first.

All in all, 2021 will not allow companies to take a breather. If anything, the agility of supply chain strategies will be tested further this year.


Free Trade Agreements: Is There a Trade Lane Left Without One?

Since the first Free Trade Agreement (FTA) in 1860, a lot has happened. A solid 160 years will do that for you. On the FTA front specifically, the focus has also shifted: what used to be an opportunity for significant duty reduction and, therefore, a more competitive position in the FTA partner’s home market has turned into a tool for faster access to the market and control of a trading relationship. With the applied, weighted, mean duty rates globally down to 2.59% from 8.57% in 1994 (Source: based on World Trade Organization (WTO) data), the importance of duty rate reduction has been marginalized—so why is there still such a strong movement towards adding more FTAs to an already considerable total worldwide?

Some Recent Developments

Trade agreements are not only about duty rates anymore; the collaboration and facilitation part is just as, if not more, important. That means trading partners make efforts to reduce the paperwork on the trade lane, give priority to incoming shipments, and collaborate on data exchange and simplification of procedures. In today’s economies, these elements are just as crucial as a few duty points. In addition to the facilitation, environmental clauses are included in new FTAs. Got to start somewhere. Customs unions (like the EU) take it one step further—they usually allow for goods to move freely between member states and have a single common tariff for the outside world.

In a similar fashion, the FTA accounts for financial and administrative arrangements that are not limited to duty rates and import documents. In a broader scope, abolishing of export subsidies, transparency with added value calculations, investigative cooperations, etc. are part of the package and simplify the use and verification of FTA claims.

Perhaps not a trend (yet?), but the Pan-Euro-Mediterranean is loosening its Rules of Origin (likely in effect in 2021). Rules of Origin set forth the requirements that need to be met to benefit from FTA arrangements (i.e., qualify for preferential treatment). Typically, Rules of Origin encompass a required tariff shift (i.e., a substantial transformation needs to take place) and/or a value-added component (i.e., the value add of locally sourced parts, materials, labor, etc. needs to exceed a specific threshold). The value-added thresholds have historically been relatively high (60% and up) and loosening those requirements will simply allow more products to qualify, which will give developing countries especially more opportunities to qualify their exports for preferential treatment.

Per the WTO, over 300 Regional Trade Agreements (RTA) are currently in force. This number only reflects agreements that include preferential duty rate schemes, as agreements such as bilateral investment treaties or Joint Commissions would increase this number two- or three-fold. The RTA number includes bilateral/local agreements as well as ‘monster trade pacts’ such as the EU, USMCA or ASEAN – China agreements. It has been a steady growth of FTAs since the 1990s, with a peak in the action between 2003 and 2011. And (see below) there is no end in sight.

What’s Next?

Go big or go home is what the EU is thinking. Agreements are in place with around 40 countries, ratification in progress for agreements with around 30 countries, and agreements with another 20 countries are waiting to be signed. For any countries left behind, it seems that there are ongoing negotiations (e.g., Australia, New Zealand) or plans to negotiate. Don’t despair.

Never-ending speculation on a Trans Atlantic agreement (US – EU) or a Trans-Pacific Partnership (TPP) including the US will not be put to rest until actually completed and in force (the US withdrew from the TPP in 2017). The US currently has 14 FTAs with 20 countries, re-did the USMCA in 2020, and negotiations with Kenya and Taiwan seem to be in the works.

Lastly, with Brexit in its final stages, the UK is also breaking off FTA relationships with EU partners. That means the UK will have to create separate FTAs with these countries. Practically, not all of the EU FTAs will have a UK equivalent by January 1, 2021, and some may never be in place. This means regular (Most Favored Nations – MFN) rates will apply come January 1 unless another preferential program (like the Generalized System of Preferences) applies. But with the UK exit comes an opportunity for Britain to conclude agreements the EU has not been able to pull off. Perhaps a US – UK FTA is nearer than thought. Let’s check the odds on that!


Anne van de Heetkamp is VP of Product Management and Global Trade Content at Descartes and is an international trade expert with 20+ years of industry experience. Previously he served as Director for global trade compliance/management company, TradeBeam.

hs code

HS Code Classification Freeway: Take Your Exit

Since the introduction of the Harmonized Tariff System (HTS or HS) in January of 1988 and its global implementation in following years (for example, in the U.S. on January 1, 1989), classifying products (i.e., associating the tangible product to its related HS code) has been a global party. Used on import (and export) declarations, HS codes identify the duty rates applicable to the specific goods, relate to statistics, give regulators an opportunity to link Anti-Dumping Duties (ADD) and Countervailing Duties (CVD) to products, dictate how to qualify for preferential treatment, and can govern document and license requirements. Quite a laundry list—and that makes the correct HS code classification an important piece of information, especially when using an incorrect classification can lead to penalties and delays upon import.

In the U.S., with roughly 16,000 HS codes to choose from, a customs ruling database for U.S. classifications only (CROSS) that is 206K classifications strong, ongoing changes to import tariffs, and a massive World Customs Organisation-initiated overhaul every five years (2022 here we come), it is no wonder classification is evergreen on trade compliance professionals’ list of concerns that demand a significant amount of attention.

To make it more complicated—although harmonized globally at the six-digit level, local authorities are allowed to differentiate down to a local nth digit (usually eight or 10) and have not been hesitant to do so. For example, the U.S. and European Union both support HS codes that have 10 digits, but few are the same or represent the same products. As import declarations are filed locally, this implies that, for each importing country, a different HS code must be identified and then maintained for any product shipped into that country. Do the math: a product catalog of 50,000 parts that ship to 50 different countries adds up to a solid 2.5 million classifications. Not something to maintain on the back of an envelope—unless it’s a really, really big one, erasers are cheap, and pencils are free.

With widely diverse needs for classification (e.g., from a B2C ecommerce shipment of two cotton T-shirts that need an HS code for a quick landed costs calculation, to raw materials and semi-finished products for manufacturers, to a single unique import of a $10 million factory engine), it is no surprise that any self-respecting Global Trade Management (GTM) solution or consultant is happy to assist companies in desperate need for those classifications. And no wonder that, since around 2000, numerous software companies have been trying to solve the mystery of auto-classification.

The diversity in the initial reason for classification comes with different parameters for success. For an ecommerce retailer, an autoclassification tool can solve many challenges (e.g., quick returns, high volume of items are immediately classified), but accuracy can be a challenge. A lack of accuracy is not something importers can afford when, for example, the classification determines whether the import is subject to ADD, is heavily restricted from a license perspective, or is subject to quotas. Basically, (auto-) classification is like a freeway and, depending on the exact needs, companies take a different exit.

There are three key components to a successful (auto-) classification project—other than, of course, the hopefully not superfluous statement that a decent amount of classification expertise comes in handy when either classifying or building a tool.

First, the quality of the product description. ‘Garbage in, garbage out’ also applies to classifying. Poor descriptions, lack of product detail, or even incorrect specifications will likely lead to an incorrect HS code with all related consequences. For quality descriptions, product managers or developers may get involved to provide the necessary technical detail as some classification decisions are made based on those elements.

Second, the classification logic. Whether the classification is assigned by a person or a tool, classification logic cannot lack, well, logic. This means many things: rules that decide to classify a piece of clothing that is not gender-specific as textiles for female or male (and the U.S. handles it differently from the EU); rules-based classification that guides the correct classification in a decision matrix fashion; the ability to ignore information not relevant to the classification (e.g., color); or the ability to observe characteristics that may be needed in one case but not for another (e.g., weight), including material compositions that are usually very important. The logic must also account for a way to ‘smart search’, or search across different references to generate results from, such as synonyms, natural language, industry jargon, and even from images. In addition, classification logic means integrating Artificial Intelligence (AI) and Machine Learning (ML) into the application so results can automatically improve, which enhances both the number of items classified and the quality of the classifications without human intervention.

Third, the classification reference database. The classification logic must look to match a description with an HS code not only by matching it with a ‘word in the tariff’ but also with the explanatory notes and, preferably, for broader context a natural language reference. This might include a shipping manifest reference or information gained via access to previous imports and classification repositories of identical products. Regardless, all types of references need to be reviewed before the final classification is determined. The logic is only as sound as the foundation on which it is built.

It’s important to keep in mind that references are also where, as an industry, companies should actually assist one another. Data privacy concerns notwithstanding, there must be a way to ‘crowd source’ references, which could reduce the efforts made and resources spent on classification in sensational fashion—engineering a classification freeway that is even more well-marked and efficient to traverse.


More or Less Denied: The OFAC 50% Ownership Rule

The OFAC 50% ownership rule is a compliance requirement that, when overlooked, can lead to severe penalties and reputation damage. What exactly is the 50% rule and for which companies is it most relevant?

50% Rule: What is It?

Sorry, German soccer lovers—this 50% rule relates to Denied Party Screening. In 2014,the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) clarified 2008 guidance in relation to doing business with companies that are not on any OFAC denied parties lists (DPL), but that are in fact owned by people or companies that are on the DPL. The European Union has similar regulations and, as far as OFAC is concerned, the math is simple: if one or more people or entities that are on a DPL own in total 50% or more of an entity that is not listed, that (latter) entity is considered to be under the control of one or more denied parties and cannot be engaged for business.

That seems clear enough, but the bonus question is of course: how do you find out if the company you are planning to do business with is not controlled by actors on the DPL? And how exactly does the math work: is it direct ownership only or do other relations count as well (e.g., what if a denied person’s spouse owns 50.01%)?

Digging Deeper

The only opportunity to flag if an entity is 50% owned by a denied party is to have this information available when denied (or restricted) party screening occurs. Especially for companies with larger transaction volumes and many one-time sales, this implies a gigantic amount of research, which is practically impossible given the usual limited resources compliance departments have available.  Luckily, there are a few companies that have done the research and are also keeping it up to date. Tag their lists on to the regular DPL when screening and all bases are covered.

It’s relevant to note that the amount of research is staggering and performed in old fashion digging style. Typically, entities appearing on the DPL are well aware of that fact and bury their ownership in (at first sight) legit companies three or four layers deep, which is more research than most companies can handle, especially when large parts of it may be in a foreign language.

Obviously, some verticals are subject to both more scrutiny and fraud attempts when it comes to the 50% ownership rule. That soccer jersey sale might not raise too many flags but, for example, in the financial sector, the movement of dual-use goods or complex international agreements (oil, anyone?) calls attention to the necessity to screen all parties involved to the finest detail possible. Or not, in which case preparing for some generous penalties, revoking of business licenses and perhaps jailtime would be time well spent. Recent cases (2018-2020) have seen OFAC dish out penalties in excess of $1.3 billion with a growing part of that related to 50% ownership. In general, most (higher) penalties have been related to the financial sector (the first high profile case was the 50% penalty imposed on Barclays Bank).

As for the relationship part, it is only the actual names on the debarred lists that count towards the 50%. Ownership by their known family and (political) friends does not count toward the 50%, as long as these relations are not on the OFAC lists themselves. Practically, though, a few eyebrows or more should be raised if those relationships do come to light. Either way, if it is under the header of due diligence, reasonable care, or ‘know your customer’ (KYC), the burden is on the exporter/seller to ensure no laws are violated and goods do not end up in debarred hands.

A Closer Look

To illustrate the reach of the 50% rule, consider the following from the aforementioned Barclays case. Barclays US worked with Barclays Bank of Zimbabwe Limited on some of its customers that were not on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List). Yet, the Industrial Development Corporation of Zimbabwe was on the list (since 2008) and owns 50% or more of these customers. That means Barclays should have effectively blocked these customers and not engaged with them. When business was conducted, Barclays violated the 50% rule and was penalized.

Parting Thoughts

‘What Lies Beneath’ is not only a movie that can keep you up at night. The guidance on OFAC compliance regulations dictates that exporters must be aware of who they are conducting business with, even if that requires a look underneath the surface. That responsibility cannot be ignored.


The Importance of Supply Chain Resilience

Acknowledging potential weaknesses in your supply chain before they are exposed by elements beyond your control is of critical value. With current events in mind, managing future supply chain disruptions will be an integral component of corporate strategy. Calling it Supply Chain Resilience, Supply Chain Disruption, or Business Continuity Management (from the ISO 22301 standard) does not affect the necessity of having strategies in place that may make the difference between following or leading in a disrupted economy, and even between surviving or folding.

To identify potential soft spots, a review should not be limited to a single product flow or single supply chain element. For any company, the next big disruption does not have to be a pandemic; it can be something minuscule on a global scale, yet have the same devastating effect on the ill-prepared in particular trade lanes or in a particular industry. Unpredictable is not a reason to be unprepared. Creating supply chain resilience is a holistic exercise that involves more than just a few savvy logistics people. HR, finance, compliance/legal (to name a few) are all stakeholders in a healthy case of business continuity management.

How then to build a strategy? Like any other strategy, the process seems logical: review, assess, and mitigate. In this particular case: 1) review your tradelanes, products, and materials flow by matching them against risk categories (i.e., labor, business risk, global trade, nature, and materials), 2) assess risks for each combination, and 3) mitigate risks by either changing behavior now or planning for alternate (sourcing) options should the anticipated risks become reality.

Trade Lanes and Risk Categories

The relevant components to review within the supply chain include the importing and exporting country or countries, the manufacturing locations, the finished goods, and the (raw) materials. Ideally, for finished goods and materials, the associated Harmonized System (HS) codes are made available. Scratch what does not apply and move to the following step where each of the ‘inputs’ is categorically reviewed.

As mentioned, this should not be an exercise limited to supply chain professionals. For example, labor risks can be associated with the likelihood of strikes, wage volatility, and the availability of appropriate labor resources—not necessarily areas that keep the supply chain brain occupied every day.

In a similar fashion, other resilience elements expand across different areas of expertise. Business risks relate to cybersecurity, corruption, counterfeit products, and the chance of entering into business with bad actors that are on (any of the) denied party lists.

Global trade accounts for the compliance requirements related to the shipment of goods (i.e., licenses, documentation, permits, etc.), associates the products with the various duties and taxes, and identifies if Free Trade Agreements(FTA) apply and how to qualify for preferential treatment.

Arguably the most unpredictable, but not the least expected risk to account for, is nature. It’s important to identify the various kinds of disasters that may hit: natural hazards, pandemics or epidemics, flooding, earthquakes, hurricanes, volcanic eruptions, landslides, or drought can all play parts.

Lastly, consider materials. Understanding the market comes with insights into scarcity, sourcing locations, and price fluctuations.

Risk Assessment

Risk assessments match the input with the risk categories. For example, how vulnerable is the manufacturing location when it comes to labor regulations, corruption, or flooding? Is there an FTA in place that could potentially lower the import duty burden? Where in the supply chain can a cyberattack be most expected? In short, some homework is in order to create a thorough risk profile.

For many components, the sources are readily available, such as the Corruption Index at, labor statistics on Statista or NationMaster, or duty rate information from the various global trade content providers (or the WTO).

Building Resilience

As with cyber-security risks (PEN tests) or a regular laptop virus scan, supply chain risk assessments will point out the components that need immediate attention or, in this case, are a high priority for alternate sourcing or routing options. It’s then time to build that resilience.

Look for options by analyzing the market and tradelanes. Mine import and export data to identify alternative sources for goods and materials, even manufacturing locations. Map out alternative routes for products to get where they need to go. Document the reasonable options and share with as many people as possible—preparedness is, of course, an all-inclusive strategy.

Next and where possible: test run! Re-route shipments temporarily or source occasionally from a new supplier; in other words, make sure the alternative options are viable. In addition, communicate with external sources that would be part of continuity plans. Make them aware they are part of these plans; put people or suppliers on a retainer and try to agree on terms before disaster strikes so the projected costs can be anticipated better.

Lastly, keep those alternate plans up to date; otherwise, it may be too late to create and execute on alternate alternative plans.