Trade Compliance Management 101

There are over 28 government agencies involved directly or indirectly with regulating goods and services that pass through our borders each day.

It is a daunting task to keep track of these agencies, just a few of whose logos appear above. While  many companies are impacted by multiple agencies, it is not always clear where these agencies overlap. 

Those actively engaged in trade compliance management are engaged with the various agencies that may regulate their goods and services in international trade. Trade compliance management is a moving target, affected by economic, political, and commercial factors – and these factors change frequently.

The successful trade compliance professional has multiple inputs coming into them every day containing changes, modifications, and updates. They must know how to comprehensively apply updates and changes to their companies’ supply chain and business model. This is not an easy task to begin with and many trade compliance managers may encounter disbelievers and nay-sayers within their company who block the path to proactive trade compliance culture and activity.

Negotiating these challenges is a daily activity for most trade compliance professionals. 

Rules involved in import and export trade have always been in place but were significantly moved to the forefront of global supply chain management when 9/11 occurred.

We were involved in management training at the World Trade Center on the 55th Floor so we were directly impacted by the events that happened that day. Our hearts and prayers go out every September, to all the families, as the day is continually memorialized.

Those events of 9/11 significantly boosted “Trade Compliance Management” to the forefront of every global supply chain’s operation and ultimately a necessary component of any company with a global footprint.

Here we are in 2023, and there are still regulations that continue to evolve and new regulations being implemented including CTPAT, export controls, and forced labor initiatives. 

Here some 20 years later, the functionality of global trade incorporates trade compliance in every aspect of how goods and services move in international business.

Almost every company, service provider and carrier engaged in global supply chain operations has at least one dedicated person serving in the responsibilities of trade compliance, or it is one of the many “hats” one wears in purchasing, supply chain, logistics and transportation management. 

Many supply chain professionals view trade compliance as an intrusion of government regulation and oversight. Others see it is a necessary evil related to managing the impact of terrorism and keeping our country secure and safe.  Irrespective of one’s individual view, trade compliance is a reality – made up of of expense, time, and resources that we all must manage in our global supply chain operations, purchasing and export global reach.

Having said all that, many corporations have embraced trade compliance as a standalone function in the organization, that when managed successfully, can reduce risk and cost, as well as improve effective operations and performance.

Focus on Forced Labor

In the past two years, CBP has adapted social compliance as part of their governance and “Forced Labor” is now a focused area of their oversight into inbound global supply chains. Definitions can be categorized as:

1. Work or service refers to all types of work occurring in any activity, industry or sector including in the informal economy.
2. Menace of any penalty refers to a wide range of penalties used to compel someone to work.
3. Involuntariness: The terms “offered voluntarily” refer to the free and informed consent of a worker to take a job and his or her freedom to leave at any time. This is not the case for example when an employer or recruiter makes false promises so that a worker takes a job he or she would not otherwise have accepted.

Importers now need to vet suppliers on whether they are utilizing forced labor in their manufacturing, along with their supplier base, as well.

In December of 2021, The Uyghur Forced Labor Prevention Act was announced.  It is a United States federal law that would change U.S. policy on China’s Xinjiang Uyghur Autonomous Region with the goal of ensuring that American entities are not funding forced labor among ethnic minorities in the region.

Trade Compliance Management includes staying up to date on any import and export regulations that could impact their supply lines. This is many instances is a full-time responsibility and should be taken seriously, such as now evidenced in these recent efforts to thwart “forced labor” in China.

The Four Pillars of Trade Compliance

Key edicts of trade compliance are:

• Due diligence
• Reasonable Care
• Supervision and Control
• Proactive Engagement

Due Diligence and Reasonable Care means developing knowledge of the regulations and applying that knowledge within the operation of the company’s global supply chain structure.

Supervision and Control ties in the reality that most companies with an international presence will use the third party resources to help manage various supply chain responsibilities, such as but not limited to:

• Trade Compliance Consultants & Attorneys
• Freight Forwarders and Customhouse Brokers
• Carriers and 3PL’s
• Sourcing or Buying Agents 

This means that the principal importer and exporter must supervise and control that outsourced activity.  In other words, it is ok to outsource, but you will be held accountable, therefore you must have the knowledge and skill set needed to manage that outsourcing.

Proactive Engagement.  Government agencies such as, but not limited to Customs and Border Protection, Bureau of Industry and Security, Departments of State and Treasury – are all proactively engaged in regulations, operating guidelines, and legal controls on how companies manage their import and export operations.

These agencies require companies (the principal importers and exporters along with the companies providing forwarding, brokerage, and related transportation services) to follow the four edicts outlined above as general guidelines, followed by a vast amount of regulatory minutia.   All of which needs to be incorporated into their global business operations.

Trade Compliance: a Competitive Edge?

Of the 50,000 plus companies here in the United States involved in global trade a small number have embraced trade compliance as a tool to gain competitive advantage.

Examples of trade compliance areas that can provide operational or financial benefits:

• Lower insurance costs
• Free Trade Agreements
• Buy America and Buy American Programs
• Access to government programs such as C-TPAT and FAST that move freight more quickly through the borders.
• Less opportunity for fines, penalties and the hassles involved in delays and seizures
• Correct utilization of the Harmonized Tariff Codes to lower duties
• Access to Foreign Trade Zones
• Utilization of Bonded Warehouses
• Leveraging of Free Trade Agreements
• Utilization of Technology
• Access to Drawback Refunds

There are numerous methods for how companies can change their mindset about trade compliance and utilize it both as a necessary point of control, but more importantly as a method to reduce both risk and spend and thereby providing certain advantages.

Trade compliance managers, supply chain and logistics professionals need to maintain a regular flow of information, intelligence, and regulatory updates to be in the best position to maintain operational excellence in their global supply chains.

Successful trade compliance managers can contribute to profitability in the following ways:

• Access to government programs that can reduce risk and cost in their global supply chain
• Keeping companies out of regulatory cost and entanglements
• Reduce risk in the global supply chain
• Provide competitive options in how goods and services move internationally
• Impact bottom line on profits and margins

Resources for the Trade Compliance Manager

Successful trade compliance managers need to be up to date with the information flow necessary to maintain the challenges they face in handling the multitude of compliance and regulatory concerns not only here in the United States but in all the countries they import from or export to.

Periodicals and information sources such as Global Trade Magazine offer a very reliable and contemporary flow of data that can be very useful in leveraging trade compliance opportunities. (www.globaltrademag.com)

Accessing key important government web sites is another option. (www.cbp.gov, www.bis.doc.gov)

Continuing education and training are also critical elements of any trade compliance program and the process of learning contemporary options in importing and exporting. Two examples, the American Management Association (www.amanet.org) and The National Institute for World Trade (www.niwt.org), are excellent options for certificated public and in-house instruction, coaching and educational capabilities specializing in international business and supply chain.

A professional organization, ICPA, International Compliance Professionals Association (icpainc.org) is a great resource for trade compliance operatives to join in order to gain tremendous resources and insight.

Conferences and seminars offer excellent intense information flows that can be of immediate and of long-term value along with the networking and professional colleague interface. Affiliation with professional organizations in your field always proves beneficial.

Bottom Line: Trade Compliance Management is Growing in Importance

As the complications of geopolitical events continue to occur in the world, the importance of assuring a trade compliant global supply chain will be as relevant as what the COO, CFO, CSO and CIO are in any business model.