By Rick Riess
Several years ago, the state of international trade was in a very different place. Still powering back from the financial crisis of 2007-09, the United States was leading the way in forging a new generation of ambitious trade deals — one with the European Union and another involving nearly a dozen Pacific Rim countries. The World Trade Organization (WTO) was likewise working to eliminate trade barriers, both through a sweeping global trade facilitation agreement designed to help cut through the bureaucratic ‘red tape’ associated with moving goods across borders, as well as the biggest update to a worldwide deal on free trade in information technology goods in nearly 20 years.
The direction of things, however, suddenly changed in 2016 when, fuelled by a widespread backlash against globalization and an upsurge in populism, the British electorate voted to exit the E.U., coupled with a change in U.S. trade priorities. Among other effects, these two pivotal events have assisted to create the greatest level of uncertainty for traders in living memory.
With a new administration in Washington, the U.S. embarked on an ‘America First’ trade policy that included pulling out of the Trans-Pacific Partnership, renegotiating the North American Free Trade Agreement, and initiating a range of protectionist trade enforcement actions. These have had the effect of escalating tariffs and the cost of doing business with many of its major trading partners, including Canada, China, Mexico, and the E.U.
While the outcome of Brexit still remains to be seen, many experts see a growing likelihood that Britain will ‘crash out’ of the E.U. block without a deal, thereby putting a complex web of international supply chains into turmoil. At the same time, the role and utility of the WTO has become more challenging to help create fair trade amongst nations.
The disruption caused by this abrupt change of course in global trade is underscoring the importance of supply chain management, customs compliance, and border risk management to senior manufacturing and exporting executives. These executives attempt to make sense of the situation, mitigate potential liability, and create certainties for their businesses in an increasingly uncertain world.
Identifying opportunities to minimize impacts and potentially re-engineer your processes is critical as you review the call-to-action below to turn risk into opportunity.
How to create more certainty in your supply chain
The first step in coming to grips with the ‘new normal’ of trade uncertainty involves making a comprehensive assessment of your existing situation. Companies need to work through different scenarios, modelling the impacts of tariffs when sourcing products, planning future moves, and seeking ways to mitigate their effects.
Look at whether dutiable values can be reduced, considering options for duty deferral, such as utilizing free trade zones (often referred to as FTZs) or bonded warehouses. Make sure to take advantage of all available methods of reclaiming any of the duty paid through various refund and drawback mechanisms. Petition for exemptions or relief — whether on an individual basis, or as part of a broader industry-wide effort, through participation in your relevant trade associations.
Review closely the tariff classifications and origins of all your imported goods and collaborate with trading partners — not just to determine the current impact of duties being paid, but also to help identify areas of potential exposure to future surtaxes. Request data reports from your Certified Trade Compliance Specialist, which can be an invaluable resource in this regard, and usually can be customized in various ways or imported in digital form for use in your own spreadsheet or enterprise application. When applicable, even consider the possibility of ‘tariff engineering’ — the legitimate process of designing or structuring products to achieve more favourable duty treatment when imported. Tariff engineering has a long history and is used by many high-performing companies to gain a competitive advantage.
Armed with this information, you will be better positioned to evaluate different scenarios for sourcing products deliberately in order to avoid punitive import tariffs. Rather than take a ‘wait and see’ approach, you can be proactive in creating certainty in your supply chain.
Rick Riess is the president and CEO of Winnipeg-based GHY International. Established in 1901, the company is widely hailed as a pioneer in customs brokering and cross-border trade solutions.