Last January, we highlighted a Thomson Reuters and KPMG survey that found a full 70 percent of global trade specialists surveyed said their organization does not use all the FTAs available to them. Without change, missing these opportunities will only become more widespread because the trend points towards FTAs increasing in both number and complexity.
Issue 1/12222 in PDF
Among the new and comparatively complex free trade agreements currently pending are the Regional Comprehensive Economic Partnership, the Comprehensive Economic and Trade Agreement, the Transatlantic Trade and Investment Partnership, and, of course, the Trans-Pacific Partnership. As opposed to intra-regional agreements, which seek to effectively form trading blocs, these agreements lower trade barriers on a truly global level, particularly for trade counterparties in the Northern Hemisphere.
The issue is that many corporations have not invested in the tools required to optimize FTA savings and ensure compliance. Instead, they rely on cumbersome and time-intensive manual processes, leading the trade department to conclude that the burden of compliance outweighs the potential duty savings accruing from FTAs.
Much of this complexity is attributable to stringent rules of origin which are not consistent among free trade agreements. For instance, declaring that a good has undergone substantial transformation requires a four-digit change to its tariff classification heading under the European Union rules of origin regime, but a two-digit change under NAFTA. Rules of origin regimes also routinely vary in the formulas used to determine the amount of originating materials regional value content, or RVC calculations and how they apply across different product categories.
Non-preferential rules of origin also cause great anguish. The International Chamber of Commerce recently called for countries to stop implementing non-preferential rules of origin and instead abide by the WTO Agreement on Rules of Origin to somewhat streamline the trade process.
Rules of origin and trade facilitation in preferential trade agreements in Latin America
Traversing origin rules to find maximally beneficial ways to qualify a product is a difficult and time-consuming task for a person but an easy and virtually instantaneous one for software. For complex goods with variable bills of materials, automation helps produce accurate origin determination on production batches or at an individual product level. Automation is key if multiple suppliers from different countries are used for the same raw material or component. What would a fully automated FTA compliance management process look like?
Imagine each production batch of a manufacturing facility being automatically screened for origin rules of not just one FTA, but all relevant FTAs based on destination countries. Imagine the trade compliance team runs simulations at the push of a button — before switching suppliers or changing the bill of materials — to verify that the new sourcing setup continues to fulfill the origin requirements of all the FTAs used.
And imagine automatically collecting origin documentation from all the relevant suppliers through online tools, combined with analytics tools to keep the trade compliance team up to date on documentation requirements. Register and watch our origin calculation webinars whenever you want:.
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Rules of Origin
Efficient management of supplier declarations. Compliant and eligible free trade agreement management. Optimized origin calculation. Permits supplier declarations for customers. Process optimization. Detailed documentation.
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