By Elena Malykhina
However, manually managing FTAs can be a complex process that may not be worth the potential cost savings for some companies. That's why international trade management systems and automated tools can make a big difference for businesses looking to take advantage of, and comply with, FTAs.
With more than 375 trade agreements in place worldwide, it's evident that businesses are focused on reducing existing trade barriers through FTAs.2 A more stable and transparent import-export trading environment enables businesses to better export their products and services to trading partner markets. In 2015, for example, 47 percent of U.S. goods exports went to FTA partner countries, according to the International Trade Administration.3 The same year, the U.S. had a trade surplus in manufactured goods with FTA partners totaling $12 billion.
Despite all the benefits that FTAs offer, they are often underused by businesses. The 2016 Global Trade Management Survey conducted by Thomson Reuters and KPMG International found that only 23 percent of companies used all FTAs that applied to them.4 The survey also found that globalized and standardized methods for identifying and complying with FTAs are rare for companies that don't use automated systems.
A follow-up survey revealed that large, established companies are comfortable with the manual import-export trade processes they apply to utilize FTAs, and therefore have less incentive to push for automated systems.5 "These are sophisticated companies that are identifying and complying with FTAs in unsophisticated ways," the survey said.
But it can be a challenge for companies to manage multiple international trade agreements manually. Staying up-to-date on FTA rules of origin, keeping track of each product's classification number and qualification status, and receiving preferential certificates of origin from suppliers all introduce complexities to the process.6 However, these issues can be addressed with a Global Trade Management (GTM) system and other tools that automate the process of managing and maintaining FTAs.
Lack of automation continues to be a challenge for import-export trading companies. Respondents to the 2016 Global Trade Management Survey that didn't use GTM technology reported that their top challenge was the absence of automated systems.7 In addition, only 34 percent of the survey's respondents said their organization is currently using a GTM system for any aspect of import-export trade.
When an importer sources a new product, they must first discern whether or not any FTAs apply, and then request that suppliers provide product information and certificates of origin. This often means importers must manage thousands of products for a multitude of agreements. Meanwhile, exporters must ensure their goods qualify and then provide the appropriate certificates to buyers.8 This process, known as FTA origin qualification, can be very time-consuming if done manually.
With an import-export trade management system, businesses can automate supplier solicitation, as well as qualification and certificate management processes for both importers and exporters. Such systems are capable of associating certifications with products and maintaining audit trails of various claims.9
Furthermore, automated tools make it easier for businesses to publish FTA certificates to customers, track FTA status changes, and modify new certificates. They also allow companies to create requests for certificates and track the request within the system.10
Since import-export trade, by definition, crosses international borders, GTM tools also address trade compliance. For instance, they can be used to assign product classification codes, calculate duties and tariffs, file customs documents, and transmit data required by different government agencies.11
Automating the FTA compliance process helps businesses with multiple suppliers from different countries, and helps accurately determine origin when dealing with complex goods with fluctuating bills of materials.12 FTA automation tools can automatically collect origin documentation from all the suppliers online and utilize analytics tools that keep the trade compliance department up-to-date on documentation requirements. This promotes data visibility – a key consideration when a company sources from multiple suppliers.
But it's common for smaller companies to have smaller trade volumes, which can fall below the level at which FTA savings cover compliance costs, according to the Thomson Reuters-KPMG follow-up study.13 "For these companies, lowering the cost of FTA compliance – even modestly – through automation" can reduce net costs for all the import-export trade dependent on FTAs.
In fact, new companies, or those that are only recently able to claim FTA benefits, should forgo the manual processes that very large companies are used to, according to findings from the follow-up survey. Being new, without established manual processes, puts those companies in better position to use FTAs more efficiently.
With GTM and other automated tools, businesses may be able to better manage the entire FTA lifecycle. A company's international trade team can utilize such technology to save both money and time, essentially eliminating the majority of the manual administrative work. Instead, trade teams can focus on higher-level tasks to fully benefit from FTAs.
Elena Malykhina is professional writer who has covered science, technology and business for more than 10 years. Her work has appeared in InformationWeek, Scientific American, Newsday, The Wall Street Journal and Adweek, as well as through the Associated Press.
1. “Free Trade Agreements,” International Trade Administration; https://www.trade.gov/fta
2. “Free Trade Agreement Management Software,” IntegrationPoint; https://www.integrationpoint.com/products/freetrade.html
3. Benefits of Trade Agreements, International Trade Administration; https://www.trade.gov/mas/ian/build/groups/public/@tg_ian/documents/webcontent/tg_ian_005310.pdf
4. 2016 Global Trade Management Survey, Thomson Reuters and KPMG International; https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2016/10/2016-global-trade-management-survey-from-thomson-reuters-and-kpmg-international.pdf
5. Managing Global Trade: A Look Beyond the Surface, Thomson Reuters and KPMG International; https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/12/global-trade-management-survey-2017.pdf
6. “Free Trade Agreement Management Software,” IntegrationPoint; https://www.integrationpoint.com/products/freetrade.html
7. 2016 Global Trade Management Survey, Thomson Reuters and KPMG International; https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2016/10/2016-global-trade-management-survey-from-thomson-reuters-and-kpmg-international.pdf
8. “Free Trade Agreements,” Amber Road; https://www.amberroad.com/solutions/duty-management/free-trade-agreements
10. “Trade Agreements,” GTKonnect; http://www.gtkonnect.com/TradeAgreements.html
11. “Global Trade in the Key of GTM,” Inbound Logistics; http://www.inboundlogistics.com/cms/article/global-trade-in-the-key-of-gtm
12. “FTAs and rules of origin: Made everywhere,” Thomson Reuters; https://blogs.thomsonreuters.com/answerson/made-everywhere-fta-rules-of-origin
13. Managing Global Trade: A Look Beyond the Surface, Thomson Reuters and KPMG International; https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/12/global-trade-management-survey-2017.pdf