Beyond mounting trade tensions and the major regulatory and policy changes that have shaped the landscape recently, India’s global trade management and compliance professionals are now also navigating a global crisis in a league of its own.
While world trade was already weighed down before the COVID-19 pandemic, the crisis has brought about a dramatic decline in cross-border activity. UNCTAD’s Global Trade Update forecasts a 7% downturn in international trade for 2020 overall, with a lower bound of 9% “due to persisting uncertainty”.
In India, Ministry of Commerce and Industry estimates for overall exports from April to October 2020-21 are USD 265.09 billion. This amounts to a (-)14.53% decline year-on-year. Overall imports for April to October 2020-21 are predicted to be USD 248.58 billion. This has dropped by a substantial (-)31.89% compared to the same period last year. Factors contributing to the challenging trade environment include supply chain breakdowns and resource constraints in the wake of virus containment measures. Rapid regulatory change and the need to ensure additional health and safety measures for all participants in the value chain are also piling on the pressure.
In this uncertain period, how can India’s global trade professionals rise to the challenge, overcome obstacles, ensure customs and trade compliance, and meet the expectations of business stakeholders and customers?
The way forward
Turbulent global trade conditions are the status quo and will be so for some time to come. Trade teams therefore need to step up to the plate and play a greater role in keeping their companies resilient, competitive and profitable for the long term.
Trade professionals now have to be planners and strategic thinkers, ensuring visibility over supply chain activities and changing trade compliance issues such as tariffs. They need the capacity to analyse trade developments effectively, understand risk contextually and support business continuity with strategic, timely decisions.
Outlined below are some key points for consideration.
Cumbersome manual approaches are no longer feasible
Trade compliance is now too complex to be viewed as “just paperwork” or something that can be effectively managed with fragmented spreadsheets and back-and-forth emails.
However, in many organisations today we still see trade departments relying on time-consuming manual processes to manage critical import and export documentation, origin determination for preference programmes and the ever-complicated product classification process. Unfortunately, these approaches are an incredible drain on time and resources during a period when organisations need to be more efficient and agile than ever before.
These methods are also inherently risky. There’s a high opportunity for human error; and when there’s no central system for managing trade data and documents, this has a negative impact on information accessibility, accuracy and visibility. These issues make daily trade operations inefficient, and organisations more vulnerable to shipping delays, costly compliance errors and business disruptions.
Agility is business-critical
In response to ever-changing trade policies and an overall environment of uncertainty, trade teams need to be as flexible as possible to control costs and minimise disruption.
It’s advisable to conduct ongoing scenario analysis and contingency planning. This includes monitoring for regulatory developments and political activity that could create chinks in the supply chain or drive up costs. When tariff increases occur, trade teams need the tools to efficiently identify alternative supply sources, as well as the capacity to assess whether a potential sourcing change could impact the company’s ability to qualify for Free Trade Agreements (FTAs) or preference programmes.
When considering potential new suppliers, trade departments need systems for vetting and on-boarding these parties as efficiently as possible. Robust restricted party screening should be conducted before entering into any agreements, to prevent the business being associated with financial crime or corrupt practices, or contravening sanctions regimes. If due diligence has been conducted effectively on potential business partners in advance, organisations are in a position to act swiftly and confidently when change requires it.
Companies must keep pace with relentless regulatory updates
Ongoing regulatory change makes it even more difficult for companies to justify inefficient, manual trade compliance approaches.
One key development recently has been the amendment of India’s Customs Act to introduce tighter requirements for FTA rules of origin compliance. The new Customs Administration of Rules of Origin under Trade Agreement Rules (CAROTAR) are effective from 21 September 2020 and apply to those importing goods into India and claiming FTA duty benefits. Now, the onus is on these importers to ensure that the information on FTA certificates of origin is accurate and up to date, and that they possess the minimum information prescribed under Form 1. This includes (but is not limited to) details on production processes in the country of origin, how origin criteria are determined, the treatment of packing materials and the nature of the export.
It’s important to note that failure to comply with these new rules could lead to goods being delayed or confiscated, a denial of FTA benefits on identical goods (previously and going forward), penal consequences and more.
This type of development makes trade compliance far more demanding. Fortunately, technology can alleviate the burden.
Technology can simplify compliance and reduce risk
More companies are starting to recognise the valuable role that trade automation technology can play—as a tool for survival during challenging times, and a differentiator in a post-COVID world.
At a high level, global trade automation involves streamlining and digitising the entire trade management and compliance lifecycle to increase efficiency, ensure data accuracy and manage risk.
Global trade management software that integrates well with existing ERP systems, allows teams to standardise and co-ordinate global trade management operational and compliance activities across the enterprise. When all trade-relevant data is synchronised, it’s easier to identify opportunities for optimisation or flag compliance weak spots. It’s also simpler to conduct automated screening on potential new sources of supply, to protect the company reputation and avoid sanctions violations, penalties and loss of trade privileges.
Further, trade technology solutions that are embedded with emerging capabilities such as AI and machine learning can help to decipher patterns, support decision-making and improve compliance. For example, managing product classification under the Indian Trade Clarification (ITC) system is notoriously difficult. An automated classification solution that leverages AI and machine learning can instantly interpret goods descriptions expressed in everyday commercial language to automate accurate classification. It can also provide a digital audit trail that compliance teams can use to provide evidence of compliance.
Intelligent automation capabilities can also be leveraged to analyse historical information and inform predictions around lead times for shipments and variables that could impact these timings.
It’s time to turn trade compliance into a competitive advantage
During this time of transition globally, trade management and compliance professionals should rethink their roles and harness the technology that’s readily available to add long-term value within their organisations.