Tax & Accounting Blog

Free Trade Agreement (FTA) Automation

Blog, Global Trade August 12, 2016

In some companies upper management may not have a complete understanding of the importance of trade compliance leading to a perception of a lack of value tied to what the department does.  With this type of atmosphere, trade compliance personnel may be tasked with justifying the size or even existence of the department.  Even without this type of scrutiny from upper management the trade compliance team can be considered a cost center instead of an income driver.  Regardless of the general acceptance of the trade compliance department, the task on every compliance manager’s list is to prove the worth of the team and the value they add to the bottom line in the activities they perform as part of the supply chain.

As an industry, is there a way to change the ‘cost center’ mentality into an ’income driver’ or at least a ‘cost saver’ department?  A compliance officer’s job is to prevent non-compliance.  It is unlikely there is an ability to prove what has been prevented, so it is hard to quantify the added value of the team.  Doing the same thing year in and year out may exacerbate the “cost center” opinion.  If, instead, the team continually makes changes, adds duty savings processes and streamlines current processes, it may change the reputation of the department.

Adding Value

 Most departments in corporations have to show constant growth.  If the trade compliance team can also demonstrate continuous growth in how they are saving the company money, this may improve the impression as a value added department.  Adding true deliverables instead of maintaining status quo demonstrates strategic changes to save time and money, adding consistent value to the company’s bottom line.

Additionally, by automating redundant trade compliance processes, this can free up human capital to focus on cost saving activities instead of plodding through tedious and redundant tasks.  The human brain has a creative component that a computer does not have.  By building a team of innovators and creative thinkers and not a team of robots the company benefits from more human out of the human capital. And by automating tasks that do not require human input, this will free up the team for creative thinking to focus on new ways to save the company money.

It is prudent to use the quantitative ability of a computer to free up the team of innovators to build relationships with other departments, train the procurement and sourcing teams, or evaluate the ability of the company to start using a new duty savings program.

Automating an FTA Solution

A manual process is an inefficient use of human resources.  An automated process means no more wasted manpower.  FTA origin qualification is one such manual process that takes up many hours and with enough preparation it is a process that can be automated.  Last year, a Thomson Reuters and KPMG survey found that a full 70 percent of global trade specialists surveyed said their organization does not use all the FTAs available[1].  A follow-up question found that this could be the time it takes to gather necessary information, a lack of understanding of the requirements, and the risk of enforcement and fines for non-compliance in correctly qualifying for the FTAs.

During the implementation phase an FTA module should be linked with data sources that contain bills of materials, purchase cost, sales cost, and classification data to use in the origin determination.  The system can then be set-up to identify the materials that need origin information from suppliers and automatically send out notification emails.

These activities alone would free up the trade compliance team from no longer needing to chase down data from other corporate departments or supplier contacts.  The majority of data would be automatically gathered by the solution.   In support of saving staff time on activities, the only records the trade compliance team would touch are the exceptions, thus making the process managed by exception and validated as a normal course of the audit process.

By comparing the automated process with an Excel based manual process; it is prudent for the compliance team to evaluate every single product and not just the exceptions.  In some cases a product needs to be evaluated multiple times when the supplier doesn’t respond and the intervention includes multiple emails and calls to solicit the required information and supporting documentation.

So, if for example there are 10 products to evaluate, the following questions must be asked 10 times:

  • Which version of the BOM are you using?
  • Are your classifications still correct:  check each one manually
  • Is your costing still correct?
  • What is the most recent rule of origin?
  • Does my Excel sheet show all necessary data for record keeping?
  • How long is it good for?  How long until you should double check whether the details are still accurate?
  • What if the price, BOM, or HTS updates changes the origin determination?  How will I know to notify my customer?

In an automated process, the questions are answered as part of the implementation.

In conclusion, automation can improve accuracy in FTA qualification determinations and increase the total duty free savings captured by your organization and/or customers.  Technology can help to automate the standard tasks and leave the exceptions to be solved by the trade compliance team, essentially eliminating 90% of the work related to FTA qualification.  At some point in the future it may be the case that the “best practice” is to automate the origin determination and check for changes in FTAs immediately to notify customers of changes.  Until then, the trade compliance team can work on becoming a savings generating department by ensuring all money savings opportunities are captured using available technology.

Learn More About ONESOURCE for FTA

Sources

[1] Taken from TR publication:  https://blogs.thomsonreuters.com/answerson/leveraging-big-data-free-trade-agreements/