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While WTO Dithers, Traders Should Act

The path to harmonized and streamlined global trade is steep and strewn with boulders.

For years, the World Trade Organization has struggled to standardize international customs rules. In the group’s most recent setback, it failed to endorse a trade facilitation agreement (TFA) that was part of the much-anticipated Bali package, adopted in December of 2013. Bali was itself an attempt to recover from the failure of the Doha round of trade talks in 2008.

The obstacle this time was India, which at the last minute demanded concessions on the right to subsidize and stockpile food grains. Its position dashed hopes for an agreement that would sharply lower the cost of doing business internationally, and bring predictability to global customs procedures. By some estimates, the TFA would stimulate the world economy by $1tr, adding some 21 million jobs.

TFA’s backers didn’t bother to hide their disappointment, with some calling India’s action “suicidal.” U.S. Trade Representative Mike Froman blasted the nation for failing to make good on its commitment to the agreement. WTO director-general Roberto Azevêdo said the setback “is not just another delay which can simply be ignored or accommodated into a new timetable – this will have consequences.”

Consequences indeed. Expect a continuation of the red tape that keeps imports and exports from moving smoothly across borders. Forget about that study by the Organisation for Economic Co-operation and Development (OECD), which says that every 1-percent reduction in trade costs translates into a $40bn increase in global income.

India subsequently said it would honor its pledge to support the WTO trade deal. We’ll see about that. In the meantime, there are steps that traders can take to streamline their own processes.

Deep SenGupta, principal of trade and customs advisory services with FedEx Trade Networks, spoke at a recent seminar in Palo Alto, Calif., sponsored by the Monterey Bay International Trade Association. He listed three ways that companies can save money in the global trade arena:

Scrutinize your customs duties. Know what they are, and plan for them. “Doing right the first time is cheaper than going back and fixing it later,” SenGupta said.

Give yourself this quiz: Do you have an import-export compliance department? Do you keep a compliance manual on hand? Do your employees receive annual training in import-export procedures? Do you frequently perform internal audits? Do you review import entries for accuracy, looking at both dutiable and non-dutiable costs? Do you bring any discrepancies to Customs’ attention? Are your products properly classified according to the Harmonized Tariff Schedule (HTS)? Do you know how much you’ve paid in duties? Have you taken all necessary steps to implement a cargo-security program? Are you making the most of lawful duty-reduction programs, such as duty drawback, foreign trade zones and free-trade agreements?

Customs audits, said SenGupta, “are not something you would wish on your worst enemy.”

Minimize shipment delays at the border. The mission of U.S. Customs and Border Protection was transformed in the post-9/11 era, focusing almost exclusively on enforcement. Since then, we’ve seen a steady stream of new regulations and personnel, with the intention of sharpening the agency’s oversight of international commerce.

Many traders have been subjected to lengthy delays and their associated costs. But there’s a way to minimize one’s exposure to the CBP enforcement machine. The “voluntary” program known as Customs-Trade Partnership Against Terrorism, open to importers, carriers, customs brokers, freight forwarders and other intermediaries, requires the adoption of strict security measures. In exchange, they get preferential treatment from Customs inspectors. Today, according to CBP, in excess of 10,000 companies are enrolled in C-TPAT, accounting for more than half of U.S. imports by value.

Jumping through the necessary reporting and monitoring hoops is well worth the effort. C-TPAT members are seven times less likely to have their goods inspected at the border, SenGupta said. And the program isn’t unique to the U.S. The European Union has its Authorised Economic Operator (AEO) initiative, and similar efforts are in place in Singapore, Taiwan and New Zealand.

Back in the U.S., the arm of CBP is about to get even longer. In July, the agency published eligibility requirements for exporters to participate in C-TPAT.

Reduce avoidable penalties. SenGupta identified five areas that carry the greatest risk of audit for importers: shipment valuation, HTS classification, the North American Free Trade Agreement (NAFTA) and other FTAs that dictate strict rules on domestic content, country-of-origin marking and record-keeping.

On the export side, traders are most likely to run into trouble with CBP in the areas of export control classification numbers, export license determinations, restricted-party screenings, the filing of Electronic Export Information for shipments valued at more than $2,500, and, again, record-keeping.

Export penalties, by the way, are huge. In 2007, penalties were increased “exponentially” under the Export Administration Act. The average civil penalty today is $250,000 per violation plus denial of export privileges, SenGupta said.

His seven tips for avoiding penalties: Provide information that’s complete and legible; correctly complete all necessary documents; keep information consistent across all documents; list each commodity separately, with detailed and accurate descriptions; provide an HTS or Harmonized System number if one is available; legibly print the country of origin and manufacture, and provide phone or fax numbers for sender and consignee.

Simple steps, to be sure – and they only go so far in hacking through the thicket of red tape that awaits global traders in the absence of an effective trade facilitation agreement by the WTO. But they beat sitting idly by while waiting for the group to get its act together.

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