Free Trade Agreements and Other Ways to Optimize Global Trade

The complexities of managing global trade are many, which may be why a lot of companies overlook savings available in Free Trade Agreements. Scott Byrnes explains how to leverage FTAs and discusses other strategies to optimize global trade.

Unlike domestic transportation, where most costs already have been squeezed to the maximum, global transportation still has untapped savings opportunities, says Scott Byrnes, vice president of marketing at Amber Road, a global trade and logistics management software company.

One area of "low hanging fruit" is free trade agreements, he says. "These trade agreements offer a huge opportunity to reduce duty expenses," he says, noting that there are now more than 400 such agreements between various countries around the world. "Taking advantage of these could reduce duty rates by 15 to 20 percent and those savings go right to the bottom line," says Byrnes, but most supply chain managers are not aware of many of these agreements and are leaving this money on the table.

To take advantage of these potential savings, companies first need to understand what trade agreements are out there, he says. The second step is to determine if their products qualify for preferential treatment under the agreements. "There is a qualification process that companies need to go through in which they need to analyze the bills of material for different products to determine what percentage of those components are made in qualifying countries." Byrnes notes that Amber Road's global trade management solution automates that process. "Our content includes all of the rules of origin, so when you load up all your products, the solution recognizes the harmonized schedule numbers are knows the countries of origin and the pertaining FTA rules; it goes through a very comprehensive calculation process to maximize duty savings."

Taking this further, the solution can do more than ensure that companies are taking advantage of free trade agreements in their current network, he says. "The larger question is whether they are sourcing from the right country," says Byrnes. Most companies base their sourcing decisions on commodity price alone, but if they factor in duty rates associated with preferential trade programs, they may find it is actually cheaper to source in another country, he says. This is known as sourcing optimization.

Such analyses are part of the compliance features of global trade management, Byrnes says. "Generally when people think of global trade compliance, they mostly think of risk mitigation and certainly that is an important part of compliance, but there also are hard dollar savings associated with compliance and effectively using free trade agreements is a good example of that."

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