Executive Briefings

Keeping Pace With the E.U.'s Modern-Day Trade-Compliance Regime

A conversation with Arne Mielken, senior trade specialist with Amber Road.

Keeping Pace With the E.U.'s Modern-Day Trade-Compliance Regime

The rules and regulations for trading in the European Union are changing rapidly. Importers need to know how they will be affected by a slew of new requirements — as well as by Brexit, the United Kingdom's controversial decision to withdraw from the E.U. On the plus side, initiatives are underway to streamline customs procedures for getting goods into the E.U., and moving them between member states. But there are serious complications as well, not least of which is the challenge of harmonizing processes among the 28 sovereign states that make up the trading bloc. In this interview, recorded at the 2016 annual conference of the Council of Supply Chain Management Professionals in Orlando, Fla., Amber Road’s Arne Mielken details the key elements of this ever-changing regulatory landscape, and discusses how exporters to the E.U. can legally sidestep the requirements of a new and potentially burdensome rule relating to proof of financial dependability.

Q: Does compliance today differ for European Union importers and exporters versus those in the U.S.?

Mielken: We’re starting with global international rules set by the WTO [World Trade Organization] and WCO [World Customs Organization], which are similar for the U.S. and Europe. This means elements like the WTO Valuation Agreement and the SAFE Framework of Standards [provide] the same starting point.

Also, the attitude toward compliance by customs authorities is relatively similar. We’re moving away from transaction-based to system-based controls. Now, we’re more concerned with whether the data is correct, and the process robust, not with the individual transaction. So that’s important to recognize when you’re dealing with compliance.

Q: What must companies do to acquire a greater awareness of the need for better global trade management and compliance within their organizations?

Mielken: You need to look at all the tools available to the importer and exporter, beyond the legislative framework. You don’t just have the PDF document that you download from the website. Now, people need to think this through, analyze it and automate it to the greatest extent possible. Automation is one of the key aspects that you want to look at, in order to make sense of the sheer, endless exporting and importing rules.

Also, you need a trade-compliance department with proper processes and procedures. Modern technology is a big part of that.

Q: What’s the potential impact on E.U. traders of the Trans-Atlantic Trade & Investment Partnership, if it goes into effect?

Mielken: TTIP, the free-trade agreement being negotiated right now between the E.U. and the U.S., is going to have a massive impact on importers and exporters. You can talk about the benefits and challenges, but in essence it comes down to creating jobs and growth for both of our economies. In Europe, seven out of 10 jobs are directly or indirectly linked to importing and exporting. You might say, “We’re already trading now. Why do we need a trade agreement at all?” And we are trading — very successfully in fact. But what if I told you that those final 12-percent customs duties that some sectors are paying will be slashed also? How is 12 percent going to increase the bottom line for you? And, more importantly, what if we got rid of non-tariff trade barriers? If we align our standards, we will see a massive growth in exports. And that creates jobs.

When we discuss free-trade agreements, we don’t just do it in a silo, for a privileged few. We need to listen to the citizens, find out what their concerns are. Because trade agreements are for the citizens; they create the jobs. In Europe, we do have red lines: food security, health and safety, consumer protection, transparency. These are all areas that need to be negotiated. Then TTIP will be very successful for all of our economies.

Q: What should companies be doing to adjust to the new customs environment in Europe?

Mielken: On May 1, 2016, the Union Customs Code [UCC] came into force, to the excitement of importers and exporters in Europe. What it did is modernize customs laws. But in Europe — we are, after all, 28 sovereign nations — everything is complicated. We have delegating acts, implementing acts, transitional acts, thousands of pages of legislation. The three key things I would like American exporters to take away from this law are its financial impact, security, and modern electronic customs filings. With the new law, every potential customs debt you may incur needs to be backed up by a financial guarantee. If you’re importing into the E.U. and putting your goods in a customs warehouse, what may be charged needs to be backed up by a financial guarantee. You’re locking cash in a bank account. That is substantial — the cost can be passed on to the American importer or exporter, and has a great impact.

Q: So what’s the workaround to blocking all of this money?

Mielken: The answer is the second part of what the UCC is introducing: security. There’s a crucial three-letter acronym, AEO, for authorized economic operator. Like the C-TPAT [Customs-Trade Partnership Against Terrorism] program in the U.S., it is [based on] the secured supply chain, the trusted trader principle. If you go through a rigorous vetting process, and get approved as a trusted trader, then no more guarantees are needed. You get the ability to use the cash for your business. You get simplifications. You get authorizations. But if you do not have AEO compliance and security in place, not only will you have to pay more, you will not be authorized for doing what you’re assuming is your right to do.

The program links for the first time supply-chain security with a financial benefit that no CFO can ignore. If you think about C-TPAT, it’s quite impressive. It remains a voluntary system, and companies in the U.S. are debating whether it’s useful or not. In the E.U., we have this debate also. The only difference is that the legislation is designed to make you want to be an AEO. It’s still voluntary, but with a catch. You cannot operate in Europe the way you did before the UCC was passed.

Q: So where are we headed with all this legislation?

Mielken: This is the future vision of what European customs will be. We will now file customs declarations electronically. You do that in the U.S. with ACE [Automated Commercial Environment], but how can we achieve it in Europe? We are 28 countries with 28 customs filing systems, but we operate as a customs union and a single market. That means if I file into, say, Latvia, I should be able to receive my goods in Portugal. Somehow the data you put into a Latvian customs system must enter and come out of a Portuguese system when the goods arrive. A customs officer in Portugal needs to receive the data that I put in somewhere else.

Now imagine this for a moment. How do you get all the data that you’ve cleaned up — when you’ve made so much effort making sure it’s correct and timely — into a customs system that is received by 28 nations? Add to this the 20-plus electronic customs projects that the European Commission is currently working on. You get another level of complexity added to these import and export rules. That is mind-staggering. The U.S. as well as European companies need to respond to that.

Q: Is this the European version of the Single Window [for simultaneous submission of required documents to multiple regulatory agencies], or is it bigger than that?

Mielken: The European Single Window is something that traders want. You would link up 28 countries and their agricultural, heath and safety agencies. But they don’t all speak English. And how are you going to make this work without interfering with legislation that is partly within the competency of the member states — not at European level? It’s a question of how deep you want the single market to be, how real you want to make the customs union. The European Single Window would offer great benefits to American exporters and European importers, if it was done right. There are attempts to do it, but will they ever lead to a genuine Single Window? I still have my doubts.

However, [the UCC] is bigger than the European Single Window. It’s a part of the larger project of the E.U., and much more is required to make this vision work for Europe.

Q: As we currently understand them, what are the implications of the U.K.’s Brexit referendum? What does the market need to consider in the coming year?

Mielken: Brexit means Brexit, and that’s all we know. It is so complex to disentangle more than 40 years of lawmaking from the European institution. It’s not done overnight. What we know for sure is that the government of the U.K. needs to trigger Article 50 of the Treaty on European Union. That sets into motion a two-year process, whereby the U.K. can negotiate whatever deal it would like to have. A simplified way of looking at this is to talk about whether there’s going to be a “soft” Brexit, whereby the U.K. stays in the single market and obtains all its benefits, rights and obligations, which is the ideal situation for the trading community, or a “hard” Brexit, whereby you default back to WTO rules, the least common denominator. [The latter is] going to create a massive problem. Because customs declaration must be reintroduced. Today, the creation of a single product might mean that goods move between the U.K. and Continental Europe 50 times. For each of these movements there would need to be a customs declaration with accurate, timely data, plus the compliance obligations. This is the consequence of “hard” Brexit, and it’s going to affect the trading communities in the U.K., E.U., U.S. and around the world.

So what does it mean for next year? Companies need to be following the debate, here as well as in Europe and the U.K. They need to keep track of where things are going, and consider the impact in a risk or trade analysis of what a “soft” versus “hard” Brexit would mean. You analyze the trade flows, then determine how duty will be affected — you prepare. But legally speaking, nothing will happen in the short term. The U.K. may trigger, then negotiate, but the real impact doesn’t happen until at least two years from the point of [officially] declaring Britain’s departure from the E.U. It’s turbulent times.

Resource Link:
Amber Road

The rules and regulations for trading in the European Union are changing rapidly. Importers need to know how they will be affected by a slew of new requirements — as well as by Brexit, the United Kingdom's controversial decision to withdraw from the E.U. On the plus side, initiatives are underway to streamline customs procedures for getting goods into the E.U., and moving them between member states. But there are serious complications as well, not least of which is the challenge of harmonizing processes among the 28 sovereign states that make up the trading bloc. In this interview, recorded at the 2016 annual conference of the Council of Supply Chain Management Professionals in Orlando, Fla., Amber Road’s Arne Mielken details the key elements of this ever-changing regulatory landscape, and discusses how exporters to the E.U. can legally sidestep the requirements of a new and potentially burdensome rule relating to proof of financial dependability.

Q: Does compliance today differ for European Union importers and exporters versus those in the U.S.?

Mielken: We’re starting with global international rules set by the WTO [World Trade Organization] and WCO [World Customs Organization], which are similar for the U.S. and Europe. This means elements like the WTO Valuation Agreement and the SAFE Framework of Standards [provide] the same starting point.

Also, the attitude toward compliance by customs authorities is relatively similar. We’re moving away from transaction-based to system-based controls. Now, we’re more concerned with whether the data is correct, and the process robust, not with the individual transaction. So that’s important to recognize when you’re dealing with compliance.

Q: What must companies do to acquire a greater awareness of the need for better global trade management and compliance within their organizations?

Mielken: You need to look at all the tools available to the importer and exporter, beyond the legislative framework. You don’t just have the PDF document that you download from the website. Now, people need to think this through, analyze it and automate it to the greatest extent possible. Automation is one of the key aspects that you want to look at, in order to make sense of the sheer, endless exporting and importing rules.

Also, you need a trade-compliance department with proper processes and procedures. Modern technology is a big part of that.

Q: What’s the potential impact on E.U. traders of the Trans-Atlantic Trade & Investment Partnership, if it goes into effect?

Mielken: TTIP, the free-trade agreement being negotiated right now between the E.U. and the U.S., is going to have a massive impact on importers and exporters. You can talk about the benefits and challenges, but in essence it comes down to creating jobs and growth for both of our economies. In Europe, seven out of 10 jobs are directly or indirectly linked to importing and exporting. You might say, “We’re already trading now. Why do we need a trade agreement at all?” And we are trading — very successfully in fact. But what if I told you that those final 12-percent customs duties that some sectors are paying will be slashed also? How is 12 percent going to increase the bottom line for you? And, more importantly, what if we got rid of non-tariff trade barriers? If we align our standards, we will see a massive growth in exports. And that creates jobs.

When we discuss free-trade agreements, we don’t just do it in a silo, for a privileged few. We need to listen to the citizens, find out what their concerns are. Because trade agreements are for the citizens; they create the jobs. In Europe, we do have red lines: food security, health and safety, consumer protection, transparency. These are all areas that need to be negotiated. Then TTIP will be very successful for all of our economies.

Q: What should companies be doing to adjust to the new customs environment in Europe?

Mielken: On May 1, 2016, the Union Customs Code [UCC] came into force, to the excitement of importers and exporters in Europe. What it did is modernize customs laws. But in Europe — we are, after all, 28 sovereign nations — everything is complicated. We have delegating acts, implementing acts, transitional acts, thousands of pages of legislation. The three key things I would like American exporters to take away from this law are its financial impact, security, and modern electronic customs filings. With the new law, every potential customs debt you may incur needs to be backed up by a financial guarantee. If you’re importing into the E.U. and putting your goods in a customs warehouse, what may be charged needs to be backed up by a financial guarantee. You’re locking cash in a bank account. That is substantial — the cost can be passed on to the American importer or exporter, and has a great impact.

Q: So what’s the workaround to blocking all of this money?

Mielken: The answer is the second part of what the UCC is introducing: security. There’s a crucial three-letter acronym, AEO, for authorized economic operator. Like the C-TPAT [Customs-Trade Partnership Against Terrorism] program in the U.S., it is [based on] the secured supply chain, the trusted trader principle. If you go through a rigorous vetting process, and get approved as a trusted trader, then no more guarantees are needed. You get the ability to use the cash for your business. You get simplifications. You get authorizations. But if you do not have AEO compliance and security in place, not only will you have to pay more, you will not be authorized for doing what you’re assuming is your right to do.

The program links for the first time supply-chain security with a financial benefit that no CFO can ignore. If you think about C-TPAT, it’s quite impressive. It remains a voluntary system, and companies in the U.S. are debating whether it’s useful or not. In the E.U., we have this debate also. The only difference is that the legislation is designed to make you want to be an AEO. It’s still voluntary, but with a catch. You cannot operate in Europe the way you did before the UCC was passed.

Q: So where are we headed with all this legislation?

Mielken: This is the future vision of what European customs will be. We will now file customs declarations electronically. You do that in the U.S. with ACE [Automated Commercial Environment], but how can we achieve it in Europe? We are 28 countries with 28 customs filing systems, but we operate as a customs union and a single market. That means if I file into, say, Latvia, I should be able to receive my goods in Portugal. Somehow the data you put into a Latvian customs system must enter and come out of a Portuguese system when the goods arrive. A customs officer in Portugal needs to receive the data that I put in somewhere else.

Now imagine this for a moment. How do you get all the data that you’ve cleaned up — when you’ve made so much effort making sure it’s correct and timely — into a customs system that is received by 28 nations? Add to this the 20-plus electronic customs projects that the European Commission is currently working on. You get another level of complexity added to these import and export rules. That is mind-staggering. The U.S. as well as European companies need to respond to that.

Q: Is this the European version of the Single Window [for simultaneous submission of required documents to multiple regulatory agencies], or is it bigger than that?

Mielken: The European Single Window is something that traders want. You would link up 28 countries and their agricultural, heath and safety agencies. But they don’t all speak English. And how are you going to make this work without interfering with legislation that is partly within the competency of the member states — not at European level? It’s a question of how deep you want the single market to be, how real you want to make the customs union. The European Single Window would offer great benefits to American exporters and European importers, if it was done right. There are attempts to do it, but will they ever lead to a genuine Single Window? I still have my doubts.

However, [the UCC] is bigger than the European Single Window. It’s a part of the larger project of the E.U., and much more is required to make this vision work for Europe.

Q: As we currently understand them, what are the implications of the U.K.’s Brexit referendum? What does the market need to consider in the coming year?

Mielken: Brexit means Brexit, and that’s all we know. It is so complex to disentangle more than 40 years of lawmaking from the European institution. It’s not done overnight. What we know for sure is that the government of the U.K. needs to trigger Article 50 of the Treaty on European Union. That sets into motion a two-year process, whereby the U.K. can negotiate whatever deal it would like to have. A simplified way of looking at this is to talk about whether there’s going to be a “soft” Brexit, whereby the U.K. stays in the single market and obtains all its benefits, rights and obligations, which is the ideal situation for the trading community, or a “hard” Brexit, whereby you default back to WTO rules, the least common denominator. [The latter is] going to create a massive problem. Because customs declaration must be reintroduced. Today, the creation of a single product might mean that goods move between the U.K. and Continental Europe 50 times. For each of these movements there would need to be a customs declaration with accurate, timely data, plus the compliance obligations. This is the consequence of “hard” Brexit, and it’s going to affect the trading communities in the U.K., E.U., U.S. and around the world.

So what does it mean for next year? Companies need to be following the debate, here as well as in Europe and the U.K. They need to keep track of where things are going, and consider the impact in a risk or trade analysis of what a “soft” versus “hard” Brexit would mean. You analyze the trade flows, then determine how duty will be affected — you prepare. But legally speaking, nothing will happen in the short term. The U.K. may trigger, then negotiate, but the real impact doesn’t happen until at least two years from the point of [officially] declaring Britain’s departure from the E.U. It’s turbulent times.

Resource Link:
Amber Road

Keeping Pace With the E.U.'s Modern-Day Trade-Compliance Regime