Trade agreements, such as NAFTA or the politically controversial Trans-Pacific Partnership (TPP), offer an attractive opportunity for importers to eliminate duties on goods traded between designated partner countries. However, the complex protocols and paperwork involved dissuade many importers from seeking reductions or eliminations in tariffs. Recent surveys show that the trade industry does not utilize duty and preferential trade programs because of the difficulty of navigating the regulations. The share of U.S. apparel imports entering under all free trade agreements (FTAs) has been declining since 2013 and dropped to 15.4 percent in 2015, the lowest since 2006.
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| The global supply chain of today requires that companies use technology to manage day-to-day operations and also provide visibility at every turn in the product lifecycle. |
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Even with all of the potential savings FTAs offer, it’s little surprise that heads spin when it comes to qualifying goods, especially considering the complexity of the rules of origin qualifiers for sourcing inputs and raw materials. This is especially true of the Yarn Forward rule of origin, where yarn production and all operations “forward” (from fabric production to apparel assembly) must originate in one of the FTA-participating regions. Even though a “short supply list” mechanism allows for the use of certain yarns and fabrics not widely available in the region, this directive is difficult to apply. So, supply chain executives opt to avoid these convoluted exercises rather than qualify for a tariff break.
Companies hoping to qualify their products for preferential treatment can overcome the intricacies of the solicitation and qualification processes by leveraging technology solutions. Automating origin rules like the Yarn Forward qualification is necessary, yet requires a combination of logic and deep regulatory content.
By automating the process with the right provider, companies can ensure they’re obeying the rules by keeping better track of sourcing subtleties and automatically analyzing whether the yarn producers, production facilities, and other suppliers meet the eligibility requirements. Software should have additional logic that enables supply chain partners to ‘answer a question’ in the application and confirm that the production is taking place with the proper resources in the right locations. This safeguard processes a potentially complex bill of materials (BOM) against the rules of origin for each relevant trade agreement. The results of the qualification analysis form the basis for the preferential duty treatment of the product.
The global supply chain of today requires that companies use technology to manage day-to-day operations and also provide visibility at every turn in the product lifecycle. FTA qualification is one of those essential functions that will provide huge savings opportunities. A Trade Agreement Management solution automates the supplier solicitation, qualification, and certificate management processes for importers and exporters.
Companies that have moved away from manual processes and have automated global trade are successfully navigating these intricate regulatory obstacles, ensuring compliance and recognizing real savings. One such company has automated the NAFTA qualification process and generates accurate trade documentation to maintain export compliance. The company has taken advantage of preferential duties to the tune of over $1.2 million in duty and tax savings – a return on investment that multiplies year-over-year.
To learn more about Amber Road’s Global Trade Management solutions, visit our website.
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