Released On 6th May 2020

What is Trade Compliance?

Trade compliance encompasses all the processes, rules, regulations, and laws that govern how goods enter and exit a country. A trade-compliant business conforms to the requirements of the country from which their goods are being imported or exported. 

Trade compliance is generally an umbrella term that incorporates many different aspects of international trading, all of which require knowledge and expertise to navigate successfully. It includes:

• Training
• Classification
• Trade risk
• Taxes and import duties
• Certifications and product testing authority
• Country-specific import licensing and approvals. 

The requirements of international trade compliance differ from country to country and from one type of goods to another. For example, the trade compliance requirements for perishable goods are wholly different to what is needed for IT Technology.

Why is trade compliance important?

International trade compliance matters. It benefits everyone to have a fair and safe global supply chain, with guaranteed uniformity of standards, and controls that regulate economic, ethical, price, quality, and consumer protection concerns.

An almost endless variety of trade agreements exist between different countries and across product sectors. Businesses that understand and follow the complex rules and regulations of trade compliance:

• Can have a competitive advantage over less diligent suppliers
• Safeguard their professional reputations 
• Avoid delays, financial losses and other penalties
• Have more satisfied customers

Who should abide by trade compliance requirements?

There are no exceptions to trade compliance requirements. Every business, of any size, that wishes to avoid crippling financial penalties, unacceptable delays, and a ruined reputation, has to comply with international trade regulations.

Unified co-operation between countries 

Many trade agreements exist between countries and continents, with unified co-operation on laws about imports and exports. This helps to boost the commerce and trade of goods in those regions. 

For example, the European Union has many ‘Free Trade Agreements’ (FTAs) with Vietnam, New Zealand, Australia, Singapore, Mexico, Japan and Canada to name a few. Exports from the EU to preferential partners (minus the UK) grew more (16%) than EU exports to all trading partners (13%) between 2020 and 2021, so the advantage of having a FTA is clearly promoted in business growth. 

What does Trade Compliance consist of?

The subject of Trade Compliance is extensive and vast, consisting of commercial, financial, operational and legal elements for both the import and export of goods. However, it is easier to digest and understand if you break it down into eight broad elements:

Tariff Classification

Standard International Trade Classification (SITC) is the classification of goods designed to classify the imports and exports of a country. The system is managed by the United Nations' Statistics Division and enables international trade statistics to be more easily compiled and compared across countries and years on all types of merchandise. 

Origin preference

Preferential origin is conferred on goods from countries which have fulfilled certain criteria, allowing preferential rates of duty to be claimed. Where goods are traded between countries which have such agreements, preferential origin enable goods to enter the country at a reduced rate or zero rate of duty.

Incoterms

Incoterms, or the International Commercial Terms published by the International Chamber of Commerce (ICC), are conditions or rules in which goods are shipped with pre-defined commercial laws. These terms determine who is responsible for trade compliance, taxes and duties, delivery etc.  

In a world where there may be many different practices and legal interpretations between traders in different countries, Incoterms rules provide a globally recognised, common set of rules and guidelines.

Import Licensing 

Import licensing can be explained as the operational and administrative process by which documents are submitted for the application of the import of goods. Import licences, requirements and conditions are country dependant. 

Export Controls

Like import controls, export controls define the procedures that must be adhered to in order to meet the legal obligations required for the export of goods.

Customs Management

Customs management describes the practice which ensures that any and all trade compliance regulations are met to ensure the smooth and speedy processing of goods upon entry into a customer administration.

Screening

Also known as Denied Party Screening, this is the process of screening for people or controlled goods that are restricted either partially or totally from being exported. An example of this would be countries that are embargoed by the United States; goods cannot be exported from the US, or a US company to screened destinations. 

As the list of embargoed goods or countries changes on a regular basis, it is very important to stay abreast of these lists. 

Fair Valuation of Goods

It’s important to ensure that goods are valued correctly and exported or imported at a ‘fair’ rate. This ensures that countries receive the correct level of taxes and duties when the goods enter their country.

We recently dedicated an entire blog post to this subject due to its importance. 

Understanding the risks of trade compliance

Ensuring a business understands the risks of trade compliance is very important, as it can affect their ability to trade on a global basis. 

Many large enterprises and corporations have entire teams dedicated to mitigating the risks. Their job involves continual assessment of trade compliance regulations and changes, ensuring that all sanctions and risk countries are mapped and proactively controlling the business’s exposure to risk.  

Having a robust procedure to track trade compliance is important, as the repercussions of violating regulations can be serious and costly.

• Avoid fines, penalties and even incarceration in some circumstances
• Avoid delays to shipments
• Avoid risk to reputation with your client

How to stay updated with changing regulations

We offer country-specific guidance about the economies, import processes and challenges of each nation in our Country Directory. Sometimes, though, you need the reassurance of expert, hands-on help.

Mouse & Bear Solutions provide professional trade compliance services, which alleviates the complexity and uncertainly of global trading for you, regardless of where you are shipping to and from. 

We are experts in our field, serving in the region of 160 countries and with years of experience and thousands of shipments to the farthest reaches of the globe. We work extremely hard to stay up to date with the global trade compliance requirements so that you don’t have to, acting as an extension to your business to guarantee global business continuity.

Find out how we can help your business. Please email iorsolutions@mouseandbear.com, call 01935 848526 or send the enquiry form below.

Tags: Guides