Global Logistics: Shape up or ship not!

This will be the year of opportunity and risk for shippers ramping up their global aspirations, say analysts. Regulatory agencies are introducing a whole host of new compliance initiatives, and for anxious global logistics mangers “being forewarned is to be forearmed.”

The North American Trade Agreement (NAFTA) has arguably been the surest way for domestic shippers to “go global” in recent years. But high on the radar for many companies moving perishable goods within NAFTA is a new federal law that requires meat sold in grocery stores to indicate the country or countries where the animal was born, raised, and slaughtered.

The World Trade Organization (WTO) introduced the so-called Country of Origin Labeling (COOL) last year after it found that COOL requirements put Canadian and Mexican livestock at an unfair disadvantage against U.S. animals.

“Canada requested authorization from the WTO to impose over $3 billion in retaliatory measures against U.S. exports to Canada,” explains Candace Sider, vice president of regulatory affairs, Canada, at trade compliance firm Livingston International. “This includes increased tariffs on 30 U.S. products ranging from beef, pork, cereals, baked goods, and fruit.”

According to Sider, cross-border shippers must also be aware of changes in IMMEX (Maquiladora) Program. This trade agreement allows companies to import raw goods and services to Mexico to be manufactured and re-exported, without paying customs duties. “And this is just one of several trade agreements that should be considered by North American shippers,” says Sider.

Although more than 6,000 companies may believe that they’re participating in IMMEX trade compliance, Sider adds that they may not understand or be receiving the full benefits of the program. Becoming familiar with the current versions of tax laws, for example, will be key.

“Changes in 2014 eliminated the value-added tax [VAT] exemption for temporary imports of goods performed by factories, resulting in a VAT of up to 16 percent unless companies obtain a certification,” Sider explains.

Pending international agreements contain similar nuances, and while shippers wait for them to come to final fruition, becoming familiar with the details now can pay big dividends, compliance experts contend.

TPP/T-TIP: “Mega-trade deals”
Near and dear to many enterprises is the Information Technology Agreement (ITA) that will eliminate tariffs on roughly 200 IT products—a sector that’s valued at approximately $1.3 trillion in annual trade. Trade analysts say that this is just one of several “mega-trade deals” shippers should study.

ITA is the first tariff-cutting agreement in the WTO in 18 years. More than 80 countries, including the U.S., Canada, and China, representing 97 percent of world trade in information technology products have agreed to participate in the agreement. “The ITA could offer trade opportunities that weren’t originally available,” says Michael Froman, a U.S. trade representative. “It could also increase competition for U.S. tech manufacturers by opening the U.S. market to similar products from other countries.”

Then there are the two other mega-trade deals that may not surface this year without some heady political wrangling. The Trans-Pacific Partnership (TPP) is the biggest free trade deal in history. The 12 countries participating in the TPP finally reached an agreement in October 2015 after seven years of negotiations.

Collectively, the countries—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and U.S.—represent 40 percent of the global GDP, which equals more than $27.5 trillion combined and a third of world trade.

“The agreement must now be ratified by the government of each country, a process that could start in the U.S. in 2016,” observes Froman. “With the passing of TPP, multi-national businesses would have more intellectual property protection and overall consistency as investors and traders in the region. TPP would also lower or eliminate tariffs on a variety of products.”

Then there’s another political hot potato that’s still waiting approval: the Transatlantic Trade and Investment Partnership (T-TIP).
T-TIP is a trade and investment agreement being negotiated between the U.S. and the 28 European Union (EU) member countries, and has the potential to increase access to both European and U.S. markets for goods and services.

Froman explains, for example, that T-TIP aims to coordinate on product testing, inspection, and certification procedures; resolve pest and pathogen sanitary issues with a single approval process; standardize forms filed at the border; and align fees and charges. Furthermore, U.S. businesses whose products are highly regulated should find navigating EU trade easier and incur lower costs for obtaining approvals and permits.

Both of the global agreements have the provisional endorsement of the American Association of Exports and Importers (AAEI). Marianne Rowden, president and CEO of the AAEI, says, however, that the association “needs time to consider offering its full support of the agreement until its members have an opportunity to examine the details.”

Customs on high alert
While a number of issues have gained the attention of U.S. shippers early this year, the most urgent concern revolves around Customs and Border Protection (CBP) compliance, as it replaces the Automated Customs System (ACS) with the Automated Customs Environment (ACE) on February 28.

“By the end of next month, freight intermediaries are required to transmit cargo release and entry summary for U.S. imports, as well as the first three Partner Government Agency data sets, following ACE processes and technical requirements,” explains Livingston’s Sider.

The so-called “modernization initiative” aims to streamline and leverage more current technologies and process changes, improving the exchange of information between trade, CB, and 47 different federal agencies through a single government window. “Importers, especially those with products regulated by one or more of the partner government agencies, should understand the new requirements the ACE environment presents,” adds Sider.

At the same time, however, prominent stakeholders are urging the U.S. government to “exercise caution” when implementation begins. According to the National Customs Brokers & Forwarders Association of America (NCBFAA), the rollout of new technology is always “fraught with uncertainty.” Furthermore, says Geoffrey Powell, NCBFAA president, when international commerce is concerned, extra steps must be taken to minimize risk.

Powell points to CBP’s recently released functionality that allows air carriers to file their import manifests with CBP in ACE. “It didn’t work properly and created havoc with air shipments, resulting in an inability to move shipments, lost business for importers, and added significant additional costs for everyone in the supply chain.”

Shippers say “Get ACE right”
To avoid such a recurrence on an even larger scale with the switch over to ACE, the NCBFAA is telling Customs that any final implementation should consider, at a minimum, the following criteria:

• The average time of release in ACE, from the time of data transmission to full cargo release by CBP, must be equal to or better than the average time of release in ACS today. It must not take ACE longer to perform these functions. At minimum, the communications with all trade partners should not be affected when the transition to ACE occurs. Optimally, it will be further facilitated in ACE.

• Government exam reasons and results must clearly communicate who is requiring additional action, what actions are required to adjudicate the finding, what the results of the adjudication are, and what actions are required from the trade.

• All data elements must be established, published, successfully tested and finalized a minimum of 90 days before any piece of functionality is required to be put in production. Functionality has already changed multiple times and as it continues to change, it is making software programming difficult and more expensive to finalize.

• Any information collected at the time of cargo release (admissibility) must be for the purpose of establishing the risk of allowing the good to proceed into the U.S. commerce for health, safety, or other risks to the U.S. consumer.

• Data requirements must not add costs to the supply chain in a way that places an artificial trade barrier to the effective flow of the import and export of goods.

• A stable and available CBP and Partner Government Agencies (PGA) testing and live operating environment is established for all automated interactions without the need for weekly “fixes” to address critical problems.

• CBP and PGA software must be thoroughly tested for all issues including software coding problems, process flaws, and capacity, and pass at an industry-accepted level. CBP and PGA personnel in the field that are required to interact with ACE must be thoroughly trained.

“CBP has too few technical resources available to support the ACE transition, which in turn affects the trade’s ability to implement the system,” says Jon Kent, the NCBFAA’s legislative representative. He also contends that the rollout schedule—instead of being driven by the completion of software functionality—is heavily influenced by “arbitrary” White House deadlines.

“Finally, the PGAs are including new data elements and data submission requirements that transfer costs from the PGAs to brokers and importers,” says Kent.

Members of the Airforwarders Association (AfA), another powerful Washington lobbying group, are also adamant about getting ACE right. “The implementation of ACE must make life easier for all of us without undue hardship in the process,” says AfA’s executive director, Brandon Fried.

“This can only be accomplished by thoroughly testing the platform before release, minimizing time-consuming updates, limiting PGA changes, and not clamoring to meet unrealistic deadlines that may result in an inferior product.”

When Logistics Management went to press, however, that deadline was fast approaching.