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# All you need to know about global trade compliance

Syahirah Aiman
31/8/2023
11
mins

This is significant. Now the three largest producers of chipmaking machinery in the world are united in their aim to curb China’s development of artificial intelligence, computing, and weapons technology.

It’s also an example of how international trade compliance and import and export controls affect businesses. What is legal or illegal to trade varies from one country to the next, and depends on one country’s geopolitical and economic relations with others.

This article at a glance

Global trade compliance exists to ensure that companies develop sound ethical practices. In our world of rising protectionism, it also exists to protect the economic interests of competing nation-states.

International trade compliance requires businesses to comply with international export, trade, and financial laws. As an international merchant, you must monitor your business' trade compliance and proactively control risk exposure.

Non-compliance to international trade rules exposes a trader to fines, penalties, and shipment delays, and may damage their reputation as a supplier. As such, it’s prudent to have robust procedures for tracking compliance laws.

## What is trade compliance?

Trade compliance means complying with international export, trade, and financial laws. A trade-compliant business operates within the rules and regulations for importing and exporting goods to and from a country.

International trade compliance encompasses various aspects of international trade, such as training, classification, trade risk, taxes and import duties, certifications, product testing, and country-specific import licensing and approvals.

International trade compliance regulations and best practices compliance remain challenging. Regulations vary depending on the country and type of goods. Some countries have import controls. Other countries have stringent customs regulations. Trade agreements and international regulations may change rapidly with little warning, owing to a volatile international trade environment. For example, the requirements for importing perishable goods differ from electronics.

Every global business has a global supply chain — as such, they must deal with multiple government agencies when trading in the same country. Other times they must abide by sanctions in line with their countries' foreign affairs policies.

## Why is trade compliance important?

Trade compliance matters because it ensures standard trade practices worldwide. It’s a series of legal obligations for all businesses to protect consumers, suppliers and the businesses themselves.

It guarantees uniformity of goods standards and requirements for ethical, environmental, price and quality controls. Undoubtedly, it contributes toward a clean, fair and safe global supply chain.

A trade compliance plan enables businesses to have a competitive advantage — their law-compliant goods are preferred over those which are not.

Trade compliance mitigates risk for your import and export business in other ways:

- Safeguards your company and staff reputation by trading legally and fairly
- Reduces risk of financial losses, fines and penalties
- Prevents delays and investigations from customs and can save businesses copious amounts of time
- Guaranteeing customer satisfaction

## Who is required to comply with trade compliance?

Trade compliance is a great equaliser — every business big or small must comply.

All players across all industries must be trade compliant or face penalties or risk flouting national and international trade rules and conventions.

Effective trade compliance calls for a concerted effort among various departments and employees of a business — from legal to operations to sales.

Streamline your trade compliance by keeping track of certifications, timing requirements, customs rules, necessary documentation, and payment terms of different regions and countries. Hiring a customs broker can also streamline your export operations, going a long way to minimizing noncompliance risks. Efficiently managing your compliance also means liaising with your logistics partners in different countries to ensure you meet every export compliance regulation.

## Key elements of trade compliance

These are the key elements of trade compliance:

﻿﻿

### Tariff classification

Make sure you assign the correct commodity and tariff codes for your products for easy customs clearance. A wrong commodity code might lead to the incorrect payment of import duties.

### Preferential and non-preferential origin‍

In import and export, preferential origin refers to goods enjoying duty-free or discounted tariffs when the items come from certain countries, according to their Free Trade Agreements (FTA).

For example, if Indonesia has a duty-free Free Trade Agreement with the U.S.A. for cloves, there is no import duty on exporting the spice to the U.S.A. Conversely, non-preferential origin items would be charged standard duty tariffs.

Therefore, check the country of origin and FTAs of your imports. Find out if your goods meet the FTA’s ﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿percentage-based rules and regional value content-based rules. Some require a minimum local manufacturing or assembly percentage, for example, before the item can be considered to originate from that country.

### Incoterms

Incoterms are internationally recognized trade terms to determine whether the buyer or seller is responsible for a shipment from purchase until delivery. They are incorporated in a sales contract to outline a cargo delivery process, costs, risks and responsibilities.

Be clear of your goods' Incoterms to avoid any disputes and to minimise risks of theft or damage of your goods.

### Licences and permits

When exporting or importing controlled goods such as live animals and medicine, verify that you have the proper licences and permits beforehand.

### Export controls

Some items require additional controls, such as ﻿﻿﻿﻿﻿﻿﻿﻿﻿ITAR (International Traffic in Arms Regulations﻿﻿﻿﻿﻿﻿﻿﻿﻿ or ﻿﻿﻿﻿﻿﻿﻿﻿﻿EAR (Export Administration Regulations)﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿ for the United States, which safeguard citizens against harmful products or technologies. Non-compliance with export compliance controls may lead to fines or even imprisonment.

### Customs management

Have a clear customs management plan if your shipment is selected for customs investigations and further checks by the customs authorities. An action plan will ensure smooth customs compliance and your shipment will pass through customs smoothly.

### Screening

Be selective with who you do business. Screen potential customers, suppliers, and employees. Verify incoming payments and company transactions. Screening should be done regularly and not just at the start of a new relationship.

### Valuation‍

Give the correct valuation of your goods to the government agency in question and attach receipts and invoices. If you are trading with clients in the United Kingdom, for example, HMRC — the U.K.'s tax authority — requires you to inform them of the total value of your imports. This enables them to determine customs duty and import tax, or VAT (Value-Added Tax).

Ensuring correct compliance is essential. Wrong valuations — like over or underpaying taxes — mean you’re violating regulations, so ensure that you provide the correct amount. HMRC, for example, will impose heavy penalties for incorrect submissions.

## Understanding the risks of trade compliance

Adhering to international trade regulations is essential to your business’s existence. Large corporations even dedicate special teams solely to mitigate compliance risks. As the political and economic environments are ever-changing, having trade compliance tracking in place is vital to avoid the violation of laws and ensure the correct and timely delivery of goods.

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