The world of international trade is constantly on the move. Just like New York, London, Tokyo and other world cities of the same stature, it does not sleep. By association, the same can be said of global trade compliance. There is a continuous 24-hour buzz.
Compliance issues include screening trade chain partners against denied parties lists. The complexity comes from accounting for daily changes to these lists, not to mention the large numbers of these lists and from multiple jurisdictions.
There is also the need to accurately classify the HS code of an item. The challenge is in keeping pace with ongoing changes in tariff codes, regulations and policies, including major ones such as Brexit, Mexico and the 2022 HS updates.
The primary objective then is formulating an effective strategy to ensure compliance. The following provides a descriptive overview of major compliance requirements (that also appear frequently in global trade news) and suggestions for how to mitigate risk.
Denied Party Lists (aka Restricted Party Lists)
What used to be a list or two updated now and again and including a few thousand names, is nowadays well over 300 lists, many of which update daily and covering easily over 1.5 million entities and names. The scope is not limited to government-issued lists either. And lists such those covering 50% ownership, Politically Exposed Persons (PEPs), adverse media, Vessel ownership all require significant research. Typically, not the type of resource commitment regular companies can make.
In the meantime, more and more countries (Russia and China included) are issuing their own lists, and more and more countries are enforcing Denied Party Screening more strictly.
All this begs the questions: will the expansion of the range of Restricted Party Screening ever stop? The short answer, unfortunately, is not likely in the foreseeable future. Governments have found a relatively easy way to: 1) Guide and enforce a way to execute on the idea that it does not want ‘bad actors’ to gain advantage from being involved in trade of any kind; and 2) Put the burden of this largely on the exporters. It is unlikely that either of these will be given up anytime soon.
The bottom line for businesses involved in international trade is that since non-compliance is not an option, close scrutiny of screening lists is required on a daily basis. A tall order indeed!
The United Kingdom stepped out of the European Union (EU) on January 31, 2020, and the transition period (during which, from a customs perspective things, things stayed the same as before) expires at the end of 2020. That means that after January 2021, the UK will have a fresh new customs tariff to work with, and goods can no longer move freely between the EU and UK. Bring out the pens to fill out those declarations now collecting dust!
More than sufficient challenges lie ahead, but for more detail and guidance: check out https://www.descartes.com/brexit/resources/blogs
On January 1, 2021, Mexico will begin to use a sparkling new 10-digit Harmonized System (HS) code tariff. The HS codes are currently 8 digits. The change will bring the tariff in sync with the 2017 WCO changes, and although the additional 2 digits are mainly for statistical purposes, it will require re-classification of goods for Mexico HS code purposes. Needs a bit of handywork to get the item master up to date in time!
2022 World Customs Organization HS Updates
Speaking of HS codes – the World Customs Organization is busy getting the 2022 updates out the door. This is the 5-year review of the Harmonized System and it should be a fun one (judging by updates of years gone by! Per the WCO announcement, there will be a lot of focus on e-waste, new tobacco and nicotine based products (vapers beware), attention for drones, and hurray for the smartphones as they will get their own subheading. As well, 70.19 (glass fibers and articles thereof) and 84.62 will undergo a facelift as well.
Many new subheadings for dual use goods including for radioactive materials, biological safety cabinets, and materials for detonators will see the daylight, but it’s doubtful that the proper relation between ECCN and HS code is finally established.
New subheadings for a variety of controlled chemicals and other controlled goods (POPs - persistent organic pollutants), fentanyls and related products round out the preview, with a final note for the classification of multi-purpose intermediate assemblies. Later (post 2022) revisions will detail this further, but the changes are kicked off with flat panel display modules – they will be classified as a product in their own right - thereby removing the need to identify final use.
Like anything else, Global Trade found its way into the podcast world. And as for any other type podcast, it takes a while before finding what you really want. After a little searching and listening, initial suggestions are below. A bit broader than trade compliance only as I’m waiting for specific import/export pods – stay tuned. The ones below provide interesting broader context on international trade and logistics, are up to date, and can be found on the usual platforms.
- Deep Dish from the Chicago Council of Global Trade
- Inbound Logistics – Inbound Logistics Magazine
- Trade Talks – Peterson Institute for International Economics
When in Doubt Turn to Technology Solutions
Understanding the compliance requirements is one thing. Actually complying with the rules while engaged in international trade is another. Many companies rely on software solutions to help them keep their supply chains moving. As important is the point that these solutions provide a competitive advantage. And the better the solution (such as those provided by Descartes), the more enhanced the advantage!