Despite predictions that trade will have a diminished future, the reality will likely be much more intense for those managing international supply chains, said Jerry Cook, vice president of government and trade relations with Hanesbrands.
A new year is emerging, along with a new Donald Trump-led administration in Washington. Despite predictions that trade will have a diminished future, the reality will likely be much more intense for those managing international supply chains and are responsible for their customs and export compliance.
In 2017, we expect the entry into force of the World Trade Organization (WTO) Trade Facilitation Agreement (TFA) and potentially actions to reopen the North America Free Trade Agreement (NAFTA), the FTA between the United States, Canada and Mexico that entered into force in the early 1990s. Under the umbrella of potential NAFTA reopening, it is possible that we may see an effort to revisit the U.S. Customs Modernization Act, known as the “Mod Act,” which is formally part of U.S. NAFTA implementation legislation.
By the end of 2016, 104 countries had ratified the WTO TFA, just a few nations short of the 110-member threshold needed for the agreement to enter into force. This will be a major achievement, with WTO members committing to remove administrative and customs-related barriers to trade in order to speed shipments of goods across borders. Once implemented, TFA is expected to spur global economic growth and create some 21 million new jobs – 18 million in developing countries alone – while adding $1 trillion to global GDP. We expect entry into force in early 2017, at which time the topic will move to country compliance with commitments and industry efforts to push countries to take bigger steps in areas where essentially trying is the threshold, and a low threshold at that!
Along with the implementation of NAFTA, the Mod Act delivered the modern balance of enforcement and trade facilitation. Ultimately, industry and U.S. Customs and Border Protection (CBP) created the modern working framework of targeted risk management to make enforcement more effective and efficient, while at the same time encouraging the growth of cross-border commerce.
For nearly 24 years, the Mod Act has set the baseline for the majority of U.S.-based trade professionals. It updated the U.S. 1930 Tariff Act, and in so doing, brought about dramatic changes in customs compliance and overall supply chain operations. The biggest change included “knowing” and managing the entirety of one’s supply chain and its participants.
The Mod Act laid out the ground rules for traders, as well as CBP. It brought about many changes, including significant growth in the role and requirements of importers, resulting in the need for companies to make investments in knowledge workforce talent, legal advice, IT systems, and infrastructure changes.
The trade community has battled hard to hold onto the concept and promise of being measured against the “reasonable care” standard established under the Mod Act. The roles defined in the Mod Act have morphed into complex trade compliance regimes that have been integrated with the areas of, for example, accounting, finance, logistics, IT security, and vendor selection, as well as endless data consumption.
Entry into force of the WTO TFA will most likely result in positive outcomes, but also new expectations for the trade and logistics communities. One unknown factor: what will become of the traditional rules of the road for compliance teams? Will “reasonable care” remain the standard, or will it be replaced by other information requirements? In other words, what will constitute compliance?
Could we possibly witness a collision between these two rule sets – TFA and a renegotiated NAFTA/Mod Act? For trade compliance managers, it is best to operate under the maxim, “Know the rules. Know your supply chain. Know the challenges ahead, because they’re coming.”
There are many questions we need to bring forward in the discussion on trade. The everyday reality of trade facilitation and trade security are poised to undergo swift changes, and very few in the trade arena believe that future environments will become less complex. We must recall that our government partners, like CBP, will have their world defined by a new Trump administration, as well as another generation within the Department of Homeland Security (DHS). The years of Treasury Department oversight are all but over.
As trade managers, we need to set the expectation and master the standard of achievement via trade facilitation and reasonable care. Change is happening all around us, and we should hold true to our achievements and goals. Above all, we must participate in driving productivity along with compliance.
It is an exciting time for the trade community. The standard is changing, and we can seize the opportunity to manage for success. We need to regain control of our future and work to build that future by upgrading the tools we use, as well as the norms by which we operate.
Perhaps 2017 should be dubbed the “year of the trade professional,” because only the best will excel. Second-best need not apply.
Cook is vice president of government and trade relations with Hanesbrands. He chairs the Customs and Trade Facilitation Committee of the U.S. Council for International Business and can be reached by email at Jerry.Cook@hanes.com.