I recall a time in my corporate career, where a VP of New Product Development proactively sought out the Trade Compliance department to seek our advice on where to manufacture. Although, he knew that China would probably offer the cheapest labor, he wanted to know if there were benefits to be had, if we were to build the products in Mexico or the U.S., or even Europe for that matter.
When I asked him what his primary markets were for this new product, he mentioned the U.S. government (USG) and secondarily, Canada and Europe. When I explained and showed him the “total landed costs” for manufacturing in China, which included the duties, taxes, fuel surcharges and transportation costs, he was amazed at how much that added to the bottom line costs. Yet, even with all those costs added, it was likely to be more cost efficient to build in China than elsewhere. I then explained to him, if the USG was his intended customer, than we’d want to look into what competitive advantages we’d have by building in Mexico or the U.S. I pointed out that the Buy American Agreement (BAA) and Trade Agreements Act (TAA) were often mandatory in USG contracts, and by building in China, the product would not qualify. I then pointed out that by building in Mexico, not only would the product qualify for NAFTA, but also BAA and TAA; secondarily, if his next market was going to be Canada or Europe, then NAFTA would again come into play, as well as the Mexican-EU FTA.
I fondly recall how taken back he was with the knowledge of our compliance department as well as the value added service we provided him. He saw that in order to break into the USG market, manufacturing would have to be in Mexico and/or the U.S. In addition, he immediately saw the benefits of MEFTA, since his product would now be duty-free into the EU, whereby his competitors were subject to a 6.7% duty rate, and this was the competitive advantage he needed to win the business.
The point is, with all of the proper trade compliance programs in place, you can add value and bottom-line savings to your company. Let’s say that your marketing/sales department is not aware of what your role is, and they are selling to Israel, which is their largest market. If you’re not aware of that, then you can’t possibly advise them that there is a free-trade-agreement between the U.S. and Israel, whereby your product could be duty-free, which many times, is the competitive advantage you will need.
In today’s corporate environment, where budget costs and personnel are limited, communication with the trade compliance department is imperative in order to insure that the company is protected from any regulatory non-compliance, making it a value-added service, to both internal and external customers. Suggestions, such as where to manufacture, based on your company’s global footprint, would allow you to leverage the multitude of global free and regional trade agreements, thus, lowering total landed costs (by avoiding duties) on your raw materials and finished goods, as well as, provide you with the competitive advantage of FTAs/RTAs. In addition, offering your services to procurement and purchasing departments, as well as import planners, in determining the appropriate HTS and COO for products, including marking requirements for finished goods, can show that the trade compliance department is not a hindrance, but a benefit to the company.
Another similar case was when a purchasing agent, not wanting to deal with the import formalities, the Customs brokers, and the paperwork required to clear an import, requested the supplier quote “DDP” for the raw materials she was purchasing. During a routine audit of purchasing, we uncovered that this supplier had misclassified the HTS on the materials we were purchasing; instead of the product being duty-free, it was dutiable. To our alarm, this was something that was going on for years. When we conclusively decided that the product was indeed duty-free, we approached the supplier and they accordingly, refunded hundreds of thousands of dollars of duties that we had paid. In addition to the refund, we had reduced the COGS of this product line, something which then benefited the procurement department, given they fell way below what they had budgeted for purchase parts.
It was “wins” like this that quickly elevated the value of the trade compliance department within the company, subsequently it was then sought out by the various departments effected by compliance. The point is, regulatory compliance should always be the number one priority for your department, but at the same time, when properly executed and implemented within an organization, it will not only provide for seamless supply-chain activity but, add savings to the bottom line of your company. That makes it a lot easier to sell to your co-workers, not to mention, potentially increase your budget.