Melissa Harrington is sales director for content business at Descartes Systems Group. She specializes in international trade as it relates to U.S. export regulations and imports into the United States and Canada.
Designed to unlock opportunity throughout the Asia-Pacific region, the Trans-Pacific Partnership is a landmark agreement in international trade. Larger participating countries include the United States, Japan, Canada, Australia, New Zealand, Chile and Mexico. Combined with Singapore, Malaysia, Peru, Vietnam and Brunei, the 12 member countries represent 40 per cent of world gross domestic product and twice the amount of cross-border economic activity generated under the North American free-trade agreement (NAFTA).
The TPP is slated to reduce or eliminate 18,000 tariffs, and outlines technical regulations, standards and approval processes for goods, data and services across the trade arena. The agreement will bring hundreds of millions of dollars into participating economies, but politicians, financial analysts and critics alike tend to overlook the people who will actually be affected by the changes on a daily basis.
A closer look at the logistics and supply-chain operators who are on the ground, in the air, and crossing the Pacific every day offers different insights into the TPP's effects. How the TPP will actually affect the average company remains to be seen, but businesses will want to consider potential implications in advance, with a particular microscope on their employees and fleets. Here are some areas of focus:
By opening up markets with reduced or zero duties, the competitive landscape changes, especially with respect to the automotive, textile, technology and agriculture industries. As a result, importers and exporters will want to evaluate their sourcing patterns to see whether it makes business sense to source goods from a TPP member country instead.
Perform a cost-benefit analysis
For a clear picture on which free-trade agreement to use and when, companies will need to perform a cost-benefit analysis. For instance, TPP's rules of origin are less complex than NAFTA's, but they don't allow for as much foreign content. Qualifying for preferential duty treatment under TPP on some goods may prove more difficult than qualifying for preferential duty treatment under NAFTA.
Assess shipping network
Organizations will want to examine their existing freight forwarder and broker relationships, and determine whether new partnerships are required to serve TPP markets. Companies also need to note that, like other trade programs, the TPP will have strict limitations on production processes during transit (trans-shipment) to ensure the program cannot be circumvented.
Identify tools to streamline compliance
Companies will need to demonstrate that goods qualify for preferential claims and that supporting documents are in place to maintain a complete audit trail. Technology can help ease this administrative burden with tools to complete the qualification and solicitation processes down to the component (bill of material) level, and to manage complex rules of origin, tariffs and currencies.
Analyze enterprise system needs
To help reduce risk and duty spending and safeguard compliance, companies will need to look at their enterprise system to complete compliance-related activities at a global level. This includes effectively using or reusing trade data in company and partner systems, reducing duplicate processes across countries and regions, and directing valid trade content into enterprise resource planning and global trade management systems.
Identify storage and record-keeping tools
Customs compliance is an administrative-intensive field. It lends itself well to technology that reduces the high costs associated with traditional paper-based practices and that fundamentally improves data accuracy, accessibility and availability, all of which are critical to effective compliance management.
If formally approved and ratified by all participating countries, the TPP will become the world's largest trade deal. At first glance, the agreement appears to make compliance more complex. Ultimately, however, it will be a good thing for the trade community and extremely beneficial for the logistics industry.