While the author shares their thoughts why it is not time to get out of China it did raise an issue that is part of an Integrated Trade Compliance Strategy, that is managing international exchange and purchasing in local currencies.
I was reading an Article in Supply Chain Brain about an opinion piece on whether or not it was time to bail out of China due to it’s increasing cost of doing business there. Read the whole article here.
While the author shares their thoughts why it is not time to get out of China it did raise an issue that is part of an Integrated Trade Compliance Strategy, that is managing international exchange and purchasing in local currencies.
While GHY International is not an expert in these areas, we do have someone who is. These are exactly the topics that Custom House Currency Exchange, now a Western Union company handles.
Here is a link to their white papers on these exact topics
Rick Riess, President, GHY International shares interesting material he has reviewed and feels it’s worth your time to read it.
Kewill : 2010 Parcel Shipping & GTM Benchmark Study
Our President, Richard Riess, and 4th generation great grandson of George Henry Young, founder of GHY International, shares things he found interesting. He found this Executive White Paper on shipping interesting in terms of their shipping considerations and recommendations. You can find the study here.
GHY and Kewill do not have any current business relationship.
GHY and GTM do not have any business relationship.
GHY provides this content for your review only, in no way does this constitute professional advise.
Key issue is global supply chains created intersection of compliance between sourcing for manufacturing purposes against export costing including declaration that goods were NAFTA qualifying.
Case in Point – NAFTA Regional Value Content
In North America the key event that started driving focus on Trade Agreements was the original Canada/USA Free Trade Agreement (FTA). That evolved into NAFTA which included Mexico along with Canada and the USA. One of the key components about declaring NAFTA status on goods that are imported or exported is the process of defining Regional Value Content (RVC)
Regional Value Content is simply the calculation of the percent of the value of a good that comes from manufacture/assembly in a NAFTA originating country. The are 2 methods to calculate the RVC; a Transaction Value Method or the Net Cost Method, but that is a topic for another day.
The case in point today relates to an aspect of why you need to consider an integrated trade compliance strategy. It comes from a North American manufacture of electrical transformers, Chapter 84 of the harmonized Tariff.
When this manufacture began exporting they went through the exercise and calculated their Regional Value Content. At that time the goods in question were 94% of RVC. Although the regulations suggest that you need to validate your RVC annually, the effort involved was extensive for this manufacture and they renewed for many years their NAFTA declarations by simply changing the date and providing it to their export clients.
Problem is they began to be challenged as all manufactures have been with global based sourcing in order to stay competitive, and this was never factored in to their NAFTA declarations. The risk of course is that by changing the sourcing or inputs they may no longer qualify for NAFTA benefits, thereby increasing their costs and potentially making their product non competitive in the markets the sell to.
To compound the risk, the issue only came to light when the US CBP requested a NAFTA verification audit. They have been doing this a lot lately because they know that manufactures are facing a global sourcing challenge and that leaves a large GAP in the past trade agreement declarations, especially when there are preferential duty rates as there are with the NAFTA program. This can lead to large financial penalties and other costs that the manufacture did not allow for on the original contract, thereby reducing or eliminating any profit related to that sale.
The risks are increased substantially if issues are found during an audit, especially with US CBP who take a rather black and white approach to mitigating the issues they find during an audit.
The outcome in this case is good news, but clearly a warning that something must change in the strategy used to manage global trade issues. The cut off for RVC content when declaring NAFTA preferential tariff’s is 60%, and while in this case the goods pre global sourcing started at 94%, the revised calculations came back saying the RVC was now 64%. So while the did not incur any financial issues related to RVC calculations on their NAFTA declarations, they are clearly very close to no longer qualifying for those extended trade benefits.
Bob Cowie, Vice President Consulting, GHY International says, “some products which seem very simple compared to an electrical transformer can be even less obvious if NAFTA benefits apply when you consider Regional Value Content.” He offers this advise, “as an example if you look at Chapter 39, Products made of Plastic as defined by the US HS Tariff, the regional value content rules are very clearly laid out for every product in that category, we find numerous mistakes because the assumption is made because a product was made in a NAFTA country from plastic pellets as an example, that it qualifies and the NAFTA benefits are built in to their costing, When doing a detailed evaluation it is often not applicable so caution should be used when making these declarations that you understand the RVC rules and how they apply to your products.”
Key issue is global supply chains created intersection of compliance between sourcing for manufacturing purposes against export costing including declaration that goods were NAFTA qualifying.
Does this sound like your organization? Could you use an integrated trade compliance strategy?
