Except for a brief stint in government, I have been in the trade compliance profession for more than 15 years. In all those years, I get the same question over and over again—what do you do exactly; and when I attempt to explain, I find it very difficult to expound on an obscure and highly technical field.
Most companies involved in cross-border trade do not have a specialized trade compliance unit or an internal trade compliance policy. In my many years of consulting work, I have dealt with professionals in the supply chain, tax, legal, logistics, corporate affairs and finance departments, both in-country and across the region. Only on a few occasions have I have worked with a full-time trade and customs professional and in those instances, I was dealing with officers assigned in the regional offices or the headquarters.
So what exactly is the trade compliance profession?
International Trade and Customs. Globalization has changed how companies source materials and sell products. Regional markets have opened up and tariffs have generally fallen; international trading rules have become more complex. The advent of numerous free trade agreements and the advances in online technology have greatly impacted on the supply structures and sourcing strategies of companies. Managing international trade require multiple skill sets and integration of customs and trade understanding. While globalization has opened up trade opportunities, competition has heightened and supply chain risks must be managed to prevent disruption across international borders.
In the Philippines, there is a dearth of information and a lack of training opportunities and quality courses in the field of international trade needed by companies and professionals engaged in the import and export of goods. International trade, including tariff and customs, is a multi-disciplinary field that is both intricate and evolving. Philippine trading rules and practices have remained nebulous, complex and tedious, and customs in general has remained as a ‘weak link’ in the supply chain.
The past few years, a lot of developments has made the international trade environment uncertain with various ongoing free trade negotiations, the trade war between the US and China, the exit of the UK from the EU, and the unpredictable trade rules issued by some governments.
The Need for Trade Compliance. In many of my lectures, I have always said trade compliance for many companies is their least priority when clearing goods across international borders. Management is usually unaware of the compliance issues involved, and even if such issues are known, companies would rather take the chance of sweeping them under the rug, hoping they remain undetected. Rather than being proactive, some companies would rather just prepare for corrective measures in case of a full-blown custom audit or investigation. Worse, some companies take the path of non-compliance for purely business reasons, not knowing that proper planning may actually result in cost-savings and supply chain efficiencies.
So why do we need to ensure trade compliance? First, the Bureau of Customs has already activated the new Post-Clearance Audit Group (PCAG), and audit profiling as well as investigations are now ongoing. We expect customs audit notices to be issued in the coming months. In addition to the 20% interest to be imposed, the penalty for underpayment of customs duties and taxes is 125% of the revenue loss in case of negligence and 600% in case of fraud.
Second, the penalties for non-compliance with trade and customs rules may result in the imposition of hefty fines at the border, seizure of the imported goods, suspension of importer’s accreditation and filing of criminal charges in case of fraud. Goods already cleared from customs may also be seized by customs authorities in case of non-payment of taxes and duties and by regulating agencies for violation of marking, health, safety, quality and other standards.
Third, many companies pay royalties on imported goods or make year-end adjustments on their related-party transfer prices. Such payments or adjustments are most likely to be dutiable and if undisclosed, may be subject to interest and penalties.
Fourth, some governments provide incentives for trade compliance and such incentives may result in cost savings or efficiencies in the import and export process.
The Trade Compliance Professional. Doing trade compliance work normally requires experience in dealing with the private sector and the government, and a background in the fields of trade regulation, customs, tariff, international trading arrangements (e.g. INCOTERMS), logistics and supply chain. A trade professional should be familiar with international trade developments, free trade arrangements (e.g. ASEAN Free Trade Agreement) and multilateral and bilateral trade negotiations.
Trade compliance work in the Philippines is a challenging field especially because of the high level of non-compliance among trading firms and one gets involved with many remedial work and adversarial proceedings such as fraud investigations and court cases. Many times, a trade professional is consulted only because there is already a full-blown customs audit, or business operation has stopped due to the seizure of imported raw materials, or the company has been raided for violation of import trade regulations.
A licensed customs broker professional, with training and exposure to trade work, can be a trade compliance professional. Lawyers with experience in international trading, logistics and supply chain can also engage in trade compliance work.
The author is an international trade lawyer and a supply chain and logistics consultant. He is the Editorial Board Chairman of Asia Customs and Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). For questions, please email at email@example.com (www.customstrade.asia).