What’s new in international trade?
Preferential and Free Trade Agreements (FTA’s)
In recent years the EU has been very active in establishing FTA’s with many non-EU countries. The most recent (and probably most significant because of its scope) being the one signed with South Korea that came into force in July 2011. This trade agreement set the tone for things to come as it is fundamentally a “paperless” one (above certain values). Before we look into this in more detail, here are a few of the other 9 FTA’s on the horizon:
- Canada (the 11th largest trading partner to the EU)
- Malaysia (started discussions in 2010) and Vietnam (launched in 2012)
- Georgia, Armenia and Moldova
- Mercosur (several South American countries)
- United States of America (the big one!)
- Peru and Colombia
- Egypt, Morocco, Jordan and Tunisia (an up-grade to the current trading agreement)
More details can be found on the EU Market Access Database website:
Looking forward, one of the significant changes to these trade agreements will be that most of them will follow the South Korean model and will be “paperless” in design. We can already see the future of traders needing to become “approved” under the new GSP regime coming into place from 2017. Can anyone really see a way back from this?
This means that in order to qualify for the preferential or free trade agreement the suppliers/exporters will need to become an “approved” preference exporter and have the relevant authorisation number to accompany the declaration on the commercial invoices. Many EU exporters are use to this as both Norway and Switzerland has had this regime as an “option” to the infamous EUR1 movement certificate for many years.
My concern is with a few traders who still do not fully understand that in order to obtain this approval the trader has to be able to substantiate that the goods being exported meet quite a strict “originating” criteria. This may involve an audit trail of component goods and suppliers declarations. The South Korean approval regime has proved very complex and difficult for some exporters as they have had to play catch-up on obtaining Long Term Suppliers Declarations (LTSD’s) for many of their sourced components in order to prove the status of the goods.
This process and procedure will become more significant as time marches on. If EU exporters wish to be best practice in the world of international trade then they have to appreciate that the origin of the goods is very often much more involved than “we’ve assembled it here in the UK so the goods must be UK origin” A robust set of preference procedures is also a requirement under the AEO authorisation when exporters apply for this status, so exporters in the EU can see that this is a major shift in procedure and practice going forward. In the past it has perhaps, been too easy to obtain a stamped EUR1 movement certificate for a shipment to a preference country without being able to fully substantiate whether the goods meet the rules or not. This practice changes with a more “paperless” model being the future in international trade.
Export Training Services launch a new “Health-Check” service
International trade is very dynamic with changes happening frequently. In addition, a company’s trading patterns and business can change substantially over a relatively short period of time. An example of this is a company who once manufactured goods in the UK/EU and now look to sub-contracting this manufacturing function to somewhere like China or India. This creates a massive change to the business. Companies become importers and distributors overnight. They have changes in their costs, the origin of their products and to the procedures required to be fully HMRC compliant.
Furthermore, on the exporting side of the international trade scene, British companies appear to be looking more towards the BRIC type markets (Brazil, Russia, India & China) for their growth. The EU is in recession and any development in sales might be in more deep-sea markets. The export skills required to deal effectively with these markets are very different from those used when dealing with EU customers/countries. Companies may need to take stock of where they are and to ascertain whether their procedures/knowledge levels/systems and cost structures are as robust as they should be.
These are just some of the reasons that Export Training Services developed its “Health-Check” service. The service normally involves a one or two-day site visit where we conduct a “gap analysis”. This will highlight where you are as a business in terms of export/import procedures, compliance, knowledge levels, systems in relation to where we would normally see a “best practice” company. Consideration will always be made on the size, volume, available resources and type of the business audited as any recommendations made will need to be commensurate to the business as it stands. Then we make recommendations on how you can “bridge the gap” to be truly “best practice” in the administration of your international business.
The “gap analysis” can include a management report (normally 14-18 page report) or perhaps the more cost-effective solution which is a de-brief meeting at the conclusion of the visit. During this time the hosting company can make notes and discuss our findings and recommendations.
Export Training Services has provided this service to many companies over the past 22 years but it has always been viewed as an “add-on” to the main training portfolio. In 2012 Export Training Services will be looking to develop this as a core activity within the business with a dedicated resource to meet this requirement.
Generalised Systems of Preferences (GSP)
The general principles of GSP as granted by the United Nations Conference on Trade and Development (UNCTAD) have been with us for many years. However, many traders have been aware that the current scheme is due to close at the end of 2011. GSP is a one-way (imports only so, non-reciprocal) trade agreement between the EU (donor countries) and beneficiary countries. The main idea is to assist countries with a lower GDP than the EU, to manufacture goods and sell their products to the EU market. Importers within the EU can import at a “preferential” rate of duty providing certain rules have been met. In particular GSP has quite complex rules of origin for products being traded under the regime.
The EU has announced that GSP will continue in its current form until 2017 with a few significant changes. One of these is in the special provision known as “cumulation” The rules for cumulation have been simplified and the concept of “regional” cumulation (certain countries being grouped together) has meant that traders should find the complex area of whether their goods qualify under GSP or not easier to understand.
GSP Form A Certificates will still be used until 2017. After this date it is anticipated that a new scheme called the “Registered Export System” (REX) will be introduced which will change the current system quite radically. In essence we shall move from a paperwork driven regime to more of a self-certification one.
The EU regulation for the new rules under GSP is:
Regulation (EU) No 1063/2010
Trader can find more details on GSP at the following EU website:
Unifying the Customs Code (UCC) … post 2014
Some importers and exporters might be unaware of the changes being implemented within the EU under the UCC banner (formerly called the MCC). Customs procedures are changing and this could have a major impact on how an exporter/importer administrates their shipments in and out the EU. In this article we shall highlight two key regimes under the UCC changes.
Authorised Economic Operator (AEO Status)
AEO status went live within the EU on the 1st January 2008. It is not mandatory and importers, exporters, freight forwarders, carriers etc have had to make a commercial decision as to whether or not they wish to apply for this Security and Customs status. This is not for the faint-hearted and anyone looking into the AEO standards criteria will recognise that this is a major project involving many key personnel in the business. However, the EU see AEO as a key component within the MCC changes and although still not mandatory, AEO will provide Customs with the confidence they need to grant authorisations for specific regimes like: Inward Processing, Simplified Entry Procedures (CFSP) and Warehousing. Therefore, any trader who currently enjoys the benefits of these regimes will need to consider AEO very seriously or their business could be affected. Customs will use AEO in order to judge a traders “risk score” when granting Duty/VAT relief authorisations post 2014.
For more information on AEO here is an official EU website:
Inward Processing (IPR) – Requirement for a bank guarantee to secure the Duty
Under the UCC changes, it is proposed that any trader enjoying a regime that provides an economic impact (like Duty suspension) will be required to put in place a bank guarantee to support the Duty impact on HMRC. For many traders who operate a VAT only IPR regime (CPC 5100003) this will have minimal impact. However, this could have a major impact on other traders who run an Inward Processing regime to suspend Duty and VAT on imports. The only silver lining one can see to this change is for the AEO accredited traders amongst us. These traders should be able to obtain dispensation against this requirement as they are regarded by HMRC as a “trusted trader” under the proposed UCC changes.
New ISBP Publication – International Standard Banking Practice
The International Chamber of Commerce (ICC) has a new version of ISBP out from July 2013. This new “compliment” to UCP 600 is a key publication for any Letter of Credit specialist who really wishes to clarify when a discrepancy is actually a discrepancy under a Letter of Credit presentation. It is a very useful tool in an exporter/importers armoury when dealing with this complex set of procedures:
ICC Publication Number 745E