Businesses face many challenges in today's complex and uncertain global economy. One of these is the ever-increasing number of trade rules and supply chain regulations, which has emerged as a key trend for Customs in 2024.
Rules and regulations can help promote transparency and create a more level playing field, for example in the case of regulations to strengthen environmental, social and corporate governance (ESG). These rules must be carefully designed and implemented to avoid creating new complexities or imposing unreasonable compliance burdens on businesses. However, in some cases, rules and regulations can become trade barriers. It is defined as an artificial restriction on trade in goods between countries.
According to the International Monetary Fund (IMF), around 3,000 trade restrictions were imposed around the world in 2023, nearly three times the number imposed in 2019. There are four main types of international trade barriers. Protective tariffs, import quotas, embargoes, and voluntary export restrictions. They arise from his three key concerns:
- Environmental, social and corporate governance – ESG is a key driver of new regulations focusing on sustainability, social standards and labor practices.
- Geopolitical tensions – Rising tensions and trade disputes between nations have resulted in tariffs, sanctions, and other trade barriers.
- Consumer Safety – Governments are imposing increasingly stringent regulations to ensure that export and import goods meet safety standards and regulatory requirements.
Trade barriers impact how businesses function across borders, and companies are rethinking their processes and approaches to customs to ensure compliance, reduce risk, and even improve competitiveness need to do it.
ESG – a key driver of new supply chain regulation
ESG requirements are at the forefront of global trade. According to ESG Book research, there are currently more than 2,400 ESG regulations covering more than 80 jurisdictions around the world. This represents a 155% increase over the past 10 years and includes 400 of his ESG-specific reporting requirements.
The European Union (EU) has introduced several regulations since announcing the Green Deal in 2019. Recently added regulations include EU deforestation legislation, which comes into effect in 2023 and requires companies to ensure their supply chains are free of deforestation. The EU has also begun phasing in the Corporate Sustainability Reporting Directive (CSRD) from January 2024, requiring companies to report on a wide range of ESG factors.
In the United States, the Uyghur Forced Labor Prevention Act (UFLPA) was introduced in 2022 to prevent goods produced using Chinese forced labor from entering the United States. UFLPA's dashboard shows that nearly 7,000 shipments totaling more than $2 billion have been delayed and stuck at U.S. ports since the law was enacted. 3,000 of these shipments were seized and banned from entering the country. Germany's Supply Chain Due Diligence Act 2023 (SCDDA) requires companies to investigate and address environmental and human rights risks in their supply chains. Meanwhile, Canada's Forced Labor and Child Labor Supply Chains Act will come into force in January 2024, with reporting requirements starting in May 2024.
In March 2024, EU legislators reached a tentative agreement on new regulations that, if formally adopted, would ban the sale and export of products made with forced labor on the EU market. More ESG regulations are being considered around the world, and many are expected to be introduced in the coming years.
The importance of compliance – CBAM example
For businesses, the impact of these supply chain rules and regulations is important. That complexity is a challenge for large enterprises, but especially for small and medium-sized enterprises (SMEs), which don't have the resources or expertise to adapt to change.
A notable example of companies not having the necessary policies, processes and controls in place is the EU's Carbon Border Adjustment Mechanism (CBAM). The scheme will come into force on October 1, 2023, and its scope covers a wide range of imported products. EU importers were due to submit their first quarterly reports by the end of February 2023, but the Financial Times reported that only a few met the deadline. In Germany, the expected report submission rate was less than 10%, while in Sweden it was only 11%.
There are no penalties for companies filing a CBAM report for the first time. But in future, companies will face fines of between €10 and €50 per tonne of unreported emissions, with penalties increasing further if three or more incomplete or inaccurate reports are submitted. do. In general, violating international trade rules and regulations carries significant risks and can result in fines, restricted market access, and reputational damage.
Putting rules and regulations in place for your business's supply chain
There are three key areas of focus to help companies comply with supply chain rules and regulations, particularly those related to ESG. You may be capable of developing these on your own, or you may enlist the help of partners in your supply chain who have the necessary expertise.
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Understand the rules and regulations – This may seem obvious, but with the regulatory landscape changing rapidly, many businesses are unsure about new and upcoming changes and what they mean for their business. I'm having a hard time explaining what it does.
Additionally, many companies are not taking full advantage of trade agreements. According to the World Trade Organization (WTO), there are currently 365 regional trade agreements in place. Companies often do not take full advantage of these contracts and their benefits. The United Nations Conference on Trade and Development (UNCTAD) estimates that EU importers only use trade agreements for 67% of their imports, resulting in billions of euros being lost each year. A research study by the Asian Development Bank found that only 45% of companies take advantage of at least one trade agreement, with the Common Market for Eastern and Southern Africa (COMESA) having low uptake in the region. Ta.
Taking steps to increase your knowledge of the rules and regulations within your business can save you valuable time and ensure compliance. Alternatively, the right partner can lend their expertise and manage complex supply chain regulations on your behalf. Understanding the rules of origin and preferential tariffs set out in trade agreements can help companies optimize their supply chains, minimize tariffs on imported goods, and increase their competitiveness in international markets. This can be done at the same time as managing liability levels and minimizing trade compliance risks.
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Data and visibility – Collecting and managing the vast amounts of data and information generated by complex supply chains is a common challenge for businesses. One major hurdle is the lack of real-time visibility. Few companies have end-to-end visibility into their supply chains, and even fewer have visibility beyond Tier 2.
Solving this will enable companies to ensure transparency and traceability and easily demonstrate compliance with relevant supply chain regulations. It also allows businesses to identify risks early and take effective measures to mitigate them before they violate relevant rules.
In this context, visibility into multi-tier supply chains is becoming increasingly important for companies. Until now, Tier 1 has been the predominant standard. However, new trade compliance rules and regulations require complete end-to-end visibility, analytics, and proactive management.
Ensuring access to the right technology can increase visibility. Investing in this space provides real-time tracking, analysis, and reporting capabilities. By creating a comprehensive map of your supply chain that includes all your suppliers and supply chain partners, you can also gain a deeper understanding of all the points and how your data is collected.
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Build strong partnerships – Selecting a partner with a common commitment to complying with rules and regulations is the first step. Additionally, the right supply chain partner understands the regulatory landscape and their obligations within it. They can provide guidance and support to ensure compliance. Ideally, global businesses need partners with local knowledge and strong partnerships that can leverage their strengths.
Selecting the right supply chain partner helps foster a culture of continuous improvement and collaboration to optimize processes, identify opportunities, and maintain compliance.
Prepare for the future
Increasing trade rules and supply chain regulations create both challenges and opportunities for today's businesses. To succeed in this environment, companies must prioritize compliance, adaptability, and innovation. By staying informed on regulatory developments, investing in quality data and end-to-end visibility, and fostering strong collaboration with supply chain partners, companies can navigate rules and regulations and achieve business objectives. You'll be in the best position to achieve it.
