Global Logistics and Supply Chain Strategies - August 2008 - (Page 48) Free-Trade Pacts Create Challenges and Opportunities for Importers BY JEAN V. MURPHY Regional and bilateral free-trade agreements offer big potential savings to companies that are able to manage them effectively. Having the right technology is a critical key to success. proliferation of bilateral and regional trade agreements in recent years has made it more difficult than ever for companies to understand the many duty-avoidance options they might leverage to lower the total landed cost of imported goods. The World Trade Organization estimates that by 2010 there will be around 400 such agreements. While these go against the WTO’s support of broad, multilateral trade pacts, the slow pace of the current Doha round of multilateral negotiations has made the relatively rapid time-to-benefit of bilateral agreements an attractive option. Many WTO members already are party to 10 or more such agreements, WTO DirectorGeneral Pascal Lamy said in a recent speech. He warned that the rules of origin that typically are a keystone of these pacts complicate both the production process of A businesses that have to comply and the lives of customs officials who have to monitor and enforce them. Moreover, he added, they compromise “the transparency of the trading regime.” Nevertheless, preferential agreements offer significant savings opportunities to companies that are able to manage them effectively. Most enterprises, however, fail to tap the “huge opportunity” available and leave “millions of dollars of potential financial improvement” on the table, according to a 2007 benchmarking survey of hundreds of corporations by the Aberdeen Group, Boston. With the help of Global Data Mining LLC, a trade data analysis specialist, Aberdeen more specifically quantified potential savings among five enterprises from various industries using actual trade activity. These companies, which had revenue ranging from $3bn to $31bn, were collectively found to have $261.2m in untapped savings opportunities. That is over and above $100m that the five companies already had saved since 2001 by leveraging trade agreements and other duty-reduction programs. Most of the untapped savings could be realized by focusing just on the top 10 percent to 20 percent of opportunities, the report said. One reason that companies are not doing a better job in this area is because “they are significantly under-invested in technology for global trade management,” says Beth Enslow, senior vice president for supply chain risk management at Marsh, New York. “This is ironic because global trade is the fastest-growing area for many companies and it still is largely being managed with sweat and spreadsheets,” she says. Another issue is that companies have not raised trade compliance to a strategic level and often treat trade compliance people “like administrative clerks,” says Enslow. 48 AUGUST 2008
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