Introduction to Trade Compliance

Trade compliance is an umbrella term that encompasses the conditions for all manner of trade between multiple countries. These conditions include training, classification, lending, determination of trade risk and all relevant taxes and duties. Trade compliance is made further complex by the fact that countries usually have differing trade agreements for all the different countries that they engage in trade with. Consequently, the potential number of trade agreements is, mathematically speaking, every possible combination of countries and the respective organizations within that country.

Trade compliance is a crucial aspect of supply chain management. Therefore, any company that is managing logistics at a global level, needs to be fully aware of all the facets of trade compliance.

The importance of Trade Compliance

Trade compliance standards enforce ethical practices and stability in trade transactions across the entire globe. Current trade agreements have established stringent standards in exports and imports, in which there are clearly defined repercussions for any transaction that is in contradiction of a trade agreement.

The reason for regulating exports was to curb the occurrence of possible issues of national security. An example is arms sales to individuals whose “intention was to harm America”, according to a report published by the Harvard Law School Forum on Corporate Governance and Financial Regulation. So from this point of view, trade compliance as a term may encapsulate all regulations and linked processes that lead to the promotion of vitality, safety and welfare of the global economy.

A program for defining Trade Compliance in an organization

There is a vast number of trade agreements in effect between America, its allies and third party nations. As a result, the maintenance of trade compliance is a monumental task. Instead of trying to arrive at a list of things to “do and not do”, companies may fare better by following the guidelines for due diligence, which have been established by the DOC Bureau of Industry and Security (‘BIS’). Following these guidelines can greatly facilitate the development of a functional program for Trade Compliance. The guidelines incorporate the principles given below:

  • Management has to develop and dedicate resources to the use of written standards of export compliance and put in place, qualified individuals “entrusted with the overall task of export compliance.”
  • Continuous assessment of risk must be ensured.
  • The export compliance and management program must be formally documented.
  • Compliance awareness and training should be a continuous process within the company.
  • There has to be a screening and security policy for pre/post export compliance.
  • Recordkeeping must be diligently maintained, especially with respect to designating an exporter and importer of record.
  • Compliance needs to be externally and internally monitored, and audits need to review the relevant records consistently.
  • A program has to be established for dealing any and all violations that may take place.
  • Any violations in exports must also be managed by established programs. Adequate corrective actions need to be clearly defined and, subsequent to their enforcement, recorded as well.

Source: Piecing Together the Trade Compliance