Navigating trade barriers and customs: 3 tips for your business

In today’s complex and uncertain global economy, businesses face many challenges. One of these is the ever-growing number of trade rules and supply chain regulations, which has emerged as a key trend for customs in 2024.

Rules and regulations help foster transparency and create a more level playing field, for example in the case of regulations to enhance environmental, social, and corporation governance (ESG). These rules need to be carefully designed and implemented to avoid creating new complexity and placing disproportional compliance burdens on businesses. However, sometimes, rules and regulations become trade barriers – defined as artificial restrictions on the trade of goods between countries.

According to the International Monetary Fund (IMF), nearly 3,000 trade restrictions were imposed across the world in 2023 – nearly three times the number imposed in 2019. There are four main type of international trade barriers: protective tariffs, import quotas, trade embargoes, and voluntary export restraints. They stem from three key concerns:

• Environmental, Social, and corporate Governance – ESG is the primary driver of new regulations, which focus on sustainability, social standards, and labour practices.
• Geopolitical tensions – heightened tensions and trade disputes between countries have resulted in tariffs, sanctions, and other trade barriers.
• Consumer safety – governments have imposed increasingly strict regulations to ensure exported and imported goods meet safety standards and regulatory requirements.

Trade barriers affect how businesses work across borders, requiring them to rethink their processes and approaches to customs to ensure compliance, mitigate risks, and even improve their competitiveness.

ESG – a key driver of new supply chain regulations

ESG requirements are at the forefront of global trade. ESG Book research found that there are now more than 2,400 ESG regulations covering more than 80 jurisdictions worldwide. This represents an increase of 155% in the past decade and includes 400 ESG-specific reporting requirements.

The European Union (EU) has introduced several regulations since it unveiled its Green Deal in 2019. Recent additions include the EU Deforestation Law, which came into effect in 2023 and requires companies to ensure their supply chains are deforestation-free. From January 2024, the EU also began phasing in the Corporate Sustainability Reporting Directive (CSRD) under which companies must report on a wide range of ESG factors.

In the United States (US), the Uyghur Forced Labour Prevention Act (UFLPA) was introduced in 2022 to prevent goods produced by forced labour in China from entering the US. The UFLPA dashboard shows that almost 7,000 shipments valued at over USD2 billion have been delayed and detained in US ports since the law was enacted. 3,000 of these shipments have been seized and prohibited from entering the country. The 2023 German Supply Chain Due Diligence Act (SCDDA) requires companies to investigate their supply chain for environmental and human rights risks and address any risks. Meanwhile, Canada’s Forced and Child Labour Supply Chains Act came into effect in January 2024, with reporting requirements starting in May 2024.

In March 2024, EU legislators reached a provisional agreement on new rules which, once formally adopted, will ban product made with forced labour being sold or exported from the EU market. Many more ESG regulations are under consideration around the world, with many on track to be introduced in the years to come.

The importance of compliance – the CBAM example

For business, the implications of these supply chain rules and regulations are significant. Their complexity poses a challenge for large companies, but especially for small and medium-sized enterprises (SMEs) that may not have the resources and expertise to navigate the changes.

One prominent example of businesses not having the necessary policies, processes, and controls involves the EU’s Carbon Border Adjustment Mechanism (CBAM). The regime came into force on 1 October 2023 and its scope covers a range of imported goods. EU importers were due to submit their first quarterly report by the end of February 2023. However, the Financial Times reports that only a small proportion of businesses met the deadline. In Germany, less than 10% of expected reports were submitted, while in Sweden it was just 11%.

No penalties will be imposed on businesses submitting their first CBAM report. But, in future, businesses will face a penalty of between €10 and €50 per ton of unreported emissions, and this increases if more than two incomplete or incorrect reports are submitted. In general, non-compliance with international trade rules and regulations carries significant risk and can result in fines, restricted access to markets, and reputational damage.

Equipping your business supply chain rules and regulations

There are three key areas of focus that can help equip a business to comply with supply chain rules and regulations, particularly those related to ESG. They may have the capacity to develop these alone or can enlist the help of a supply chain partner with the necessary expertise.

1. Understand the rules and regulations – It may seem obvious, but with the pace the regulatory landscape is changing, many businesses struggle to say across new and upcoming changes and what it means for their business.

   In addition, many businesses are not fully leveraging trade agreements. According to the World Trade Organisation (WTO), there are currently 365 regional trade agreements in place. Often, businesses do not make the most of these agreements and their benefits. The UN Conference on Trade and Development (UNCTAD) calculated that EU importers were only using trade agreements for 67% of their imports resulting in billions of euros lost every year. An Asian Development Bank study survey found that just 45% of businesses used at least one trade agreement, while the Common Market for Eastern and Southern Africa (COMESA) flagged low utilisation rates in the region.

   Taking steps to develop the knowledge of rules and regulations within your business can save valuable time and ensure you are equipped to comply. Alternatively, the right partner can offer you that expertise and manage the complexities of supply chain regulations on your behalf. By understanding the rules of origin and tariff preferences outlined in trade agreements, companies can optimize their supply chains and minimize duties on imported goods, enhancing their competitiveness in international markets. This can be done at the same time as managing liability levels and minimising trade compliance risks.

2. Data and visibility – Collecting and managing the vast amount 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 businesses have end-to-end visibility of their supply chain, and even fewer have visibility beyond Tier 2.

   Resolving this will ensure businesses achieve transparency and traceability, allowing them to easily demonstrate compliance with relevant supply chain regulations. It also allows businesses to identify risks early and take effective action to mitigate them before they violate relevant rules.

   An increasingly important element for businesses in this context is multi-tier supply chain visibility. In the past, the first tier has been the predominant standard. However, new trade compliance rules and regulations demand full end-to-end visibility, analysis, and proactive management.

   Greater visibility can be achieved through securing access to the right technology. Investing in this area can offer you real-time tracking, analytics and reporting capabilities. By creating a comprehensive map of your supply chain that includes all suppliers and supply chain partners, you can also gain a better understanding of all points and how to collect data.

3. Build strong partnerships – Choosing a partner with a shared commitment to meeting rules and regulations is a first step. In addition, the right supply chain partners will understand the regulatory landscape and their obligations within it. They can provide guidance and support to ensure adherence. Ideally, a global business will have partners with local knowledge and a strong partnership to capitalise on that strength.

   Choosing the right supply chain partners can help foster a culture of continuous improvement and collaboration aimed at optimising processes, identifying opportunities, and maintaining compliance.

Ready for the future

The increasing number of trade rules and supply chain regulations presents both challenges and opportunities for businesses today. To succeed in this environment, companies must prioritise compliance, adaptability, and innovation. By staying informed about regulatory developments, investing in quality data and end-to-end visibility, and fostering robust collaboration with supply chain partners, businesses can navigate rules and regulations and best position themselves to meet their business goals.