Trade with emerging markets
Compliance Lapses in Emerging Markets Can Affect Company's Reputation and Bottom Line
11 December 2018
Over the past few years, a raft of developments and various ongoing trade negotiations have made the international trade environment more uncertain: the UK exit from the EU, the trade war between the US and China, and the unpredictable and opaque trade rules issued by some governments. Whatever the outcome of these developments, business with our traditional partners in the West will never be quite the same. As a result companies now have a strong incentive to explore new markets
With steady growth rates, an abundance of natural resources, and a potential customer base comprising most of the world's population, emerging markets offer huge growth opportunities for those companies
While emerging markets have opened up trade opportunities, trading rules have become more complex, competition has become more intense, and supply chain risks must be carefully managed to prevent disruption across international borders.
Aside from the obvious political risks and ethical norms, which are very different from our own, additional risks in emerging markets apply, such as economic volatility due to excessive dependence on raw materials or commodities. Many of these countries are also ruled by authoritarian regimes, which can make sudden decisions on tariffs, quotas or foreign exchange, which in turn can dramatically affect terms of trade.
Companies engaged in trade should take note of the increased stringency of enforcement in the classification and valuation of imported products, which is a multi-disciplinary field and can result in costly government investigations and penalty actions. Since increasing government scrutiny in importing countries and advances in online technology are now greatly impacting supply structures and sourcing strategies, it is crucial that companies be up to speed on growing trade compliance demands in order to avoid penalties and disruption to their supply chain.
Penalties for non-compliance with trade and customs rules may result in the imposition of hefty fines at the border, seizure of the imported goods, suspension of the importer's import license, and filing of criminal charges in the case of fraud. Goods already cleared from customs may also be seized by customs authorities in the event of non-payment of taxes and duties and sequestered by regulating agencies for violation of marking, safety, health, quality and other standards.
In my many years of work involving international trade with emerging markets, I have noticed that many companies are unaware of the trade compliance issues involved, and even if such issues are known, companies sometimes tend to ignore them, not realizing that proper planning can result in enhanced supply chain efficiency. Rather than being proactive, some companies just prepare to implement corrective measures in the event of a full-blown customs investigation in the country of import.
Trade compliance work for emerging markets is a challenging field, especially because of the high level of non-compliance among trading firms, and we have been involved with a great deal of remedial work and adversarial proceedings, such as fraud investigations. As such, managing cross-border trade requires multiple skill sets and integration of customs and trade understanding. Doing trade compliance work also requires experience in dealing with the private sector and governments, as well as a background in the fields of trade regulations, customs, tariffs, international trading arrangements, logistics and supply chains.
It would greatly benefit companies planning to trade with emerging markets to work with trade compliance professionals who can provide training and trade-risk determination. These trade professionals can take the lead in resolving trade-compliance issues, setting up a basic compliance system, managing solicitations in the field, and helping companies to approach new markets with renewed confidence.
Alice Cheung is currently nominated with two roles, Vice President (Hong Kong), Intertek Caleb Brett and Regional Commercial Director (Asia), Intertek Government & Trade Services. Alice has been active in driving a number of thought leadership projects which is helping governments and organizations improve the compliance of imports with safety standards and secure the international supply chain. Today, she not only focuses on trade business in emerging markets but also works with a growing number of C-level executives as a trusted advisor for a number of strategic market accesses across the regions.