Category Archives: Global Trade

Geopolitical Damnation 28: Customs Acts

Customs is the agency, authority, or regulatory body in a country that is responsible for collecting tariffs on, and controlling the flow of goods in, and out, of the country. While there is nothing wrong with, or damning about, controlling the flow of goods, as it ensures that products entering and leaving are safe, or collecting tariffs, as that is how many countries acquire the taxation revenue they need, the flow has to be understandable. [Moreover, import tariffs are one of the earliest forms of tax in many countries. For example, in the beginning, there were three types of taxes in the US, poll taxes (which is a type of head tax or per-person tax that pre-dated modern income tax), property taxes, and import taxes.]

Nor is there anything wrong with, or damning about, creating regulations and acts that clearly define the purpose of a customs agency, the authority it has, the documentation it requires, the taxes that can be levied, and the penalties it can apply for non-compliance. The damnation comes into play when the number of sheets of paper required to capture the rules, regulations, and constant updates to the regulations exceed the quantity of goods flowing into, and out of, a country.

For example, Brazil once updated its HTS code, that defines the import tax rates on different types of goods, 80 times in a single year. But its not just the plethora of confusing HTS codes, associated rulings, and updates that an organization needs to keep track of (which, globally, can require 2 Million data warehouse updates a year), it’s the dozens of regulations that each country subjects importers and exporters to.

For example, in the US, an organization involved in global trade has to be intimately familiar with, at a minimum, the following acts:

  • Trade Act
    that allows the President to negotiate trade agreements on behalf of the US for presentation to Congress.
  • Customs Modernization Act
    that amended the Tariff Act of 1930 and introduced “informed compliance” and “shared responsibility” that requires traders to provide CBP with accurate and timely classification, necessary data for appraisal, and to ensure adequate security of goods
  • North American Free Trade Agreement
    which is a free trade agreement between Canada, the United States, and Mexico
  • 10+2
    which is short for the Importer Security Filing introduced in 2009 that requires importers to notify CBP of impending cargo imports 24 hours in advance
  • C-TPAT
    which is short for the Customs-Trade Partnership Against Terrorism, a voluntary supply chain security program focused on improving the security of private companies’ supply chains with respect to terrorism

And may also need to be familiar with dozens of other acts, including:

  • Generalized System of Preferences
    which is a preferential tariff system which provides for a formal system of exemption from the most favoured nation principle and the more general rules of the WTO
  • U.S.-Caribbean Basin Trade Partnership Act
    which forms a trade agreement with the 23 independent countries of the Caribbean basin
  • International Traffic in Arms Regulations
    which controls the export and import of defence-related articles and services on the United States Munitions List (USML)
  • Lacey Act
    which prohibits trade in wildlife, fish, and plants that have been illegally taken, possessed, transported or sold.
  • Reciprocal Tariff Act
    which replaced the Smoot-Hawley Tariff Act which raised tariffs on over 20,000 imported goods to record levels in 1930 and which paved the foundation for modern HTS schedules

And this is just to manage import and export in the US. Some countries have lists of acts that are just as extensive. Now imagine your company does business in 100 countries. It’s damnation to the power of 100!

Geopolitical Damnation 30: The TPP Poison Pill

Sourcing Innovation first brought this up back in late 2013 when it pointed out the great post by Nathan Lee that provided a simple guide to the Trans-Pacific Partnership Trade Agreement “benefits” which is an agreement being negotiated in secret that is lopsided towards the corporation and essentially gives them more rights then individuals, communities, and in some cases, entire governments. Proposals even include giving corporations the right to sue governments if laws put citizens or the environment above corporate rights. The piracy laws are so draconian that you can be criminally charged if copyrighted material ends up on your computer without your knowledge or consent. (For example, if you visit a website that was hacked and malware on that site uses your computer as part of a bittorrent network without your consent and stores part of a copyrighted file, the owner, with the backing of the RIAA or MPA, can have you charged criminally even if you didn’t ever access the file — not the hacker that created the malware and forced copyrighted content onto your computer without your knowledge or consent).

For those of you who do not yet know what this is, it’s a proposed regional and investment treaty between twelve countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam that is being conducted almost entirely in secret despite the far reaching implications that are being discussed and the considerable impact it could have on every citizen of every country participating as it covers a broad range of issues including, but not limited to, agriculture, industrial goods, intellectual property, investments, labour, services, and telecommunications.

As a result, everyone, and every supply chain, has a reason to dread, if not fear, this act. The Electronic Frontier Foundation (EFF) has a good summary of the issues corresponding to intellectual property on their What Is TPP page as the act would rewrite global rules on intellectual property enforcement. The IATP does a good job of overviewing some of the agricultural issues in its article Whose Century is it? where it notes that nearly every country involved has food safety regulations on the chopping block as the TPP proponents are arguing that free-trade and cheap food is the best thing for a country, regardless of economic or health consequences. Every year there is a new salmonella, e-Coli, mad-cow, or similar outbreak of a deadly food-borne infection — do we really want to weaken safety standards? With respect to labour, while some US negotiators are apparently demanding meaningful and enforceable worker protections, many of the other countries are not and, more importantly, most of the developed countries are claiming that increased worker mobility will encourage a disruptive inflow of low-skill workers from developing countries and pushing for less worker mobility in our globally connected world (while the less developed countries want to level the playing field).

Regardless of what gets agreed to, the sheer fact that this trade agreement will override existing law presents every Procurement organization with a minefield just waiting to be activated. Will your supplier still be able to afford its current pricing? Will it even be able to supply you? Will you be able to expect the same quality and safety standards? Will new sources suddenly become available? How will they change the supply-demand balance? Will new tariffs materialize? Will you be forced to abandon your “Buy American” policy? Will you be forced to consider suppliers you don’t want to? All of these questions and dozens of others become valid the minute this act, negotiated in secret where it is pumped full of poison pills, gets signed into law.

If the (wiki)leaks are even remotely reflective of what’s in the act, it might make the controversial, scary Orwellian provisions of the Patriot Act look like a cuddly bunny in comparison!

Three Hundred and Forty Five Years Ago Today

One of North America’s oldest companies was founded when the Hudson’s Bay Company was granted a permanent charter to open up the fur trade in North America. At the time its charter was granted, it was the de facto government in parts of North America before other European states and, later, the United States laid claim to overlapping territories.

While it may not be a household Fortune 500 name anymore, and may not have participated in the fur trade since 1987, it was at one time the largest landowner in the world (with 15% of North American acreage). The trade routes that it opened up paved the way for settling, and eventually, administrating in North America, and it paved the way for the colonies. When it signed the Deed of Surrender (on November 19, 1869), its remaining territory became the largest component in the Dominion of Canada, in which the company was still the largest private landowner.

It’s primary business today is, of course, mercantile, as it owns multiple chains of retail stores throughout Canada and the US, and it is still doing fairly well, with Wikipedia listing its 2013 Total Assets at almost 8 Billion Canadian.

Global Process Ownership: The Other GPO

As organizations seek to become more efficient and effective, one proven strategy is the ability to manage cross-functional processes using a global process ownership (not “group purchasing organization”) model.
the maverick, “Exploring Procurement’s Other GPO”, Spend Matters

GPO is harder than it looks. As the maverick points out, it’s ultimately about having both accountability for an end-to-end process and the ability to control the strategies and resources used for the process execution. If Procurement is made accountable, but Finance and the Engineering organization controls the financial and physical resources, then Procurement cannot control the global process. And this is another reason why the full extent of negotiated savings and identified value is never realized and end results are never as expected. Because, without control to go with the accountability, Procurement cannot execute. Planning, which is just another word for Knowing, is only half the battle. And it’s a shame the CFO and the rest of the C-suite don’t remember this single lesson that they should have been paying attention to when watching G.I. Joe every Saturday morning. (It was supposed to be about more than just blowing stuff up, even though that is what is perceived as the American way.)

Of course, this assumes that Procurement even knows what to do. As the maverick goes on to explain in his next piece on “the 3 dimensions of global process ownership”, global process ownership is more than just process breadth / scope. It’s also, as some of the leaders recognize, organizational breadth / scope as most Procurement-based processes have repercussions and effects throughout the organization, and, more importantly, category management breadth / scope. The organizations that understand, and effectively execute against, this third dimension are the organizations that truly excel and make their way into the Hackett Group top 8%. Different categories have to be managed in different ways. There is no one-size-fits-all process or organizational framework.

And that’s one of the many reasons sourcing must be strategic.

Twenty Five Years Ago Today

The “Big Mac Index” went truly global when the first McDonald’s opened in the Soviet Union, only twenty-three years after the first international franchise was opened in BC, Canada, in 1967. By the time McDonald’s finally burst through the iron curtain, it was only two years away from reaching global restaurant domination, which it achieved in 1992 when it opened its first restaurant in Casablanca, Morocco and was able to claim a restaurant on all six continents.

When it comes to global supply management, few companies have the global breadth of McDonald’s and, except for a few global food companies, none are in the food and beverage business. But it shows what determination — and great supply chain management — can enable. (Especially if you’re not afraid of a little red.)