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Are you availing the benefits of international trade agreements?

The total volume of international merchandise trade in the year 2015 across the world stood at US$32.2 trillion with US$15.9 trillion of exports and US$16.3 trillion of imports.The same figures for international trade in services stood at US$4.7 trillion and US$4.6 trillion, respectively. As per a recent McKinsey report, the total volume of international trade is expected to rise to US$70 trillion by the end of 2025.

We are in the times of rapid globalization, and almost all developed and developing economies of the world are promoting international trade for a host of economical and geopolitical reasons. As of today two of the world's largest proposed trade agreements -- The Trans-Pacific Partnership Agreement (TPP) and Transatlantic Trade and Investment Partnership Agreement (TTIP) are being negotiated.

Some robust trade agreements like The North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN), Gulf Cooperation Council (GCC), European Free Trade Association (EFTA), and such are already in place for a number of years. Still, a large number of exporters and importers across the world fail to avail the benefits of these treaties.

What is a trade agreement?

A trade agreement is a treaty between individual or groups of countries through which they aim to boost exchange of products and services. This is usually done by offering rebates in duties and/or simplifying business procedures for each other. For example, if a buyer, based in the US, imports an electric boiler made in China, it will attract a duty of 3.3 percent. However, if the same buyer imports the same product with its origin in Canada (made in Canada), it will be duty-free, since Canada and the USA are part of a trade agreement called NAFTA.

Another noteworthy point is, if the US buyer imports goods from China that have their origin in Canada, they will still be eligible for the duty rebate as per NAFTA since most trade agreements tie the duty benefits to the country of origin. Country of origin is usually the country where the goods have been manufactured or where a sizeable value addition has been done to the goods.

How does a trade agreement help?

If an enterprise gets insights into the applicable trade agreements while buying goods, then it can avail the duty benefits that its products are eligible for. A rebate or a removal of duty will directly cut down its overall expenditure and, hence, will enhance the overall competitiveness of the enterprise. To avail the benefits of a trade agreement, the business needs to provide certain documents like the country of origin certificate, etc.

Do exporters / importers avail the benefits of the trade agreements?

A recent study conducted by leading consulting company KPMG, revealed that only 41 percent of the enterprises in the US avail the benefits of all trade agreements that apply to them. The figure stands at 19 percent for India. The same study suggests that 79 percent of the enterprises in the US believe that a lack of awareness and the complexity in the regulatory documentation are the primary reasons due to which they miss out on the benefits from trade agreements.

How can Oracle GTM help avail the benefits and make organizations more competitive?

Oracle Global Trade Management (GTM) can easily identify the applicable trade agreements and generate the documents required to avail benefits. The following lists the key features of Oracle GTM:

Identifying the applicable trade agreement: Oracle GTM with its out-of-box (OOB) feature of Landed Cost Management can let any enterprise know about applicable trade agreements and their benefits. All it takes is entering the classification code of the product along with the source and destination country. With this much information, the enterprise will be made aware of the applicable trade agreement and the duty benefits tied to it.

Generating the documents required for availing the duty benefit: Once the applicable trade agreements are found, the required documents can be generated out of GTM using the feature of document generation. These documents can be further submitted to the customs authorities to avail the monetary benefits directly.

Please meet us at the Infosys Booth during the OTM SIG APAC 2016 Conference (Singapore) and we shall be delighted to showcase our GTM solutions. 

*Date Source - World Bank - https://www.wto.org/english/news_e/pres16_e/pr768_e.htm

Written by: Mohammad Haider Talat and Ravikiran Narayan Khobragade

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