{"id":10875,"date":"2019-07-03T16:39:13","date_gmt":"2019-07-03T23:39:13","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=10875"},"modified":"2023-01-18T16:43:02","modified_gmt":"2023-01-19T00:43:02","slug":"removing-the-burden-of-fta-compliance","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2019\/07\/removing-the-burden-of-fta-compliance","title":{"rendered":"Removing the Burden of FTA Compliance"},"content":{"rendered":"

[vc_row][vc_column][vc_single_image image=”10876″ img_size=”full”][vc_column_text]This June, the EU signed two landmark free trade agreements. In this QAD Precision Report we look at the benefits of FTAs and how automated solutions relieve the burden of FTA compliance.<\/span><\/i><\/p>\n

Simplifying Free Trade Agreement Compliance<\/span><\/h2>\n

On Sunday, 1 June 2019, the European Union and Vietnam signed a landmark free trade agreement (FTA). Under the terms of EU-Vietnam Free Trade Agreement (EVFTA,) 99 percent of goods traded between the two will see tariffs reduced. Negotiations to get to this point lasted three-and-a-half years, concluding in December 2015. The EU called the EVFTA \u201cthe most ambitious free trade deal ever concluded with a developing country.\u201d<\/span><\/p>\n

Although historic, this is by no means the only significant deal recently signed by the European Union. After 20 years of negotiations, this June EU reached an agreement on a new FTA with Mercosur, the South American trading bloc. The agreement with the bloc, comprised of Brazil, Argentina, Paraguay and Uruguay (Venezuela\u2019s membership is currently suspended), gives the EU access to a market of 260 million people. Mercosur is also the fifth largest market outside the EU.<\/span><\/p>\n

Free Trade Deals Take Time<\/span><\/h2>\n

Free trade negotiations can require a significant investment of time \u2014 as the 20 years of Mercosur talks show. Furthermore, the ratification process can add several more years. Recent examples include the EU and Japan Economic Partnership Agreement. Negotiations for the deal finalized in December 2017. A year later \u2014 in December 2018 \u2014 the European Parliament gave its consent. Consequently, this cleared the way for the agreement to come into force, which it did on 1 February 2019.<\/span><\/p>\n

Similarly, the new Nafta \u2014 the\u00a0 United States-Mexico-Canada Agreement (USMCA) \u2014 is another pertinent example. After 14 months of talks, the three signatory countries came to terms on 30 September 2018. Almost 9 months later, Mexico ratified the USMCA in June 2019. Moreover, it is the first of the three parties to do so. As yet, it is unclear when the US and Canada will follow suit.<\/span><\/p>\n

The long ratification process works to the advantage of companies. During this time, enterprises can run \u201cwhat if\u201d scenarios, such as determining whether sourcing from a signatory country is advantageous, as well as finding and qualifying vendors.<\/span><\/p>\n

The Benefits of Free Trade Agreements<\/span><\/h2>\n

Although free trade deals can take years for negotiation and ratification, governments around the world are willing to invest the time required. This is because FTAs can remove trade barriers, open markets for goods, support innovation and competitiveness, as well as reduce poverty.<\/span><\/p>\n

When goods are eligible for preferential duties \u2014 low or zero tariffs \u2014 companies can source raw materials, parts and goods for lower prices. Manufacturers can leverage FTAs to sell their products at a reduced price too. This is because the duties normally paid by the customer are reduced or eliminated.<\/span><\/p>\n

Why Companies Do Not Leverage FTAs<\/span><\/h2>\n

Despite the obvious advantage of being able to offer your goods for low or no duties, many companies simply do not bother. As anybody working in global logistics supply chain management will know, keeping up with FTA compliance regulations is a complex challenge no matter what industry you are in. When a company expands into new geographies, these challenges multiply.\u00a0<\/span><\/p>\n

One study found that only <\/span>thirty percent of companies<\/span><\/a> leverage all the FTAs that are available to them. The three most frequent reasons for this were:<\/span><\/p>\n