Inspired by Britcham SP’s Webinar: ”Duty Optimisation and Trade Compliance”, with discussions among GSK’s Regional Director of the Trade Compliance Centre of Excellence – Americas, Ms Natalia Ferrite; former GSK’s Trade Compliance Manager, Ms Danielle Howden;
and Sidera Consult’s CEO and President of Britcham Sao Paulo, Ms. Carolina Saldanha-Ures
Among the numerous risk and compliance layers of import activities, there is an absolute goldmine of opportunities that businesses of all sizes around the globe can dig in and use – or dismiss.
Import taxes vary immensely, depending on the importing country, the exporting country, the bloc(s) in which original and destination markets possibly participate, national tariff reduction mechanisms, and specific rules of origin that affect all the scenarios mentioned above. Of course, companies should pay all their import taxes, but there is a way to optimise and plan these payments, evaluating the companies’ trade flows and all available tools and variables. This strategy is neither easy nor automatic at the moment of goods clearance, but there are definitely ways to do it more efficiently.
GSK is a benchmark for excellence among the companies that work with worldwide trade flows. We invite you to follow the journey that led to the structuring of its Trade Compliance Team and how their efforts have paid off.
The Starting Point
GSK is a British pharmaceutical and global healthcare company headquartered in London, which researches, develops and manufactures innovative pharmaceutical medicines, vaccines and consumer products. As such, GSK deals with various businesses worldwide in a massive and highly complex logistic operation, dispensing with all kinds of laws, regulations, authorities, their practices and regulatory interpretations (official or personal).
Most companies’ approach – and GSK’s past attitude – towards trade compliance was uncoordinated, with local operations taking desperate actions and a low level of central effort towards risk mitigation. Heavy penalties and sanctions could affect their reputation severely. Inefficient supply chains showed them that they needed a thorough transformation.
Around 2018, GSK made significant changes regarding trade compliance, creating an independent structure. This team, composed of the Centre of Excellence and the Internal Services, exists to ensure that the group’s entities comply with trade regulations, optimising import tax payments across all markets and businesses.
“With the years, we started to do and deliver much more, including the proactive search for new duty saving opportunities in special customs regimes, free trade agreements and others, depending on the local possibilities and legislations. We’ve also expanded the team globally, ensuring regional particularities in different time zones were covered, and we’ve basically transitioned from a reactive position to a proactive approach to our trade compliance. This journey took us a few years to be completed; I cannot even say it is completed yet, because things are always changing, and we are always looking for additional opportunities. We’ve started as responders to audits, went to risk mitigators and transitioned to a full and highly specialised advisory function within GSK”, reveals Natalia Ferrite.
The Trade Compliance Team
The Centre of Excellence consists of regional experts spread among all three regional divisions that GSK has globally. Its objectives include embedding the trade compliance policy internationally, driving a straightforward compliance strategy, and supporting the business in every way it can. They have many different initiatives and provide formal governance and oversight within the trade compliance organisation.
The approach is based on a central team, which gathers data for the organisation to use. It provides a comprehensive view regarding Incoterms, preferential origin, valuation, screening, authority requests, licenses & permits, duty optimisation and trade compliance data. In summary, the company now has a standardised system, which allows them to automate the record-keeping, understand the required documents, essentially eliminate delays and customs penalties, and benefit from data that is harmonically connected and consistent with each other:
“In order to ship your goods, you obviously have to have an HS code. So you come to our service and raise a “ticket”, which has the data, the information on a specific SKU number, the supplier site where it’s manufactured, and then the import markets it’s going to, and so we maintain the central database. And then this is the data that’s fed onto the invoices, and goes to the customs brokers as well. So that’s how we manage a central team, by having a central database, a ticketing system and then obviously those controls in place ensure that goods are classified in the same way because it’s one team doing it. And then it provides much certainty for the whole company”, explains Danielle Howden.
In which bucket do you put Trade Agreements?
The creation of this structure was a great strategy to eliminate risk, and this has been an opportunity for leveraging the use of Trade Agreements, for example. However, although there are many benefits from employing them, one of the biggest challenges to their application is the vast number of different rules of origin worldwide and the risks of paying duties and penalties if the company has not done it right. Danielle illustrates the situation:
“People get confused or put it in the ‘too hard basket’. They decide it’s too hard to deal with them and just go ‘forget it, we’ll just pay the duty’. Or, even worse, they say ‘sure, we’ll use it, we’ll just sign this certificate of origin’. They don’t understand any of the risks behind it, instead of looking and diving into the details of how to use a free trade agreement properly.”
A critical aspect of this mindset is to consider compliance at all levels. Companies usually think about utilising trade compliance preferences as the only thing to which they must devote attention. Instead, they must look at all the aspects of the information provided.
The use of trade agreements themselves is not the element that is regularly seen as an issue with authorities. Once companies’ teams have figured them out, they are pretty similar in their requirements. Classification of products and getting prices correct are vital elements for most operations. Extra complexities and scrutiny put all aspects of trade compliance in a certain magnitude of relevance, interacting with others.
In Mercosur, for example, there are a few trade agreements, but firms can get relevant benefits from using the existing FTAs and other tariff reduction instruments since the bloc has its own set of local and regional mechanisms to reduce duties. Thus, it would be best if companies could see the scenario holistically and tactically.
This level of surveillance made it possible to adjust to the new challenges and opportunities that came out of Brexit, for example. And not only adapt, but getting involved with advocacy and craft the desired changes. GSK can work with industry bodies to communicate the difficulties they have been facing and how they can try to improve trade agreements, making them simpler to use.
Governments do realise how complex trade agreements are and recognise that is not the policymakers’ point, i.e., to oblige companies to spend so many resources to make use of them; they should be benefiting businesses, not being a burden on them.
Among other victories, the company contributed to getting more straightforward rules of origin in place. The “Tariff Shift Rule” means that they no longer have to figure out and prove if good manufacturing has more than 50% value-added in the EU.
The implementation process is always followed by some resistance level, especially in the smaller markets, where companies feel they do not have the structure and the internal controls to manage the risks properly. Several industries show more resistance to trade compliance, usually depending on how mature their internal discussions are. Some are more willing to; others were historically lucky and were never audited. Sometimes, the most challenging part is convincing the company why you should do this, but the “why” is now becoming a lot clearer since we have witnessed many strong business cases.
Companies should demonstrate that their compliance team is there not to be auditors or point out the wrong calls, but instead, it was there to support, facilitate the use of everything available, and mitigate risk to see signs of openness. For the more significant markets, in which additional external advisors are typically employed, having a central team can be cheaper and better managed, creating a win-win situation for everyone. The result is usually a feeling of relief and an increase in the team’s confidence. And massive savings.
Finally, importers do not require a minimum size to create a duty optimisation strategy. All types of businesses could benefit from said mechanisms, and the model can be adapted to each context. Once you get the process adequately designed, it is not complex or expensive to manage, and you can get impressive results and a sustainable approach. The fewer products you have, the easier it is to implement the duty optimisation.
Why is it worth it?
First and foremost, customs authorities’ technologies get easier to cross information and spot inconsistencies. For that reason, it is worth it to mitigate your risk if you want to get the basics right and explore the benefits out there.
Most importers’ customs experts have an intuition about the fog and potholes they would have to face, but there is undoubtedly real value in confronting these traffic rules and regulations without fear and then enjoy the ride. It is a steep learning curve, it will take time and intense effort, but once you start cleaning the house and harmonising the operations, you are already in a much better place, saving money every day.
If you want to use your ticket, we at Sidera can help. For more information, please reach out to us at email@example.com.