Supply Chain Brain - December 2009

Managing Free-Trade Agreements Is Crucial

FTAs are a hot topic in Washington, D.C, and in the corporate world, says Nathan Pieri, CEO of

Management Dynamics. He discusses their benefits and challenges, and outlines what you need

to know to make them work to your greatest advantage.

Without a doubt, free-trade agreements are important to countries because they stimulate trade and contribute to GDP growth. But companies are no less interested because FTAs reduce or remove barriers that keep trade costs artificially high, Pieri says. A reduction in duties has a direct relation to reducing the cost of goods sold, for example. If you can lower the cost of imports, you can chip away at some of the price points in your markets.

However, it’s one thing to recognize the benefits of FTAs, such as duty reduction, it’s quite another to manage them. The process of soliciting suppliers for needed information and the accompanying process of qualifying a transaction for duty relief is quite complex.

For instance, the former may entail canvassing each supplier for the data needed to certify the country of origin of parts. Qualifying involves scrutiny of every component of a transaction, such as the bill of materials, all of which must be certified before there can be any savings.

Attempting certification manually is rife with errors, Pieri says, yet a Management Dynamics study indicates fully 65 percent of companies do that very thing. The solicitation/qualifying

process takes anywhere from 20 minutes to two hours for each transaction, he says. There are more than 200 free-trade agreements in force around the world, and companies with truly global operations may be trying to take advantage of a number of them. “Imagine sending form letters to everyone and trying to qualify certificates ...” Pieri says.

As many as 35 percent of those companies that attempt trade-regulation management manually do not pursue available FTA opportunities. “They just don’t do it because it’s too difficult.”

Implementing management software alleviates those hassles, in Pieri’s view. And now with plug-ins, subscribers don’t need to purchase upgrades. They can simply download content that reflects the most recent changes in trade treaties and their rules and regulations.