Only thirty percent of multinational corporations fully use all of the Free Trade Agreements (FTAs) available to them, likely paying excess tariffs and duties, according to 2015 global trade management survey
Our research highlights how only thirty percent of companies fully use all of the Free Trade Agreements (FTAs) available to them.
Thomson Reuters inaugural Global Trade Management Survey conducted in partnership with KPMG explores significant trends impacting international trade and supply chain professionals in today’s environment.
FTAs have become increasingly prevalent since the early 1990s. As of April 2015, some 612 notifications of FTAs have been received by the GATT/WTO. Of these, 406 are in force.
Our survey showed that most organizations globally have between one and two FTAs in use, but the global average is 2.3. Full utilization of FTAs is quite low at 30 percent globally.
Twenty-five percent of respondents said their companies utilize no FTAs, and 36 percent are using just one or two.
Uptake of Free Trade Agreements
“Even large companies tend to underutilize FTAs. Sometimes this is driven by lack of knowledge, but more often by concerns about the difficulty of compliance and fear of penalties. With more FTAs coming on stream every year, not using FTAs is going to mean a major competitive disadvantage. We have seen with our customers that solid processes and automation are keys to effortless and confident FTA adoption.” – Hoon Sung, head of FTA, Thomson Reuters, ONESOURCE Global Trade
Seventy-nine percent of respondents cited either complexity with rules of origin or difficulties gathering documentation as one of the primary roadblocks. Fifty-nine percent said their companies miss available FTAs because they lack the internal expertise to identify them or the personnel to manage their compliance.
The potential to better leverage the more than 400 FTAs is an opportunity globally, particularly with new agreements pending. One would expect the use of FTAs to increase in the future since not fully utilizing them is leaving money on the table.
How can big data help?
The results did not indicate FTAs utilization as a consequence of not fully automating processes. What respondents indicated was that they have difficulty identifying opportunities to qualify goods under FTAs-specific rules of origin. Clearly an automated solution assists with the process, but having visibility to the opportunities, qualifying attributes and ties to the sourcing and financial information, allows the trade professional to approach FTAs utilization with confidence. What companies need to implement is a FTAs planning tool that allows customers to look at a transaction and immediately determine if any of the FTAs can be leveraged at the HS level.
Despite the challenges within our global economy, global trade volumes will resume growth rates that exceed GDP. National governments view exports as key drivers in economic growth so the trend for trade liberalization will continue. As trade barriers are lifted, every industry will potentially find new geographic markets for their products and services.
The rapid advances in technology will provide companies with the resources to manage their supply chains in real-time. This means opportunities to grow their sales internationally while delivering their products more efficiently. Companies that openly embrace new technology and have firm commitments to automate their supply chain functions will have a competitive edge over their peers.
Access to data in a unified and organized manner and the ability to quickly utilize this information for supply chain decisions aren’t simply an option for multinational companies today. They are essential elements of a supply chain strategy required to compete in today’s global economy.