Leveraging FTAs to Mitigate Duty Increases: A Strategic Approach
In our globalized economy, companies are familiar with navigating complex tariff and duty regulations. Recently, however, many businesses have been grappling with unexpected increases in duty rates, impacting profitability, sourcing decisions and supply chain management. However, one strategic approach can significantly alleviate these challenges: qualifying for Free Trade Agreements (FTAs).
Why Now?
Historically, some companies have chosen not to pursue FTA qualification due to the complexity of qualifying under various Rules of Origin or minimal savings. With recent duty increases, that perspective warrants reconsideration. Qualifying for FTAs where a company has not previously bothered to qualify can reduce or even eliminate the increase in duty rates. It’s an often-overlooked opportunity that could result in substantial cost savings.
The Importance of Verifying Country of Origin
One critical aspect of qualifying for FTAs is accurately determining the country of origin. Misclassification or assumptions can lead to compliance issues, fines, and the loss of preferential duty treatment. A thorough review of your supply chain, from raw materials to finished products, is essential to correctly establish origin and ensure eligibility for FTA benefits.
Even if qualifying for an FTA isn’t the objective, determining rather than assuming the country of origin could reduce the applicable rate of duty on a product. For example, a finished good coming out of China might, in fact, have enough non-Chinese content so the country of origin is somewhere other than China.
The USMCA Factor: Mitigating Tariffs on North American Trade
Recent tariff increases on goods imported from Mexico and Canada have raised concerns among businesses heavily reliant on cross-border trade within North America. The United States-Mexico-Canada Agreement (USMCA) offers a significant advantage by potentially reducing or eliminating these tariffs. By qualifying your products under USMCA, you can maintain cost efficiencies and avoid sudden financial impacts resulting from tariff hikes. Reviewing your product qualifications under USMCA could be the difference between absorbing higher costs and maintaining competitiveness.
Automating the Qualification Process
One of the biggest hurdles companies face is the manual effort required to verify origin and complete FTA qualification. Fortunately, modern automation tools are now available that can streamline this process. Affordable, efficient solutions are within reach, allowing companies to seamlessly verify their products’ origin and maintain compliance without incurring high administrative costs. Look for solutions that offer FTA qualification for any FTA right “out of the box.” This will minimize or eliminate any customization. “Out of the box” solutions should be able to ingest a costed Bill of Materials (BOM), apply the Rules of Origin, and qualify a product within minutes if not seconds.
Further, by integrating automated systems (PLM, ERP, Item Master, and FTA automation), businesses can manage the complexities of FTA qualification with ease. This not only reduces the risk of human error but also frees up valuable resources to focus on core operations.
Taking the First Step
To make the most of FTA opportunities, companies should evaluate their current product lines and supply chains to determine where qualifying might offer financial relief. Investing in affordable automation tools can make the process far less daunting, ultimately reducing overall costs and keeping your business competitive.
Embracing FTAs strategically could be the key to not just mitigating duty increases but actively enhancing profitability. Start exploring your qualification options today, and secure a more sustainable future for your business.