Customs and Trade Compliance, as a concept, has been historically incubating under the shadow of matured business functions like tax, legal, logistics or supply chain. However, with significant rationalization of tax laws across various tax jurisdictions and increased cooperation between tax authorities of various nations, taxation issues have gradually stabilized (more so in developed economies).

Increased stability and transparency in taxation and logistics involved with movement of goods and services across various tax and regulatory jurisdictions has contributed to proliferation of International trade. Combined with improved global trade infrastructure, increase in number of bilateral and multilateral trade agreements, companies now have more choices of suppliers, sourcing locations, customers and customer locations.

Stabilised tax issues, proliferation in international trade and increased number of choices for the business in international trade has expanded the scale and scope of compliance needs of the companies. This brings focus on a completely new area of Trade Compliance which has to evolve in order to live up to the expectation of proper documentation and disclosures in the movement of goods and services across the globe.

Multinational corporations, with significant volume and value of supply chain movements across various tax and regulatory jurisdictions are responding to this challenge by giving Trade Compliance Function an independent role?high visibility, sharper focus and increased accountability.

Early movers in this field have responded, to this challenge, by bringing the Trade Compliance function out of the shadow of its long term mentors ie tax, legal, logistics or supply chain functions. Some global organizations have instituted an office of the Chief Compliance Officer who typically heads the committee of Vice President(s) of tax, supply chain/ logistics, Trade Compliance and legal, to ensure zero tolerance on compliance related issues at a macro as well as micro levels.

Trade Compliance will be responsible for addressing significant issues like:

* Dynamics of Trade Compliance requirements for export of dual use technologies covered by Special Chemicals Organism Material Equipment and technology (SCOMET) legislation

* Vendor audit and vendor monitoring to ensure compliance with global trade restrictions. In this regard, as a user of freight forwarding services, companies are expected to monitor and ensure that the freight forwarder does not move the goods through ports / countries affected by trade sanctions

* Compliance under various governance related regulations like FCPA etc. Under the FCPA regulations US based multinationals are expected to ensure that in the course of international trade, the companies and their vendors do not indulge in corrupt practices to advance company?s business interest

* Complying with customs valuation and licensing regulations across various trade jurisdictions so as to have a consistent transfer pricing policy for the movement of goods and services across the various jurisdictions

All these issues are highly sensitive from an international trade organization?s perspective; non-compliance, therefore, can lead to penal proceedings and can also be potentially disruptive for the business.

Thus, the Trade Compliance function can add significant value by contributing towards the following areas:

* Least Cost Country Analysis and Determination

* Country of Origin Qualification and Determination under various Free Trade Agreements

* Country of Origin Reporting and Labeling Requirements

* International Export Licensing restrictions like SCOMET regulations, etc

* Intellectual Property Licenses and Restrictions

* Software encryption secrecy restrictions across various jurisdictions Besides setting up trade compliant processes, such as Trade Compliance audits and Trade Compliance monitoring, the Trade Compliance function is expected to play a proactive advocacy role also in the evolution of new age regulations like Software encryption secrecy regulation across the developing countries.

Role of Trade Compliance is not limited to International trade alone; it plays a very unique role in context of trade within India. With more than thirty state regulatory jurisdictions, Indian context has a unique challenge of complying with more than thirty unique state regulations.

A case in point is the case of alcobev industry in India which has to comply with unique labeling requirement on each SKU as per the guidelines of state?s excise department. Variation in labeling requirement under state excise jurisdictions is not a tax issue but, purely a Trade Compliance issue. It leads to inefficiencies in inventory management which results in high inventory cost for the industry. It works like this: if a manufacturer produces ten brands of beverage, and is expected to carry a minimum inventory of each of these brands, because of the unique labeling requirement of each state excise law, and with more than 30 states in India, the beverage manufacturer ends up carrying a minimum inventory of more than 300 SKUs rather than ten SKUs. With an independent, focused Trade Compliance function, alcobev manufactures in India can jointly play an advocacy role so as to get an alignment of the labeling requirement of various state excise laws, thus bringing efficiency in their inventory management cost.

Focus on Customs and Trade Compliance is very important for all the industries trading across multiple jurisdictions like players in the industries like FMCG, Oil & Gas services, Alcobev, IT & ITES, Electronics, Automobiles and others. Customs and Trade Compliance function has a key and overarching role to play in international trade of the future and there are not many trained experts in the field.

Time has therefore, come for the world trade bodies, trade related forums, organisations, individuals and training institutions to rise to the challenge of zero tolerance on Trade Compliances.

?(Rajeev Dimri is Partner, BMR Advisors. The views are personal. Himanshu Tewari, director, has contributed to the article)