Free trade agreements (FTAs) offer great opportunities for importers and exporters to expand their business and reach new customers in global markets. Among the many benefits these provide is the chance to take advantage of preferential or zero-rated tariffs to reduce costs and make products more competitive.
However, achieving this is not always simple. It can be difficult to determine exactly what products will be eligible for tariff relief, especially for makers of complex manufactured goods. This is particularly challenging when it comes to assessing whether items meet rules of origin requirements.
Many FTAs offer preferential rates for goods that come from favored partner countries. But rules for this differ widely around the world, with each agreement having its own definitions of what percentage of parts will be required to claim relief. With over 250 FTAs in force around the world, keeping up can prove challenging for even the largest firms.
The importance of accurate origin calculations
Conducting thorough, accurate origin calculations is vital if firms are to take full advantage of FTAs. Key reasons for doing this include:
- Cost savings: Accurately identifying products that can benefit from reduced or eliminated tariffs reduces spending. However, if calculations are performed incorrectly, firms may miss out on savings they are entitled to.
- Ensuring compliance: Conversely, inaccurate declarations that mislabel the origins of a product could lead to delays at ports of entry while corrections are made, or even trigger financial penalties if firms have been incorrectly claiming preferential rates.
- Supply chain optimization: Understanding clearly what preferential options are available can help with decision-making when it comes to setting up manufacturing facilities or deciding where to source raw materials from.
- Streamlining shipments: Having clear, well-documented information regarding a product's origin helps ensure customs processes are cleared as quickly as possible
Taking advantage of preferential FTA rates
In order to make the most of these advantages, it's essential that businesses are able to fully explore what opportunities are available and ensure that any relevant rules of origin are being applied correctly.
This starts with conducting detailed research into regulations for each country in which a firm operates. As well as identifying what preferential rates are available, this should also involve determining what certifications will be necessary in order to make a claim. In turn, this requires careful management of suppliers to ensure the correct declarations are being made in a timely manner to avoid any delays at customs.
Finally, it's important for companies to keep up to date with any changes in rules so they can remain in compliance. For instance, many agreements evolve over time, which may increase or decrease the threshold at which relief can be claimed. This can also prove challenging when firms are trying to manage complex supply chains that encompass multiple FTAs.
The benefits of a smart OCS solution
To make this as easy as possible, it pays to have comprehensive software available. MIC-CUST's Origin Calculation Solution (OCS), for example, offers all the tools companies need to make the process of finding and applying for preferential duty rates simple.
MIC OCS provides a centralized platform to assess rules of origin for more than 250 FTAs worldwide, with updates automatically applied as rules change. Integrated supplier declaration management also makes it easy to collect and validate origin information, while robust reporting tools give customs teams clear, auditable documentation to support every claim.
By streamlining calculations and documentation, the right software reduces the risk of costly errors, shortens clearance times and maximizes opportunities for savings. With these capabilities, companies can make the right decisions when expanding into new markets or assessing their suppliers to ensure they’re making the most of every FTA and staying compliant with the latest regulations.