Considerations of regulatory, legal, and commercial requirements in global trade

According to the UN Conference on Trade and Development (UNCTAD), global trade among countries and economies could reach almost USD 32 trillion in 2024. To secure their share of this economic pie and protect their interests, countries have negotiated and signed Preferential Trade Agreements (PTAs), Free Trade Agreements (FTAs), Comprehensive Economic Cooperation Agreements (CECAs), and Comprehensive Economic Partnership Agreements (CEPAs) with other countries and economic blocs. For example, Singapore has 15 bilateral and 12 regional FTAs, Australia has 18 agreements with over 20 countries, and India has signed as many as 14 FTAs. Meanwhile, the EU, which has the largest trade network in the world, has over 40 individual agreements with countries and regions.

PTAs, FTAs, CECAs, and CEPAs provide opportunities for importers, exporters, traders, and manufacturers to add resilience to their supply chains and profit from cross-border trade. However, these agreements also introduce additional regulatory, legal, and commercial constraints and requirements. These complexities often stem from positive lists in PTAs and negative lists in FTAs.

According to the World Bank, SMEs/SMBs constitute 90% of businesses and provide more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. Many of these importers, exporters, traders, and manufacturers are small and medium enterprises (SMEs/SMBs).

Due to the complexity of the regulatory, legal, and commercial requirements imposed by PTAs, FTAs, CECAs, and CEPAs, many SMEs struggle to take full advantage of these agreements due to a lack of expertise and insufficient resources. Additionally, a single misstep in complying with regulatory and legal requirements can pose an existential threat to SMEs. These missteps can cause delays at customs clearance, resulting in costly demurrages and detentions. Common mistakes include incomplete documentation, incorrect HS and HTS codes to describe products, and Certificates of Origin (CoO) that do not adhere to FTA provisions (Preferential Certificate of Origin or PCO). Countries that are parties to FTAs and other agreements have their own regulations for issuing CoOs. For example, in India, an ordinary Certificate of Origin is issued by both the Indian Chamber of Commerce and the Trade Promotion Council of India. However, a Preferential Certificate of Origin or PCO is issued by the Export Inspection Council. In Singapore, an ordinary CoO can be issued by several chambers, including the Singapore Chinese Chamber of Commerce and Industry, the Singapore Indian Chamber of Commerce and Industry, the Singapore International Chamber of Commerce, the Singapore Malay Chamber of Commerce and Industry, or the Singapore Manufacturing Federation. However, a Preferential CoO is issued by Singapore Customs.

The CoO is just one of the regulatory documents required in cross-border trade. There are also other legal documents, such as Bills of Lading, Shipping Instructions, and Commercial Invoices. Adding to the complexity, the rules for calculating various costs on a commercial invoice depend on the incoterms. Below is a snippet for calculating value on a commercial invoice for various incoterms:

As mentioned by Mr. Heng Swee Keat, Minister for Finance, at the official launch of NTP on 26 September 2018, a single trade can involve over 25 parties, generate 30-40 documents, and require 60-70% of the information to be manually re-entered at least once. These regulatory, legal, and commercial documents can contain more than 1,000 fields gathered from different parties involved in the trade, such as shipping lines, freight forwarders, customs agents, banks, and business partners. Keeping track of all this data and creating the required documents can be daunting for SMEs, which are constrained by limited expertise and resources. Mistakes or omissions can jeopardize the entire business of an SME and threaten its reputation among business partners.

To navigate such a complex ecosystem of regulatory, legal, and commercial requirements, SMEs should embark on a digital transformation journey. Digital transformation will help SMEs take advantage of the latest technologies, such as Artificial Intelligence, Automated Document Processing, Big Data, and Secure Communication. By utilizing SaaS tools and platforms, SMEs can address expertise and resource constraints without needing to hire experts in AI. Instead, SMEs can subscribe to SaaS tools and platforms to leverage the technology while focusing on their core business.

Platforms like TradePlan can help SMEs find the relevant 6-digit international HS code and the national import/export HS code for their products, and highlight corresponding regulatory and legal requirements based on their origin and destination. Traders can create and maintain a catalog of their products in TradePlan. Additionally, they can create a bill of materials for the constituent components of these products. Based on the HS codes of the constituent components, TradePlan can help create import/export scenarios, showing traders how to optimize their costs and take advantage of various trade agreements between the origin and destination countries. This can help traders fulfill their regulatory, legal, and commercial obligations while avoiding potentially costly mistakes.