RECENT REGULATORY CHANGES AND THE BENEFITS OF AUTOMATIONNicholas Stipp, Director of Asia OperationsONESOURCE Global Trade, Thomson ReutersJanuary 15, 2015 – Ficient TCM Network

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AGENDA

• DEALING WITH REGULATORY CHANGES – OPPORTUNITIES AND CHALLENGES

• CHINA’S NEW AEO (AUTHORIZED EXPORT ORGANIZATION)• CHINA’S NEW FTAs (FREE TRADE AGREEMENTS)• PROCESSING TRADE CHANGES• ONESOURCE GLOBAL TRADE

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Classification Product Classification

Tariff / Tax Rates Tax Calculation Tax Declaration / Payment Tax Accounting

Correct Goods Declaration

License NeedCounterparty

License Generation

Duty Reduction/Exemption

Customs Regulations/

Systems

Correct Customs Declaration

REGULATIONS IMPLICATIONS

License Declaration

Commercial Agreements Tax Saving Certificates of

OriginCorrect Customs

Declaration

TRACKING REGULATIONS CAN BE CHALLENGING

Rules of Origin Duty Reduction

Reporting Per Systems

Requirements

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MANUAL ANALYSIS AND COMPLIANCE IS DIFFICULT

PurchasingBOM

Trade Personnel

SalesSupplier Documents

Complicated Internal Data Gathering

Complicated Research & Preparation Work

Rules, Rates,

Licenses, CoOs

Trade Personnel

CalculationGovernment Reporting/ Forms

• Data gathering can take months and is often out-of-date once collected• Once data gathered, searching, calculation, and license applications could take hours per shipment• Multi-sourcing locations makes it difficult to keep track of enterprise-wide compliance

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Lead time improvements with

accurate forecasting

Complete automation of trade and logistics

flows

Reduction of costs in logistics and financial areas

Tax Saving using Special Customs Programs & FTAs

Risk Management and Compliance

Process standardization across

sites and countries

On-line visibility and predictability

MANAGE RISK & COMPLIANCE

COSTSREDUCTIONS

ACCELERATION OF GLOBAL TRADE THROUGH AUTOMATION OF CUSTOMS COMPLIANCE

INCREASE PERFORMANCE

ACCELERATE YOUR GLOBAL SUPPLY CHAIN

Seamless ERP integration and data

flows

Lower cost footprint versus ERP-

customized solutions

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AGENDA

• DEALING WITH REGULATORY CHANGES – OPPORTUNITIES AND CHALLENGES

• CHINA’S NEW AEO (AUTHORIZED EXPORT ORGANIZATION)• CHINA’S NEW FTAs (FREE TRADE AGREEMENTS)• PROCESSING TRADE CHANGES• ONESOURCE GLOBAL TRADE

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AEO 2015 REVISIONS• Canceled the enterprise size, trade value, business life and other requirements• Simplified procedure for certification

– Delegating the authority from GACC to regional Customs– 90 days

• Released new AEO standard – ACE contains 18 categories and 32 items

• ERP & import/export system required – GCE contains 18 categories and 29 items

• ERP required• Established dynamic re-certification system

– ACE - every 3 years– GCE - spot checks for re-certification

Lower limitation

Simplified procedure

New AEO standard

Dynamic re-certify system

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Gov

. C

omm

.

AUTOMATION EXAMPLE - IMPORT SOLUTION FLOW

ERP

Impo

rtC

usto

ms

Bro

ker

Purchase Management

Purchase Management

Shipment Mgmt

Account Payables

Goods ReceiptImport Costs Control

Serv Providers / Gov Payments Goods Receipt

Import Entry Generation

Product and Partner Master

Product and Partner Master

GTM Master Data

Accounting

Partner Screening

Import Messages

Gov. Comm.

Supplier Invoicing

Import EntryMgmt

Customs Broker Comm.

Import License

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AGENDA

• DEALING WITH REGULATORY CHANGES – OPPORTUNITIES AND CHALLENGES

• CHINA’S NEW AEO (AUTHORIZED EXPORT ORGANIZATION)• CHINA’S NEW FTAs (FREE TRADE AGREEMENTS)• PROCESSING TRADE CHANGES• ONESOURCE GLOBAL TRADE

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CHINA’S NEW FREE TRADE AGREEMENTSCHINA-KOREA FTA

• Entry into force on December 20, 2015• China 92% of tariff lines zero duties within 20 years • Korea 93% of tariff lines zero duties within 20 years • Current trade volume: $ 235.4B (2014)• Major industries expected to be affected

• Korean Exports: Cosmetics, machinery, food & beverage• Chinese Exports: Agriculture, electrical appliances, clothing, shoes

• Special considerations• Origination rules (RVC,CTC…)• Direct transport• Exception for submit COO: customs value lower than $700• Aggressive enforcement of FTAs from Korean customs authorities

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CHINA’S NEW FREE TRADE AGREEMENTS

• Entry into force on December 20• China 96.8% of tariff lines zero duties within 15 years• Australia 100% of tariff lines zero duties within 5 years• Current trade volume: $136.9B (2014)• Major industries expected to benefit

• Australian Exports: Food (meat, dairy, wine, lobster, fruit), wool, energy, minerals• Chinese Exports: Textiles, leather products, electronics

• Special considerations• Origination rules (RVC, CTC…)• Direct transport• Exception for submit COO: customs value lower than RMB 6000 when China import

CHINA-AUSTRALIA FTA

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CHINA FTA AGREEMENTS IN PERMISSION

• China-ASEAN Upgrades• RCEP

– RCEP is the largest FTA for China. The smooth establishment of the RCEP is of great importance for China to integrate regional production networks and raise the position of global industrial value chain.

In 2013, the import and export volume between China and 15 RCEP members exceeded US$1.2 trillion, accounting for 30% of the total foreign trade in China.

– China is accelerating the process of RCEP negotiations, willing to work with other parties to conclude the prolonged negotiation of the RCEP by 2016

• Others (less soon)– FTA-AP, TPP, China-Korea-Japan,

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ARE THE NEW FTAs GOOD FOR ME?

Challenges:• FTAs are large, complicated documents• The origin rules are complicated• The tariff reduction schedules are complicated• Customs compliance is complicated

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Monitoring & Reporting

Issuing C/O

Origin Determination

SupplierDeclaration

Eligibility Analysis

PROCESS FLOW AUTOMATIONPreparation

• Vendor

Management• Supplier portal • COO registration

• Certificate of Origin self issuance according to regulatory requirements

• Link to auditability• Automated

application

• FTA utilization• Savings from FTA

use• Ineligible orders• Compliance

reporting

• Master Data Management

• ERP mapping• FTA information,

Rules of Origin, Buffer

• Solution configuration

• Origin determination by product and sales order level

• Confirmation at the shipment level

• Compliance with supplier checks

• Origin rules

validation• FTA savings

modeling• Simulation for

supply chain changes

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AGENDA

• DEALING WITH REGULATORY CHANGES – OPPORTUNITIES AND CHALLENGES

• CHINA’S NEW AEO (AUTHORIZED EXPORT ORGANIZATION)• CHINA’S NEW FTAs (FREE TRADE AGREEMENTS)• PROCESSING TRADE CHANGES• ONESOURCE GLOBAL TRADE

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PROCESSING TRADE CHANGESNovember 6, 2015, China customs issued guidance that departs from traditional customs’ administration filed unit consumption write-off, and provides for a “work order write-off” model for processing trade enterprises

• Inventory management at actual production levels rather than pre-planned

• May help eliminate inventory discrepancies of bonded materials and provide improved compliance practices of processing trade enterprises and reducing their implicit compliance cost

Benefits

• A general-credit enterprise (GCE) or higher

• Conducts information management during the whole process of procurement, production, inventory, and sales, etc., through ERP and other systems, can achieve the traceable management

Conditions

• Robust linkages from production ERP to a processing trade management system are required; this is next to impossible on a manual basis

• Velocity and variation of work orders creates many more transactions that must be reported and tracked

Challenges

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PROCESSING TRADE FLOW

Master Data

Production Work Orders

Inventory mgmt

Inventory Transaction (goods receipt)

Incoming goodsImports docs.

Incoming goods local Purchases docs.

Inventory Transaction (goods Issue)

Outgoing of goodsExports docs.

Outgoing of goodsLocal Sales docs.

Reports and Automatic

alerts

Control

Sub-Contract Work Orders

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AGENDA

• DEALING WITH REGULATORY CHANGES – OPPORTUNITIES AND CHALLENGES

• CHINA’S NEW AEO (AUTHORIZED EXPORT ORGANIZATION)• CHINA’S NEW FTAs (FREE TRADE AGREEMENTS)• PROCESSING TRADE CHANGES• ONESOURCE GLOBAL TRADE

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ONESOURCE GLOBAL TRADE OVERVIEWERP – Corporate system – INTEGRATED WITH MAJOR ERPs (SAP / ORACLE)

ONESOURCE GLOBAL TRADE

ContentClassificati

on Tool

CUSTOMS

SERVICE PROVIDER

Customs BrokerFreight

Forwarder

Others

KPIs Reports Accounting Expenses Control

Customs Documents

Systems

Inspections

EDI Links Taxes Calculation

Cost Estimation

Tariff / Taxes Rates

Regulations / News

License Needs

Follow Up

Tax Reduction / Exemption

Product Database

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A PART OF OUR BROADER ONESOURCE SUITE

GLOBAL TRADE

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AUTOMATE FOR COMPETITIVE ADVANTAGE• Automate documentation and submission• Outsource compliance updates• Standardize global processes

Have confidence in your compliance

Maximize duty savings

Sell based on reduced landed cost

Reduce costs and increase scope

• Eliminate manual processes• Gain visibility for your entire supply chain

• Automatically optimize• Simply introduce programs with complicated

qualification and compliance regimes

• Improve your competitive position based on your lower cost base

• Win the market!

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MORE INFORMATION

tax.tr.comNicholas Stipp (Singapore)Phone: +65.9178.8854 Email: nicholas.stipp@tr.com

Wang Jian (Shanghai)Phone: +86.139.1543.5190Email: jian.wang@tr.com