According to the United Nations Conference on Trade and Development (UNCTAD), the global trade in goods hit its all-time quarterly high of $5.6 trillion in 2021 amidst the COVID-19 pandemic. Global trade, which is characterized by shipments of goods between countries, is a crucial aspect of supply chain management. Companies participating in international trade are usually under trade agreements and are subject to customs regulations to track and trace their shipments, as well as monitor the status of goods and maintain trade limitations.

Trade agreements define the tariffs and duties that countries impose on imports and exports. Tariffs or customs duties can be reduced or zero-rated if companies participate in Free Trade Agreements (FTAs). FTAs are instrumental in promoting cross-border trade between countries. It also deals with any issues that may hinder the flow of goods and services like behind-the-border barriers.

To take advantage of FTAs, several conditions must be met. First, the agreement should specify the eligible products for which the preferential duty rate is provided. Second, the agreement should indicate specific conditions about production processes and transport routes. And third, the proof of preferential origin of the goods must be accurately documented. These conditions can be complicated and time-consuming when done manually, especially for products that contain multiple components and raw materials and are outsourced from different countries.

Trade Preference Management

Companies are required to provide specific preference documents when delivering products to their customers. Usually, preference determination entails manual collection of supplier declarations, elaborate analyses of product-content origin, and complex value calculations using Bill of Materials (BOM) data. This process is risky, error-prone, and costly.

SAP Global Trade Services (GTS) provides comprehensive functionality for trade preference management. It automates the process of trade preference determination by utilizing content-based rules of origin to find out which products are eligible for reduced import duty rates. The process includes:

  1. Requesting and managing vendor declarations
    • Collect relevant purchase orders and material documents
    • Empower suppliers to maintain the origin of materials with self-service functionality
  2. Calculating product origin and preference eligibility
    • Calculate product origin for products using official trade agreement rules
    • Determine preference eligibility using different methods such as sales documents, invoices, and bill of materials
  3. Enhancing preference processing at a level beyond product ID
    • Maintain preference origins at a more detailed level e.g., batch level
    • Conduct compliant calculation of preferential origin based on production/process orders
    • Integrate identity-based preference eligibility in issuing vendor declaration information
  4. Generating declarations for customers
    • Automatically generate and manage declarations for customers receiving your products
    • Issue and reissue declarations in the event of a change in preferential eligibility
    • Integrate with sales and distribution processing in the SAP ERP application and customs management in SAP GTS

With SAP GTS, your organization can benefit from simplified trade preference management. Furthermore, utilizing SAP GTS add-on Identity-Based Preference Processing (IBPP) can maximize your preference determination by leveraging more granular data. This works by calculating only the components or raw materials that are used during the production process. SAP GTS IBPP offers a more precise result since preference processing is done via specific batches and so, preference status is stored at the batch level. Now, you can pick directly from those eligible batches for customer shipments.

Ropaar is a trusted “TRADEblazing Partner” for SAP GTS project implementations. Let Ropaar help you strategically leverage free trade agreements, maximize eligible products through preference determination, and efficiently manage vendor declarations. Request your demo today!