Remember the postcard tax return? It’s been touted by various government officials since 1950. The idea is simple (and beautiful): What if you could file your taxes on a simple, easy-to-use postcard? Just imagine all the hours you could save! Or how about Form 1040EZ? The name itself underscores the simplicity. That is, until you read the instructions. (The EZ version has been discontinued, but the current Form 1040 comes with 114 pages of “EZ-to-read” instructions that are supposed to make your life a breeze.)
From taxes to telephone bills, human beings crave simplicity. Psychologists even have a term – “the simplicity principle” – that basically describes how our minds strive to draw interpretations of the world that are as simple as possible. Studies have shown that complexity, on the other hand, is often viewed as a nuisance and can be a significant hinderance to our performance.
In the marketplace, we are even furthered conditioned to seek simplicity. Consider:
- One-Click Checkout
- Instant Messaging
- Movies On Demand
- Same-Day Delivery
Easy, right? The problem is even simple things can be extraordinarily complex. Look no further than your mobile phone, for instance. Simple enough. Until you start to think about all the software, circuits, satellites and sensors that comprise that device in your pocket or purse.
Five compliance myths
When it comes to trade compliance, few things are simple or easy. This is because the underlying regulations are nuanced and complex. A great consultant can go a long way to simplify things and distill them down to what really matters for your business. That said, we continually hear from people about how things should be easier. And we continually have to explain why they aren’t. (Or why they can’t be.)
Here are the top five compliance myths we encounter the most:
MYTH #1: The “Magic” Compliance Button
To be fair, I don’t remember anyone actually using this term. It usually sounds like: “Isn’t there software or AI that can do all of this for us and take care of everything?” While there are numerous software platforms to help automate some compliance functions, at the end of the day, you’ll still need a human being to understand the requirements and act on the data. Restricted parties screening software is a good example. There are programs that will return instantaneous results – making life much easier. But you’ll still get false positives. You’ll still have things like sectoral sanctions, end-user/end-use considerations, “unverified” parties and a host of other considerations for your transactions.
How about HTS classification? A couple of years ago, I saw an AI “bot” that was advertised to perform HTS classification. Now, I have no doubt this bot can get you to the right chapter of the HTS. Maybe even the right sub-chapter. But does anyone believe it’s smart enough to research CROSS rulings, understand the Explanatory Notes, and document a rationale for a code to the 10th digit? At the end of the day, software can get you data in a split-second. But we will always need intelligent trade compliance people to interpret and act on this data.
MYTH #2: The “Blanket License”
Wouldn’t it be nice if the U.S. Government approved your company to ship whatever it wants, at any time, to any person or place in the world? Perhaps they’ll even authorize you to provide a range of services and sell your technology across the entire planet? Guess what? They won’t.
Nevertheless, as trade compliance consultants we are frequently asked: “Can’t I just get one license to sell all my products for <insert continent>?” Export licenses are far more specific than this. They are typically limited to a certain value, timeframe, quantity and end-user/end-use. For technology and technical data, certain aspects can be allowed to some countries but not for others. Example: You could be approved to only share basic “use” instructions with Country A, while Country B would allow for much broader sharing, including design, manufacturing know-how maintenance or repair. Either way, there will almost always be a proviso that the information cannot be re-exported to Country C. It all depends on the nature of your product and where it’s going. Alas, there is no such thing as a “blanket license.” (And there never will be as long as countries strive to control their imports and exports.)
MYTH #3: The “Magic Broker”
I’ve spoken to so many people over the years who brush away the whole topic of trade compliance with one simple sentence: “Our broker handles all of that stuff for us.” Sadly, these same individuals are often the ones who find out (the hard way) that their broker does not – in fact – “handle all of the stuff.” Whether it’s AES filings, licenses, destination control statements, duty drawback or protests – brokers can claim to do a lot of activities for you. However, at the end of the day, the rule of “garbage in / garbage out” applies. Simply put, if you are feeding your broker the wrong information, they’re most likely just passing that on to the governmental agencies. Yet it’s your company – not your broker – who is ultimately going to be responsible for that bad information.
Even worse are the stories I hear about brokers who are supposed to be doing X, Y and Z for their clients. But when we dig into the details and review records, we find out this is not actually occurring. Even when a client has been paying for the service! Sometimes, the broker is unable to produce records to prove they’re doing what they’ve been hired to do.
These are hard lessons to learn. Brokers are not your genie in a bottle. They cannot simply grant your every compliance wish. Seasoned trade compliance professionals know to follow the principle: “Trust but verify.” This means flowing down specific requirements to brokers, receiving copies of all records they file, and periodically auditing those activities to make sure they are representing your company in the right way to the governmental agencies.
MYTH #4: One-Stop Shop
It goes like this: “Isn’t there one place I can go to find out all the information I need and have all my questions answered?” Unfortunately, no. A few years ago, the U.S Government touted a very ambitious plan to create one list of controlled items, one government agency to enforce the rules, one license application for all exports, and one single IT system to manage it all. It all sounds so … beautifully simple.
Today, in the United States, we have two control lists, three governmental agencies (primarily) plus dozens of others who have input into decisions, a myriad of systems and applications and forms, not to mention a range of other restricted parties lists. That is just the beginning.
Perhaps one day we will have a “one-stop shop” for every trade compliance question. But it doesn’t exist today.
MYTH #5: The Perfect Program
“I want a compliance program that will guarantee we never have a problem.” Sorry, can’t help you. Even the most robust programs come down to one common flaw – they all have humans responsible for operating them. And people do strange things. All. The. Time.
The best you can hope for is a great program with a superb audit function. One that helps you identify – and if necessary, report – problems. But also one that goes further than this. A really exceptional audit program will identify the root causes of your gaps and implement corrective actions to fix them. Even then, you’ll be relying on humans to perform these audits and complete the steps above. This is the best any company can hope to do.
Whether it’s taxes or trade compliance, our desire to make things simple is admirable indeed. However, the complex world of import/export control regulations requires a knowledgeable professional to help you skillfully navigate the rules.
Do you need help separating trade compliance fact from fiction? Our team of specialists can help. Schedule a no-charge consultation today.
Tom Reynolds is the Vice President of Operations for Export Solutions, a consultancy firm which specializes in helping companies with import/export compliance.