The Future Of Trade Compliance: How Technology Is Revolutionising The Industry
Webinar Started:
Adnan Zaheer Introduction:
iCustoms is a revolutionary trade compliance platform for every business.
Lars Karlsson Introduction:
As the global head of trade and customs consulting at AP Miller, an ocean shipping company with over 100 years of history, I welcome all of you to this timely webinar.
We live in interesting times where events like these are crucial for sharing ideas and taking action. Our company is transforming significantly from an ocean container shipper to an integrator of end-to-end trade solutions across all transport modes through digitalisation.
Given the current state of trade wars, conflicts, and trade barriers raised in the post-pandemic world, this transformation is necessary. Despite these challenges, trade remains a key driver for development, growth, and poverty reduction.
The good news is that digitalisation has accelerated in international trade, not only in digitising paper documents but also in changing processing and supporting international supply and value chains with data pipelining.
However, the bad news is that change could be faster. As a part of the industry driving international trade, we must accelerate this change. I look forward to this discussion.
I started my career with Swedish Customs in 1984, the first and only job I applied for.
I worked on digitalisation, where we introduced the first electronic signatures, EDI, and the 99 paperless system. This led to the development of other concepts such as authorised economic operator programs, the single trade window, and the first-in-the-world mark.
Throughout my career, I have been involved in around 25 single trade window projects worldwide, culminating in serving as a Director at the World Customs Organisation for six years.
Regarding the three most important things to address, standardisation is crucial. Having worked at the World Customs Organization, I know that standardising customs and borders is a slow and lengthy process.
As I often say, I have been married to the same woman for 34 years and have spent more time on standardisation than with my wife.
Walter Introduction
Good afternoon. My name is Walter Vandermeer, and I work for UBS. I also work for United Parcel Service, a company that has existed for 116 years and provides integrated services where customs clearance is key to our success. With very integrated IT systems, customs clearance is possible today.
My work involves being active within the European Union, specifically working with the European Commission and Digi Taxes on customs legislation.
I am responsible for trading compliance within UPS, serving as the chairperson of the Amgen EU committee, and being a part of the European Express Association.
Through these roles, I am exposed to many new and current IT projects that deploy technology to make customs legislation work. It is a very exciting time, as we live in transformative times.
I have been in the business since 1984 and witnessed the first technological disruption in customs brokerage, which was the replacement of the Telex by the fax machine. Now, we are talking about predictive service artificial intelligence, which is crucial to tackling today’s challenges.
As Lars mentioned, there are more restrictions, and we need earlier and better data availability, which is only possible with today’s and tomorrow’s technology. I will provide examples of this later in the webinar. With it, we can succeed and avoid a competitive disadvantage.
Mark Introduction
Adnan, it’s great to be here. My background is quite different from Lars’s. I have 20 years of experience in banking, mainly in corporate and investment banking, as well as payments.
However, I was looking for a change in perspective and a focus on technology when I joined HM Revenue and Customs (HMRC) at the end of 2019. It was challenging as we had to deal with a massive transformation project, which started within three months of my joining, and then the Brexit process. Fortunately, we managed to deliver successfully.
Since then, I have worked as an IT business advisor for several small companies. My experience in leading the HMRC Brexit readiness effort has given me a thorough understanding of trade policy and compliance at the border and its limitations. This has enabled me to think about the technical requirements needed to support the technology currently being deployed.
Additionally, I was responsible for the single trade window for the government a month before I left HMRC, which I’m sure will be part of our discussion today.
Webinar Questions
Lars – What are the three most important things to accelerate trade and customs digitalisation?
It may or may not be true that standardisation with the European Commission is more effective than with an individual, but the process is lengthy.
We should reconsider and innovate the standardisation process by using more agile framework agreements to address this. The industry should then take responsibility for implementing these agreements and determining the systems used.
The second element involves greater integration between governments, international institutions, and the private sector. We need to work together in new arenas to create an ecosystem of trust, and pilot projects are currently being evaluated.
The third element involves developing “killer applications” demonstrating the benefits of compliance and risk management processes at borders.
Governments should incentivise compliance by providing benefits to companies that submit relevant data, such as supply chain data.
Ultimately, the goal is to make trade compliance more efficient, predictable, and sustainable at borders. Scaling up and testing electronic/digital bills is another important step requiring cooperation between all parties.
Q: Walter – What does the customs IT environment within the European Union look like?
Thank you for the question. It highlights the points made by Lars earlier. The challenges we face in implementing legislation in the European Union are significant.
With 27 member states and 27 IT systems, it is complicated to implement new regulations. For instance, the Union Customs Code was adopted in 2013 but only fully implemented in 2016.
An article in the code required all IT systems, including centralised clearance, to be in place by December 31, 2020. However, in 2019, the commission realised this was no longer realistic and extended the deadline to 2025.
This means that legislation created in 2005 or 2010 may take 10 to 15 years to implement. While the deadline has been extended, many member states are struggling to keep up with the timeline.
Therefore, it’s crucial that the European Commission reevaluates the situation and finds ways to use today’s technology to address the challenges facing us in business reality.
Q: Mark – You were CIO at HMRC during BREXIT; what was that like, and on reflection, how fit for purpose are the current Government policies and technology?
The question pertains to current government policies and technology, specifically in the UK. The effort to implement these policies was enormous, with many stakeholders from inside and outside the government involved.
The UK’s departure from the EU made the process all the more challenging, with the changing nature of negotiations resulting in constantly shifting requirements for compliance. HMRC had a significant role in this effort, but other government departments were also involved.
Despite the work that went into it, the systems currently in place at the border need to improve. They need to be updated and fit for purpose in the long term, which the government is aware of and is taking steps to address.
These steps include initiatives such as trusted trader schemes and the single trade window. The government needs to implement solutions that align with current policies and technologies to ensure long-term compliance at the border.
Q: Lars – Many things are happening in global trade right now; you often talk about Global Trade 2.0. What is it in your definition?
The new generation of international trade is upon us, and it is characterised by integrated value chains that can cross borders multiple times during the production cycle.
The pandemic exposed problems with supply chain resilience, delays, and border controls, which exacerbated this trend. Studies show that bad customs planning was a key contributor to the delays experienced during the pandemic.
To address these issues, we need to use the vast amounts of data available in the supply chain, including structured data like standardised customs data, and connect industry systems with government systems.
This can be done by supporting integrated value chains and supply chains with digital pipelines, establishing trusted data exchanges, and improving connectivity. We must also build trust in the supply chain by involving economic operator programs and standard-setting organisations.
This would enable the Customs Administration and border agencies to monitor and secure the supply chain and mitigate risks associated with trade compliance.
In conclusion, the new global trade 2.0 is all about using data to enhance the efficiency and transparency of international trade while addressing the challenges of the modern economy.
Q: Walter – What is the current status? What are the challenges that customs and industry are facing?
The EU has recognised that the Union Conference Code’s intended purpose was ineffective in increasing governments’ risk assessment and revenue collection efficiency.
As a result, they held a foresight exercise to determine how EU customs would look in 2040 and what needed to happen to become that in five years. The EU Customs has to work with one voice, and the EU commission got a wise person’s group to see what changes need to happen in the Customs Union.
The wise person’s group recommended a new data approach for customs data, where data needs to come from business systems, other data needs to be gathered from platforms and payment systems, and all the data will be integrated into common shared systems.
The EU commission has taken these recommendations and is preparing new custom legislation, which will replace the current legislation and be presented soon. This is considered to be the biggest change in European Union Customs legislation.
Q: Mark – How can technology be applied to help improve trade flow and reduce the burden of bureaucracy?
Walter and Lars refer to a new phase of trade, which they term “trade 2.0,” that will rely heavily on technology, data management, and intelligent applications.
However, this new approach will require a significant improvement in understanding how to handle data, particularly within the civil service UK government sphere.
There will be political obstacles, and people will need to be persuaded to face the demands of trade 2.0. Presently, many forwarders and traders need help with the system’s complexities, which increases costs, creates a staff shortage, and results in a considerable amount of bureaucracy.
It is essential to provide relief in the short to medium term by targeting measures that alleviate the burden of bureaucracy and costs.
Utilising intelligent tools like rule engines, classification codes, and document management that use AI and machine learning to deal with error messaging will help you achieve this.
However, the current software providers need to focus more on the real needs of the freight forwarder and trade communities.
Adnan Comments
Over the last few months, I’ve had around 125 meetings with traders and freight forwarders. What’s consistent in all of them is the same message.
And that’s exactly what we’ve developed, from document management to automation, document automation to integration, a rules engine, and direct integration with customs. Our focus is on making life easier for everyone involved.
Q: Lars – How important is trade compliance in this new environment we are entering?
The importance of trade compliance cannot be overstated, particularly in light of global trade’s complex and ever-changing nature.
The challenges outlined by Mark serve as a reminder that many businesses struggle with compliance due to its complexity and the many changes that occur in global trade.
The next five years will see more changes than the last 15, making it all the more crucial for businesses to move away from outdated transaction-based systems that cannot handle the demands of modern trade.
The passport for trade in the future is trade compliance, which will be a requirement for engagement in global trade.
Many risks are associated with non-compliance, including financial liabilities, tax and customs duties, and other regulatory issues.
Overpayment is a common problem, with studies showing that businesses often overpay by as much as five to six percent due to complications associated with compliance.
Moreover, free trade agreements, designed to facilitate trade, need to be more utilised, with only 60% of them being used by businesses.
To become trade compliant, businesses must have the right systems to manage their data, stakeholders, and customs plans.
This includes using digital tools and properly managing the Global HS classification code, which is critical to ensuring compliance with regulations and sanctions at borders.
The key to achieving this is to move away from a transaction-based system and towards a trust-based system that emphasises compliance records, AEO certifications, and the voluntary submission of data.
The customs and border administrations also need to change their approach and move towards a trust-based system that relies on compliance records and existing digital tools.
This will help to streamline processes and make border agencies more efficient. The private sector is ready to submit data voluntarily if there is a benefit to doing so and can share the investment needed to achieve this goal.
In short, trade compliance is the future, and all businesses must become compliant to gain a licence to play in global trade 2.0.
Q: Walter – What does the future look like? What can regulators do to create a level playing field for today’s and tomorrow’s supply chains?
Lars highlighted the importance of trade compliance and government collaboration in our discussion. On May 17, the European Commission plans to introduce new legislation to the council and the parliament, including concepts such as trust and check traders, AEO, and an EU Customs data hub.
While the legislation looks promising, we must ensure it is adapted to current and future business realities and leverages the latest technology.
We, along with other trade associations in the EU, want to ensure that the new legislation meets the expectations and needs of a modern global customs environment for trade. This can only be achieved through an open exchange between political, administrative, and operational parties.
The lack of simplification and uniformity in customs rules and the absence of a fully electronic environment for customs formalities in the EU remain challenges that the UCC aimed to address when adopted in 2013.
However, we cannot wait until 2038 for the legislation to be fully implemented. Business reality and technology will have changed by then.
As Lars wisely said, we must bring together governments, authorities, and legitimate trade to develop enhanced solutions based on trust and technology that facilitate compliance with rules and trade.
For instance, during the pandemic, UPS delivered over a billion COVID-19 vaccines efficiently using its authorised economic operator status, technology, and the trust it built with customs authorities. This is the past, present, and future of trade.
Q: Mark – There is a lot of excitement about AI and Machine learning currently, can these technologies play a part in trade solutions of the future?
So, if you listen to these two individuals who are right in the middle of this – working on 1970s policy and technology transaction by transaction – the model they’re using is completely non-fit for purpose. It’s a suspicion-based model that focuses on the fact that you won’t comply.
If we have to wait until 2038 for the next model of this, I agree with Walter that it’ll be dead in the water before it even arrives. The acceleration of technology and everything else will render it obsolete. Lars and Walter must keep pushing governments and industries to adopt 12 2.0-type principles.
This is the only way we’ll truly see the trade volume orders people want. In the medium term, we need more software providers to ease some of this bureaucracy and communication, which can reduce costs. Ironically, we talk about 1970s systems and then talk about machine learning, AI, and chatbots.
There has been an explosion of these technologies, and they’re becoming mainstream. They’re truly useful in alleviating bureaucracy and complications. Customs agencies are working on different solutions with machine learning and AI at the heart of their work.
So, it’s not just a pie-in-the-sky experiment anymore. There are really easy solutions that can revolutionise and help reduce the cost and bureaucracy at the border, making people more compliant. These are my final thoughts. Thank you.
Audience Questioned: Will most technology interact with the UK Single Trade Window?
Lars Answered:
We are currently in the process of rebuilding our trade infrastructure to become fully integrated and digital. This will provide self-service options and seamless connections across multiple platforms, resulting in a more streamlined client experience.
Additionally, we will be collaborating with Walter and his team and all stakeholders in the international supply chain to enable interaction with governments worldwide, including the UK government and their single trade window system, as well as other single trade windows.
Let me share some final thoughts as well. We don’t have to wait until 2038 for new legislation to take action.
Trust-based systems, such as authorised economic operators, have already been proven to save companies money and improve trade compliance. By increasing simplifications and possibilities, we could reduce costs and increase efficiency.
We could also use artificial intelligence and other profiling systems to audit those who have proven they have compliant systems in place online in real time. Take advantage of these opportunities immediately.
I was fortunate enough to be part of the Wise Persons group and support these initiatives from the private sector. The customs expert will be the future superhero, helping navigate the complex trade compliance landscape.
Customs agents will also need to change, becoming more focused on trade compliance and helping customers organise their supply chains.
We can use tools like custom control towers to ensure data and documentation are readily available for government audits. With these systems in place, we can advance trade digitalisation and AI. We can start implementing these changes tomorrow.
Audience Questioned: Will these new AI systems put custom brokers out of business?
Mark Answered:
First, AI will not replace Customs’ declarations in the short term. Rather, AI will augment compliance efforts and improve efficiency. It should be seen as complementary to existing processes.
However, the idea of Trade 2.0 laid out by Lars will result in a paradigm shift in compliance, necessitating significant changes to policy and practises.
Customs’ role is becoming increasingly important and relevant, especially in the green agenda, deforestation, human rights, and digital trade.
As a result, Customs declares that it should be fine with AI taking its place in the near future. They will continue to play a crucial role in the coming years.
Adnan thanked all the speakers and closed the webinar.
Watch the full recording of the webinar here.
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