05/25/2023
Incorporating Customs & Trade Compliance Management in Your ESG Strategy
Looking for a leg up on the competition? ESG may be your answer! Continue reading to find out why!
As one of the most influential frameworks in the business world today, many companies, large or small, located in different continents are adopting ESG (Environmental, Social, and Governance) framework as the main strategy to support their stakeholders in managing the risks and opportunities related to environmental, social, and corporate governance factors.
For companies involved in import and export activities, customs and trade compliance is essential to ensure goods can be processed and released by relevant border agencies with full regulatory compliance without delays. An effective customs and trade compliance management can give firms an edge over their competition in successfully implementing their ESG strategy.
Environmental
Under the mandate of WCO (World Customs Organization) in 2020, customs agencies play a pivotal role in supporting sustainable supply chains globally: “Customs fostering Sustainability for People, Prosperity and the Planet”. Governments in many countries published guidelines and regulations pertaining to the import and export of waste and scraps; this is to support the transboundary movement of waste, and to ensure that import/export activities follow the regulations imposed by the international convention. Companies in the recycling or textile & garment industries which are involved in cross-border trade will need to be mindful of such controls as mandated by relevant competent authorities within their markets of operations. It is also critical for enterprises within the electronics industry, due to electronic waste such as lithium batteries or fridge compressors.
Similarly, in order to prevent any dumping of used machines that may be harmful to the environment, governments in many countries have imposed strict controls on the importation of such second-hand equipment. Some possible challenges are: (a) Valuation of used machines, (b) Certificate of conformity issued by recognized regulatory authorities, (c) Complete import ban for used machinery and equipment. Multinational corporations planning to relocate their factories or warehouses in different countries in order to hedge against risks in their supply chain operations will have to take such regulations into consideration so as to avoid any delays or regulatory violations.
Since 2023, 184 countries and territories have agreed to join the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). This multilateral treaty aims to protect endangered plants and animals from the threats of international trade. The buying and selling of animal parts such as elephant ivory, rhino horn or shark fin is prohibited under CITES in many countries. For importing or exporting products using leather from animal skins or timber wood, the traders will need to obtain a CITES permit/certificate by the issuing authority, to certify that the conditions for authorizing the trade are fulfilled; this means that the trade is legal, sustainable and traceable as per the relevant regulation.
Last year, the European Union announced a plan to impose a tax on imports based on the greenhouse gases emitted during manufacturing processes. Intended to come into full force on January 1st, 2026, this tax is defined as a carbon border adjustment mechanism, and would be the world’s first border tariff on imported carbon-intensive products. The tax is calculated based on the Scope 1 and Scope 2 emissions associated with the production of goods, and would initially apply to those products whose manufacturing is the most energy-intensive, such as iron, steel, cement, aluminum as well as fertilizer; before expanding to other sectors in the coming years. The newly-proposed carbon import tax could have profound implications to all major exporters trading with their European customers.
It is necessary to review existing supply chain strategies in order to reduce the overall carbon emission footprint of such products. Some manufacturers may choose to move their production lines away from developing countries with less stringent emissions rules.
Social
Besides promoting diversity, equity and inclusion, another important aspect of customs authorities’ roles and responsibilities is addressing social concerns embedded within the global supply chain, such as the prevention of forced labor, as well as health & safety issues.
Over the last few years, border agencies in the European Union and the United States have imposed strict prohibitions on the import of goods made through forced labor. Recently, various fashion brands have been linked to factories that employ forced labor in apparel production. Similarly, a few Asian major rubber glove manufacturers have also been blacklisted by Customs & Border Protection (CBP - USA) due to forced labor violations. As more and more governments around the world may start implementing similar measures to stop forced labor, it is imperative for global brands and multinational companies to take extreme care to prevent any forced labor in their international supply chains. They have a legal obligation to monitor all their suppliers and the sources of manufacturing materials, as well as to present additional supporting documents during import clearance procedures.
To safeguard the health and safety of the general public, customs authorities in any country that partner with another government agency, such as the FDA (Food and Drug Administration), the DEA (Drug Enforcement Administration) or OPSS (Office for Product Safety & Standards). They jointly implement various regulations and procedures in administering the importation and exportation of goods to prevent any substandard products introduced in the supply chain that may cause health and safety risks to the consumers. Another major initiative taken up by customs authorities is the fight against counterfeits. This phenomenon is becoming increasingly rampant these days. In order to succeed, major brands and large enterprises will need to review their global supply chain operations regularly, working closely with relevant government agencies so as to identify and eliminate any suppliers producing substandard or counterfeit goods.
Corporate Governance
One key pillar of corporate governance for multinational corporations is the adherence and compliance with local laws and regulations. For most people, customs and trade laws can be highly technical and complex.
In addition, in many countries, they are also evolving rapidly due to increasing geopolitical tensions as well as technological advancements.
Companies dealing with cross-border import and export activities will need to implement an effective customs and trade compliance management system to ensure maximum regulatory compliance in order to prevent costly delays and other negative impacts due to customs violations.
GEODIS: Your Trusted Partner in Customs & Trade Compliance
The concept of Supply Chain Sustainability is getting more and more popular in recent years, which is also directly complementary to an overall ESG strategy; all companies in global trade will need to invest time and effort to improve the level of customs and trade compliance in meeting all required laws and regulations.
As the world’s leading customs brokerage service provider, GEODIS provides a full range of professional customs & trade management solutions to all our clients globally. We have more than 1,100 professional trade experts worldwide to support our customers in researching customs and trade regulations, as well as providing effective cross-border digital customs solutions to ensure efficient and reliable cargo shipping, duty & tax optimization with full customs compliance.