Curated Content United States: Is Trade Compliance Even Manageable?

Reframing a Common Problem: Reporting Structure for Trade Compliance

Whether you are creating a new in-house trade compliance function or evaluating an established one, there is no getting around the perpetual question: Where should Trade Compliance report?

The answer depends on the business. Operational realities, departmental needs, available staff, budgets, and other limitations unique to your company can practically make the choice for you. Where Trade Compliance is a dedicated function, it typically settles into Logistics or Legal, or an equivalent department. Other times, fragmented trade compliance responsibilities hover between departments such as Finance, Procurement, Operations, and Sales, with ad hoc support from third parties. Only in rare cases does the function stand alone. The diversity of possible configurations—many of which could work—is unsurprising. After all, which department is in the best position to accommodate a function that involves classifying merchandise according to the Harmonized Tariff Schedule, qualifying goods for free trade agreements by analyzing value-adding operations through bills of materials, scrutinizing transfer pricing policy, managing customs brokers, running duty drawback programs or foreign trade zones, responding to requests from federal agencies, applying for export licenses, screening partners, and generally ensuring that all practices related to imports and exports are in conformance with all applicable regulations?

The answer, of course, is that no individual department is in an ideal position to facilitate such a broad spectrum of interdisciplinary work. And the increasing complexity of today's global trade environment is not narrowing the workload. The "hyperglobalization" that characterized the 1990s and 2000s began taking a new shape around 2015 and no longer dominates the daily experience of trade compliance. Consider the scale, scope, and speed of international trade developments since then: Section 232 and Section 301 tariffs; the United States-Mexico-Canada Agreement (USMCA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), and the Indigenous Peoples Economic and Trade Cooperation Arrangement (IPETCA); the CHIPS Act, the Uyghur Forced Labor Prevention Act, and parallel actions by aligned governments around the world; sanctions, retaliatory actions, and other trade restrictions. And do not forget the coronavirus pandemic and its impact on supply chains—or climate change, for that matter. To respond to these challenges appropriately, and even find opportunities as global trade dynamics evolve, companies that operate internationally need continuous specialized insight into the relationship between global trading systems and the company's business. A dedicated internal Trade Compliance function, if adequately supported, can deliver this insight. But what individual department is equipped to deliver this support?

The truth is that finding the right home for Trade Compliance is only a partial solution because it mainly resolves the question of reporting relationships—and few departments' individual interests, duties, or priorities naturally facilitate the work of trade compliance. Heads of departments whose core responsibilities do not include trade compliance are likely to have conflicting priorities, which often lead them to mischaracterize and constrain the function—usually to routine tasks that aim to keep shipments flowing and duties minimal. But Trade Compliance can offer much more value than that. The right place for Trade Compliance to report is wherever its work is understood holistically—as a strategic piece of the whole business, integral to many departments' operations—and its practitioners can access the tools and information necessary not only to fulfill those important routine tasks, but also to generate reliable insights in an erratically variable global trading context, share them with the relevant areas of the company, and collaboratively develop solutions. In that light, even if you find a suitable home for Trade Compliance, does it really make sense for any individual department head to oversee and direct this kind of interdepartmental activity?

Instead of dwelling on the management-centered question of who should control Trade Compliance, spend some time reflecting on these questions: What kinds of insight and support do you consistently need regarding international trade? Which areas of the company need them? And how can you equip and position Trade Compliance to deliver them?

Clarifying Trade Compliance's Role

Regardless of the particularities of your business, answering these questions first requires a firm grasp of what Trade Compliance as a dedicated internal function can really do. A good Trade Compliance team not only handles daily transactional work but is also uniquely equipped—in part through that daily work—to strategically identify, anticipate, and respond to trade risks and opportunities. Team members do not have to be experts in every applicable subject or regulation, but they should have the tools, skills, and experience to recognize how trade issues relate to the business, to translate their findings into useful insights, and to help design and implement comprehensive interdepartmental solutions.

Trade Compliance is a source of value, not a cost center—even when it is not lowering duties paid. Companies have no trouble recognizing the value of duty reduction programs such as free trade agreements, foreign trade zones, and drawback, which make a direct contribution to the bottom line. Nor do they tend to overlook the operational value of classification, origin determination, broker management, and associated recordkeeping, which are necessary components of a smoothly flowing supply chain. But companies that devote all of their Trade Compliance resources to these activities leave value on the table. Risk mitigation, for example, is not only a by-product of proper classification and broker management, but also a key business planning tool. Trade Compliance teams that are so busy with daily processing that they cannot zoom out and reflect also cannot spot and seize risk mitigation opportunities, communicate and fix novel problems, or develop and share ideas.

To add value in this way, Trade Compliance needs time, space, and resources for exploratory analysis. Managing classifications, overseeing customs brokers, facilitating shipments, applying for licenses, qualifying goods for FTAs, and similar tasks are valuable. But they are, on the whole, routine. Once they are established, keeping them going indefinitely should not be the only objective. How do you recognize when changes are necessary? How do you find new opportunities? How do you spot upcoming risks and pivot in response? Many trade compliance professionals regularly work with a more diverse array of data than most other employees—not just broker data but also shipping, inventory, purchasing, sales, accounting, engineering, and other data—and in the process they seek information from all areas of the company. As a result, they often develop holistic insights into how their work relates to other functions and processes. This exploratory behavior is a source of value because it generates answers to the questions like the ones above.

Positioning Trade Compliance

The most important consideration when deciding where to situate Trade Compliance is where it will have access to all of the information and people that it needs to both perform its routine work and generate trade-related insight through exploratory analysis—and where it can share and operationalize that insight in collaboration with other departments.

There are several departments that should never exercise control over Trade Compliance, except under rare (and perhaps only hypothetical) circumstances. Sales, for instance, should never play a dominant role in directing Trade Compliance's activities. Operations, although it might be an important factor when determining Trade Compliance's priorities, is poorly positioned to manage its scope of work. Procurement is more suitable for a partnership than a directing role. Finance or Accounting can sometimes situate trade compliance activity within a broader financial context but have almost no overlapping responsibilities. So, what about Logistics or Supply Chain?

About a third of companies house Trade Compliance within an equivalent department. From one perspective, there appears to be a close fit. The core data and subject matter that Trade Compliance works with most often is related to supply chains. Monitoring shipments is, in a limited sense, basically what Trade Compliance does. But Trade Compliance is not as concerned with how goods move—by ship or plane, on the shortest or longest path—as with how their movement, as well as their prior and subsequent treatment, relates to the regulatory environment. That is how Trade Compliance can spend years sitting in physical proximity to Logistics or Supply Chain but work as much with that group as with any other. It is also how trade compliance teams can wither away over time, transforming into a subset of the department, never free to connect their work to the company as a whole.

Because its reach extends to all areas of the company and its interests are aligned with Trade Compliance, Legal is generally a better option. Sometimes, companies create independent functions that could accommodate Trade Compliance, such as Risk Management or Sustainability and ESG. Although these are not realistic combinations for every business, they suggest an ideal alignment of priorities.

Managing Trade Compliance

To deliver maximum value, companies should conceive of Trade Compliance not as a limited set of discrete tasks with predictable outcomes (that can be crammed into an available department head's list of responsibilities), but as a company-wide service that facilitates international business objectives. Subordinating Trade Compliance to any one function can only distort its priorities, constrain its value-adding activity, and hurt the business. Trade Compliance is characterized more by lateral associations than vertical hierarchies, more by bottom-up observations than by top-down directives. Its priorities are driven not by Sales' interest in volume, Logistics' interest in efficiency, or even Legal's interest in liability, but by a strategic combination of all of these interests and more. Its productive activity at any given moment depends not just on the flow of international sales and purchases, but also on the initiatives (both within and between departments) that make up the company's overall global strategy, and on external changes in the global trading environment.

The question of where Trade Compliance belongs seems to be important because of traditional management structures. But who knows both the whole business and international trade well enough to direct all trade compliance activity? How would that person direct exploratory analysis to identify unknown risks and opportunities?

Management can keep established programs running, but it cannot manufacture the type of value that comes from exploratory analysis by skilled and well-supported trade compliance professionals—especially when the manager is not a subject matter expert who is involved in the daily work of trade compliance and has a comprehensive view of the business and the relationships between all of its parts. Productive direction arises from various areas and levels of the company, depending on momentary circumstances, and from interdepartmental collaboration. It arises from unexpected discoveries in the course of daily work, from open interdisciplinary communication, and from continuous negotiation across corporate functions and hierarchies.

If you can equip Trade Compliance with the resources it needs to capture the full scope of its value, and you can find a spot within your business where it can perform its work holistically, then why would you allow traditional reporting relationships to constrain its activity? Like any function, Trade Compliance needs basic oversight. But besides maintaining the status quo, what does a manager offer? Why should department heads and executives have to break through a managerial barrier to reach the insights of internal trade compliance professionals?

You have to put Trade Compliance somewhere. But before you decide, consider what you have read here, and then consider novel arrangements: Instead of a manager directing four analysts, for example, what about two pairs of analysts, a lead and a support, each pair focusing on a particular set of responsibilities and collaborating to report findings and results to relevant parties? Instead of a manager permanently reporting to a director reporting to a vice president reporting to a board, what about a shifting project lead reporting to an interdepartmental task force? Be innovative. The right configuration will depend on your business—but it should be free, not constrained.

1 Deloitte study

2 IMF article (https://www.imf.org/en/Publications/fandd/issues/2023/06/growing-threats-to-global-trade-goldberg-reed)

3 https://gatewayrecruiting.com/raw/wp-content/uploads/2023/07/Gateway-Recruiting-Trade-Compliance-Salary-Survey-2023.pdf

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.