In an ideal world, where economic policies can be pursued independent of political considerations, economic growth can be achieved in a much more straightforward manner. Unfortunately, this is not the case with an ever increasing conflux of economic and political elements. More than 20 years after the World Trade Organization (WTO) was established, anti-globalization and economic nationalism are threatening to disrupt international trade with an expected increase in trade protectionism.
There are several macro trends that are defining the way forward for International Trade:
- Challenges in tax & duty revenue collection: A long period of sluggish economic growth and slow international trade have affected tax & duty revenue collection. At the same time, new business and tax models have developed. But many of these new models don’t fit into the traditional moulds on which business and tax regulations are based. For instance, the emergence of e-commerce and a digital economy has not only complicated tax/duty revenue collection but also the wider regulatory efforts by authorities.
- Need for due-diligence and governance: The ongoing implementation of the Organisation for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS), for example, aims to make things easier by ensuring tax fairness and transparency. How the increased transparency will affect the way information is shared among different government agencies and how this information will ultimately affect the authorities’ approach to transfer pricing and customs valuation audits, will be interesting to see. Other regulatory concerns, such as counterfeit goods, health, food and industrial safety, will remain in an increasingly inter-connected world. So the need for due-diligence and governance in these areas, by both the public and private sectors, will also remain.
- The era of big data: With the complexities involved in conducting international trade, there’s a clear need to allocate more resources in ensuring compliance requirements. In the era of big data, data analytics will change the way organisations operate allowing them to drive compliance and efficiencies through the use of data and manage by exceptions in a control tower set-up. Such models will be especially applicable for organisations dealing with huge transactional volumes. The World Customs Organisation (“WCO”) has already declared 2017 to be the year for data analysis whereby it is strongly advocating for customs authorities around the world to adopt the use of data analytics and working smarter in their capacity building efforts. There is an increasing trend of multinationals adopting data analytics in various aspects of such as finance, tax, supply chain and customs declaration.
Taking into account all of the above macro trends, what can we expect in 2017?
- More aggressive audits and investigations
Due to a shortfall of tax and duty revenue in most jurisdictions, companies should expect to see more aggressive audits/investigations.
- Increase in trade protectionist measures and trade disputes
Detractors from free trade are also expected to impose trade protectionist measures to prevent fair competition of foreign entities with their respective domestic competitors. While outright tariff barriers (i.e. increased duties for foreign imports) are unlikely, non-tariff barriers for foreign importing entities are expected to take root, with them potentially hiding behind seemingly legitimate concerns, such as ensuring public health safety. Trade disputes could increase as a result, for extreme cases deemed to be against WTO/WCO principles.
- Developments of new alternative trade agreements
Pro-trade countries will continue to pursue other options of trade arrangements as they need to press on their reforms and compete for foreign investment. The Regional Comprehensive Economic Partnership Agreement led by China is one key trade pact that should be watched closely. New trade agreements may still occur between like-minded pro-trade countries. Companies will be monitoring these trade agreements closely so that they are able to gain greater market access and optimize their supply chain.
- Working smart to drive efficiencies
While authorities employ data analytics to better assess non-compliance, businesses will also adopt data analytics to increase visibility of their business transactions in order to make better business decisions, improve operations and compliance.
Angelia Chew is Partner, Asia Pacific Trade & Customs Leader, KPMG in Singapore.
For more insights, visit KPMG Asia Pacific Trade and Customs