By now we all realize that the world after COVID-19 will look different from the world before. No one has experience in dealing with a pandemic quite like this, and we still have no way to accurately predict and plan for the coming weeks and months. All we can do is to monitor the situation closely, to readjust from day to day.
During these times, Trade Compliance can slip from the agenda and at times may almost be forgotten. We want to raise five important topics which demonstrate that Trade Compliance warrants our attention throughout the good times and bad, and how the COVID-19 pandemic may impact the Trade Compliance landscape when businesses have adjusted to a new normal.
Here are our five takeaways on Trade Compliance in a post-COVID era.
- ‘Secondary’ supply chains – The COVID-19 pandemic’s impact on supply chain management has been a wake-up call for many companies and has in many ways exposed the vulnerability of global supply chains. The supply-chain recovery in a post-COVID era is most likely to lead to a ‘diversification’ and involve secondary supply chains of important components. This will also include military and dual-use components, which will require a better understanding of local export control legislation, for example, Japan, Canada, South East Asia. It is therefore important that trade compliance managers are involved in designing new as well as complementary supply chains already in an early stage.
- Digitalization and Trade Compliance – As we have witnessed major disruptions of global supply chains involving physical goods, the transfer of software and technology have been less affected, if at all, following the COVID-19 pandemic. We expect that companies will put a heavier emphasis on producing controlled equipment in various locations. This will result in an increase in export-controlled technology and software transfers. The export control classifications of software and technology, including encryption, will thus require additional attention. It can also be noted that this is already one of the areas where we see the biggest shortcomings in Swedish and Nordic companies’ trade compliance program.
- Increased national controls – In response to the growing impact of the COVID-19 coronavirus, a number of EU Member States have implemented national controls to restrict the export medical equipment to safeguard the public health, such as the Czech Republic, France, Germany, and Poland. In addition, countries outside the EU follow a similar pattern: the US, Russia, Australia, South Africa, and Switzerland. Although we are dealing with an extraordinary situation, our view is that companies in the future must to a greater extent consider national export controls, in addition to the EU framework. Such a development is expected considering countries’ interest in safeguarding public health, but could potentially also foster protectionism and anti-globalization aims. Current Trade Compliance programs should, therefore, place greater emphasis on national controls.
- Trade Compliance clauses – In light of the development of secondary supply chains and increased national controls, there is naturally an increased need to review trade compliance clauses. Traditionally, Trade Compliance clauses have had a greater focus on sales due to sanctions risk of indirectly providing funds/economic to listed parties. However, should companies decide to diversify their supply chains, this increases the risk of dealing with listed parties and licenses requirements due to national controls. Companies should, therefore, re-assess their Trade Compliance clauses, in particular in relation to their suppliers.
- ‘The risk of risk appetite’ – Following the economic disruption caused by the pandemic, many companies are keen to resume and rebuild lost business opportunities. However, economic sanctions are still an important part of Trade Compliance, and there is a risk that companies increase their risk appetite to quickly rebuild their business. We, therefore, emphasize the importance of companies addressing their risk appetite in advance so that companies do not take unnecessary risks. If a company chooses to lower its risk appetite then this should be clearly established and communicated to relevant employees within the company.