Navigating through the complexity of international trade

International trade is becoming more and more complex, time-consuming, and costly. An average international transaction involves 40 documents and compliance costs can make up between 40 and 80 percent of the total transportation costs.

All businesses, no matter their size, involved in the export and import of goods are responsible for adhering to the laws, rules, regulations and requirements of the countries involved in a specific transaction. They must understand and comply with thousands of pages of regulations from policy domains like national security, money laundering, protection of economic, environmental, health and consumer interests. Regulatory requirements can differ from country to country, and from one type of goods to another.

Compliance is already complex for transactions involving one bill of lading for one container to one specific location. However, with the rise of online marketplaces and hyper-personalization even micro, small and medium sized enterprises can connect with customers across the globe. Often without being aware of where these customers are located.  

Containers no longer contain 20 perfectly wrapped pallets transported from one shipper to the warehouse of a large retailer, but thousands of individual parcels to thousands of locations as well as returned goods. 

As the trade compliance landscape is becoming increasingly complex, so are the consequences of failing to comply. Repercussions range from shipment delays for minor breaches to financial penalties and (in extreme cases) criminal sanctions for serious offences. Non-compliance can lead to delays, financial losses, penalties, and may negatively affect the organization’s reputation or license to do business.

Compliance in international trade is complex, requiring knowledge about regulations from multiple countries, goods classification and supply chains. 

For example, under export control regulations businesses must verify that goods involved in transactions are not dual use, military use or subject to sanctions. This requires in-depth knowledge about regulations and the classification of the goods involved. Regulations on forced Labor prohibit the import of goods that have been produced with forced labor. This requires importers to research, verify and document that nowhere in their supply chain forced labor has been used.

Actors in international supply chains need to understand and comply with an increasing number of regulations that vary from country to country and are subject to constant updates. This is further complicated by the way in which regulations and supporting information is distributed and made accessible. Regulations are predominantly published in natural language that is not easily interpreted by machines. Each country uses its own platforms for publication of regulations. This poses a challenge. Machines cannot efficiently process, connect, and compare information contained in documents exclusively written in natural language dispersed across different disconnected platforms. 

As a result, compliance is a manual and expensive process that requires businesses to identify all the relevant regulations, classify the goods, understand the specific requirements that apply to the transaction, collect and verify information about all actors involved, do the necessary due diligence, get the necessary permissions, document all these steps extensively and when asked provide evidence of this to the government. 

To resolve this problem, we propose the development of a solution mentioned here as Trade Compliance Assistant (TCA). TCA will facilitate stakeholders in global trade by providing easy access to relevant norms and regulations specific to their transactions. It will ensure transactions comply with relevant regulations, before entities engage in the transaction, while maintaining a secure operational history for auditing purposes.

On a technical level, the proposed solution aims to advance the field of automated normative compliance and reliable hybrid AI. It will achieve this by integrating Machine Learning (ML) models (which have been trained on structured data that is comprehensible to machines) with semantic -based reasoning engines. These engines will be specifically designed to process the logic constructs used to describe information to the machines. The components will be then embedded in a larger solution that ensures secure traceability of information and establishes standardized ways to describe information to reach interoperability among data silos, foster retrievability of information and set up ecosystems, while providing assistance to end-users regarding the compliancy of their operations. 

The Trade Compliance Assistant will emerge as a pivotal tool in the domain of international trade, particularly with the increasing focus on environmental sustainability. It will serve a dual purpose: ensuring adherence to trade regulations and aiding in the reduction of logistic carbon footprints. This is especially pertinent in light of the EU's Carbon Border Adjustment Mechanism (CBAM), which seeks to mitigate carbon leakage by imposing a CO2 tax on imports. The mechanism requires companies to meticulously calculate the CO2 emissions associated with each product, considering factors such as production processes and transportation routes. 

By integrating with software developed by our partners, the Trade Compliance Assistant will facilitate these calculations, utilizing supply chain data to determine the carbon emissions for goods produced and transported. This integration not only will streamline compliance with CBAM but also support the broader objective of reducing global CO2 emissions, aligning with the EU's commitment to a greener economy and the global efforts to combat climate change.