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Assess Costs Everywhere: Regulatory Compliance Costs

The Department of Commerce recently introduced the Assess Costs Everywhere tool, which outlines the costs and risks U.S. firms need to weigh when considering location of manufacturing operations and supply chains. For example, these firms should consider, along with a whole range of costs, the extra resources they need to devote to comply with U.S. regulations on the importation of goods and foreign regulations on all aspects of business when operating abroad. Companies should find it more convenient and less costly to comply with government regulations operating in the U.S. than sourcing from and operating in abroad.

The costs of complying with regulations cannot be calculated easily, but the World Bank’s Doing Business project provides information to help guide firms in making these calculations. Doing Business provides objective measures of business regulations for local firms in 185 economies and selected cities on 10 business operation topics ranging from starting a business to addressing insolvency. Based on these topics, the Doing Business project developed an overall Ease of Doing Business index which ranks the United States fourth out of 185 economies.

Import Regulations

A company importing goods must comply with a range of U.S. government requirements. When a shipment arrives in the United States, the company must make arrangements to file entry documents, pay import duties, and secure the release of the goods from U.S. Customs and Border Protection (CBP). Companies often employ professional brokers to assist them with these tasks. CBP’s publication Importing Into the United Statesoutlines the requirements for specific products. CBP urges interested importers to contact their nearest CBP office for information on specific issues or questions.

Under the “Trading Across Borders” topic, World Bank’s Doing Business estimates that importing a “standardized cargo of goods” into the United States requires an average of five documents and it takes five days to comply with all the necessary procedures. The total cost of obtaining all the required documents and complying with all the necessary procedures for importing goods into the United States is estimated at $1,315 per container.

These expenses could be incurred when a firm exports; however, many advantages come with producing in the United States, including, for example, the relatively less complex export regulations.

Costs of Complying with Foreign Regulations

U.S. companies operating abroad are subject to the rules and regulations of their host countries. Taxes, government regulations, and business environments vary across countries, are subject to change over time, and may be applied inconsistently. The rule of law in developing countries is generally weaker than in industrialized countries. U.S. investors abroad should be aware that their interests may not receive the same level of protection as in the United States. Additionally, the host countries’ dispute resolution process may differ from that of the United States.

World Bank’s Doing Business project provides an objective measurement of how easy for a typical firm to do business in 158 countries. The United States is ranked fourth among 185 economies, indicating that U.S. business regulations are among the least cumbersome in the world. This can be highlighted by one of the Doing Business topics -- Paying Taxes – that estimates the administrative burden to pay taxes and other tax-related matters. As highlighted in the figure below, domestic firms in the United States dedicate an average of 175 hours to preparing, filing, and paying taxes each year, lower than the time burdens in most emerging markets.

One benefit of manufacturing or sourcing in the United States is the relative ease with which businesses operating in the United States can get goods to other markets. Under the topic “Trading Across Borders,” Doing Business provides information on the procedural requirements for exporting. Compared with most other countries, the United States requires fewer number of documents per export shipment, less time to comply with all export procedures, and lower costs associated with all export procedures.

The United States is also a welcoming place for foreign investment. Another World Bank initiative – Investing Across Borders – provides indicators on topics relating to foreign direct investment, including starting a foreign business, access to industrial land, and arbitration of commercial disputes. The Ease of Establishment index for starting a foreign business (0 to 100, higher is better) for the United States is 80, compared to the 64.5 global average.

Fenwick W. Yu


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