Introducing International Trade Management With SAP S4HANA

SAP PRESS E-Bites
Introducing International
Trade Management with
SAP S/4HANA®
Arup Chakraborty
Arup Chakraborty
Introducing International
Trade Management with
SAP S/4HANA ®
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indicates which person may use this copy. Full Legal Notes and Notes on Usage can be
found at the end of this publication.
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for personal use of
Sergio Velasco
[email protected]
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The Author of this E-Bite

Arup Chakraborty is a Deloitte consultant and IT professional with
more than 26 years of experience working in different lines of busi-
ness: production, sales, marketing, and consulting. He has worked on
several large business and digital transformation projects for order-to-
cash, procure-to-pay, and foreign trade processes. He has also worked
in different roles on SAP projects, including as a consultant, a solution
architect, an application expert, and a process lead.
What You’ll Learn
In this introduction to SAP S/4HANA for international trade, begin by
understanding key requirements and options for your international trade
processes. You’ll then learn about classifying products, managing licenses
to ensure trade compliance, monitoring embargo checks, and performing
intrastat reporting. You’ll finish with a preview of your SAP S/4HANA imple-
mentation, including key tips specific to international trade functionality.
1 International Trade Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.1 What Is International Trade? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 International Trade with SAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2 Product Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 Managing Commodity Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Managing Control Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3 Classifying and Reclassifying Products . . . . . . . . . . . . . . . . . . . . . . 26
3 Trade Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1 Managing Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.2 Monitoring and Managing Transactions . . . . . . . . . . . . . . . . . . . . 37
4 Embargo Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.1 Managing Countries under Embargo Restriction . . . . . . . . . . . . 44
4.2 Monitoring and Managing Transactions . . . . . . . . . . . . . . . . . . . . 47
5 Intrastat Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.1 Intrastat Reporting Requirements and Data Elements . . . . . . . 53
5.2 Generating Intrastat Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6 Implementation at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
6.1 Migrating from SAP ERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
6.2 SAP Global Trade Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7 What’s Next? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
© 2020 by Rheinwerk Publishing Inc., Boston (MA) 4

1 International Trade Basics
International trade involves the exchange of goods and services across
international borders. The benefits of international trade include providing
better choices to consumers and allowing countries to trade in what they
are good at and buy goods or services, thereby gaining a competitive advan-
tage. However, international trade is under constant pressure to meet new
demands and challenges. Besides meeting consumers’ expectations, exe-
cuting plans quickly, and managing cost, businesses also face complexity
arising from local and global legal requirements. Keeping track of all legal
compliance requirements is not easy unless the supply chain process is sup-
ported with an automated system solution. SAP provides a system solution
to automate the process and manage by exceptions. This solution enables
organizations to manage complex supply chain transactions across the
globe without compromising on the speed of execution while adhering to
legal requirements.
In this section, we’ll provide a brief overview of typical regulatory require-

ments related to international trade and key concepts around international
trade processes. We’ll also explain the evolution of international trade solu-
tions in the SAP portfolio.
1.1 What Is International Trade?

In simple words, the cross border exchange of goods or services is known as
international trade. International trade is not a new phenomenon; it has
existed for ages. For example, silk was traded during the second century
until the 14th century via the famous silk route, which connected China and
the Far East to the Middle East and some European countries.
A country is considered prosperous if it has a trade surplus, meaning the

country’s exports exceed its imports and vice versa if the country has a trade
deficit. This means each country establishes regulatory mechanisms to max-
imize its trade surplus. In the past this task was achieved by colonialism and
Personal Copy for Sergio Velasco, [email protected] 5

by force. During the early 20th century, world leaders and economists real-
ized that the progress of society and humankind at large can be better
achieved via free trade between nations. This realization led to the need of a
new set of rules and an international organization to monitor and ensure
implementation of such rules and laws by participating nations. The World
Trade Organization (WTO) located in Geneva, Switzerland, was established
on January 1, 1995, based on multiple rounds of negotiations between partic-
ipating countries.
International trade—and especially the open market system—provides var-

ious benefits, such as consumers having more and better options. Compet-
ing against other countries and companies leads to improved quality of
goods and services. It also enables nations to allocate and use their resources
optimally. Finally, international trade is expected to promote world peace,
harmony, and mutual understanding between different nations.
In this section, we provide a general definition of key international trade

requirements. In addition, we provide an overview of the main categories of
regulatory requirements and their change impact on international trade.
International Trade Requirements

To perform international trade, you need to have a good understanding of
various legal requirements and obligations to ensure that the transactions
are carried out without violating any law. The requirements of international
trade can be grouped under two broad categories: export requirements and
import requirements.
Some countries follow protectionist economic policies. These countries have

strict rules and restrictions on the importing of certain goods and services to
protect the domestic producers and service providers from foreign competi-
tion. Under this policy to control and discourage imports of identified goods,
the country levies typically high import duties or taxes. In some cases, there
could be a need to acquire an import license from the authorities. These
import licenses are usually valid for a certain period and specify limits in
value and/or quantity of the goods that can be imported. On the other hand,

exports are usually considered by most nations as favorable transactions

and are promoted by extending special tax waivers on the exporting of
goods and services. Even though exports are considered favorable transac-
tions, not all goods or services can be freely exported. Restrictions on some
exports could be due to security reasons, scarcity of the specific resources in
the local market, and so on.
In addition to the export and import licensing requirements and taxation

laws, another very important requirement is to ensure that transactions are
not carried out with nations that have been assigned economic sanctions. If
any countries or organizations do not follow these regulations, the coun-
tries with the leading world economies can blacklist or boycott them.
Another very important requirement is to ensure that trade is not carried

out with individuals and/or organizations involved in terrorist activities.
This requirement is not limited to international trade; it is valid for all local
and cross-border business transactions.
Regulatory Changes
The laws and regulations governing international trade can be categorized
in three groups:
쐍 Supranational groups
Supranational groups are international bodies comprising many mem-
ber nations that create and prescribe standards by taking into consider-
ation all the concerns and interests of the member nations. The WTO and
the International Monetary Fund (IMF) are a couple of examples of supra-
national organizations.
쐍 Free trade agreements
A free trade area is created based on free trade agreements mostly on a
regional basis or between a few participating countries as a group. The
purpose of such a free trade area is to facilitate trading between the par-
ticipating nations. The North American Free Trade Agreement (NAFTA),
which includes Canada, Mexico, and the United States, and the Associa-
tion of Southeast Asian Nations (ASEAN)—which consists of Brunei

Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic,

Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam—
are a couple of examples of free trade areas.
쐍 Country-specific trade laws
Country-specific trade laws keep in mind the concern and benefits of the
local community. The International Trade Administration, the U.S. De-
partment of Commerce, the Department of International Trade, the Gov-
ernment of the U.K., the Ministry of Commerce and Industry, and the
Government of India are some examples of organizations that are re-
sponsible for prescribing their own country-specific laws related to trad-
ing with other nations.
In addition to the above three groups, there are industry-specific laws—
for example, track-and-trace requirements of pharmaceutical products
in the pharmaceutical industry, stringent regulations dealing with haz-
ardous products for the chemical industry, and special laws for the aero-
space and defense industries.
Regulations defined for international trade continuously undergo changes

and modifications to take care of the economic situation and practices
existing in that period. For example, consider the recent tariff war between
the U.S. and China wherein the U.S. has imposed a 10% tariff on Chinese
goods with an estimated value of US$300 billion per annum.
Other examples include the U.S. exiting from the Iran deal and imposing
stringent sanctions against Iran and very recently the Indian government’s
withdrawing of its unilateral most favored nation (MFN) status given to
Pakistan. The ongoing process of Britain exiting from the European Union
(EU), also known as Brexit, will have a big impact on the trade regulations
between EU countries and Britain.
However, not all changes or modifications in international trading laws are

made due to unfortunate incidents or conflicts. With the advancement in
information technology, various laws are introduced or changed to facilitate
business—for example, the eInvoicing introduced by the European Com-
mission (EC). The idea behind eInvoicing is to provide a common standard of

electronic invoice for all parties involved in international trade across the
EU, including Iceland, Liechtenstein, and Norway.
The changes in international laws show a clear trend of international trade

becoming more stringent and complex going forward, but on the other
hand, the evolution of standardization of processes, digital technology, and
automation is going to ease the pressure of doing business while taking all
the legal requirements into consideration.
1.2 International Trade with SAP

SAP ERP provides end-to-end integrated business processes such as order-
to-cash and procure-to-pay. Because of increasing growth in globalization of
the supply chain, these processes can have transactions cutting across mul-
tiple countries. Consequently, such transactions should adhere to the vari-
ous global and country-specific legal and regulatory requirements. A need
emerged to have a system solution that could support all such legal require-
ments and automate the process as much as possible to add speed of execu-
tion and avoid human errors. To address this business requirement, SAP
offered the initial solution as part of the SAP ERP core as the Foreign Trade
(SD-FT) component. However, SAP soon realized that there is a need to have a
separate application to cover the complex needs and requirements of inter-
national trade. This need led to the introduction of SAP Global Trade Services
(SAP GTS). With the latest introduction of the new digital core SAP S/4HANA
system, SAP has introduced international trade as part of this core solution
to provide support for some of the requirements related to foreign trade.
In the following sections, we’ll discuss the main features of international

trade-related system functionalities existing in the different products within
the SAP product portfolio.
Foreign Trade with SAP ERP

SAP introduced the initial solution to support the international trade-
related requirements under the SD-FT component covering the sales side,

or export transactions, and the procurement side, or import transactions.

These components were part of the core SAP ERP system.
Figure 1.1 shows the screen for the General Foreign Trade Processing cockpit
(Transaction VX99) in the SAP ERP system. There are similar cockpits for
periodic declaration, legal control, document payments, communication and
print, preference service, and data service.
Figure 1.1 General Foreign Trade Processing
The SD-FT component enables you to maintain all foreign trade-related

master data—for example, you can maintain tariff codes and export control
classification numbers (ECCNs) based on which products can be classified.

The SD-FT/customs component’s functionality is well integrated with sales,

delivery, and billing processes on the outbound logistics side, and purchas-
ing, goods receipt, and invoice receipt processes on the inbound logistics
side. The legal control component provides automated checks for embargo
situations and export licensing requirements.
The periodic declaration provides system support for creation of a customs

declaration (for example, single administrative document, print documents
related to certificate of origin, goods movement certificate EUR1, preferen-
tial document, shipper’s letter of instructions, and so on). It also supports
creation of periodic reporting such as intrastat, which is required in the EU.
The communication and printing component of SD-FT enables issuing such
reports via electronic message, diskette, or print media.
The preference processing-related functionality under the SD-FT compo-

nent provides end-to-end support to maintain and process longterm-
vendor declaration, calculate a preferential value based on tariff codes and
country of origin for products, and issue preferential certificates based on
the product and transactions with business partners from relevant coun-
tries.
The documentary payments provide support for financial document man-

agement related to letter of credit.
SAP Global Trade Services

To support the evolving regulatory requirements and complex supply
chain process across international borders, businesses needed to have a
specific IT application that could provide a global solution that not only
covers the international regulations but also supports country-specific
requirements. The functionality available in SAP ERP under the SD-FT com-
ponent was not enough to handle these fast-evolving international trade
laws. To address this need, SAP introduced SAP GTS. SAP GTS has matured
over the years and is one of the leading software applications covering the

complete requirements of international trade available in the market

today. It covers complete end-to-end processes of regulatory checks and
monitoring for both outbound and inbound logistics. In addition, it also
supports the monitoring and tracking of financial transactions.
Figure 1.2 shows the SAP GTS area menu (Transaction /SAPSLL/MENU_
LEGAL).
Figure 1.2 The SAP GTS Area Menu

SAP GTS provides the following key services:
쐍 Compliance Management
The Compliance Management service module provides all the necessary
functionality related to product classification based on export or import
control classification numbers. It maintains data related to a denied party
list, which is used for scanning business transactions such as sales orders,
deliveries, purchase orders, and financial documents for business part-
ners to ensure that the transaction is valid and does not involve any
blacklisted partners. The system enables automating the solution based
on interfacing with data service providers to import the denied party list
and update the SAP GTS master data with the latest information. The
sanctioned party list screening, audit trail, and embargo checks in SAP
GTS are much better solutions compared with the SD-FT component’s
functionality available in SAP ERP. This module covers checks for licens-
ing requirements for both export and import transactions. In addition,
this module of SAP GTS also supports country- or country group-specific
embargo checks.
쐍 Customs Management
The Customs Management service module enables handling master data
relevant for customs management. It provides solutions for maintaining
tariff codes, product classification, and reclassification based on valid tar-
iff codes. It allows you to execute and carry out customs declarations
(both export and import) electronically. SAP GTS can be connected to cus-
toms systems via certified middleware. It also provides standard PDF
templates for various customs-related documents (for example, export
accompanying document, shipper’s letter of instructions, and so on). The
customs bonded warehouse solution covers the monitoring of inventory
in the warehouse via integration with SAP ERP or a warehouse system.
This module also enables you to do special customs transit processes and
handle products subjected to excise duties. These are some of the
advanced features that are not covered by the SD-FT component’s func-
tionality in core SAP ERP.

쐍 Risk Management
The Risk Management module covers the preferential processing, restitu-
tion management, and letter-of-credit processing. You can maintain and
execute in SAP GTS all relevant master data and calculation methods for
determining preferential status of the product. Restitution management
supports the EU’s policy to support the farming and agriculture industry
in Europe, which is known as the Common Agricultural Policy (CAP).
Under this policy, the farmers exporting surplus agricultural goods to
countries outside the EU receive tax refunds. This module also provides
complete support for financial payment documents and functionality for
monitoring and handling of letter of credit.
쐍 Electronic Compliance Reporting
The Electronic Compliance Reporting module mainly supports the intra-
stat reporting requirement. This is relevant for all countries in the EU.
쐍 System Administration
The System Administration module covers the technical setup of system
interfaces (communications) and monitoring. In addition, this module
covers the data archiving solution related to various objects used in SAP
GTS.
International Trade with SAP S/4HANA

SAP S/4HANA is SAP’s new digital core application. Per SAP’s roadmap, the
existing SAP ERP system will be taken out of maintenance by year 2025, and
therefore, all existing customers should move to the SAP S/4HANA system.
It is worth mentioning that SAP S/4HANA does not have any of the func-
tionalities of the SD-FT component available in SAP ERP. However, there are
large numbers of existing customers using the SD-FT component of SAP
ERP who are not yet ready to implement SAP GTS, which is the recom-
mended application for such functionalities. Thus, to facilitate such cus-
tomers to move from SAP ERP to the SAP S/4HANA system, SAP has pro-
vided SAP S/4HANA for international trade, which covers some of the
business-critical international trade functionalities.

Figure 1.3 shows a typical user home page based on the SAP Fiori user expe-
rience. You can see some of the common apps related to SAP S/4HANA for
international trade.
Figure 1.3 SAP Fiori Apps for International Trade
The new features related to SAP S/4HANA for international trade are part of
SAP’s governance, risk, and compliance solutions. Under the old SAP GUI

2 Product Classification
user interface, the user menu contained only four transactions related to
intrastat reporting. The idea is to use the new SAP Fiori-based user interface,
and hence, instead of transaction codes, different SAP Fiori apps support
the required functionality for international trade.
SAP S/4HANA for international trade supports managing the customs tariff
codes and control classification numbers. It allows product classification
and reclassification functionality.
Under legal control, the system supports managing various export/import

licenses and monitors cross border business transactions such as sales
order, outbound delivery, and purchase orders for any license require-
ments. It also supports managing countries under embargo and carrying
out embargo checks for both export and import transactions.
For organizations based in the EU, the system supports creating and send-
ing intrastat reports.
In general terms, product classification means grouping and organizing
products and services based on their specific features and attributes. The
product classification we discuss here is not related to classification of prod-
ucts and services from a marketing perspective; rather, it is related to trad-
ing of such products and services internationally.
To gain a common understanding about a product or service, it is impera-

tive to have a system of descriptions that are a global standard. The com-
mon definition for a product or service ensures that they are subjected to
correct assessment for customs duties and trade regulations in global trade.
In the following sections, we’ll explain the common classification nomen-

clature for products and services used in international trade and how to
manage these classifications. In addition, we’ll also see how products are
classified and reclassified in SAP S/4HANA.

2.1 Managing Commodity Codes

The World Customs Organization (WCO) introduced the Harmonized Com-
modity Description and Coding System (in short, Harmonized System or simply
HS) in 1988. As per the WCO prescribed coding systems, there are 21 sections
and an appendix. Each section has multiple chapters consisting of multiple
headings and subheadings.
The HS codes are six-digit numerical numbers that describe a product or

service. The structure of this six-digit code is based on chapters (represented
by the first two digits), which provides you with an idea of the product or
service followed by headings (represented by the subsequent two digits),
which provide more details about the product or service category. Finally,
subheadings (represented by the last two digits) provide very specific infor-
mation about the product or service.
Today, about 183 member countries follow this coding system. The first six-
digit HS codes have been adopted globally and a further two- or four-digit
numerical code is added based on the national classification that local
authorities prescribed.
Let’s look at an example tariff code from Schedule B, which is administered

by the United States Census Bureau. Figure 2.1 describes the tariff code rele-
vant for a bearing (ball or roller bearing). The first six digits are in line with
the HS, and the last four digits are as per the U.S. national product classifica-
tion for exports; that is, the Harmonized Tariff Schedule (HTS).
The classification of ball bearing is based on section XVI Machinery and

Mechanical Appliances; Electrical Equipment; Parts Thereof; Sound Recorders
and Reproducers, Television Image and Sound Recorders and Reproducers,
and Parts and Accessories of Such Articles of chapter 84.
The heading 8483 provides further details about the product, and the sub-
heading 8483.30 shows specific information about the product. An addi-
tional subheading (the last four digits) 8483.30.5020 is as per U.S. Schedule
B, which provides the detailed product description.

8483.30.5020
84 Chapter:
Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof
8483 Heading:
Transmission shafts (including camshafts and crankshafts) and cranks;
bearing housings, housed bearings and plain shaft bearings; gears
International and gearing; ball or roller screws; gear boxes and other speed
(6 digits as per HS) changers, including torque converters; flywheels and pulleys,
including pulleyblocks; clutches and shaft couplings
(including universal joints); parts thereof
8483.30 Subheading:
Bearing housings; plain shaft bearings
National (as per 8483.30.5020 Subheading:

US Schedule B) Ball or roller bearing type
Figure 2.1 Example of HTS Code from U.S. Schedule B
Let’s consider another example from EU Combined Nomenclature (CN8),

commonly known as a commodity code. Figure 2.2 describes the commod-
ity code relevant for an electric motor. The first six digits are in line with the
HS, and the last two digits are as per CN8.
The classification of electric motor is based on section XVI Machinery and

Mechanical Appliances; Electrical Equipment; Parts Thereof; Sound Recorders
and Reproducers, Television Image and Sound Recorders and Reproducers,
and Parts and Accessories of Such Articles of chapter 85.
The heading 8501 further describes the product, and the subheading 850110
provides specific information about the product. Another subheading (the
last two digits) 85011091 is as per CN8, which provides the detailed product
description of the product.

85011091
85 Chapter:
Electrical machinery and equipment and parts thereof; sound recorders and
reproducers; television image and sound recorders and reproducers; and
International parts and accessories of such articles
(6 digits as per HS) 8501 Heading:
Electric motors and generators (excl. generating sets)
850110 Subheading:
Motors of an output <= 37,5 W …
European Union 85011091 Subheading:
(2 digits as per CN8) Universal AC-DC motors of an output <= 37,5 W …
Figure 2.2 Example of CN8 Code from the EU Combined Nomenclature
Because only the first six digits of the codes are based on the globally
accepted HS code system and then there are an additional two or four digits
that are based on a national (country-specific) classification system, the
classification codes need to be managed on the country level.
Now, let’s see how the commodity code (or tariff codes) are managed in an
SAP S/4HANA system.
There are two SAP Fiori apps for managing commodity codes and tariff
codes:
쐍 Manage Customs Tariff Number (F3122)

This app is used for managing (create/edit) 10-digit HTS codes as provided
in U.S. Schedule B.

쐍 Manage Commodity Codes (F2516)

This app is used for managing (create/edit) eight-digit CN8 codes as pro-
vided in EU Combined Nomenclature.
Figure 2.3 shows the Manage Customs Tariff Numbers screen. The code
8483305020 with a description and a validity period exists in the system.
You can select the row and edit (click the pencil icon) or delete (click the
delete icon) the record. You can carry out a mass update based on this app.
To add a new code, click the Add (+) icon, enter the required code, and save
the record.
Figure 2.3 Manage Customs Tariff Numbers SAP Fiori App
Based on the system configuration, the length of the code can be fixed. For
example, say a tariff code length is defined as 10 digits. As a result, the sys-
tem will display an error message, as shown in Figure 2.4, if a code with
incorrect length (more than or less than 10 digits) is entered. After you
enter the code with the correct length, the system allows you to save the
record.

Figure 2.4 Error—HTS Code 84399950009 Is Incorrect (Exceeds 10 Digits)
The Manage Commodity Codes app is similar to the Manage Customs Tariff
Numbers app. However, for commodity codes (CN8), the length is set as eight
digits. Figure 2.5 shows the overview screen of Manage Commodity Codes.
You can select all commodity codes and click the change icon (the pencil) to
carry out changes/updates for multiple codes from the list.
Figure 2.5 Manage Commodity Codes SAP Fiori App
As shown in Figure 2.6, in the Edit Commodity Codes screen, the Valid To date
is changed for the selected list of CN8 codes.

Figure 2.6 Valid To Date Changed for Multiple CN8 Codes
Besides managing the commodity codes via the Manage Commodity Codes
or Manage Customs Tariff Numbers apps, you can also define and maintain
number schemes in the SAP S/4HANA system based on an external data pro-
vider or to get codes transferred from a connected SAP GTS system. This is
based on the definition of the number scheme customization in the system.
2.2 Managing Control Class

The Wassenaar Arrangement (WA) establishes transparency and control over
the transfer of conventional arms and dual-use goods and technologies to
enable regional and international security and stability. Dual-use goods are
products that can be used for both civilian or military purposes. Currently,
the WA has 42 member nations, and India is the latest to join the group.
The member countries have prescribed controls and restrictions to prevent

unauthorized trade of identified items as per the List of Dual-Use Goods and
Technologies and the Munition List, published by WA. These lists consist of

nine categories of products and technologies that are put under control,
and furthermore, there are two separate lists for sensitive and very sensi-
tive products and technologies.
In addition to the items in the WA list, there could be additional restrictions

based on individual member state regulations—for example, the Bureau of
Industry and Security, U.S. Department of Commerce has a list called Com-
merce Control List (CCL) based on the WA list. CCL has 10 categories of prod-
ucts and technology and five product groups. The control classification for
products needs to be managed at the country level.
To enable control over such products, a coding system is in place based on

which goods can be classified. Commonly, this coding system is known as
ECCN. Figure 2.7 shows an example of an ECCN, and the structure of the
ECCN based on the CCL of the U.S. The first number represents the category
of the goods. In this example, it belongs to category 6, sensors and lasers.
The next alpha character represents the group; in this example it is group A,
systems, equipment, and components.
6A005
6 Category
Sensors and lasers
A Group
Systems, equipment, and components
6A005
“Lasers,” “components,” and optical
equipment, excluding items that are
subject to the export licensing
authority of the Nuclear
Regulatory Commission
Figure 2.7 Example of an ECCN from U.S. CCL

The WA and U.S. CCL provide guidelines on the restrictions and controls for
products based on the classification. For example, the U.S. CCL provides
detailed information per control classification on the restrictions based on
parameters such as partner(s), partner countries, quantity, and/or value of
such control goods.
Note that codes can contain more detail than shown in this example.
Now, let’s see how to manage the control classes in SAP S/4HANA. There are
two SAP Fiori apps that can be used for managing control class data:
쐍 Manage Control Classes (F2518)

You use this app to create, change, and display a list of control classes in
the system.
쐍 Manage Control Groupings (2515)
You use this app to manage control groupings. You use the control
grouping to group products with similar control requirements. It helps
reduce the effort for managing the workload of maintaining data in the
system.
Figure 2.8 shows the overview screen of the Manage Control Classes app. The
system allows you to edit multiple control classes by selecting relevant
rows. To create a new control class number, click the + icon. In the example,
you can see that the control class is as per the U.S. Export Control Class
(USECC) number scheme defined in the system. This number is based on
the U.S. Control Classification List.
Figure 2.9 shows the overview screen of the Manage Control Groupings app.
This app allows the possibility of creating new control groups and editing
multiple control groups by selecting relevant rows. To create a new control
group, click the + icon.

Figure 2.8 Manage Control Classes SAP Fiori App
Figure 2.9 Manage Control Groupings SAP Fiori App

Next, we’ll explain how the commodity code and control class numbers are
used to classify products in the system.
2.3 Classifying and Reclassifying Products

Ensuring that products and services traded internationally are correctly
interpreted and subjected to relevant regulations and restrictions depends
on the classification of products based on the rules and regulations admin-
istered by international organizations and local government authorities.
There are six main SAP Fiori apps for product classification and reclassifica-
tion:
쐍 Classify Products – Commodity Codes (F2151)

You use this app for product classification based on EU CN8. This app can
be used for classifications other than CN8 as well; however, you should
define a relevant number scheme in the system.
쐍 Reclassify Products – Commodity Codes (F2152)
You use this app for reclassification of products based on EU CN8. This
app can be used for classifications other than CN8 as well; however you
should define a relevant number scheme in the system.
쐍 Classify Products – Customs Tariff Numbers (F3146)
You use this app for product classification based on U.S. Schedule B.
쐍 Reclassify Products – Customs Tariff Numbers (F3147)
You use this app for reclassification of products based on U.S. Schedule B.
쐍 Classify Products Legal Control (F2390)
You use this app for product classification related to legal control and
compliance.
쐍 Reclassify Products Legal Control (F2391)
You use this app for reclassification of products related to legal control
and compliance.

Figure 2.10 shows the overview screen of the Classify Products – Commodity
Codes app. With this app, you can select multiple products and carry out
mass classification. In the example, number scheme CN8 representing EU
combined nomenclature is used for classification of the products 25 Win-
dow frame and 34 Door frame. After you click the Classify button, the system
will take you to the screen wherein the relevant CN8 code can be assigned to
the products. You can search for products based on description. In this
example, based on searching for “frame,” the system has identified the
products 25 and 34.
Figure 2.10 Classify Products – Commodity Codes SAP Fiori App
Figure 2.11 shows the mass classification screen wherein the two products
are classified with the CN8 code 44011100 and saved.
Now, let’s move on to product reclassification. Figure 2.12 shows the over-
view screen of the Reclassify Products – Commodity Codes app. Just as you
did for classification, you can carry out mass reclassification of products
here.

Figure 2.11 Mass Product Classification – Commodity Codes
Figure 2.12 The Reclassify Products – Commodity Codes SAP Fiori App

3 Trade Compliance
Similarly, you can carry out product classification and reclassification for
tariff codes using the relevant apps for tariff codes. For legal control, you can
flag the products as relevant for legal control or not using the Classify Prod-
ucts – Legal Control or Reclassify Products – Legal Control apps. The actual
assignment of the control classification numbers to the products are main-
tained via Business Rule Framework plus (Transaction BRF+). The Business
Rule Framework plus provides business users with more flexibility in man-
aging business rules and decision tables without depending on technical
developers to build custom code in the system. This provides an application
programming interface (API) and user interface for defining and processing
business rules.
3 Trade Compliance
An important aspect of international trade is to ensure required legal regu-
lations are adhered to while exporting or importing goods across interna-
tional borders.
There are global organizations that administer various regulations that

affect international trade; for example, the International Atomic Energy
Agency (IAEA) and the Nuclear Suppliers Group (NSG). These organizations
specify guidelines and monitor use of atomic and nuclear technology for
safe and peaceful purposes. Similarly, the Organization for the Prohibition
of Chemical Weapons (OPCW) works against the development, production,
and transfer of technology related to chemical weapons.
The legal requirements to a large extent depend on the exporting or im-

porting countries. Such trade regulations specify restrictions on trade of
certain products and/or technology with specific countries, organizations,
or the end use of such product or technology. Besides safeguarding a coun-
try’s competitive advantage, the other aim of such regulations is to ensure
that sensitive products or technologies do not end up in the wrong hands.
Examples of country-specific organizations are the International Traffic in

3 Trade Compliance
Arms Regulations (ITAR) administered by the Directorate of Defense Trade

Controls (DDTC) of the U.S. and the Export Administration Regulations (EAR)
administered by the Bureau of Industry and Security (BIS), U.S. Department
of Commerce. The set of rules specified by ITAR covers products that are di-
rectly related to defense or military use, whereas the rules under EAR cover
products or technologies that can be used both for civilian use as well as for
military purpose (a dual-use product).
Noncompliance has very serious consequences, ranging from monetary fines

to even jail terms. Thus, to remain compliant, every organization needs to
have a robust trade compliance process.
In the following sections, we explain how various trade licenses can be man-
aged based on SAP S/4HANA for international trade. We also explain briefly
how cross border transactions are monitored for licensing requirements
and how automated checks are carried out to ensure the transactions meet
legal requirements.
3.1 Managing Licenses

To control the international trade of sensitive products and technologies,
relevant legal authorities issue specific licenses (permissions) to organiza-
tions and individuals involved in the trade of such goods. The main param-
eters for such licenses are as follows:
쐍 Product classification—for example, based on the ECCN, which rep-

resents what kind of item has been traded.
쐍 The destination of the product and technology.
쐍 The consignee or buyer of the product or technology.
쐍 The purpose and end use of the product or technology by the consignee
or purchaser.
As mentioned earlier, local legal authorities primarily administer export or

import trade licenses. Thus, further explanation of these topics is based on

3 Trade Compliance
the EAR administered by the BIS, U.S. Department of Commerce. Under

EAR, there are different types of licenses, including the following:
쐍 Limited Value Shipments (LVS)

Exporting goods under this license is restricted to a specified value.
쐍 Shipments to Country Group B Countries (GBS)
Exporting goods under this license is valid for countries under country
group B specified by the BIS (supplementary no. 1 to part 740).
쐍 Civil End-User (CIV)
Exporting goods under this license is valid only if the product or technol-
ogy is used for civilian purposes. It requires an end-user statement re-
garding the same form as the buyer.
쐍 Governments, International Organizations, International Inspections
under the Chemical Weapons Convention, and the International Space
Station (GOV)
This license allows exports and reexports of items related to nuclear tech-
nology and items controlled under the Chemical Weapons Convention.
쐍 License Exception Strategic Trade Authorization (STA)
This license authorizes, for example, exports, reexports, and transfers of
software source code and technology to foreign nationals based on cer-
tain specified conditions as mentioned in part 742 of the EAR.
쐍 No License Required (NLR)
This specifies that the product is not under any specific control and does
not require any license for export.
The Manage Licenses SAP Fiori app (F2545) is used for managing licenses for
trade compliance.
Figure 3.1 shows the Manage Licenses app overview screen. It provides vari-
ous selection fields to search for specific licenses. The Legal Regulation field
is mandatory, and in this example, the list of licenses displayed is based on
the EAR. The system allows you to create, change, and delete various
licenses. You can also set the status of a license as active or expired. The sys-
tem will block a transaction if the valid license is not in active status.

3 Trade Compliance
Figure 3.1 Manage Licenses—Overview Screen
Now, we’ll show you how to create a new license for license type Shipments
to Country Group B Countries (GBS). Click the Create button to open the Cre-
ate License pop-up box, as shown in Figure 3.2.
Figure 3.2 Create Licenses

3 Trade Compliance
The License Owner field is for the legal entity (the company code in the SAP
system), and the Legal Regulation field is for information about the organi-
zation under which the license is issued—in this case it is EAR, and for this
example, the License Type field is GBS. Click the OK button to add further
details.
Now we’ll explain how different attributes relevant for a license can be
maintained in the system via the following sections:
쐍 General Information
In Figure 3.3, relevant Legal Regulation EAR, License Type GBS, and the cur-
rent Status A (License Created) are shown. This information indicates that
the legal entity (organization) has submitted a request to relevant author-
ities for a GBS license. The General Information section shows the Official
License No. field, which is filled once a valid license is received from the
authorities. In addition, the validity date of the license and the legal
owner (for example, company USA; company code 1100) are specified at
this level in the Valid To: and License Owner fields, respectively.
Figure 3.3 Create License—General Information

3 Trade Compliance
쐍 Control Classes
Figure 3.4 shows the Control Classes section. In this section, you can main-
tain relevant control classes by clicking the + icon. From the options in
the dropdown list, you can select and maintain relevant and multiple
control classes per license.
Figure 3.4 Create License—Control Classes
쐍 Partner Countries
Figure 3.5 shows the section for Partner Countries. In this section, you can
maintain a relevant destination country by clicking the + icon. From the
options in the dropdown list, you can select and maintain relevant and
multiple countries (ISO country codes) per license.
Figure 3.5 Create License—Partner Countries
쐍 Attachments
In Figure 3.6, the Attachments section is shown. You can attach additional
documents or links to the specific licenses. You can scan and attach the

3 Trade Compliance
official approved license (hard copy) as a PDF to this license. Finally, you
can save this document as a draft or save and submit it.
Figure 3.6 Create License—Attachments
The various parameters while maintaining licenses in the system depend

on the license type and the configuration in the system. In our example in
Figure 3.7, the license type for Shipments of Limited Values (LVS) is shown.
Because it is a value-based license, there are additional fields in which you
specify the relevant currency, maximum limit, and the field percent con-
sumption. These additional fields are automatically updated based on the
corresponding business transactions carried out against this license.
Using the Manage Licenses app, you can monitor the list of existing licenses.
Figure 3.8 shows the list of licenses and their relevant statuses.
You can set the status of a license to active once approval (or a license) is
received from the relevant authorities. You can also set a license as expired
(if not extended) once it has passed its validity date (Valid-To date).
Note
The examples shown in this section are dummy data taken from a sandbox. We
recommend consulting the latest recommendations under relevant legal regu-
lations.

3 Trade Compliance
Figure 3.7 Manage Licenses—LVS License Type
Figure 3.8 List of Licenses and Corresponding Statuses

3 Trade Compliance
3.2 Monitoring and Managing Transactions

Based on the system configuration and the business rules, the system car-
ries out trade compliance checks for the business transactions. The follow-
ing SAP Fiori apps are used for monitoring and managing transactions and
take actions on exceptions wherein the required valid license or informa-
tion is missing:
쐍 Manage Documents – Trade Compliance (F2826)

This app provides you with a list of all relevant cross border transactions
relevant for a trade compliance check.
쐍 Resolve Blocked Documents – Trade Compliance (F2792)
This app lists blocked documents due to compliance checks only.
Figure 3.9 shows the Manage Documents – Trade Compliance app displaying
a list of international trade-related business transactions. The app lists both
released and blocked documents.
Figure 3.9 Manage Documents – Trade Compliance SAP Fiori App

3 Trade Compliance
You can go in to the specific blocked transactions and either confirm the
block and close the transaction or assign a relevant and valid license and
release the transaction by carrying out a recheck.
Let’s look at one of the blocked documents in detail. Figure 3.10 shows that
the sales order item is blocked as per legal regulation EAR and that a deci-
sion is pending. On the right side, you can see that the reason for the block
is because the product is not classified (i.e., the control class is missing). You
can click the Edit Classification button, maintain the required value, and
save the document. Alternatively, you can confirm the block and stop the
transaction from further processing.
Figure 3.10 Manage Documents—Blocked Sales Order Item
Now, let’s look at the Resolve Blocked Documents app. This app is similar
to Manage Documents – Trade Compliance, but it lists only international
business transactions that are blocked due to missing data or an invalid
license.

3 Trade Compliance
Figure 3.11 shows the Resolve Blocked Documents – Trade Compliance over-
view screen with a list of blocked documents. It shows that two orders—
1549 and 1548—are blocked and it has flagged that for the next action, there
are two days left. In this case, the next action due is related to delivery cre-
ation (earliest delivery date).
Figure 3.11 Resolve Blocked Documents – Trade Compliance SAP Fiori App
Before recheck, let’s look at the details of the blocked document. As shown
in Figure 3.12, the item is missing classification (i.e., the product is not clas-
sified with a relevant ECCN); therefore, the system has blocked the transac-
tion.
Now, we’ll explain how to maintain the relevant ECCN for the product and
save instead of confirming the block. From the dropdown list, ECCN EAR99
is selected and maintained for this product and relevant for this transac-
tion, as shown in Figure 3.13.

3 Trade Compliance
Figure 3.12 Resolve Blocked Documents—Item Level View
Figure 3.13 Resolved Blocked Documents—Classification Maintained

3 Trade Compliance
Go back to the initial screen that shows the list of blocked documents. As
shown in Figure 3.14, the sales order 1548 appears blocked. Because the
required product classification is maintained for this transaction, you can
carry out a recheck by clicking the Recheck button.
Figure 3.14 Resolve Blocked Documents—Recheck
In Figure 3.15, you can see that the order 1548 item is still blocked and now it
is because the system has not been able to find a relevant export license for
the product with ECCN EAR99 and destination country PK (Pakistan). From
the dropdown list, you can select and attach a license (for example, EU-
Statement [end-user statement] license is assigned to the transaction), and
save. After you save the transaction document, the system will carry out a
recheck of the transaction and release the document as it is assigned to
valid license now. The transaction will no longer appear in the Resolved
Blocked Documents – Trade Compliance app.
Now you verify that order 1548 in the Manage Document app is released.
Figure 3.16 indicates that the sales order status is released by user, and the
right side of the screen shows the ECCN assigned to the product and the
export license number EU-STATEMENT-9999-001 (the external license num-
ber) of license type CIV assigned to the transaction.

3 Trade Compliance
Figure 3.15 Resolve Blocked Documents—Assign License
Figure 3.16 Managed Documents—Released Sales Order

4 Embargo Checks
If the products are correctly classified and relevant licenses are maintained,
the system will then carry out a trade compliance check and automatically
assign the relevant license.
4 Embargo Checks
In general, embargo means an official ban imposed by a country or group
of countries or an international organization on trade with a specific coun-
try. The purpose of such bans is to ensure nations abide by the interna-
tional obligation in the areas of counterterrorism, prevention of prolifera-
tion of weapons of mass destruction, and protection of children in arm
conflicts.
An embargo or sanctions can be imposed on a nation in various ways and

means. There are economic sanctions, partial sanctions, or a complete ban
on any kind of trade. Usually, an embargo means a complete ban on trade is
imposed on a nation.
The United Nations Security Council (UNSC) is one of the international

organizations that monitor and impose sanctions and set up required sanc-
tion regimes. Similar to UNSC sanctions, there are sanctions imposed by the
Office of Foreign Assets Control (OFAC) of the U.S. Department of the Trea-
sury—for example, sanctions on Iran, Syria, and North Korea.
The EU has a framework called Common Foreign and Security Policy (CFSP)
based on which EU country imposes trade bans on countries (for example,
on Iran and Syria).
Note
The aforementioned regulatory bodies and countries under embargo do not
make up an exhaustive list. It is recommended to refer the latest international
and national regulations related to such a list and the scope of the restrictions.

4 Embargo Checks
In the following sections, we explain how to manage the embargo country

list and carry out monitoring and managing of embargo checks for business
transactions in an SAP S/4HANA system.
4.1 Managing Countries under Embargo Restriction

To enable automated validation of transactions for an embargo situation,
one of the prerequisites is to flag countries with an embargo status. This
process is carried out via the Manage Countries under Embargo (F2791) SAP
Fiori app.
In Figure 4.1, you can see the various selection parameters, such as Legal
Regulation, Country, Valid From, Valid To, and so on. The Legal Regulation
field is mandatory; in our example, you enter EMBUN, short for embargo
country list based on the United Nations. Similarly, there could be other
legal regulations specifying a different set of embargo country lists. Once
you select the relevant legal regulation and click the Go button, the sys-
tem will display the list of countries with embargo blocks, as shown in
Figure 4.2.
Figure 4.1 Legal Regulation EMBUN—Embargo United Nations

4 Embargo Checks
Figure 4.2 Embargo Country List
Click the + icon to enter new entries in the list of embargo countries. After
you click the + icon, you can enter the country key that you want to main-
tain as the embargo country and click the Go button. Based on this entry,
you get the relevant country key listed under the Items table. Then, double-
click the country key listed under Items to add a new country to the em-
bargo list. Finally, click the Save button to save the entry in the list. Selecting
the checkbox on the left side against a specific country (row) enables the
options to edit and/or delete the entry from the list.
Figure 4.3 shows an example of creating embargo countries for the legal reg-
ulation EMBUN. There is a search option example based on ISO country key
or long name with which you can search and add the valid country code to
the list. In our example, North Korea is added to the list.
In Figure 4.4, you can see that Syria has been added to the list of embargo
countries under the EMBUN legal regulation.

4 Embargo Checks
Figure 4.3 Create Countries Under Embargo
Figure 4.4 Syria and North Korea Added to the Embargo Country List

4 Embargo Checks
Based on this list of embargo countries, the system will carry out automatic
embargo checks of sales and procurement transactions.
4.2 Monitoring and Managing Transactions

Based on the relevant embargo checks, related legal regulations set as active
for a country, and the list of embargo countries maintained for these active
legal regulations, the system validates business transactions (for example,
cross border sales and purchases for an embargo situation).
Figure 4.5 shows examples of possible international business transactions

between Sweden and India and between Sweden and Iran. Iran is flagged as
an embargo country, so you should expect that the business transaction is
blocked by the system for further processing.
Sweden
Iran
India
Figure 4.5 Business Scenario—Embargo Check

4 Embargo Checks
The Manage Documents Trade Compliance (F2826) SAP Fiori app is used for
managing all such transactions that are blocked due to legal compliance
checks (including embargo checks).
Figure 4.6 shows the overview screen of the Manage Documents – Trade
Compliance app.
Figure 4.6 Blocked Sales Orders
The top part of the screen has selection criteria (for example, Legal Regula-
tion, Company Code, Plant, and so on). In this example, two sales orders are
listed that have the status Blocked and need to be reviewed before they can
be further processed.
Figure 4.7 shows the item details of the sales order.

4 Embargo Checks
Figure 4.7 Sales Order Blocked Due to an Embargo Situation
This screen can be broken up into three sections:
1 This section shows the overview of the total item, product, net value and
the status.
2 This section provides more information, including the legal regulation
based on which the item is blocked and the status Decision Pending.
3 This section shows which partner has an embargo situation—in this
case, it is the ship-to partner (the destination country), which is in Iran.
Figure 4.8 shows the pop-up box that appears after you click the Confirm
Block button. In this case, the reviewer has decided to not allow further pro-
cessing on the order. You can enter relevant comments and click the OK
button to save the decision. Similarly, a pop-up box appears to register com-
ments in case the reviewer would have decided to release the block.
Figure 4.9 shows the final decision Confirmed Block for the sales order item
based on the reviewer’s decision and comment.

4 Embargo Checks
Figure 4.8 Confirm Block Due to an Embargo Situation
Figure 4.9 Final Status and Reviewer’s Comment

5 Intrastat Reporting
In Figure 4.10, the detail screen of the app Resolved Blocked Documents –
Trade Compliance (F2792) is shown for a blocked sales order item due to the
embargo situation in Syria. You can also use this app (which we introduced
in Section 3.2) to manage and review blocked business transactions due to
compliance issues.
Figure 4.10 Resolve Blocked Documents – Trade Compliance
The examples discussed are based on sales orders; however, the functional-
ity is the same for customer delivery and purchase orders.
Intrastat stands for the intra-community statistics on trade of goods be-
tween countries belonging to the EU. As per the single market concept, the

internal border restriction between member countries was opened for free –
movement of goods, people, and services. Currently, 28 countries are part of
the EU and have this requirement of intrastat reporting.
The main purpose of this reporting requirement by the EU member coun-

tries is as follows:
쐍 To use as a base by the Economic and Monetary Union (EMU) to formu-

late and prescribe various European economic and monetary policies.
쐍 It is an input for calculation of balance of payment of trade by a member
country with other EU member countries.
쐍 Different industries or business sectors can use the report to develop
business strategies. National and international institutions and individu-
als can also use the report for research purposes.
The collection of the data takes place in different steps. First, the relevant
statistical data is collected on a national level by each EU member country,
and then the consolidated information is passed on to Eurostat, the statisti-
cal office of the EU. Eurostat then compiles and publishes the final report.
Today, the authorities also use the figures from the intrastat report with
value-added tax (VAT) reporting and EC Sales List (ESL) figures for any dis-
crepancy. Thus, it is important that the figures reported in intrastat match
the figures reported in an ESL report.
Note
The ESL is a financial report that economic operators (individuals/organiza-
tions) need to report the VAT on sales of goods and services to the EC. Tax
offices in the EU use the report to monitor and ensure that correct tax amounts
are paid by all relevant parties.
In the following sections, we’ll explain the intrastat reporting requirements

and some of the mandatory data elements that should be included in the
report with respect to the cross-border goods movement and provide an
example of how to create an intrastat report in SAP S/4HANA.

5.1 Intrastat Reporting Requirements and

Data Elements
The EU has enacted statutory laws that specify the requirements related to
the intrastat reporting. The main relevant laws are as follows:
쐍 EU Regulation (EC) nos. 638/2004 and 222/2009 of the EU Parliament and

of the Council
쐍 Commission Regulation (EC/EU) nos. 1982/2004, 91/2010, 96/2010, 1093/
2013, and 659/2014 in 759/2015
Although these laws are common across all of the EU member countries,
there are allowed provisions for some minor deviations based on local
country-specific requirements. In this section, we’ll cover the following
high-level requirements that are common across all the member countries:
쐍 Any individual or organization registered for a VAT in an EU member

country needs to report intrastat.
쐍 There is a threshold value of total business defined per EU member coun-
try that, if exceeded, makes the organization liable for reporting intrastat.
The threshold value defined by the specific country can differ for the
goods procured by an individual/organization from another EU member
country, known as arrivals, and for the goods that were sold by an individ-
ual/organization to another EU member country, known as dispatch.
쐍 The intrastat report is submitted monthly to the national authorities re-
sponsible for collecting the statistical data. The report for the previous
month is submitted usually within the 10th working day of the following
month. This number of days limit could vary per country.
쐍 If the individual or organization responsible for reporting fails to do so,
then they are subject to penalties by the national authorities.
Now, let’s look at the content or data elements to be included in the report.

Note
There are subtle differences between the mandatory contents of the report and
the format depending on the specific EU member country. We are not going to
cover all the individual country-specific versions, but touch upon the main con-
tent common across all the EU member countries.
The following content is required:
쐍 Identification number
This number is the VAT registration number of the responsible person/
partner submitting the report. Such a person/partner is also known as a
provider of statistical information (PSI).
쐍 Period for which the report is submitted
All cross border transactions (goods movement) during a calendar month
is included in the report, and the relevant month number is also specified
in the report. The period is given in numeric number (for example, 01 for
January, 02 for February, and so on until 12 for December).
쐍 Direction of goods flow
Inbound or arrivals when goods arrive at an EU member country and out-
bound or dispatch when the goods leave the EU member country.
쐍 Commodity code identifying the product
This is based on product classification as per CN8 prescribed under Coun-
cil Regulation (EEC) no. 2658/87 on the tariff and statistical nomenclature
and on the Common Customs Tariff.
쐍 Country of dispatch/destination
The country of dispatch is determined based on the country of the con-
signor, and the country of destination represents the EU member coun-
try in which the goods arrive and change of goods ownership takes place.
쐍 Country of origin of the product
This information depends on the CN8 classification and based on the
general guidelines that state that the country of origin of a product is
the country where the product undergoes substantial and economically

justifiable processing, which results in a new value-added product or a

major stage of manufacturing of the product.
쐍 Statistical value of the goods
This value is calculated based on the total taxable amount of the transac-
tion. Alternatively, for dispatches it can include expenses such as freight
charges and insurance for the part of the transport leg that is on the EU
member country of the dispatch side (i.e., transactions similar to a free on
board [FOB] type) and for the arrivals for the expenses related to cost,
freight, and insurance for the transport leg outside the EU member coun-
try of destination (i.e., a transaction similar to a cost insurance and freight
[CIF] type).
쐍 Nature of the transaction
This information is used to differentiate various types of business trans-
actions—for example, to differentiate between original sales versus
returns of goods or goods movement related to repairs.
쐍 Region of origin/destination
Not all EU member country require this optional information.
쐍 Mode of transport
Mode of transport provides the information about the medium of trans-
port. In a case of intermodal transport, it is the mode of transport for the
main leg of the transport or the mode of transport based on which the
goods will cross the border of one EU member country (country of dis-
patch) to the other EU member country (country of destination).
쐍 Terms of delivery
This information is based on the set of contract conditions used between
a consignor and consignee for a specific transaction. The International
Chamber of Commerce has defined a set of such delivery terms that are
recognized worldwide. This term of delivery is also known as interna-
tional commercial terms (Incoterms). As per Incoterm 2010, there are 11
valid Incoterms: EXW (ex-works), FCA (free carrier), CPT (carriage paid to),
CIP (carriage and insurance paid to), DAT (delivered at terminal), DAP
(delivered at place), DDP (delivered duty paid), FAS (free alongside ship),
FOB, CFR (cost and freight), and CIF.

쐍 Statistical procedures
This information is used to categorize transactions into a group with sim-
ilar characteristics. For example, categorization of a final dispatch of
goods versus a temporary dispatch of goods for processing under con-
tract (subcontract goods).
쐍 Quantity of the goods
This information needs to be declared based on net mass (excluding
packaging weight) or based on the supplementary unit of measure
depending on the product classification based on CN8 nomenclature.
5.2 Generating Intrastat Reports

In this section, we’ll discuss some of the prerequisites for generating an
intrastat report and an example of an intrastat report. The example is based
on EU member country Sweden. The transactions are based on test data
from a sandbox system and do not represent any real business data.
Master Data
The first prerequisite, naturally, is to set up system configuration related to
the intrastat functionality, which is not in the scope of this E-Bite. Then, you
can proceed with setting up some key master data elements.
Provider of Information
One of the mandatory master data to set up is the provider of information.
This represents the organization (company) in the system. To maintain the
data, you can use the Manage Providers of Information SAP Fiori app, or
alternatively, you can use the SAP GUI Transaction /n/ECRS/POI_EDIT.
After you click the Manage Providers tile (app), the system opens a new page,
as shown in Figure 5.1, wherein a list of providers of information is dis-
played.
In Figure 5.2, you can see a typical example of Provider of Information master
data.

Figure 5.1 Providers of Information
Figure 5.2 POI Master Data

Figure 5.2 is divided into four main sections:
1 The Provider of Information section represents the company (for exam-

ple, company code 9999). The VAT registration number is taken from
the finance global settings configuration. You can maintain other details,
such as Name, address (Street/House Number, City, and Postal Code),
Phone Number, and Contact Person details.
2 In the Basic Settings section, you maintain data such as Exchange Rate
Type based on which system will convert the transaction value in local
company code currency. In addition, settings for the receipt (arrivals
entered in the Receipt Decl. Level field) and dispatch declaration levels
(the Dispatch Decl. Level field) are set. For example, if the organization is
supposed to declare a dispatch, then the declaration level is set as 2 (stan-
dard declaration), and if not, then it is set as 0 (no declaration). The dec-
laration file format (the Declar. File Format field) is defaulted based on the
country; for example, for Germany there are two file formats to choose
from, 1 ASCII file and 2 XML file, whereas for Sweden, there is only one
option: 1 XML file format.
3 The Plants section lists the plant(s) assigned to the company code for
which the declaration is to be submitted.
4 The Delivering Plants in Intercompany Sales section lists the plant(s) of
group companies. These are the plant(s) that are in different EU member
countries and there are cross border intercompany transactions between
these plants for which intrastat needs to be reported. An example could
be that a manufacturer is based in Sweden and has a sales company and a
distribution center in Belgium. Then the transaction between the manu-
facturing unit and sales unit needs to be reported. The manufacturing
unit should report all dispatches from Sweden to the distribution center
in an intrastat report, and the sales unit (distribution center) in Belgium
should report the arrivals side of the intercompany transaction.

Intrastat Service Codes

Intrastat service codes are a list of codes for easy identification and grouping
of various service products. Service products are classified based on these
codes and used for intrastat reporting.
The Manage Intrastat Service Codes SAP Fiori app (F2517) is used to maintain
the valid service codes to be used for service product classification.
As shown in Figure 5.3, using the Manage Intrastat Service Codes app, you
can change, update, and display these service codes. You also can specify a
certain validity period for each of these service codes.
Figure 5.3 Change Intrastat Service Codes
You can then use the service codes maintained for classifying service prod-
ucts using SAP Fiori apps.
There are also two SAP Fiori apps related to the classification of service
products based on intrastat service codes:
쐍 Classify Products – Intrastat Service Codes (F2156)

This app enables identification of unclassified products for a specific clas-
sification numbering scheme and allows maintenance of intrastat service
code for single or multiple products.
쐍 Reclassify Products – Intrastat Service Codes (F2155)
This app enables the identification of classified products for a specific

classification numbering scheme and validity period. It also allows main-

tenance of intrastat service codes for single or multiple products.
Figure 5.4 shows the screen for classification of a service product (CONSULT-
ING) based on a numbering scheme (ZINTRASTAT) via the Classify Products
Intrastat Service Codes app. After you click the Classify button, the system
takes you to the next screen wherein you can select the relevant intrastat
service code in the Intrastat Srvc. Code field and save the data.
Figure 5.4 Classify Products – Intrastat Service Codes SAP Fiori App
In Figure 5.5, you can see the service product CONSULTING is classified with
service code 620111, which is valid for a specified period. Similarly, you can
reclassify and update the intrastat service code of a product.
In Figure 5.6, the Reclassify Products – Intrastat Service Codes app is shown.
As you can see, the service product CONSULTING is assigned intrastat ser-
vice code 620111. After you click the Reclassify button, the system takes you
to the next screen wherein you can select relevant intrastat service codes.
You can also reclassify the product and save the data.

Figure 5.5 Classify Product (Detail View)
Figure 5.6 Reclassify Products – Intrastat Service Codes SAP Fiori App

Creating a Report
The creation of an intrastat report is carried out in two steps, which we’ll
discuss in this section. The first step is to select relevant business transac-
tions for dispatch and arrivals, and in the second step, the relevant data is
reviewed and released. After the data is released, you can generate the
required intrastat report file.
Select a Relevant Business Transaction

The relevant selection of the business transaction can be carried out via back-
ground jobs or online. There are two apps—one for dispatch and another
for arrivals for scheduling and monitoring of background jobs. Similarly,
two separate transactions codes can be executed via the SAP GUI for online
selection of relevant business transactions.
The following two SAP Fiori apps are meant to schedule background jobs for
relevant business transaction selections:
쐍 Select Dispatches and Customer Returns Intrastat Declaration (F2507)

This app enables you to schedule a batch job to select intrastat relevant
dispatches. You can also use the app to return transactions based on sales
billing documents.
쐍 Select Receipts and Returns to Supplier Intrastat Declaration (F2508)
This app enables you to schedule a batch job to select intrastat relevant
arrivals and returns to supplier transactions based on purchasing docu-
ments.
Those who have worked with the SD-FT component in SAP ERP systems are
aware of various transaction codes that are based on a country-specific intra-
stat reporting requirement. However, in SAP S/4HANA for international
trade, there are only four SAP GUI transaction codes, and the rest are based
on SAP Fiori apps. The few old transaction codes for selection of relevant
business transactions for intrastat reporting are still valid in SAP S/4HANA
(Transaction MEIS for arrivals and Transaction VE01 for dispatches).
Figure 5.7 shows the selection screen for Transaction MEIS.

Figure 5.7 SAP GUI—Select Receipts and Returns to Supplier
Even though Transaction MEIS is retained in SAP S/4HANA, there is a big

difference compared with the selection screen available in SAP ERP. As you
can see in Figure 5.7, in SAP S/4HANA the selection option is only based on
the Provider of Information, the year, and the period for which the report is
to be created. Remember the relevant plant for which the report is to be
generated is already listed in the provider of information master data. Also,
from this transaction in SAP S/4HANA you can no longer select or exclude
any specific purchasing document or data based on selection criteria.
Figure 5.8 shows the selection screen for another SAP GUI transaction,
Transaction VE01.
Figure 5.8 SAP GUI—Select Dispatches and Customer Returns
Transaction VE01 is also retained in SAP S/4HANA; however, like Transac-

tion MEIS, this transaction selection screen is also simplified. The selection
option is only based on the Provider of Information, the year, and the period

for which report is to be created. Again, the relevant plant for which the
report is to be generated is taken from the provider of information master
data. In addition, from this transaction in SAP S/4HANA you no longer can
select or exclude any specific billing document (sales-related billing docu-
ment) or select business transactions based on any specific foreign trade-
related data. It is worth mentioning here that the foreign trade data tab on
the header and item levels on delivery, billing, or purchasing documents is
also not available in SAP S/4HANA.
For both these transactions, after you execute them, the system displays a
pop-up message box that states how many relevant transactions the sys-
tem selected for the specified provider of information and the period for
which the transaction is executed.
Intrastat Declaration
The final step is to create the required intrastat report. To create the intrastat
report, you can use either the SAP GUI transaction (Transaction /n/ECRS/
RP_EDIT) or the Manage Intrastat Declaration SAP Fiori app.
Figure 5.9 shows the list of declarations that the system created based on
the business transactions selected in the previous step.
Figure 5.9 Manage Intrastat Declarations—Overview of Declarations
Some key features available on the Manage Intrastat Declarations: Overview

of Declarations screen are as follows:

쐍 Provider of Info.
The list of declarations from different periods is displayed for the pro-
vider of information 9999.
쐍 Direction
Data under this column indicates if the declaration is for Receipt (arrivals)
or Dispatch.
쐍 Status
Data under this column shows if the report was released or is still in pro-
cess.
쐍 Correct
The checkboxes under this column show if the data selected is complete
and verified. If a checkbox is not selected, there are records in this list that
might have missing data (information). To resolve this issue, select the
row or double-click it to go to the item details and correct (maintain) rel-
evant data and save.
쐍 File Created
A selected checkbox indicates that an intrastat file was created for a spe-
cific record.
쐍 Number of Items
Data under this column indicates the number of transactions selected.
For example, for the Year 2019 and period (Month) 8, two dispatch trans-
actions were selected for reporting.
쐍 Inv. Value
Data under this column shows the aggregated statistical value in com-
pany code (local) currency of all the items selected as part of the list.
쐍 Net Weight
Data under this column shows the aggregated weight of all the items
selected as part of the list.
On the application bar, there are multiple functionalities (buttons) avail-

able. You can change, display, or delete a list. After reviewing and ensuring
that the data selected is complete, you can release the list. You also can

reverse the release of a list if required for making additional corrections or

adding another transaction in the report. SAP S/4HANA allows you to
export the list in a Microsoft Excel spreadsheet, and the intrastat file can be
generated in the required format.
In addition to the SAP GUI transaction, there is also an SAP Fiori app named
Manage Intrastat Declarations based on SAP Screen Personas.
Figure 5.10 shows the screen when the Manage Intrastat Declarations app is
used. It has the same functionality and features as those used for the SAP
GUI Transaction /ECRS/RP_EDIT.
Figure 5.10 Manage Intrastat Declarations
Now let’s explain how to verify that the data selected has all the required
information and how to take necessary action if any data is missing before
you release the declaration for generating the intrastat file.
After selecting a file from the list, go to the Header level and verify that the
data is correct.
In Figure 5.11, you can see the Header level of the list. When you click the
Check Header button, the system verifies the record and issues a message
relaying whether the record is correct or not. In this case, the system has
found the record to have the correct header data.

Figure 5.11 Change Intrastat Declaration: Header
Similarly, from the main screen, you can select the list and go to item level
details. Figure 5.12 shows the option of selecting and verifying item level
data from the Change Intrastat Declaration: Item Overview screen. You can
either place the cursor on an item row and click the details icon (the magni-
fying glass) or double-click an item row. The system then will take you to the
item detail screen.
Figure 5.12 Change Intrastat Declaration: Item Overview

Figure 5.13 shows the item detail screen that displays a list of missing data
under Check Result. In our example, business transaction type and com-
modity code (the tariff code of the product) are missing. Maintain the rele-
vant data and save the record.
Figure 5.13 Check Result (Item Level View)
As shown in Figure 5.14, after you maintain relevant data and click the Check
Item button to carry out a recheck, the system first verifies all mandatory
data for declaration and accordingly issues a message. This time the system
confirms that all information is correctly maintained.

Figure 5.14 Item Check Result Is Correct
As shown in Figure 5.15, the dispatch record for Year 2019 and period (Month)
8 is in Released status. This information means that the system is ready to cre-
ate a declaration file. To do so, click the Create Declaration button on the appli-
cation bar. This action displays a pop-up message with a default file name.
Select the relevant folder, and if desired, rename the file before saving.
Figure 5.15 Create Intrastat Declaration file

6 Implementation at a Glance
Finally, as shown in Figure 5.16, after you save the file, the File Created check-
box appears ticked and a relevant message is also displayed at the bottom of
the screen.
Figure 5.16 Intrastat File Created
The move to the SAP S/4HANA system is a complex process. The implemen-
tation approach depends on the current application and level of customer-
specific customization that has been carried out in the existing application.
The two common implementation approaches are as follows:

쐍 Greenfield
This approach is based on the “start-from-scratch” strategy. This strategy
provides an opportunity to review the existing processes and business
models that have been built over the years based on previous technology
and software capabilities. Now, based on the new possibilities with the
enhanced SAP S/4HANA digital core and various cloud applications per
line of business, it might be good to consider a complete business trans-
formation. This approach can be followed for an on-premise, cloud, or
hybrid solution.
쐍 Brownfield
This approach is for an existing SAP ERP installed base. The idea is to carry
out conversion and migration of existing applications and data from SAP
ERP to an SAP S/4HANA system. SAP provides various migration paths
and tools based on the existing system version to latest SAP S/4HANA
version. This approach promises to enable you to move to SAP S/4HANA
in a shorter time. However, it all depends on the current business process
and level of client-specific customization existing in the system. This
approach is recommended for on-premise systems only.
In this section, we provide information about implementation from a for-

eign trade functionality perspective. We also briefly cover the migration
options from an SAP ERP to an SAP S/4HANA system and points to consider.
This section provides an overview about the alternate option of implement-
ing SAP GTS for foreign trade-related requirements with native integration
with SAP S/4HANA.
6.1 Migrating from SAP ERP

Foreign trade functionality in SAP ERP is delivered under the SD-FT compo-
nent. The SD-FT component does not exist in SAP S/4HANA; instead, a new
component, SLL-ITR (international trade), is provided in the SAP S/4HANA
system. Because it is a completely new component and the solution and
code lines are redesigned in the new system, there is no easy automatic
migration or conversion possible.

The following sections provide a brief overview of pre-checks to be carried

out before migration to SAP S/4HANA and points to consider for system
migration.
System Readiness Checks

In the brownfield approach, it is recommended that a system readiness
check is carried out prior to converting the system and data migration. SAP
provides tools and services for such pre-checks.
The system readiness check consists of the following analyses that can be
carried out in an existing SAP ERP system:
쐍 Add-on compatibility
This provides an analysis of any add-on components that have been used
with the existing system and determines if they are compatible with the
target SAP S/4HANA system version. In some cases, an add-on version
might need an upgrade. If the add-on component is not supported, then
the report provides other possible options.
쐍 Business functions
Business functions that are active in the systems are verified, and the
report provides a list of business functions that might need to be
switched on after system conversion.
쐍 Simplification lists
Based on the existing database tables and used transaction codes, the
analysis report prescribes a simplification list that provides details of
what action or workaround should be considered while moving to an SAP
S/4HANA system. Based on the analysis the list of simplification items is
classified in three different categories. The first category is of simplifica-
tion items that are relevant and need immediate action based on the de-
tails that SAP recommended. The second category is of simplification lists
that are relevant, but need to be verified to determine if immediate adjust-
ment is needed. The final category of simplification items includes those
that are found relevant, but are not of high importance from a strategic

perspective. In addition, there could be nonstrategic simplification items

that need to be verified separately.
쐍 Custom code analysis
This analysis is carried out to analyze all custom code built in the existing
system. Based on the analysis and the complexity, the report suggests
which codes can be migrated without issues and which ones need to be
rebuilt. It gives an impact based on simple grading: high, medium, and
low. The codes that are flagged as high impact needs to be rebuilt. Most
often these code changes are required because the database structure in
SAP S/4HANA is changed and may not work if it is not rebuilt based on the
new data structure.
쐍 System sizing
Based on the database analysis the report provides potential system siz-
ing required. This analysis is based on the table size in the existing sys-
tem.
쐍 Data archiving
Based on the top 30 tables, the report also recommends potential size of
the data archiving. It makes sense to carry out archiving instead of mov-
ing unnecessary data to the new system. Thus, the report provides a good
plan for data volume management.
In addition, there are additional checks and recommendations provided in

the report. To get the best results out of the readiness check, it is recom-
mended to run the check on a production system or on the latest copy of
the production system.
System Migration
SAP S/4HANA for international trade has replaced the SD-FT component’s
functionality existing in SAP ERP. This means there is no easy option for sys-
tem conversion and data migration related to the SD-FT component. You
need to consider this migration based on specific functionality that has been
used in your current SAP ERP application. SAP S/4HANA for international

trade supports product classification for both commodity codes and export
control classification. It also enables trade compliance and license manage-
ment, embargo checks, and intrastat reporting. The option is to carry out
data migration (including foreign trade-related data) after the system is con-
verted to SAP S/4HANA. This part of the data migration needs to be treated
as a greenfield project.
Regarding financial transactions related to letter of credit, you can migrate

this financial data from the SD-FT component’s functionality in SAP ERP to
trade finance in the SAP S/4HANA system.
Note
There is a detailed step-by-step description provided in SAP Note 2520879 –
Migration of Financial Documents from SD-FT to Trade Finance in Treasury and
Risk Management.
If you have been using the SAP ERP SD-FT component’s functionality along
with a third-party customs application, then before migrating, you need to
check the integration with such third-party systems because the data struc-
ture is completely changed in the SAP S/4HANA system.
6.2 SAP Global Trade Services

For all foreign trade-related functionality, the recommended solution is to
go with SAP GTS. SAP provides native integration for SAP S/4HANA and SAP
GTS. In SAP S/4HANA, there is no need for a separate plug-in to be installed
to connect to the separate SAP GTS system. However, you cannot install SAP
GTS on the same system along with the SAP S/4HANA system. If you want
to go for the SAP GTS solution instead of using the international trade func-
tionality or if you might use SAP GTS for some of the features such as pref-
erential management, which is not available in SAP S/4HANA for interna-
tional trade, then the SAP GTS part of the solution must be treated as a
greenfield project.

7 What’s Next?
7 What’s Next?
You’ve explored the ins and outs of SAP S/4HANA for international trade.
Now, expand your logistics horizons even further! Walk through foreign
trade with SAP Global Trade Services, discover more logistics processes in
your SAP S/4HANA system, map out your company’s compliance with key
data regulations, and more. Your SAP PRESS journey is only just beginning!
Recommendation from Our Editors
Set up SAP Global Trade Services for your business with

Implementing SAP Global Trade Services by Yannick
Jacques, Nick Moris, Chris Halloran, and Pablo Lecour!
See how to connect to your SAP ERP or SAP S/4HANA
system, and get step-by-step instructions to configur-
ing compliance, customs, and risk management func-
tionality in SAP GTS.
Visit www.sap-press.com/4651 to learn more about Implementing SAP Global

Trade Services!
In addition to this book, our editors picked a few other SAP PRESS publica-
tions that you might also be interested in. Check out the next page to learn
more!

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© 2020 by Rheinwerk Publishing Inc., Boston (MA)

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Stefan Sauer, Bernd Lauterbach

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1 International Trade Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

© 2020 by Rheinwerk Publishing Inc., Boston (MA) 4

In this section, we’ll provide a brief overview of typical regulatory require-

1.1 What Is International Trade?

A country is considered prosperous if it has a trade surplus, meaning the

Personal Copy for Sergio Velasco, [email protected] 5

International trade—and especially the open market system—provides var-

In this section, we provide a general definition of key international trade

International Trade Requirements

Some countries follow protectionist economic policies. These countries have

© 2020 by Rheinwerk Publishing Inc., Boston (MA) 6

exports are usually considered by most nations as favorable transactions

In addition to the export and import licensing requirements and taxation

Another very important requirement is to ensure that trade is not carried

Personal Copy for Sergio Velasco, [email protected] 7

Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic,

Regulations defined for international trade continuously undergo changes

However, not all changes or modifications in international trading laws are

© 2020 by Rheinwerk Publishing Inc., Boston (MA) 8

The changes in international laws show a clear trend of international trade

1.2 International Trade with SAP

In the following sections, we’ll discuss the main features of international

Foreign Trade with SAP ERP

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or export transactions, and the procurement side, or import transactions.

Figure 1.1 General Foreign Trade Processing

The SD-FT component enables you to maintain all foreign trade-related

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The SD-FT/customs component’s functionality is well integrated with sales,

The periodic declaration provides system support for creation of a customs

The preference processing-related functionality under the SD-FT compo-

The documentary payments provide support for financial document man-

SAP Global Trade Services

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complete requirements of international trade available in the market

Figure 1.2 The SAP GTS Area Menu

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SAP GTS provides the following key services:

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International Trade with SAP S/4HANA

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Figure 1.3 SAP Fiori Apps for International Trade

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Under legal control, the system supports managing various export/import

To gain a common understanding about a product or service, it is impera-

In the following sections, we’ll explain the common classification nomen-

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2.1 Managing Commodity Codes

The HS codes are six-digit numerical numbers that describe a product or

Let’s look at an example tariff code from Schedule B, which is administered

The classification of ball bearing is based on section XVI Machinery and

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National (as per 8483.30.5020 Subheading:

Figure 2.1 Example of HTS Code from U.S. Schedule B

Let’s consider another example from EU Combined Nomenclature (CN8),