Global Entrepreneur (4th Edition) Chap 15: Documentation & Export Compliance PDF

Global Entrepreneur (Fourth Edition) James F. Foley Chapter 15 Documentation and Export Compliance © Jamric Press International JAMES F. FOLEY Topics In This Chapter Standard Documents for International Trade Detailed Review of Trade Documents Export Cont...

Global Entrepreneur (Fourth Edition) James F. Foley Chapter 15 Documentation and Export Compliance © Jamric Press International JAMES F. FOLEY Topics In This Chapter Standard Documents for International Trade Detailed Review of Trade Documents Export Controls for U.S. Companies Chapter 15 Documentation and Export Compliance International Trade Documents Often Share Common Information  Key info. in these documents  Description of goods  Mode of transport  Terms of sale  Value of the goods  Country of origin  Identity of seller/shipper  Identity of buyer  Terms of payment  Shipping instructions  Evidence of shipment  Compliance with related trade controls  Each shipment has certain number of minimum documents such as commercial invoice, truck, rail, or ocean bill of landing, or air waybill, and usually a packing list Chapter 15 Documentation and Export Compliance Documentation Issues  Though some documents don’t have a specific format (e.g. quotations, invoices) the required information is critical and must be accurate  Documents may repeat some of the same information but they each have their own purpose  Consistency and accuracy is essential Chapter 15 Documentation and Export Compliance International Documentation Essential Documents  Quotation  Pro Forma Invoice  Commercial Invoice  Packing List  Electronic Export Information (EEI) – formerly Shipper’s Export Declaration  Certificate of Origin, NAFTA Certificate of Origin  Insurance Certificate  Ocean Bill of Lading, Air Waybill  Drafts  Shipper’s Letter of Instruction Chapter 15 Documentation and Export Compliance Quotation  Details a price proposal from a seller to a buyer  Confirms the selling price of the goods  Confirms what costs are expected of the buyer  A quotation may or may not include freight to the buyer’s country, but any freight items should be clarified  No specific format – often sent as an email or fax Chapter 15 Documentation and Export Compliance Quotation Highlights Appendix B / Figure B.1  Cost, description, and quantities of the goods to buyer  Cost of export packaging or labeling (or include in buyer cost)  All freight costs such as inland freight (manufacturing location to ocean port) and packaging and weight details  Generally best to separate out freight so buyer sees they are not paying a mark-up on freight  Use a freight forwarder to provide freight quote  Misc: warranty, quotation expiration, other limitations, destination expenses Chapter 15 Documentation and Export Compliance Format of International Quotation  Seller will provide  Cost of goods  Cost of export packaging in cases where special packaging or pallets is required  Cost of special labeling, translation, or printing  Inland freight forwarder not arranging trans. to port of exit  Handling charges, inspection, any specific charges  Freight forwarder proves breakdown of charges  Other cost element considerations  Taxes !  Warranty  Expiration  Other limitations Chapter 15 Documentation and Export Compliance Pro Forma Invoice  Confirms cost of goods and other related cost items  Similar to quotation but generally issued as a ‘document’ rather than just an email or letter  May be requested so foreign buyer can open the L/C, or obtain import license  Can be put on similar form as the commercial invoice but clearly mark it “Pro Forma Invoice”  Accuracy and comprehensive data is critical Chapter 15 Documentation and Export Compliance Pro Forma Highlights Appendix B / Figures B.2 and B.3  Cost, description, and quantities of the goods to buyer including schedule B number at 6 digit level  Ship date: use ‘about’ before expected ship date  Transportation details: include specific carrier, vessel, and bill of lading or air waybill number  Include payment terms  Country of origin statement  Add export control statement at bottom Chapter 15 Documentation and Export Compliance Commercial Invoice  No prescribed format – may use domestic as long as extra required fields can be added  If sale involves a Letter of Credit – check for required information on the commercial invoice  Research specific foreign country requirements (e.g. Spanish translation, consular invoice)  Be sure and determine how many are needed, if originals only, and they should all be signed Chapter 15 Documentation and Export Compliance Commercial Invoice Highlights Appendix B / Figures B.4 and B.5  Cost, description, and quantities of the goods to buyer  All freight costs such as inland freight along with Incoterm  Payment terms  Invoice date  Country of origin (last country of significant value-added or manufacturing) Chapter 15 Documentation and Export Compliance U.S. Exports Should Include the Destination Control Statement  "These items are controlled by the U.S. government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations.” Chapter 15 Documentation and Export Compliance Packing List Appendix B / Figure B.6  May be used by customs in the importing country  Useful for importer for inventory control  Should be a 1-1 match with items and descriptions on Commercial Invoice though okay to include more detailed descriptions  See Page 374 for typical fields  May need to be ‘notarized’ by the foreign government’s consulate Chapter 15 Documentation and Export Compliance Electronic Export Information (EEI) Filing through AES Direct / ACE  Previously known as the Shipper’s Export Declaration  Used to track exports, but linked to Export Controls  AESDirect is the website through which the Electronic Export Information (EEI) is filed. It is accessed through the Automated Commercial Environment (ACE) managed by U.S. Customs and Border Protection  AES Record not required if the total value of any single Schedule B number is less than $2,500 (invoice value plus inland freight) Chapter 15 Documentation and Export Compliance When is the EEI required?  If a shipment contains multiple products with harmonized codes, some of which over $2500 and others less or equal to that, only those items over $2500 require EEI.  If an export license is required for shipment, so is EEI. Chapter 15 Documentation and Export Compliance EEI / AES Direct Filing Guidelines  Where two or more items are classified under the same Schedule B number, the Schedule B number should appear only once on the EEI with a single quantity, shipping weight, and value  If a validated license is required, EEI rules may vary Chapter 15 Documentation and Export Compliance The Four Required Fields for Each EEI / AES Direct Filing 1) Shipment Information: includes a variety of required fields including:  Origin State  Country of Destination  Departure Date  Conveyance Name (vessel or carrier name) 2) USPPI – U.S. Principal Party in Interest: the person in the U.S. that receives the primary benefit, monetary or otherwise, of the export transaction. Chapter 15 Documentation and Export Compliance The Four Required Fields for Each EEI / AES Direct Filing 3) Ultimate Consignee  The company receiving the shipment in the foreign country 4) Commodity line: the Schedule B (or in most cases HTS U.S. is also allowed)  For complete details of the EEI see the AES User Guide:  http://www.aesdirect.gov/support/userguide.html Chapter 15 Documentation and Export Compliance Certificate of Origin  Used to establish country of origin so when good reaches destination, officials can determine import duty or taxes  Two types: generic (most countries) and COO’s required for specific countries (e.g. NAFTA)  Country of origin is used to determine import duties  Foreign country may simply require a statement added to the commercial invoice  Other countries may require the COO to be certified by a chamber of commerce or their local consulate  Rule of origin under WCO: last country of significant transformation or value added Chapter 15 Documentation and Export Compliance Country of Origin Highlights Appendix B / Figure B.8  Copy key information from commercial invoice  Include origin statement such as “all products are the product of ______(fill in country) and are wholly of domestic origin”  Research foreign country guidelines as regards to notary requirements  BNA: Bureau of National Affairs  www.export.gov Chapter 15 Documentation and Export Compliance NAFTA Certificate of Origin  Used to ensure no (or reduced) import tariff is paid on qualifying products shipped to Canada or Mexico  Determining if and how a product “qualifies” is what can make completing the NAFTA COO confusing  Products generally qualify by: 1) the bill of material is entirely U.S., Canada, or Mexico 2) there is significant ‘transformation’ of any non U.S., Canada, or Mexico components or materials Chapter 15 Documentation and Export Compliance NAFTA Preference Criteria (How a Product “Qualifies”)  Criterion A: obtained or produced locally – most likely one for food and ag products  Criterion B: transformation – product was locally manufactured regardless of material origin  Criterion C: assembled using local materials – no transformation but all materials are local  Criteria D/E/F: special applications Chapter 15 Documentation and Export Compliance NAFTA COO Highlights Appendix C  The NAFTA COO uses a very specific format  Exporter (not forwarder) should complete it  Must identify six-digit Schedule B number and preference criterion  May be issued with a 365-day validity and copied for each shipment  Seek assistance in completing a NAFTA COO Chapter 15 Documentation and Export Compliance Insurance Certificate  Important for seller to ensure insurance has been arranged  Insurance amount established at CIF value plus an additional 10% Chapter 15 Documentation and Export Compliance Bills of Lading Issued by the Carrier (ocean or air) to: 1) serve as a receipt for the cargo 2) act as a contract for the transportation of the goods 3) act as a document of possession (title)  Negotiable bill of lading (can be bought, sold, or traded while the goods are in transit) a.k.a. an “order bill of lading”  Nonnegotiable bill of lading (carrier can only deliver the goods to the consignee/buyer) a.k.a. a “straight bill of lading”  Negotiable bills are commonly used with letter of credits  “Clean Bill of Lading” - no indication of damage or shortages  “Board Bill of Lading” – cargo placed aboard vessel and is signed by master of vessel. Chapter 15 Documentation and Export Compliance Ocean Bill of Lading  Issued by the steamship line with information provided by the freight forwarder  Exporter should understand how to read an ocean bill of lading to review costs and if applicable, that it complies with letter of credit requirements  Includes all shipping information including shipper, consignee, reference such as invoice number, vessel details, L/C number, labeling, and number of boxes Chapter 15 Documentation and Export Compliance Chapter 15 Documentation and Export Compliance Air Waybill (Air Bill of Lading)  Used as the ‘bill of lading’ for air shipments and is issued by the air carrier  All air waybills are nonnegotiable – as such, it is not a document of ownership for the goods  Unless the goods are consigned to a third party like the issuing bank, the importer can obtain the goods from the carrier at destination without paying the seller Chapter 15 Documentation and Export Compliance Drafts  Unconditional order in writing from one party to another  In an export, seller orders the buyer to pay a fixed amount of money as specified in draft. Chapter 15 Documentation and Export Compliance Shipper’s Letter of Instruction  Completed by the exporter for the freight forwarder  Contains essentially information associated with the shipment  Forwarded uses for related documents including bills of lading and Electronic Export Information filing through AES Direct Chapter 15 Documentation and Export Compliance Tariff Schedules  In most cases (depending on the Incoterm) the importer pays the import tariff  However, exporters should be aware of the expected import tariff  Most tariff schedules are online (start with www.export.gov)  Also see Chapter 4 pages 49-50.  Tariff engineering – Changing or reconfiguring what is imported to minimize import duties Chapter 15 Documentation and Export Compliance How to Read the HTSUS Chapter 15 Documentation and Export Compliance Export Controls … What Are the Key Concerns?  US government wants to limit / approve shipments:  For specific products (dual use products, weapons, possible articles for terrorism)  To specific countries (eg. Cuba)  To specific individuals or parties (barred, denied, unverified individuals) − Concerned with who imports, what is exported, and where exports are going Chapter 15 Documentation and Export Compliance $775,000 Penalty for Illegal Exports of Controlled Alloy  The firm exported aluminum alloy to China, Singapore, Malaysia and Mexico without the required licenses.  The alloy is controlled under export control classification number 1C202 for nuclear nonproliferation reasons  The company also agreed to complete an audit of its export controls compliance program Chapter 15 Documentation and Export Compliance The Four Key U.S. Agencies 1) U.S. Department of Commerce – Bureau of Industry and Security (BIS)  Controls exports of products/technology & Lists to Check 2) U.S. Department of the Treasury – Office of Foreign Assets Control (OFAC)  Enforce trade sanctions to countries and individuals 3) U.S. Department of State - The Directorate of Defense Trade Controls (DDTC)  Controls defense / military articles through the The International Traffic in Arms Regulations (ITAR) 4) U.S. Customs and Border Protection (CBP)  Imports (border security)  Exports (AES Direct) Chapter 15 Documentation and Export Compliance Chapter 15 Documentation and Export Compliance 1) Bureau of Industry and Security (BIS) – part of US Dept of Commerce  This agency has responsibility for controlling goods and technology that could threaten U.S. security if improperly exported.  BIS also maintains directories of individuals and companies (parties) which have been identified by BIS as having engaged in activities that threaten U.S. national security, or for which BIS has been unable to verify their status. Chapter 15 Documentation and Export Compliance BIS Penalties  Administrative cases: a civil penalty amounting to the greater of $250,000 or twice the value of the transaction may be imposed for each violation of IEEPA  For criminal violations: violators may be fined up to $1,000,000 and/or face up to 20 years of imprisonment Chapter 15 Documentation and Export Compliance BIS Export Licensing Terminology  EAR – Export Administration Regulations  ECCN - Export Control Classification Number (to determine if a product is controlled)  CCL – Commerce Control List: details all the ECCNs  Commerce Country Chart: shows by country the specific limitations for that ECCN  Simplified Network Application Process Redesign (SNAP-R) to file an export license Chapter 15 Documentation and Export Compliance ECCN Example  0A982 Restraint devices, including leg irons, shackles, and handcuffs; straight jackets, plastic handcuffs; and parts and accessories, n.e.s.  Reason for Control: CC  Full List of Reasons for License:  AT Anti-Terrorism CB Chemical & Biological Weapons  CC Crime Control CW Chemical Weapons Convention  EI Encryption Items FC Firearms Convention  MT Missile Technology NS National Security  NP Nuclear Nonproliferation RS Regional Stability  SS Short Supply UN United Nations Embargo  SI Significant Items SL Surreptitious Listening Chapter 15 Documentation and Export Compliance Where to Find the ECCN  http://www.access.gpo.gov/bis/ear/ ear_data.html  Start with the “Alphabetical Index to the Commerce Control List (CCL) “  Then click on the specific category as determined by the first number such as Category 0 if ‘0’ is in the first place (as in the prior slide for ECCN 0A982) Chapter 15 Documentation and Export Compliance Commerce Country Chart Chapter 15 Documentation and Export Compliance The BIS Lists of Parties of Concerns (Lists to Check) https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern  Denied Persons List - A list of individuals and entities that have been denied export privileges.  Unverified List - A list of parties where BIS has been unable to verify the end-user in prior transactions.  Entity List - A list of parties whose presence in a transaction can trigger a license requirement under the Export Administration Regulations.  Specially Designated Nationals List - A list compiled by the Treasury Department, Office of Foreign Assets Control (OFAC).  Debarred List - A list compiled by the State Department of parties who are barred the International Traffic in Arms Regulations (ITAR) from participating directly or indirectly in the export of defense articles  Nonproliferation Sanctions - Several lists compiled by the State Department of parties that have been sanctioned under various statutes. Chapter 15 Documentation and Export Compliance Chapter 15 Documentation and Export Compliance Denied Persons Example Chapter 15 Documentation and Export Compliance Entity List Example Chapter 15 Documentation and Export Compliance Deemed Exports  The release of technology (or source code) subject to the EAR to a foreign national while in the U.S.  Examples:  Laboratory tours  Foreign students or faculty conducting research in the U.S.  Hosting foreign visitors Chapter 15 Documentation and Export Compliance Export Management System (EMS)  Not technology system  Documenting policies and procedures a company takes to comply with export controls  Optional  Reduces risk of inadvertently exporting to prohibited end-use/user Chapter 15 Documentation and Export Compliance BIS “Red Flags” – Issues/Conditions Exporters Should Watch http://www.bis.doc.gov/enforcement/redflags.htm  The customer or its address is similar to one of the parties found on the Commerce Department's [BIS's] list of denied persons.  The customer or purchasing agent is reluctant to offer information about the end-use of the item.  The product's capabilities do not fit the buyer's line of business, such as an order for sophisticated computers for a small bakery.  The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.  The customer is unfamiliar with the product's performance characteristics but still wants the product.  The shipping route is abnormal for the product and destination.  When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport. Chapter 15 Documentation and Export Compliance 2) OFAC: U.S. Department of the Treasury – Office of Foreign Assets Control:  Its the role of OFAC to enforce U.S. economic and trade sanctions with specific countries such as Cuba and Iran, as well as individuals.  Sanctions support foreign policy through economic controls  The basis of the sanctions may be political or national security. Chapter 15 Documentation and Export Compliance OFAC Penalties & Fines  Civil Penalties: range from $250,000 or twice the amount of each underlying transaction to $1,075,000 for each violation  Criminal Fines: range from $50,000 to $10,000,000 and imprisonment ranging from 10 to 30 years Chapter 15 Documentation and Export Compliance Enforcement-Sample Violations  Company in NY attempting to ship goods on an Iranian vessel  Shipping company in NJ with a parent company in China fined for a funds transfer and contract with a Cuban Entity  Logistics company in TX was fined for exporting services and facilitating the export of goods to Sudan Chapter 15 Documentation and Export Compliance OFAC Details  http://www.ustreas.gov/offices/enforcement/ ofac/  Above website gives good overview of the key issues  http://www.ustreas.gov/offices/enforcement/ ofac/faq/index.shtml  The FAQ section above is a good guide to better understanding the specifics Chapter 15 Documentation and Export Compliance 3) ITAR: The International Traffic in Arms Regulations U.S. Dept of State  ITAR regulates the exports of defense articles and services including guns, ammunition, explosives, military-related products such as tanks and training equipment, and protective personal equipment.  Key is understanding when a ‘non-defense’ article ‘becomes’ an ITAR item Chapter 15 Documentation and Export Compliance ITAR “Commodity Jurisdiction”  Commodity jurisdiction is the formal process to determine if a good/service falls under ITAR (or was released).  A commodity jurisdiction (CJ) request is to determine whether an item or service is subject to ITAR controls  The Directorate of Defense Trade Controls (DDTC) makes the determination Chapter 15 Documentation and Export Compliance DDTC Registration  As a rule of thumb: a product otherwise not under ITAR jurisdiction, but modified for military/defense use, would then fall under ITAR jurisdiction  Every Manufacturer, Exporter, and Broker of Defense Articles or Services Must Register with DDTC  Registration requirement applies even if a company is not exporting Chapter 15 Documentation and Export Compliance 4) CBP: U.S. Customs and Border Protection  CBP mission is to keep the U.S. safe by preventing the illegal entry of goods, and ensures the appropriate duties and fees are paid.  CBP also ensures counterfeit goods are not illegally imported.  Exports: CBP maintains the Automated Export System (AES) in partnership with other federal agencies.  AES allows for electronic submission of export documents (ShippersChapter Export 15 Declaration) and filing Documentation and Export Compliance export licenses. Best Practice in Trade Compliance  Company demonstrates management commitment to compliance  Company performs risks assessments to identify weaknesses  Staff trained and identified to manage compliance  Export Management System (EMS)  BIS considers the EMS an “optional compliance program”  Procedures written down, known to staff, and followed  May result in an Export /Import Compliance manual Chapter 15 Documentation and Export Compliance