I have always advised clients that export compliance equals good risk management. Furthermore, compliance functions should be viewed as value adds rather than as a cost center. Whether or not a formal ECP (Export Compliance Program) is implemented, there are a number of best practices that are essential for any company involved in international trade.

As noted in recent posts, compliance is often a “back burner” project for several reasons including: Don’t know where to start, lack of C-level commitment, reluctance to allocate resources, too small to worry about compliance, no previous problems, or just plain inertia.

While the ROI for export compliance will vary for individual firms, we can identify an overall value proposition easily surpassing the costs involved in implementing a program.

Risk Management– avoid the cost of fines and penalties which can reach $1 Million for criminal violations. Think of compliance as insurance.

Save Time/Save Money– export compliance means less re-work or follow up of requests for information from customers, government agencies, or forwarders.

Make Money/ Grow the Business- basic competence in exporting enables expansion to international markets. Compliance problems will cause customs delays and be an impediment to growth.

Enhance the Brand– similar to ISO certification and C-TPAT, an ECP demonstrates professionalism. Show customers and prospective customers that you know what you are doing.

Let’s get started!

Contact mitch@adhoclogistics.com for help with export compliance.

I recently posted about common self-imposed roadblocks to implementing an ECP (Export Compliance Program). The process certainly starts with management commitment. As noted CBP and BIS are ramping up enforcement activities. Potential clients admit that they have allowed compliance to fall through the cracks or, after some initial steps, moved it to the “back burner”. The reasons for this are usually other priorities, cost, insufficient staffing, or belief that the business is too small.

One of my first questions for the client is “Who is responsible for compliance in the organization?” If they rely on their Customs Broker or LSP (Logistics Service Provider) I advise that these providers are good resources but that the client, as IOR (Importer of Record) or EOR (Exporter of Record), bears ultimate responsibility for compliance.

Sometimes compliance has been assigned to the shipping department or to an administrative staffer. While I can help with best practices and training, this is a poor arrangement. Compliance must be a front end process starting with order entry. Shippers are under pressure to get orders out the door. Administrative staffers have multiple responsibilities and may lack specific knowledge.

In house compliance professionals are often given responsibility without authority. Further, they may be at mid or lower management levels, or in the wrong chain of command. With or without a formal ECP (Export Compliance Program), compliance professionals must have the authority to place holds on questionable exports without being overruled by sales, finance, or supply chain. Well written protocols for resolving issues and releasing holds require C-level or legal approval.

All of the above illustrates the importance of compliance independence. This may mean reporting to the CEO, COO, or legal department in order to remove pressure from other groups.

So once again; “Who’s responsible?”

Contact mitch@adhoclogistics.com for immediate assistance.

If you are scheduled to sit for the CBLE (Customs Broker License Exam) on May 1st your preparations have most likely included practice exams as well as a deep dive into the HTS tariff and customs regulations. Not to mention blood, sweat, and tears.

Let me suggest also reviewing the notifications on the CBP website so that you don’t have an unexpected complication on exam day. The notifications include details about Covid restrictions, reference materials allowed, and ID/Proof of Citizenship requirements. There are separate sections for remote and in-person test takers.

You will find the info under this link:

https://www.cbp.gov/trade/programs-administration/customs-brokers/license-examination-notice-examination/cble-registration-information

Look for the heading It’s Exam Day !

Best of luck on May 1st !

The value of an Export Compliance Program (ECP) has been well documented in this previous Passages post.

https://www.shippingsolutions.com/blog/your-company-needs-an-export-management-and-compliance-program-emcp

Exporters, what has prevented you from implementing an Export Compliance Program? Here are the most common self-imposed roadblocks:

• Inertia- initial steps are taken to develop an Export Compliance Program but progress stalls as more urgent tasks need attention.
• Management believes that the company is too small or does not export enough to need a formal ECP.
• Lack of upper management commitment and willingness to put in the time.
• Management is unwilling to spend the money or devote resources to create an ECP.
• Compliance is managed at lower levels with limited authority to get the project done.
• Reliance on Logistics Service Providers for compliance. While LSPs are valuable business partners, the exporter is ultimately responsible for compliance.

An effective Export Compliance Program includes these elements: Management Commitment, Risk Assessment, Export Authorization (Agency Jurisdiction), Record Keeping, Training, Audits, Handling Export Violations (Corrective Action), and Build and Maintain an ECP Manual.

The most essential element, by far, is Management Commitment. C-Level executives must allocate resources, communicate the importance of an ECP throughout the organization, and hold everyone accountable. Without strong management commitment and involvement, you will end up with a weak program.

In addition to C-level commitment, compliance professionals know that an effective ECP must also include sufficient funding, well defined and documented responsibilities, on-going training, and internal audits. Weak ECPs lack some of these elements and are simply window dressing or paper programs.

 In some cases, exporters may be under pressure to put a program in place quickly, with the focus on creating the ECP manual. This approach ignores the foundation needed for an effective program. The likely result will be a glossy manual that will sit on the shelf and have negligible impact on operations.

In-house compliance professionals are often given responsibility without authority. Further, they may be at mid or lower management levels or in the wrong chain of command. With or without a formal ECP, compliance professionals must have the authority to place holds on questionable exports without being overruled by sales, finance, or supply chain. Written protocols for resolving issues and releasing holds require C-level or legal approval.

All of the above illustrates the importance of compliance independence. This may mean reporting to the CEO, COO, or legal department in order to remove pressure from other groups.

Finally, do not self-blind on export compliance. It is time to get started.

In previous posts we have noted 3 common causes of customs delays: vague or incomplete descriptions, questionable valuations, and lack of IOR contact info on commercial invoices. These are the easy fixes. The real complexity in international trade is due to the many different regulations applying to destination countries.

Customs delays in other countries are problematic for exporters, requiring a lot of time and effort to resolve. Best practices in exporting include due diligence and research when shipping to a country for the first time. The Country Commercial Guides published by the International Trade Administration are an excellent no cost starting point. Here is the link:

https://www.trade.gov/ccg-landing-page

Contact mitch@adhoclogistics.com for assistance.

Most managers or owners of small/medium companies wear many hats and usually do not have in-house compliance expertise. As a result, major projects such as implementing an Export Compliance Program go on the back burner. But ignoring compliance is not an option!

Let me suggest 3 spring cleaning best practices that will help you get started :

1) Scrub your parts list to make sure HTS and Schedule B codes are valid. The tariffs change periodically and we have found obsolete or invalid codes on 100% of clients’ parts lists. Once identified these codes can be updated and lists maintained.

2) Check the CCL (Commerce Control List) Index to see if your commodities are listed. Exports must show the correct ECCN (Export Control Classification Number) in order to determine if a license is required. If you are automatically using EAR99 and NLR you are at risk of violation.

3) Set up procedures for checking common “Red Flags” such as denied parties lists, entities lists, and unverified lists. BIS (Bureau of Industry and Security) has up to date info on their website.

Ad Hoc Logistics can help you manage these tasks.

Contact mitch@adhoclogistics.com

Screening export shipments has become routine for most companies involved in international trade. Export software packages can perform this task or it can be manual; using the Consolidated Screening List https://www.trade.gov/consolidated-screening-list or individual lists. No one wants to do business with the bad guys. However, the routine nature of export screening makes it likely that upper level management is not involved in the process.

We always emphasize the role of C- level executives in compliance. Here is where C-level leadership is important:

SUPPLEMENT NO. 3 TO PART 732 – BIS’s “KNOW YOUR CUSTOMER” GUIDANCE AND RED FLAGS

(3) Do not self-blind. Do not cut off the flow
of information that comes to your firm in the
normal course of business. For example, do not
instruct the sales force to tell potential customers
to refrain from discussing the actual end-use, end user, and ultimate country of destination for the
product your firm is seeking to sell. Do not put
on blinders that prevent the learning of relevant
information. An affirmative policy of steps to
avoid “bad” information would not insulate a
company from liability, and it would usually be
considered an aggravating factor in an
enforcement proceeding.

For help with exports or developing an ECP (Export Compliance Program) contact mitch@adhoclogistics.com

https://www.linkedin.com/posts/adhoclogistics_freight-tms-buildingrelationships-activity-7175864035823824896-ttHv?utm_source=share&utm_medium=member_desktop

Most traders are familiar with the Appraisement Hierarchy for goods imported into the United States. In the event of disputes with CBP about customs valuation the importer should consult with their Customs Broker for assistance using well established procedures. Here is a link to the Appraisement Hierarchy if you would like to refresh your memory:

https://www.shippingsolutions.com/blog/how-to-determine-value-for-u.s.-customs

Exporters face a more complex problem if customs services in destination countries dispute their valuation. Duties and taxes are based on HTS code, Country of Origin, and valuation. Customs services look for undervalued shipments in order to both prevent smuggling and assess accurate duties and taxes. Communicating with customs services in other countries is challenging. Every country has different procedures and customs is likely to notify the FPPI (Foreign Principle Party In Interest), and not necessarily the US exporter. to resolve the issue. Once notified by customs, the FPPI, or their freight forwarder, the exporter must take action by communicating with the Customs Broker in the destination country. Ideally, the USPPI and/or FPPI can provide details about the shipment that may have been lacking on the CI and may be used to verify the valuation. The broker will be working for the FPPI but has an interest in clearing the shipment for their client. If you are using a global freight forwarder, they may be clearing the shipment through their Customs Brokerage arm and this could help move things along.

The simplest solution is to accept the valuation stated by the customs service, have the forwarder present an amended CI (Commercial Invoice), and pay the duties and taxes. Consider that the shipment will accrue handling and storage charges after the initial free time so this must be factored into your decision. It may not be worth contesting a small difference in valuation.

What If the Disputed Amount is High and You Can’t Resolve the Issue On Your Own? Check out the WTO Agreement on Customs Valuation. Engage Your Company’s Legal Dept. or Outside Counsel.

The Customs Valuation Agreement of the World Trade Organization (WTO) sets out a fair, uniform and neutral system for determining the value of imported goods on which customs officials levy duties. This system bars the use of arbitrary or fictitious customs values.

The Agreement was negotiated during the Uruguay Round of Multilateral Trade Negotiations, which was concluded in April of 1994. It elaborates and makes more precise Article VII of the Multilateral Agreements on Trade in Goods — GATT (1947) , and its official name is: “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994”.

All WTO members (offsite link) are Parties to this Agreement, which entered into force on January 1, 1995, and which has no expiration date.

The Agreement states that the primary basis for the customs value of imported goods shall be the “transaction value” of the goods – the price that is actually paid or payable when the goods are sold for export. The payment may be direct or indirect. (An example of an indirect payment would be the settlement by the buyer of a debt owed by the seller.)

The Agreement cites certain situations in which the transaction value of imported goods is not acceptable for customs purposes. These arise: when there are restrictions (with some exceptions) on the disposition or use of the goods by the buyer; when the sale or price of the goods is subject to a condition or consideration for which a value cannot be determined; when some part of the proceeds of any subsequent use of the goods by the buyer accrues to the seller; or, with some exceptions, when the buyer and seller are “related” (e.g., they are business partners, employer, employee, officer or director in each other’s company.

For cases in which it is impossible to determine the transaction value of imported goods, the Agreement provides for other valuation methods. The first alternative is to set the customs value on the basis of the transaction value of identical goods sold for export to the same country. If there are no identical goods, the customs authorities shall use the transaction value of similar goods sold for export to the same country. If identical or similar goods are not sold for export to the same country, the value of identical or similar goods when sold in the importing country may be used. In the alternative, a computed value may be used; the Agreement describes how this value should be calculated. When all else fails, customs authorities shall use “reasonable means consistent with the principles and general provisions of this Agreement” to determine the value of the imported goods.

The Agreement states that the customs legislation of each WTO member country shall provide for the right of appeal without penalty by importers, initially to the country’s customs administration or an independent body and then to a judicial authority. All laws, regulations, judicial decisions and administrative rulings giving effect to the Agreement shall be published.

If your business is being adversely affected because another WTO member country is not complying with the WTO Customs Valuation Agreement, contact the Office of Trade Agreements Negotiations and Compliance at the U.S. Department of Commerce. The Center can help you understand your rights under this Agreement and can alert the appropriate U.S. Government officials to make inquiries, if appropriate, with the other country involved to help you resolve your problem.

Disputes under the Customs Valuation Agreement can also, if necessary, be resolved by the U.S. Government through the WTO’s dispute settlement process, which is described in the Exporter’s Guide to the WTO Understanding on the Settlement of Disputes.

The complete text of the WTO Customs Valuation Agreement is available from the Office of Trade Agreements Negotiations and Compliance’s WTO Agreements database.

In a recent post we discussed why auditing EEI filings is a good business practice. If you are a self filer is anyone checking the accuracy of your submissions? Does your freight forwarder have an audit procedure in place if they are filing for you? Here is the risk of a “file it and forget it” policy:

15 CFR 30.71

(a) Criminal penalties—(1) Failure to file; submission of false or misleading information. Any person, including USPPIs, authorized agents or carriers, who knowingly fails to file or knowingly submits, directly or indirectly, to the U.S. Government, false or misleading export information through the AES, shall be subject to a fine not to exceed $10,000 or imprisonment for not more than five years, or both, for each violation.

EEI filing has become routine for exporters and their agents and it is easy to overlook possible filing errors. Here are a few mandatory EEI Elements to check in your audits:

15 CFR 30.6

(4) U.S. state of origin. The U.S. state of origin is the 2-character postal code for the state in which the goods begin their journey to the port of export. For example, a shipment covering goods laden aboard a truck at a warehouse in Georgia for transport to Florida for loading onto a vessel for export to a foreign country shall show Georgia as the state of origin. The U.S. state of origin may be different from the U.S. state where the goods were produced, mined, or grown. For shipments of multi-state origin, reported as a single shipment, report the U.S. state of the commodity with the greatest value. If such information is not known, report the state in which the commodities are consolidated for export.

(5) Country of ultimate destination.

(ii) Shipments not moving under an export license. The country of ultimate destination is the country known to the USPPI or U.S. authorized agent at the time of exportation. The country to which the goods are being shipped is not the country of ultimate destination if the USPPI or U.S. authorized agent has knowledge, at the time the goods leave the United States, that they are intended for reexport or transshipment in the form received to another known country. For goods shipped to Canada, Mexico, Panama, Hong Kong, Belgium, United Arab Emirates, The Netherlands, or Singapore, special care should be exercised before reporting these countries as the ultimate destinations because these are countries through which goods from the United States are frequently transshipped. If the USPPI or U.S. authorized agent does not know the ultimate destination of the goods, the country of ultimate destination to be shown is the last country, as known to the USPPI or U.S. authorized agent at the time the goods leave the United States, to which the goods are to be shipped in their present form. (For instructions as to the reporting of country of ultimate destination for vessels sold or transferred from the United States to foreign ownership, see § 30.26). In addition, the following types of shipments must be reported as follows:

Note: EEI value is not necessarily the same as Commercial Invoice value.

(17) Value. In general, the value to be reported in the EEI shall be the value of the goods at the U.S. port of export in U.S. dollars. The value shall be the selling price (or the cost, if the goods are not sold), plus inland or domestic freight, insurance, and other charges to the U.S. seaport, airport, or land border port of export. Cost of goods is the sum of expenses incurred in the USPPI’s acquisition or production of the goods. Report the value to the nearest dollar, omit cents. Fractions of a dollar less than 50 cents should be ignored, and fractions of 50 cents or more should be rounded up to the next dollar.

Contact mitch@adhoclogistics.com for help with EEI audits.