Risk management is a major concern of C-level executives for obvious reasons. While it is easy to overlook export compliance, managers should consider the financial risks of doing so. The Bureau of Industry and Security (BIS), which is part of the U.S. Department of Commerce, is charged with enforcement of export regulations. Penalties for non-compliance are steep. An export compliance program is sound business practice as well as good risk management. Here is some info from the BIS website.

• Violations of the Export Administration Act and the Export Administration Regulations, 15 C.F.R. Parts 730-774 (2007) (EAR) may be subject to both criminal and administrative penalties.
•  Criminal penalties can reach $1,000,000 and 20 years imprisonment per violation and the administrative penalties can reach the greater of $250,000 per violation or twice the amount of the transaction that is the basis of the violation.
• Violators may also be subject to denial of their export privileges. A denial of export privileges prohibits a person from participating in any way in any transaction subject to the EAR. Furthermore, it is unlawful for other businesses and individuals to participate in any way in an export transaction subject to the EAR with a denied person.

Contact mitch@52.91.45.227 for help with export compliance.

When the ECCN (Export Control Classification Number) comes up on export documents most shippers automatically enter EAR 99. For license questions NLR (No License Required) is often used as a default exception. While these may be the correct entries, it is a good business practice to check and confirm. Here is some info from a previous post.

As part of any Export Management Program, exporters need to make sure they are using correct commodity classifications and license exceptions. While freight forwarders can provide expertise in these areas the exporter bears primary responsibility for compliance. If you are automatically using NLR and EAR 99 you may be at risk.  According to EAR part 732 “For items subject to EAR but not listed in CCL the proper classification is EAR 99. EAR 99 is a basket for items not specified under CCL and appears at the end of each Category on the CCL.”

For immediate assistance with exports contact mitch@52.91.45.227 .

From the archives….Good info from  a US Commercial Service webinar “How to Settle Disputes with Mexico Customs.” Exporters to Mexico often experience frustrating customs delays. More serious issues involve denial of entry, seizure of goods, or NAFTA violations. The webinar was very detailed so let me summarize my takeaways:

Mexican Importer of Record (IOR)

• very rare for foreign company to be MX IOR
• MX IOR is always liable for duties/taxes and compliance with non tariff barriers
• MX brokers have significant liability, explaining their caution and due diligence which can become red tape and delays for the US exporter
• MX IOR must have tax registration number and be listed on importer registry

Classification and Valuation

• HTS code up to 6 digits same as other countries but subject to customs verification
• MX uses 8 digit codes so last 2 digits are unique to MX
• MX broker verifies or determines correct code and non tariff barriers
• Valuation determines duty/tax according to MX law based on WTO rules (TV- Transaction Value, etc)
• Non tariff barriers are regs not related to taxation such as trade agreements, anti dumping, etc
• Binding rulings can be requested for classification, valuation or NAFTA rules of origin

When Are Goods Seized?

• unauthorized port of entry used…mostly contraband
• failure to comply with non tariff barriers
• goods not declared on entry docs including errors
• false name/address of IOR or false invoice
• undervalued goods

Frequent Issues for MX Customs

• Origin verification for US and CA companies claiming NAFTA preference
• Failure of exporters  to respond to questionnaires from MX customs
• Exporters address different from address on NAFTA cert
• Exporters lack of knowledge about NAFTA rules of origin
• Lack of original records

MX Customs Recommendations

• Know your MX buyer and their customs broker
• It is OK to contact MX customs for info…they will reply in English
• Make sure NAFTA certificates of origin are accurate….many exporters simply guess
• Keep original copies of documents….MX customs will only verify using original docs
• Make sure to respond to questionnaires or requests from MX customs within 30 days
• Communicate before goods are seized or litigation begins…best to use a MX attorney
• Remember, prior notification to avoid liabilities does not exist in MX as it does in US

For help with exports contact mitch@52.91.45.227

Export best practices includes checking and confirming commodity classifications at least annually. Here is some info from a previous post which may help:

• Classification is subjective- tariff schedules do not necessarily keep up with technology
• Customs definitions can differ from industry definitions
• Different interpretations exist between countries and also between ports within the same country

The basic components of a best in class process are:

1. Break down items from universe into groups
2. Research- even if you think you know the correct classification    customsinfo.com is a good tool
3. Identify necessary info needed for classification such as materials, dimensions, intended use, etc
4. Documentation- needed to support your determination
5. Automation- implementing a software classification tool will improve efficiency and productivity
6. On-going maintenance and monitoring for changes in HTS binding rulings and in your products is essential

Supporting documentation includes

• spec sheets, drawings, photos
• info requests from engineers, scientists, chemists, etc
• HTS chapter and section notes that apply to your product
• explanatory notes
• informed compliance publications
• customs rulings that apply to your product
• record keeping (5 years)

contact mitch@adhoclogisticsfor immediate assistance.

From the archives…Many exporters automatically enter EAR 99 on their shipping documents without really knowing what this designation means. EAR 99 is a basket category for items that are subject to the EAR (Export Administration Regulations) but not on the CCL (Commerce Control List).  The CCL lists “controlled” items which may require a license for export. The CCL is made up of a classification of items by ECCN (Export Control Classification Number).  So a basic export compliance step is to verify if your items are “controlled” needing an ECCN or if they can be shipped under EAR 99. If an ECCN is listed you then need to determine if a license is required by checking “Reasons for Control” and destination country lists. There are 3 ways to determine an ECCN: 1) Check with the manufacturer, producer, or developer. 2) Self classify using the CCL. 3) Official request to BIS (Bureau of Industry and Security) using the SNAP-R tool @ bis.gov   Contact mitch@52.91.45.227 for help in determining your ECCN.

The United States International Trade Commission has updated the Harmonized Tariff Schedule of the United States. This revised edition of the 2015 Harmonized Tariff Schedule takes effect July 1, 2015.

It is a good business practice to review your codes at least once per year to make sure you are in compliance. For help with your codes contact mitch@52.91.45.227

http://www.usitc.gov/tata/hts/index.htm

Clients often know that they need help with export compliance but don’t know where to start. This info, from a previous post, should help. A well written and maintained EMCP is the ideal way to keep compliant. However, an EMCP is costly and time consuming. Because there is considerable risk in being non-compliant, don’t make the mistake of doing nothing because you are not in a position to implement an EMCP. You can, and should, take some basic steps.

Implementing a formal Export Management Compliance Program can be quite intimidating especially for small and medium sized companies. An EMCP requires a significant commitment of time  on the part of management and usually involves hiring an outside consultant for the initial set up. There is no question that a written EMCP is a good investment for any company to make. An EMCP establishes clear accountability, written instructions, and reduces risk of non compliance. If the exporter has not experienced problems or incurred any fines it is easy to make an EMCP a “back burner” issue. If your company has not implemented an EMCP it is still good business practice to take some basic compliance steps. While these steps cannot take the place of a written EMCP they will help reduce risk of non compliance.  To get started I suggest the following:

• Review and confirm correct Harmonized and Schedule B codes
• Check EAR regulations for correct exemption codes and license or NLR designations
• If exporting under ITAR you need a responsible trained officer
• Check common “Red Flags” such as denied parties lists, entities lists, and unverified lists
• Review export documentation for possible improvements

Contact mitch@52.91.45.227for help.

Mitch Kostoulakos CTL,LCB

Good news for Trade Show exhibitors and exporters of “tools of trade” equipment.

Customs entries on imported merchandise involve calculating duties and taxes based on commodity classification (HTS), country of origin, and transaction value, along with special notes. In  previous posts we have discussed the importance of making sure that correct HTS codes are used. In most cases the commercial invoice or CI value is used for duty calculation. In situations where the transaction is not so clear Customs has established an “appraisement hierarchy” to determine entry value. The details can be found in US Customs and Border Protection regulations 19 CFR part 152.  Here is a summary:

Appraisement Hierarchy

1) Transaction Value- actual invoice value

2) Transaction Value of identical merchandise- same country, same class and kind

3) Transaction Value of similar merchandise- same country, commercially interchangeable

4) Deductive Value – start with US retail selling price and deduct commissions, transportation, insurance, duty/tax, and value of further processing

5) Computed Value- sum of the following. Importer can request computed instead of deductive.

• Cost of Materials
• Cost of Labor
• Cost of Packaging
• Profit
• Overhead
• G&A

6) Value if other values cannot be determined- if the value of imported merchandise cannot be determined it will be appraised on the basis of a value derived from the methods set forth in parts 152.103 thru 152.106.

Transaction Value cannot be used and the hierarchy comes into play when:

• There is a restriction on sale (except geographic)
• Merchandise is sold on consignment
• There is a barter transaction
• There is “goodwill” value involved
• Parties are related, unless relationship did not influence price

Unacceptable bases of appraisement:

• The selling price in the US of merchandise produced in the US
• A system that provides for the appraisement of imported merchandise at the higher of two alternative values
• The price of merchandise in the domestic market of the country of exportation
• A cost of production other than a value determined under 152.06
• The price of merchandise for export to a country other than the US
• Minimum values for appraisement
• Arbitrary or fictitious values