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 at Ad Hoc Logistics to get started.

emcp_guidelines

Today I joined 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 info 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 or 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

Customs entries on imported merchandise involve calculating duties and taxes based on commodity classification (HTS), country of origin, and invoice value. In a previous post we 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 Packaging
• Assists
• 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

Incoterms are rules used to facilitate global trade. Incoterms were created and are administered by the International Chamber of Commerce and are updated every 10 years. Incoterms 2010 published by ICC Services Publications, Paris FR is a very good reference. Some of the important points covered in the book are:

• Incoterms must be in the contract of sale to apply
• > 120 countries have endorsed Incoterms 2010
• Now 11 rules in 2 groups
• 2 new rules deal with geographic place
• Incoterms is not a law…older versions can be used as long as all parties agree
• Incoterms replaces Uniform Commercial Code (UCC) in domestic commerce
• for reference  www.iccbooksusa.com
• Incoterms cover;
  • Who does what
  • Who pays for what
  • When risk of goods passes from seller to buyer
  • Who is responsible for insurance, export clearance, import clearance, and other costs pertaining to delivery of goods
• Incoterms do not cover;
  • Ownership or title to goods
  • Payment terms
  • Detailed requirements
  • Complete contract of sale

Incoterms 2010 includes several rules changes:

• Now referred to as rules not terms
• Remove DAF DES DDU DEQ
• New Rules  DAT DAP
• 2 Groups…Any Mode and Ocean/Inland Waterway Only
• Any Mode…EXW FCA CPT CIP DAT DAP DDP
• Ocean or Inland Waterway Only…FAS FOB CFR CIF

Attached chart is a quick guide to Incoterms 2010

Incoterms 2010 Quick Reference Chart 120610

Our previous post suggested an annual review of Harmonized Tariff descriptions as a good business practice. Another good practice is to make sure you are taking advantage of regulations that allow importing on a duty free or preferential basis. Here are a few items for your annual customs review. Contact Ad Hoc Logistics if you need help.

• Classification– review annual updates to Harmonized Tariff to make sure your codes and descriptions are accurate. Proper classification and valuation of imported goods are the first step in compliance. If you do nothing else, do this.
• Duty Drawback– this is a refund of duties paid on imports that are later exported. Record keeping is key here.
• Chapter 98 of the Harmonized Tariff allows duty free entry of certain categories of goods. Examples are: American Goods Returned, American Goods Repaired or Altered Abroad, and American Components Assembled Abroad.
• Trade agreements– programs which allow duty free or reduced duty rate entries. There are many agreements (such as NAFTA) in place.
• Customs rulings– consider requesting formal customs rulings prior to large transactions. This ensures compliance and eliminates uncertainty about imports. Rulings can be requested thru the CBP website.
• Correcting errors– when an entry mistake is discovered it can be corrected by a prior disclosure to CBP. The formal process is a Post-Entry Amendment/Post Summary Correction. A prior disclosure can help mitigate penalties.

The International Trade Commission publishes updates to the Harmonized Tariff System of the United States (HTSUS) twice per year in January and July.  Accurate classification and valuation of imported goods are essential. The Harmonized codes and descriptions filed upon entry determine duty rates or duty free status. Harmonized tariff descriptions also give Customs and Border Protection (CBP) information about what commodities are entering the country and determine if any other agencies such as the FCC or FDA also have jurisdiction. An annual review of your HTSUS codes and database update is a good business practice. Contact your broker or Ad Hoc Logistics if you need help.

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.”

BIS has some easy to use tools on their website. A good place to start checking is the BIS Website Decision Tree.

Contact Ad Hoc Logistics if you need help.

Gwen Jaramillo Presentation      Initial changes under Export Control Reform are effective today (10/15). Implementation was outlined on Mass Export Website: Countdown To Compliance. Changes include movement of some items from USML to EAR, new license exception STA and other exception updates, AES changes, and 2 new “red flags” in EAR part 732. Exporters are encouraged to review current classifications, properly evaluate products under development, document, and train. Let us know if we can help.

Just completed some  training on EAR regs at bis.gov. Exporters can avoid exposure to fines and penalties by following the procedures outlined on the BIS website. Five types of facts to check:

1) Classification of commodity on Commodities Control List (CCL)…EAR part 774…

2) Destination…EAR part 738…

3) End User…EAR parts 774,764…

4) End Use…ESR part 744…

5) Conduct…ESR part 744…

Even if the commodity is not on the CCL, Red Flags for exporters using EAR 99 are:

1) destination country

2) end use

3) end user