Regulatory Updates

How to Determine ECCN

Exporters, do you know how to determine your ECCN? While it is true that the majority of exports can be designated EAR 99 and NLR (No License Required), it is important to first check for an ECCN.

There are three ways to determine ECCN: 1) self classify, 2) consult manufacturers of commodities, 3) request a classification by BIS.

Here is some info from the BIS (Bureau of Industry and Security) website.

Export Control Classification Number (ECCN)

A key in determining whether an export license is needed from the Department of Commerce is finding out if the item you intend to export has a specific Export Control Classification Number (ECCN). ECCNs are five character alpha-numeric designations used on the Commerce Control List (CCL) to identify dual-use items for export control purposes.  An ECCN categorizes items based on the nature of the product, i.e. type of commodity, software, or technology and its respective technical parameters.

An ECCN is different from a Schedule B number, which is used by the Bureau of Census to collect trade statistics. It is also different from the Harmonized Tariff System Nomenclature, which is used to determine import duties.

Contact mitch@52.91.45.227 for help with exports

Nuts & Bolts

Are you a Deemed Exporter?

Engineering firms, software companies, researchers, manufacturers, and universities need to be aware of the “deemed export” rules. They may be engaged in export transactions without even knowing it. Here is some info from the BIS website.

For help with exports contact mitch@52.91.45.227

Deemed Export FAQs

  • What is the “deemed export” rule?

    An export of technology or source code (except encryption source code) is “deemed” to take place when it is released to a foreign national within the United States. See §734.13(b) of the Export Administration Regulations (EAR). For brevity, these questions and answers refer only to “technology” but apply equally to source code.

  • What is a “release” of technology?

    Technology is “released” for export when it is available to foreign nationals for visual inspection (such as reading technical specifications, plans, blueprints, etc.); when technology is exchanged orally; or when technology is made available by practice or application under the guidance of persons with knowledge of the technology. See §734.2(b)(3) of the Export Administration Regulations (EAR).

  • What is “technology”?

    Per Part 772 of the Export Administration Regulations (EAR), “technology” is specific information necessary for the “development,” “production,” or “use” of a product.

  • When do I need to apply for an export license for technology under the “deemed export” rule?

    Assuming that a license is required because the technology does not qualify for treatment under EAR99 and no license exception is available, U.S. entities must apply for an export license under the “deemed export” rule when both of the following conditions are met: (1) they intend to transfer controlled technologies to foreign nationals in the United States; and (2) transfer of the same technology to the foreign national’s home country would require an export license.

Nuts & Bolts

Ear99 and NLR….Are you sure?

 

When the ECCN (Export Control Classification Number) comes up on export documents many exporters 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.”

If you need help contact mitch@52.91.45.227

 

Publications

Book Review of Move: Putting America’s Infrastructure Back in the Lead

Book Review published in Transportation Journal, Fall 2016

 

Rosabeth Moss Kanter, Move: Putting America’s Infrastructure Back in the Lead

W.W Norton & Co., New York NY, 2015

ISBN 978-0-393-24680-3

325 pp.

$26.95

 

In the United States we have become accustomed to traffic congestion, poor public transit, and the inability of the federal government to remedy these problems. Rosabeth Moss Kanter takes on these issues from the perspective of the general public in her new book “Move: Putting America’s Infrastructure Back in the Lead”. It will come as no surprise that the many nations outperforming the US in infrastructure development are able to do so, in part, because of their national priorities and policies. A recurring theme in the book is what the author calls “the quintuple wins” of greater safety, less congestion, higher efficiency and productivity, less pollution and carbon emissions, and greater economic opportunity.

The opening chapters describe the current deficiencies in our infrastructure and the statistics are stunning. While I found the book to be quite interesting, it is a bit heavy on data. Nevertheless, the point is well made that we have a massive problem which is getting worse by the day and our economic opportunities and quality of life are being limited. Kanter traces the root cause of our problems to the Interstate Highway System and the outmoded Highway Trust Fund. She goes on to examine all modes of transportation and notes that solutions need to be multi-modal and, most importantly, build connections.

While the public is generally aware of our 3rd world passenger rail system, not many know how efficient and profitable US freight rail has become. Indeed, 21st century freight railroads can be characterized by financial responsibility and reinvestment of profits in infrastructure. This is in contrast to other modes which have deferred investment turning hubs into bottlenecks.  Commuter rail is examined as an important part of getting America moving again. It is acknowledged that public transit systems cannot cover operating expenses with fares but that they are essential for economic development and mobility. Beyond operating expenses transit systems, other than busses, require huge capital investments. The US has disinvested in rail infrastructure, allocating 4.9% of federal transportation dollars in 1976 and only 1.2% in 2014.

Chapter 3, “Up In the Air”, describes what all travelers know about the ordeal of airline travel today. Technological innovations that can improve the system are highlighted but perhaps the biggest need is for a national strategy. Airports are managed by municipalities and regional authorities while air traffic is managed by the FAA. Airlines want to get passengers out of town while airports view delays as a way to keep them spending money locally. Interestingly, while airport land is very valuable, private companies have been unwilling to own and operate airports. Multiple stakeholders with different interests result in a complex system.

Chapter 4, “Smart Roads Meet the Smart Phone”, is both inspiring and exciting. Kanter introduces the concepts of dynamic pricing as an alternative or supplement to the fuel tax. The reader learns how software can enable many improvements allowing smarter use of existing assets. “Re Thinking Cities,” the subject of Chapter 5, examines how streets can be used as assets for people as well as cars. The author shows the direct correlation between efficient public transit and social mobility. Achieving full interoperability across systems, modes, and geographic regions will require bold policy and political will.

The discussion comes around again to the role of policy makers in the next chapter, “The Will and the Wallet”. In the US we may have more wallet than will. Our 2.4% of GDP investment in infrastructure pales in comparison to 5% in the EU and 9% in China. Kanter does not believe that privatization of infrastructure is a good idea and makes the case that it will cost more in the long run. She is a proponent of PPP’s, Public Private Partnerships. Along with Infrastructure Banks, PPP’s can be an alternative to government bonds or privatization. Unfortunately this section of the book is dominated by a much too detailed and difficult to follow story about the Miami Access Tunnel.

The final chapter, “How to Move”, emphasizes that we need to look to mayors, governors, and regional authorities to do what the federal government cannot do. Kanter believes that coalitions including the private sector are the way to implement infrastructure improvements. This may be the only way in the absence of a national strategy but seems a little idealistic. However, this is an informative book with an optimistic outlook and well worth reading.

 

Mitch Kostoulakos, CTL

Adjunct Faculty

Southern New Hampshire University

m.kostoulakos@snhu.edu

 

Regulatory Updates

Don’t know where to start with Export Compliance?

Published on LinkedIn today:

Clients often know that they need help with export compliance but don’t know where to start. A well written and maintained Export Management and Compliance Program is the ideal way to keep compliant and 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. However, an EMCP is costly and time consuming, requiring a significant commitment on the part of management. If the exporter has not experienced problems or incurred any fines it is easy to make an EMCP a “back burner” issue. There is considerable risk in being non-compliant, so don’t make the mistake of doing nothing because you are not in a position to implement an EMCP. A few best practices can help. To get started I suggest the following:

  • Review and confirm correct Harmonized Tariff and Schedule B codes in January and July as updates occur.
  • Check EAR regulations for correct ECCN and license exemption codes. Are you automatically using EAR99 and NLR? Help is available @ bis.gov.
  • If exporting under ITAR you need a responsible trained officer.
  • Check common “Red Flags” such as denied parties lists, entities lists, and unverified lists. Once again, bis.gov provides details and training.
  • Review export documentation for possible improvements. Your forwarder can be a good resource here but the exporter has ultimate responsibility for compliance.
  • Make export compliance a front-end process not a last minute shipping function.

 

 

Nuts & Bolts

Are you taking the Customs Broker exam in October?

 

If you are planning to take the customs broker exam in October you should be well into your preparations by now. In a previous post I shared the prep strategies that worked for me. Here is the info again with the key steps highlighted. Best of luck but don’t rely on luck.

According to CBP Customs and Border Protection passing rates for the customs brokers exam average only 3-11% nationwide. The test is given twice per year in April and October. It consists of 80 multiple choice questions and a passing grade is 75%. The exam is open book which makes it seem easy. However, the books consist of  the HTUS Harmonized Tariff of the United States and CFR 19 Code of Federal Regulations, totaling hundreds of pages. The difficulty is in being able to quickly access the right section for each question. It is a four hour exam so three minutes per question is not much time.

I took a prep course but, as good as it was, it would  have been difficult to pass the exam without additional study. I estimate that I spent about 60  hours on weekends leading up to the exam.

I used 6 previous exams and a 3 step process. In step 1 I took each test for accuracy, ignoring the clock. In step 2 I took the tests again in the same order, while timing myself to make sure I could finish within 4 hours. I believe that step 3 was the key to my success. For this phase I circled all the questions I had missed in steps 1 and 2 and created a separate mini exam which I took several times until I answered all the questions correctly.

Regulatory Updates

Export Compliance = Risk Management

While risk management always gets C-level attention, export compliance is often a mid-management or lower level function. Fines and penalties for violations should make export compliance a basic part of risk management.  Best practices, including an Export Management  & Compliance Program,  will reduce exposure to steep fines and penalties. Don’t leave this responsibility to your shipping department!  Here is some information from the BIS (Bureau of Industry and Security) website showing details. For help with export compliance contact mitch@52.91.45.227

Penalties

Violations of the Export Administration Act of 1979, as amended (EAA), 50 U.S.C. app. §§ 2401-2420 (2000), and the Export Administration Regulations, 15 C.F.R. Parts 730-774 (2007) (EAR) may be subject to both criminal and administrative penalties. When the EAA is in effect, criminal penalties can reach 20 years imprisonment and $1 million per violation. Administrative monetary penalties can reach $11,000 per violation, and $120,000 per violation in cases involving items controlled for national security reasons. When the EAA is in lapse, the criminal and administrative penalties are set forth in the International Emergency Economic Powers Act (IEEPA).

On October 16, 2007, President Bush signed into law the International Emergency Economic Powers (IEEPA) Enhancement Act, Public Law No. 110-96, amending IEEPA section 206. The Act enhances criminal and administrative penalties that can be imposed under IEEPA and also amends IEEPA to clarify that civil penalties may be assessed for certain unlawful acts. 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. See Endnote below.

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.

 

Nuts & Bolts, Regulatory Updates

Customs value…a quick summary

 

From the archives…

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

Need regulatory help? Contact mitch@52.91.45.227 .

Nuts & Bolts

Are your shipments being inspected by CBP?

In previous posts we have discussed the World Bank Logistics Performance Index for international trade. The Index also contains a domestic component as detailed below:

Domestic LPI

The Domestic LPI looks in detail at the logistics environments in 160 countries. For this measure, surveyed logistics professionals assess the logistics environments in their own countries. This domestic evaluation contains more detailed information on countries’ logistics environments, core logistics processes and institutions, and performance time and cost. This approach looks at the logistics constraints within countries, not just at the gateways, such as ports or borders. It uses four major determinants of overall logistics performance to measure performance:
• Infrastructure,
• Services,
• Border procedures and time, and
• Supply chain reliability.

Here is some of the data for the US from the 2016 report. The low percentage  of physical inspections stands out.

Shipments meeting quality criteria (%) 96.34%
Number of agencies – exports 3
Number of agencies – imports 2
Number of documents – exports 3
Number of documents – imports 3
Clearance time without physical inspection (days) 1 days
Clearance time with physical inspection (days) 2 days
Physical inspection (%) 4.29%
Multiple inspection (%) 2.58%
Declarations submitted and processed electronically and on-line (%) 100%
Importers use a licensed Customs Broker (%) 100%
Able to choose the location of the final clearance (%) 100%
Goods released pending customs clearance (%) 57.14%

International Logistics Consulting; Licensed Customs Brokers