C- Level executives, perhaps you have been “looking the other way” when it comes to export compliance. If you are lucky there have been no consequences for this negligence. Why not start off 2024 with a little executive action and move your organization towards compliance?
While a complete Export Compliance Program is the ideal solution, you may not be ready to commit the resources needed at this time. However, there are some steps that can be implemented immediately at little cost.
Here are a few best practices to help you get started :
1) Review and confirm correct Harmonized Tariff and Schedule B codes and maintain master list as updates occur. Proper classification follows established protocols and is the starting place for compliance.
2) Check Export Administration Regulations (EAR) for correct ECCN and license exception codes. Are you automatically using EAR99 and NLR? https://www.bis.doc.gov/ can help.
3) Confirm Country of Origin for all imports. This info is needed for your Commercial Invoice and is not always obvious, so consider consulting a Licensed Customs Broker.
4) Check common “Red Flags” such as denied parties lists, entities lists, and unverified lists. Once again, https://www.bis.doc.gov/ provides details and training.
5) Review export documentation for possible improvements.
Make export compliance a front-end process, not a last minute shipping function. Remember, while Logistics Service Providers (LSPs) are valued partners, the exporter bears primary responsibility for compliance. Finally, if exporting under ITAR you need a responsible trained officer.
If you are a Canadian importer or NRI (Non-Resident Importer) you will want to get up to speed on CARM, which will be fully implemented in May, 2024.
The Canada Border Services Agency (CBSA) Assessment and Revenue Management (CARM) project is a multi-year digital initiative that will change how CBSA collects duties and taxes for goods imported into Canada. Through CARM, the CBSA will modernize and streamline the process of importing commercial goods.
CARM is relevant to US exporters because many of them act as Non-Resident Importers (NRIs) in Canada. A Non-Resident Importer (NRI) is a business located outside of Canada that ships goods to customers in Canada and assumes responsibility for customs clearance and other import-related requirements.
Before May 2024, importers and other trade chain partners need to register and adapt their systems and business practices. At first glance the process appears daunting. However, CBSA has provided plenty of resources, including webinars and a detailed user guide:
Most importers and NRIs will engage their Canadian customs broker for help with CARM. While this is a good idea, CBSA makes it very clear that:
Importers need to register their businesses and delegate a business account manager in CARM as soon as possible.
Customs brokers need to get their clients to register and may need new software.
If you are a trade consultant, find out what you need to do to be able to advise clients.
The CARM on-boarding steps are:
Obtain Business Number. Current importers and NRIs will already have a BN.
Create CARM account portal.
Link user account with business account.
Grant access to employees or representatives.
Conduct business with CBSA.
Here are a few pro tips from a recent CBSA webinar:
During initial set up select a Sign-In Partner or create a GC key. The Sign-In Partner option allows users to log in through the web portal of their financial service provider. Sign-In Partners are financial institutions and banks that have partnered with Secure Key Technologies to enable their customers to use their online credentials to log in to other secure sites. A GC Key is a unique credential that protects your communications with online Government programs and services.
Users have the option set up multi-factor authorization, a personal profile, and preferences.
Register a BAM (Business Account Manager) in the CARM portal. CBSA recommends at least 2 BAMs to ensure account access in the event of staff changes.
Request a Statement of Account from customs brokers to answer any questions about transactions during on-boarding process. The CARM portal will bring all info together.
Decide delegation of authority to employees, customs brokers, consultants, etc.
This article is a brief overview of CARM and will, hopefully, help importers and NRIs start the process with time to spare before May, 2024. I have always found the CBSA website to be user friendly and strongly recommend consulting it for research.
One of the key elements in export compliance is the ECCN, or Export Control Classification Number. In order to determine if a license is needed for your exports it is first necessary to determine the ECCN for your commodity. As noted in previous posts, many exporters automatically enter EAR99 and NLR on shipping documents. This is a mistake unless you have done due diligence on your products.
Violations of the Export Administration Regulations, 15 C.F.R. Parts 730-774 (EAR) may be subject to both criminal and administrative penalties. Under the Export Control Reform Act of 2018 (50 U.S.C. §§ 4801-4852) (ECRA), criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both. Violators may also be subject to the denial of their export privileges.
EAR99 indicates that a commodity is subject to Export Administration Regulations but is not specifically listed on the Commodity Control List (CCL). NLR states that no license is required.
ECCN can be determined by consulting with manufacturers of products, filing a classification request with BIS (Bureau of Industry and Security), or self classifying.
Don’t guess; confirm your ECCN. Here are a couple of easy to use resources:
I often hear from frustrated importers or exporters about shipments “stuck” in customs. The shipments may include critical parts needed for an equipment or plant shutdown, expensive high tech components not generally carried in inventory, or medical instruments for hospitals. Delayed orders also mean delayed payments, which gets everyone’s attention.
In many cases the delay is compounded by simple communication issues. Importer of record (IOR) contact info is often lacking on the commercial invoice. Customs in the importing country will not contact the exporter if they have questions or concerns. If they are unable to contact the IOR the shipment will go into storage. Make sure you include recipient name, address, phone number, and e mail address on your CI.
The CI is the most critical document for customs purposes. The data used in customs entries comes directly from the commercial invoice for the transaction. All countries have different, and sometimes obscure, customs regulations. It is true, however, that most delays are caused by a few commercial invoice errors or omissions.
Commodity descriptions should answer the questions: What is it? What is it made of? What is it used for? Use plain language which can be understood by anyone. Avoid trade names, brand names, or part numbers in the description. These can be added below the description or to the packing list if needed. If using a harmonized code it is best to enter only the first 6 digits, which are universal. All countries apply their own last 4 or more digits.
Value for customs may appear to be too low for the commodity being shipped. The customs agencies in the destination country need to make sure that duty rates are accurate and will hold up the shipment if in doubt. Make sure that your commercial invoice reflects the correct transaction value.
While logistics managers excel in orchestrating the flow of goods from Point A to Point B, they typically tread on less certain ground when it comes to financial matters. Logistics managers with operations backgrounds and responsibilities typically leave finance to the accountants. But this gap in financial acumen can be a hindrance in the ever-evolving world of supply chain management. Logistics managers with at least a basic understanding of the financial aspects of the supply chain will be better positioned to improve their business operations.
Your exports may not appear to have a military application, but they could still be controlled by the International Traffic in Arms Regulations due to ITAR’s “see-through” rule. Here’s what you need to know
The World Bank has published their Logistics Performance Index for the first time since 2018.
The LPI ranks countries on critical dimensions of trade including customs performance, infrastructure quality, and timeliness of shipments. The data used in the rankings are derived from a survey of logistics professionals answering questions about foreign countries with which they trade. Respondents are asked to identify their line of business (freight forwarder, transport operator, export/import trader, customs broker), typical freight mode utilized, and country in which they are working.
The index benchmarks six areas of performance and gives nations a score of 1-5 for each category. The categories are: 1) Efficiency of customs clearance process; measuring speed, simplicity, and predictability of formalities 2) Quality of trade related infrastructure; focusing on ports, railroads, and information technology 3) Ease of arranging competitive pricing for shipments; ability to compare rates and services on-line 4) Competence and quality of logistics services; in-country customs brokers, transport operators, and freight forwarders 5) Ability to track and trace shipments; transparency and availability of real time information and 6) Timeliness of shipments in reaching destination within scheduled time of arrival; Hardly Ever, Rarely, Sometimes, Often, Nearly Always.
The Global Rankings show the US at 17th (tied with Republic of Korea), down from 14th in 2018.
Let’s break down the US performance in 2023 vs 2018 by category:
LPI Score; 3.8 down from 3.89
Efficiency of Customs; 3.7 down from 3.78
Infrastructure; 3.9 down from 4.05
Ease of Arranging Intl Shipments; 3.4 down from 3.51
Logistics Competence; 3.9 up from 3.87
Tracking and Tracing; 4.2 up from 4.09
Timeliness of shipments: 3.8 down from 4.08
While most of the scores have dropped slightly, the US’ overall ranking has dropped steadily. Here are the LPI average US rankings for previous years.
2023 tied for 17th.
2018 14th
2016 11th
2014 9th
2012 9th
Readers have commented that the size and complexity of the US economy makes comparisons with smaller countries difficult. This is a fair point. However, there is no question that the US has room for improvement in all six LPI dimensions.
Here are the top ten countries by LPI score for 2023:
For the bottom performers, the most important improvements are in customs clearance and infrastructure.
Mid-level logistics performers are showing progress with more countries clustered at an average score of 3 to 4.
Logistics services are showing resilience. Even with Covid induced disruptions overall scores in 2023 are broadly the same as in 2018.
The report identifies four performance groups:
Logistics Friendly- Top performing countries, most of which are high income (25)
Consistent Performers- Countries performing better than most in their income group (25)
Partial Performers- Indicates logistics constraints often seen in low and middle-income countries (46)
Poor Logistics Performers- these are the least developed nations (43)
While comparisons among nations with diverse economies and levels of development will always be difficult, the LPI can be used by individual countries to identify opportunities to improve.
If you are scheduled to sit for the October 25, 2023 CBLE (Customs Broker License Exam) make sure to bring proper identification. Best of luck but I’m sure you are not relying on luck.
