The New Era of Export Compliance

Whether you export circuit boards or cranberries, your exports are under the uspices of U.S. export control laws. These regulations known as the Export Administration Regulations (EAR) or the International Traffic in Arms Regulations (ITAR) affect every product in every company in every industry.

Later this year, the new regulations will be effective. The Bureau of Census will issue new regulations (ETA Oct. 1) which will hold exporters, forwarders and carriers more accountable for complying with the export laws. According to Paul Devecchio, Devecchio & Associates, “significant changes to the regulations will impact companies currently doing business in China and will tighten controls and enhance enforcement of technology transfers to foreign nationals.

The Mass. Export Center, part of the Massachusetts Small Business Development Center Network, serves as the state’s one stop resource for export assistance. Part of that assistance is educating companies across the Commonwealth on a variety of issues including compliance and regulatory policies. The center’s Partners for Trade publication is forwarded to more than 13,000 individuals semi-annually and in 2004 the Center held over 30 training sessions. Many of those seminars involve logistics and compliance.

Export controls help protect our country and it is the obligation of every company and individual involved in international trade to adhere to them. The changes that have already been made and those that are forthcoming affect all exporters, freight forwarders and other parties involved in the process. Finally, when the new regulations become final later this year all exports will have to be filed automatically through the Automated Export System (AES). This change makes it a lot easier for U.S. Customs, the Bureau of Industry and Security (BIS), formerly the Bureau of Export Administration (BXA), and other federal agencies to track exports.

The Shipper’s Export Declaration (SED), as we know it, will cease to exist. Instead, the exporter will either submit directly to census through AES or ensure that comprehensive and accurate information is submitted to the freight forwarder by a Shipper’s Letter of Instruction for AES entry. For those products found on either the Commerce Control List (CCL), or the U.S. Munitions List, or for shipments of rough diamonds, companies are already obligated to file through AES. The CCL is controlled by the U.S. Department of Commerce and the Munitions List through the U.S. State Department.

Other changes in the regulations include much higher penalties for individuals or companies found in violation of the regulations. If your fine would have been $10,000 under the old regulations, it will be $100,000 with the new. According to Paula Murphy, director of the Center in Boston, “violations may include failure to file, filing late, and errors in AES entries.” The regulations also provide for greaterscrutiny of transactions and broadening of enforcement authority through BIS and the Department of Homeland Security. Prior to new regulations, things were done by hand, but now with the touch of a button any one of several agencies can check on your exports. AES gives the agencies a much greater chance of identifying violations. The agencies will be working more closely toensure that detections are dealt with swiftly and that agencies such as the Office of Export Enforcement will be able to penalize companies for a variety of violations including those dealing with AES. Certain areas of AES are going to be much easier to track, so exporters should be more careful when importing data that it is correct. Some areas include:

Classification

If the product is a controlled product, make sure it has the correct Export Commodity Control Number (ECCN) and Schedule B number. Whatever you do, do not allow the freight forwarder to decide what these should be. Do the research necessary and make the decision in-house. If you are having trouble determining this information, assistance is available through a variety of sources.

In one instance, a routed freight forwarder was using the wrong Schedule B using the wrong Schedule B number for a product and after he was provided with the correct one, he did not want to correct the previous documents for fear it would send out an error message and his company might receive a violation. In order for the exporter of the product to protect themselves, it was suggested that they write the forwarder a letter requesting the change. If something does happen they have done due diligence on their end.

Valuation

Overseas custom officials have always kept a close eye on the valuation of imports, but with everyone now reporting through AES, U.S. Customs will also be able to better track the data. Companies have always been advised that if this request to undervalue merchandise being shipped is received that the exporter should explain to their customer that U.S. laws forbid them to undervalue a shipment.

License Information

Authorities will be looking for inconsistencies in licensing for products. Make sure if your product is controlled either by ECCN or ITAR that the information is listed correctly.

U.S. Principal Party of Interest (USPPI)

The USPPI shall be reported as the address or street location (no post office box number) from which the goods actually begin the journey to the port of export.

For shipments with multiple origins, report the address from which the commodity with the greatest value begins its export journey.

Ultimate Consignee Information

The ultimate consignee is the party that the exporter knows to be the end user. This is an area that is going to received greater attention in the future. If you know the name of the end user, even if it is being shipped from a subsidiary or distributor, make sure you indicate it on your AES entry Also, make sure that you put the Destination Control Statement on all your commercial invoices. The statement reads as follows: e.g,

These commodities, technology, or software were exported from the United State in accordance with the Export Administration Regulations. Diversion contrary to U.S. law is prohibited.h

Record keeping Requirements

Current regulations indicate that the exporter needs to maintain copies of their SED, airway bill, or bill of lading, purchase order, commercial invoice, and any related licensing information for a period of five years. The new regulations, while doing away with the SED, now requires you to keep the ITN number for that same period of time. advised keeping everything as it relates to a particular shipment. If you gave the forwarder a Shipperfs Letter of Instruction, I would keep it to show anyone questioning an AES entry what was the actual information that was given.

While not required, it is recommended that companies develop an Export Management System (EMS). This process will assist companies in making sure that their exports and export decisions are consistent with the EAR. The more a company exports, the greater the need for the system. If a company has more than one division, it is highly recommended in order to make sure that everyone understands the importance of the regulations and that various departments are consistent in record-keeping and documentation.

Again, this fall the Mass. Export Center will be holding a variety of seminar related to compliance, regulations and AES. For information on upcoming Partner for Trade seminar, go to ww.mass.gov/exports/pft.htm.

P. Ann Pieroway is program director of the Western Mass.
Massachusetts Export Center;(413) 552-2316;[email protected]