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February 17, 2005 

Census Publishes Proposed Rule on Mandatory AES and Increased Penalties Related to Export Information

*IMPORTANT NOTICE FOR ALL U.S. EXPORTERS*

Today the Bureau of the Census (Census) published in the Federal Register the long-awaited Notice of Proposed Rulemaking (NPRM) requiring all Shipper's Export Declarations (SEDs) to be filed electronically through the Automated Export System (AES) and increasing penalties for delinquent SED filings. 70 Fed. Reg. 8,200 (Feb. 17, 2005).

The NPRM provides the public with a 60 day comment period and written comments must be submitted to Census by April 18, 2005. After reviewing and analyzing the comments, Census expects the final rule to be published in late 2005. Although not specified in the NPRM, we have been advised that Census plans to give exporters an additional 90-day period to phase-out the filing of all paper SEDs. Census expects to phase-out completely the paper version of the SED (Form 7525-V) by early 2006.

Because the policy and procedure changes outlined in this NPRM represents a significant policy and procedural change related to the exporting process, U.S. exporters should begin examining their export operations and procedures to ensure that they will be ready to file all export data electronically by the time this regulation is implemented (many companies are doing so already. In addition, we recommend that U.S. companies obtain from Census a report of their company’s prior SED filings to determine which entities and parties have been filing SED data on your behalf. Exporters can receive one year's worth of SED data from Census at no cost. We have developed a sample request letter and it can be obtained by sending an e-mail to info@djacobsonlaw.com with "SED Letter" in the subject line).

The following is a summary of the major provisions of the NPRM:

1. Renames the Foreign Trade Statistics Regulations (FTSR) (15 CFR Part 30 from) to Foreign Trade Regulations (FTR) to more accurately reflect the scope of the revised regulations implementing full mandatory AES filing, such as the inclusion of Department of State requirements and the advanced filing requirement implemented by Customs and Border Protection.

2. Because export data will be filed electronically, the term SED will be replaced by the term Electronic Export Information (EEI).

3. Removes requirements for filing a paper SED (Form 7525-V), so that AES will be the only means of filing export information currently required by the SED.

4. Allows for four optional means for filing EEI: (1) Using AESDirect (a free service offered by Census); (2) purchasing AES filing software from certified vendors; (3) developing software using the Automated Export System Trade Interface Requirements (AESTIR); or (4) using an authorized agent (such as a freight forwarder -- most of whom will charge a fee for filing AES data on their behalf).

5. Specifies the procedures for permitting U.S. principal parties in interest (USPPI) and their authorized agents to file EEI information via AES and requires all agents to have on file a power of attorney and written authorization from the USPPI. (Appendix B to the NPRM contains the sample format for the power of attorney and written authorization).

6. Includes language specifying that in "routed" transactions (where a foreign party authorizes a U.S. agent to facilitate exports on its behalf), the USPPI must compile and transmit export information on behalf of the foreign principal party in interest (FPPI) when it receives written authorization from the FPPI to do so.

7. Requires all EEI to be filed prior to exportation unless the USPPI has been authorized to submit export data on a postdeparture basis (see below). Shipments requiring an export license or license exemption may be filed postdeparture only when the licensing agency has granted specific authorization to do so.

8. Revises the postdeparture (formerly Option 4) approval procedures for postdeparture filing of EEI. Applications submitted by USPPIs for postdeparture filing will be subjected to closer scrutiny by the Census Bureau and other federal government partnership agencies participating in the AES postdeparture filing review process. Under the proposed revised postdeparture filing requirements: (1) authorized agents may no longer apply for postdeparture filing status on behalf of individual USPPIs. Only USPPIs may apply; (2) USPPIs must demonstrate the ability to meet AES predeparture filing requirements by filing EEI to the AES before applying for approval for postdeparture filing; (3) USPPIs must meet a minimum number of shipments requirement before being authorized to file postdeparture; and (4) partnership agencies of the U.S. Government shall determine whether or not a USPPI poses a significant threat to U.S. national security before granting the applicant postdeparture filing status. (Although not specified in the NPRM, we have been advised that current Option 4 filers will retain their postdeparture filing privileges.)

9. The NPRM specifies the time and place-of-filing requirements for presenting proof of filing citations, postdeparture filing citations, and/or exemption legends. With the exception of State Department USML shipments under the control of the International Traffic in Arms Regulations and shipments approved for postdeparture filing, EEI with the appropriate proof of filing citations and/or exemption legends is required to be transmitted to the exporting carrier within specified time frames depending on the mode of transportation used. For example, transmissions for vessel cargo shall be provided to the exporting carrier no later than 24 hours prior to departure of the vessel from the U.S. port where cargo is laden. Time and place-of-filing requirements for other modes of transportation are specified in Section 30.4 of the NPRM. Currently, export information, with appropriate proof of filing citations and/or exemption legends, is only required to be presented to the exporting carrier prior to exportation.

10. Specifies how to file EEI and acquire an Internal Transaction Number (ITN) when AES, AESDirect or the participant's AES is unavailable for filing.

11. Adds language specifying the specific procedure for reporting the value of goods to the AES when inland freight and insurance charges are not known at the time of exportation. Section 30.6 of the NPRM specifies that when goods are sold at a point other than the port of export, freight, insurance, and other charges required to move the goods from their U.S. point of origin to the carrier at the port of export must be added to the selling price (or cost, if not sold) of the goods. Where the actual amount of freight, insurance, and other domestic charges are not available, an estimate of the domestic cost must be made and added to the cost or selling price of the goods to obtain the value to be reported to the AES.

12. Removes requirements for the Date of Arrival and the Waiver of Prior Notice Indicator from the list of data elements required to be reported to the AES. These data elements were previously required to overcome disparities in reporting requirements for certain export shipments sent between the United States and Puerto Rico. With mandatory AES reporting, the Date of Arrival and Waiver of Prior Notice Indicator are no longer required, since shipments sent between the
United States and Puerto Rico will no longer be reported differently than other export shipments.

13. Subpart B of the NPRM specifically states that EEI will be used for statistical and export control purposes. This section states that “all parties to an export transaction must comply with all relevant export control regulations, including the requirements of the statistical regulations of this part. In addition, the NPRM requires the retention of documents or records pertaining to a shipment for five years from the date of export in the in the format required by the controlling agency's regulations.

14. Subpart C of the NPRM revises the language that describes the proper manner for reporting cost of repairs and/or alterations to goods, and the reporting of the value of replacement parts exported. The previous version of the FTSR did not specifically describe the manner in which these export transactions would be reported. Goods previously imported for repair and alteration only, and reexported, shall only include the value for parts and labor. Goods exported as replacement parts shall only include the value of the replacement part.

15. Subpart D of the NPRM describes the limited exemptions available for the filing of EEI. Most of these exemptions remain unchanged from current law. For example, most exports to Canada will remain exempt from the EEI filing requirements (except for defense articles and services requiring a State Department license and a few other cases). In addition, exports of commodities with a total value of $2500 or less will be exempt from the EEI filing requirements.

16. Subpart E contains general carrier and manifest requirements. For example, the requirement that SEDs being attached to the manifest are replaced with requirements for proof of filing citations and/or exemption legends to be shown on the bill of lading, air waybill, or other commercial loading documents attached to the manifest.

17. Subpart F describes the requirements for the electronic filing of statistical data for shipments imported into FTZs. Currently, requirements for electronically reporting FTZ admissions are included in the Census Bureau's “Automated Foreign Trade Zone Reporting Program” manual. In addition, added to subpart F are instructions to import filers on where to obtain information on reporting import data.

18. Subpart G of the NPRM reiterates that the EEI contained in the AES is confidential, will be used only for official purposes authorized by the Secretary of Commerce and will not be disclosed to foreign governments (this has been a major issue during the past year). In addition, this provision states that any Federal Government official or agent breaching the confidentiality provisions will be subject to penalties.

19. One of the most significant changes in the NPRM is contained in Subpart H of the NPRM. The language in Subpart H significantly increases the penalty provisions associated with the filing of EEI. Because of the current emphasis on the EEI as an export control enforcement tool, Census will move from the current system of virtually no enforcement activity to a system where significant penalties can and will be imposed for late and unfilled export information. The NPRM’s penalty provisions will dramatically increase the penalties imposed for violations from $100 to $1,000 per each day of delinquency, to a maximum from $1,000 to $10,000 per violation. In addition, the penalty provisions provide for situations when the filer knowingly fails to file, files false and/or misleading information and other violations of the FTR where a civil penalty shall not exceed $10,000 per violation and a criminal penalty shall not exceed $10,000 or imprisonment for not more than five years, or both, per violation. The NPRM provides for enforcement of these penalty provisions by the Bureau of Industry and Security's Office of Export Enforcement (OEE) and the Department of Homeland Security's CBP, Immigration and Customs Enforcement (ICE). The provision specifies that the penalties may be remitted or mitigated if they were incurred without willful negligence or fraud or other circumstances exist that justify a remission or mitigation. (While not specified in the NPRM, we have been advised that Census intends for the civil penalties for the late filing of SEDs/EEIs to be imposed on the U.S. Principal Party in Interest (USPPI), the USPPI's agent (i.e., freight forwarder) AND the carrier).

The PDF version of the NPRM can be found at the following link: www.djacobsonlaw.com/documents/2.17.05CensusRule.pdf.

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