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February 08, 2010 

Finding a Willing Buyer Only One Part of the Export Process

Finding a Willing Buyer Only One Part of the Export Process

Exporters Looking to Boost Business Need to Mind Rules and Regulations Too

The Obama administration is launching a government-wide effort to double U.S. exports over the next five years as part of a plan to increase domestic employment and boost the U.S. economy. However, companies looking to take advantage of the new National Export Initiative to break into new markets should be aware that shipping goods overseas comes with potential perils as well as opportunities.

As part of the NEI, the federal government plans to increase its trade advocacy efforts, including educating U.S. companies about opportunities overseas, directly connecting them with new customers and advocating more forcefully for their interests. The NEI will also include a focus on improving access to export financing and helping to remove barriers that prevent U.S. companies from getting access to foreign markets. Only a very small percentage of U.S. companies currently export their products, and of those that do, 58% export to only one country. The Obama administration is looking to increase these figures in the expectation that doing so will also increase employment.

However, warns Doug Jacobson, head of Sandler, Travis & Rosenberg’s export controls practice group, while increasing the number of U.S. companies that export and increasing trade promotion assistance are laudable goals, U.S. exporters must be aware that finding a willing buyer is only the first step in the exporting process.

“In addition to taking the necessary steps to ensure they are paid for their goods, U.S. exporters must be aware of the wide range of U.S. regulatory and legal issues applicable to exports,” Jacobson said. “The benefits of exporting can be great for U.S. companies, but the penalties for violating export laws and regulations can be severe. ST&R often represents exporters in enforcement actions that learn of their export compliance obligations only after they receive an administrative subpoena from the Bureau of Industry and Security or the Office of Foreign Assets Control. Many of those violations could have been avoided if the exporters understood their export compliance obligations in advance.”

Examples of the important compliance-related issues that U.S. exporters should be aware of when selling goods overseas include the following.

Ultimate Destination. U.S. export restrictions and licensing requirements vary by the country of destination. Some countries are subject to comprehensive embargoes, while others are subject to targeted sanctions directed at certain individuals and companies.

Jurisdiction and Classification of Goods. Proper jurisdiction and classification of goods under the Export Administration Regulations or the International Traffic in Arms Regulations is required to determine export licensing requirements and end-use and end-user restrictions for all products being exported from the U.S. In addition, the proper export classification is required to be declared in the Electronic Export Information filing that must be transmitted via the Automated Export System.

Know Your Customer. To avoid engaging in transactions with parties that have been denied export privileges or are subject to U.S. sanctions, exporters should screen all customers and parties involved in the export against the government’s various restricted party lists.

Anti-boycott Compliance. Boycott requests, which often contain the words “boycott” or “blacklist” or provisions prohibiting the importation of goods from certain countries, are often found in documents involving sales to the Middle East, including purchase orders, tenders, contracts, shipping requests and letters of credit. Certain boycott requests must be reported to the Bureau of Industry and Security.

Foreign Corrupt Practices Act. The FCPA prohibits U.S. persons and their agents from making prohibited payments to foreign government officials to obtain and keep business.

For more information on these issues please contact Doug Jacobson at (202) 431-2407.

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Doug,

The sad irony is that while one hand of government is lending itself to help U.S. companies to export, the other hand is ready to whack them for a violation. It's nearly a bait and switch.

Unfortunately, those in government whose job it is to promote exports don't always - sometimes, but not always - them self know enough about export compliance.

Jim,

Well put. In fact, that irony is what caused me to write this article after attending Secretary Locke's speech last week.

Doug

Generally, I like Secretary Locke, former Governor of my fine State of Washington. He is very pro trade. And I like Obama, too. But I hope I'm not the only one finding them both a little naive on this issue.

I think it is a good start. This means more business for trade compliance personnel ie: more training, setting up in-house programs, applying for licenses (if necessary), etc. With regard to violations, may be the BIS/OFAC/DDTC will be less restrictive if a violation occurs as a result of participating in the NEI.

With the amount of resources committed by the government to export enforcement activities, I truly doubt that corporate participation in the export promotion aspect`of NEI will result in some sort of leniency should (hopefully inadvertent) violations occur. When China acceded to the WTO in 2001, Commerce/ITA strongly encouraged U.S. companies to seek out export opportunities in the China telecom market. Their efforts were successful, except the interagency denied the majority of license applications submitted as a result of this effort for controlled items and related tecnology to Chinese companies producing equipment for the local telecom sector. That disconnect was acknowledged in the interagency, but the license applications were denied nonetheless. Morover, the current Congress is opposed to loosening export controls to generate jobs and promote economic interests if in doing so national security concerns take second place.

Carol, thanks for your comments. I agree that the participation in the NEI is unlikely to be considered a mitigating factor in any export enforcement matter. Thus, it is particularly important for U.S. exporters to understand the export controls and sanctions regimes, particularly those that are new to the game.

--Doug

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