U.S. Exporters Looking to Boost Business
Overseas Need to Understand the Rules and Regulations That Apply to
International Trade Transactions
Douglas N. Jacobson, Esq.*
In 2010, President Obama announced the National Export Initiative (NEI), a U.S.
government-wide effort to double U.S. exports by the end of 2014. 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, the majority
export to only one country.
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 need to understand the wide range of U.S. regulatory and
legal issues applicable to exports. The increasing exports is beneficial for
U.S. companies, the penalties for violating export controls, sanctions, customs
and other laws and regulations can be severe. Many U.S. exporters learn of
their export and sanctions compliance obligations only after they receive an
administrative subpoena from the Commerce Department’s Bureau of Industry and
Security (BIS), the Treasury Department’s Office of Foreign Assets Control
(OFAC) or another U.S. enforcement agency. Many of those violations could have
been avoided if the exporters understood their export compliance obligations
prior to making the sale and shipping their goods abroad.
Examples of the types of export compliance-related rules and regulations that U.S. exporters should be
aware of when selling goods overseas include the following:
Jurisdiction and Classification of Goods – Proper jurisdiction and
classification of goods and technology under the Export Administration
Regulations (EAR) (for commercial and so-called “dual-use” goods) and
International Traffic in Arms Regulations (ITAR) (for defense articles) is
required to determine the appropriate export licensing requirements and end-use
and end-user restrictions for all products, software and technology exported
from the U.S. U.S. Customs and Border Protection (CBP) often seizes goods at
U.S. ports, airports and border crossings that are being exported without the
appropriate license or other export authorization.
Ultimate Destination – U.S. export controls
and licensing requirements vary by the country of destination. Some countries
are subject to comprehensive U.S. sanctions and embargoes, while others are
subject to targeted sanctions directed at certain individuals and companies. In
addition, defense articles and technical data subject to the ITAR cannot be
shipped to a number of “proscribed” countries.
Export Information Filings – The Foreign Trade Regulations (FTR)
administered by the Census Bureau require exporters or their agents, such as
freight forwarders, to submit certain information before the export takes place
in an Electronic Export Information (EEI) filing. The information that must be
provided in connection with most exports includes the quantity and value of the
goods, the Schedule B number and a description of the goods, as well as the
name of the foreign buyer. Penalties can be imposed on U.S. exporters for
inaccurate or late filings.
Export Screening – 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 part lists, including the Denied Persons List,
Entity List and Specially Designated Nationals List.
Your Customer and Export Red Flags – It is important for U.S. companies to be
aware of the various “know your customer” guidelines issued by the Bureau of
Industry to make sure that the goods will not be diverted to a prohibited
country or person. In addition, exporters should be on the lookout for export
“red flags” that could be a sign that a customer may be attempting to obtain
the goods for a prohibited purpose or end-user.
Antiboycott 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. Providing prohibited information in furtherance of an
unsanctioned boycott is prohibited by the Antiboycott provisions of the Export
Administration Regulations. Certain boycott requests must be reported to the
Bureau of Industry and Security’s Office of Antiboycott Compliance on a quarterly
Foreign Corrupt Practices Act – The U.S. Foreign Corrupt Practices Act
(FCPA) prohibits U.S. persons and their agents from paying bribes and making
other prohibited payments to foreign government officials in order to obtain or
retain business. Significant civil and criminal penalties can be imposed on
individuals and companies that violate the FCPA.
2010© – International
Commercial Terms (Incoterms), such as FCA, CIF, DAP and DDP, are a set of
internationally recognized terms published by the International Chamber of
Commerce. Incoterms establish the responsibilities, risks and costs associated with
international shipments. It is important for U.S. exporters to have a clear
understanding of the correct Incoterm to use for a particular transaction in order to determine which party will
be responsible for various aspects of the export transaction, including
transportation costs and import duties in the country of destination. Once the appropriate Incoterm has been established it should be clearly indicated on the sales documents, including the purchase order and commercial invoice.
Requirements, Import Duties and Taxes – Many countries impose customs duties, value
added tax and other charges on imported goods. It important for U.S. exporters
to understand who will be responsible for paying for the customs duties and
other taxes imposed on the goods. It is also important for the U.S. exporter to
know the proper customs classification of the product under the Harmonized
System (known as the Harmonized Tariff Schedule number) they are exporting so
they can advise their customer.
– The growing number of U.S. Free Trade Agreements (FTAs), including
NAFTA (Mexico and Canada), KORUS (U.S.-South Korea) have leveled the playing
field for U.S. exporters by greatly reducing or eliminating the customs duties
on U.S. goods exported to many countries. However, for U.S. goods to qualify
for preferential duty treatment under the FTAs when imported into the
customer’s country the goods must “originate” in the U.S. Each of the FTAs has
specific “rules of origin” that specify whether a product qualifies for duty
free treatment or not. In some FTAS, such as NAFTA, the exporter must prepare a
specific Certificate of Origin certifying that the goods qualify for the FTA.
It is important for U.S. companies to understand the rules of origin of the
applicable FTA to make sure that the goods being exported qualify for the FTA
and that the Certificate of Origin is properly completed.
are a number of other regulatory requirements that may be applicable to goods
exported from the U.S. For example, certain countries require labels, user
manuals and instructions to be printed in a particular language. Other
countries impose registration and licensing requirements. Some countries
require certificates of origin. Working with reputable customers, experienced
counsel and other international trade resources will greatly enhance the chances that
an export transaction will be problem free.
Jacobson is a Washington, DC-based international trade attorney. He can be
reached at (202) 431-2407 or at firstname.lastname@example.org.