As an exporter, you are responsible for making sure your export information is accurately submitted for filing in the Automated Export System (AES) any time one or more of your goods is valued at $2,500 or more per Schedule B number or if your item requires an export license or includes a used vehicle or the destination is not exempted, such as Puerto Rico. Depending on the terms of the sales contract, you may file through AES yourself or rely on the freight forwarder or other third party to file.
In either case, there are certain data elements that you must include when you file or you must provide to the freight forwarder if he or she is filing instead. These data elements are referred to as the Electronic Export Information (EEI), and they include the correct valuation of the goods.
(You’ll find a more detailed explanation of when and how to file through AES in the Shipping Solutions White Paper: Filing Your Export Shipments Through the Automated Export System.)
It seems like it should be easy to determine the correct valuation of your goods. Well, you know and I know it sounds easier than it really is when it’s for a shipment to your customer’s customer.
Determining the AES Value of Drop Shipments
In this example, a Swiss-based distributor requests a drop shipment to its foreign customer in the United Kingdom to avoid the expense of reshipping the goods to the final destination. The U.S. seller (exporter) has several responsibilities:
1. Export Compliance
The exporter needs to screen the parties to the transaction and the final destination and determine whether or not an export license is needed. (See What You Need to Know About Export Compliance.)
The U.S. seller needs to generate a commercial invoice and packing list issued to the Swiss distributor. The distributor needs to create a commercial invoice for the sale of the goods to their customer in the UK. The U.S. seller should distribute the documentation according to its policy and the agreement with the customer.
3. Product Classification
The U.S. seller should compare the Harmonized System (HS) classification it has assigned the goods with the classification used by the Swiss distributor. Hopefully the two classifications will be consistent through the six-digit level, which is the international portion of the HS number.
Upon completing the export compliance review, the U.S. seller might take the following approach:
- Obtain the Swiss distributor’s invoice showing distributor as the seller, the U.S. seller in the “Ship From” field, and the UK-based firm in the “Ship To” field. The invoice will include the value the Swiss distributor is charging their customer in the United Kingdom.
- The U.S. seller will send the Swiss distributor’s invoice to the distributor’s UK-based customer and the U.S.-based forwarder.
- The U.S. seller or the Swiss distributor will make arrangements for the shipment per the agreement between the two.
Before the goods can be shipped, the correct EEI must be submitted to AES. The question remains: Which value should be submitted?
- Is it the value on the Swiss distributor’s invoice?
- Is it the U.S. seller’s invoice value?
The Foreign Trade Regulations (FTR) direct the EEI filer to state the selling price (or the cost if the goods are not sold) in U.S. dollars, plus inland or domestic freight, insurance and other charges to the U.S. seaport, airport or land border port of export. Since this example includes the sale of the goods, the selling price by the U.S. seller is the amount that is to be reported to Customs. The U.S. Census Bureau provides additional guidance on this requirement in a blog post, How Do You Report a Drop Shipment?
(Instead of using the term seller or exporter, the FTR calls the U.S. company in this example the U.S. Principal Party of Interest, which they abbreviate as USPPI. I have written a series of articles that explain the reasoning and purpose for the use of this term.)
The table below illustrates the values that should be used on the distributor’s commercial invoice, the U.S. seller’s commercial invoice, and the EEI.
|Swiss distributor's commercial invoice sales price to
its customer in the United Kingdom for the product.
|U.S. seller's commercial invoice sale price
to the Swiss Distributor.
|Charges to the port of export.||$ 2,000|
|Value to report on AES filing.||$ 42,000|
Do you agree with my explanation? Let me know if you have questions, thoughts or comments.