> Chapter I. What Is an Export?
> Chapter II. Who’s Who in Your Export Journey
> Chapter III. Incoterms 2020
> Chapter IV. Classifying Your Products for Export
> Chapter V. Export Compliance
> Chapter VI. Export Documentation Procedures
> Chapter VII. Recordkeeping Requirements
> Chapter VIII. Technology
It’s important to understand the definition an export. Why? Exports are subject to the various U.S. export regulations that govern the movement of goods, and you can face substantial penalties for violating those regulations.
People are sometimes surprised by how broadly the term applies.
An export is any movement of items outside the country. That includes items sent by regular mail or hand carried on an airplane; documents transmitted by fax; software or specifications downloaded from the internet; and technology transmitted by email or shared in a phone conversation.
An item is also considered an export even if it is leaving the U.S. temporarily, or if it is being returned to a foreign country. Finally, releasing technology or data to a foreign national located in the U.S. is also “deemed” to be an export.
Once you understand what is an export, it’s important to understand how to be a successful exporter. Here are several important tips you can use to develop a successful, respectable exporting business:
If you have a product that is selling well in the United States, it’s not unusual to attempt to sell that same product or products in other markets as well. After all, 95% of the world’s consumers are located outside the U.S. And many areas of the world, like Asia, have a rapidly growing middle class.
But limiting your exporting to only your fastest selling products in the U.S. may be limiting your export potential. Products that may face growing competition in the U.S. or products that are becoming outdated in this country could find new life in other markets that don’t have similar competition or need the very latest technology.
Identifying which products you end up exporting depends a great deal on the markets you wish to sell to, which leads to the section below.
Before you can sell and export your products, you need to find people to buy them. Maybe you are already receiving inquiries from certain potential customers in certain countries. Maybe you’ve self-identified logical new markets for your goods.
In either case, you need to spend time learning about these potential new markets. This includes identifying the market potential, learning how to properly (and legally) export your products or services to that market, identifying sales channels, and more. Do your research to determine what kind of modifications you may need to make to your product for this market, what the import duty rates are, and whether or not their are any U.S. export restrictions.
Make sure you understand the risk factors in potential new markets. All countries have various levels of risk associated with them. Fortunately, there many free tools available on the web to make that assessment. Download the free white paper that explains this process: Evaluating Export Markets: Assessing Country and Customer Risks.
You can sell directly to end users. If you choose to sell directly to end users, your company is responsible for all aspects of the transaction—shipping, payment, product servicing, etc.—unless you make other arrangements.
If you don’t anticipate and include these costs upfront, you may end up with less profit than you were hoping for. A Basic Guide to Exporting has helpful information about planning for direct sales, as well as government agencies that can assist you.
You can sell to distributors who purchase goods from you (often at a discount) and resell them for a profit. When working with a foreign distributor, expect to have fewer responsibilities for support and service; the distributor will take care of these aspects, which can be challenging for new exporters. As mentioned above, the U.S. Commercial Service can help you find and select distributors who are reputable and advise you in beginning steps.
You can establish partnerships with local companies. Partners represent a step up from a distributor relationship. In this case, you may find an existing company in your intended foreign market that has a distribution and support system already in place. Partnering with such a company can make entering a new market easier and lessen the cost and pain of setting up infrastructure in another country.
In addition to figuring out what you’re selling, where you’re selling it, and how you plan to sell, you’re responsible for planning and implementing the care you provide after the sale. That includes determining how you will support your products—a critical factor if you want to be a successful exporter with a good reputation. Things to consider include:
International trade makes it more difficult and costly to service, repair or replace damaged goods or items. Two major service delivery options include the following:
Requiring the buyer to return the product. This is an expensive option. It is also inconvenient for the foreign buyer, who is then saddled with high shipping costs and doesn't get to use your product for an extended amount of time.
Figuring out a way to service your product locally. This is a cost-effective, time-saving option for most exporters. Options include using existing local service facilities or creating an office to provide service in-country.
|How you handle your service and support could make or break your reputation. Take the time to plan for this in advance, so you don’t waste customers’ time and try their patience once your export transactions are underway.|
Intellectual property (IP) considerations are tricky. When you export, you don’t get the benefit of rights granted in the U.S. by patents, trademarks, registrations, copyrights, et al. In a foreign country, these protections may mean little, if anything. Do your research beforehand to learn how intellectual property issues are handled in the country or countries you will be exporting to.
We have several articles that will help you navigate the choppy waters of IP:
You can get help with intellectual property issues and learn about the U.S. government’s Strategy Targeting Organized Piracy (STOP) initiative at STOPfakes.gov.
Pricing is one of the most difficult challenges for exporters, even experienced ones. According to A Basic Guide to Exporting, considering the 10 questions below will help ensure you’re setting the best price for your product.
At what price should your company sell its product in the foreign market?
What type of marketing positioning—also known as customer perception—does your company want to convey through its pricing structure?
Does the price reflect your product’s quality?
Is the price competitive?
What type of discounts and allowances should your company offer foreign customers?
Should your prices differ by market segment?
What should your firm do about product-line pricing?
What options are available if your firm’s costs increase or decrease? Is the demand in the foreign market elastic or inelastic?
Is the foreign government going to view your prices as reasonable or exploitive?
Do the foreign country's anti-dumping laws pose a problem?
Traditionally, determining proper pricing depends on costs, market demand, and competition. You’ll also want to consider additional costs the importer will incur, including tariffs, customs fees, currency fluctuation, transaction costs, and value-added taxes, because they can add to the final price substantially and may even double the U.S. domestic price of your good.
Another aspect of pricing is the initial export transaction, which begins with the receipt of an inquiry form followed by a request for a quotation. You’ll prepare a proforma invoice to describe your product, set a price, set timetables, and specify terms of sale and terms of payment.
Pricing is a complicated, important aspect of your new exporting venture, so make sure you do thorough research to understand how and what to charge. Looking for more help with pricing your goods?
Understand the details of correctly completing the proforma invoice.
Download a free proforma invoice PDF that you can print and use.
Determining which of your products are subject to export regulations is one of the first, most important steps you’ll need to take in export compliance process. Here are some key things to look out for:
Export license requirements. A relatively small number of exports require a license from either the U.S. Department of Commerce or another U.S. agency like the State Department. Depending on your product’s technical characteristics, destination, and end users/end uses, your product may be one of them. Our white paper, How To Determine If You Need an Export License, is a must-read resource for new exporters. Once you’ve done your background research, use our Export Controls Wizard to find out more about your specific product’s requirements.
Embargoed countries are countries you are not allowed to do business with. To avoid them, you need to know which ones they are. You can find out more about embargoed countries and export regulations in our articles, Six Basic Steps for Export Compliance and The Three R’s of Export Compliance.
Restricted parties are individuals, businesses and other organizations that have been identified as engaging in activities related to the proliferation of weapons of mass destruction; are known to be involved in terrorism or drug trafficking; or have had their export privileges suspended. All exporters should check all the parties in every export transaction against the various denied party screening lists to prevent incurring penalties. You can do this manually via the Federal Register, but be aware that the number of lists to be checked is large. Yes, it is time consuming, but you could face jail time if you are found to be in violation of these regulations. (To make it easier to stay in compliance and save precious time, try our Restricted Party Screening Wizard for free, so you can be sure that you are accessing the most current information available.)
Just as there may be restrictions on exporting your goods from the United States, there may be limits or prohibitions about importing goods into your chosen market(s). In addition to identifying the correct Harmonized System (HS) number for your products (a number that is used to determine how much duty you must pay for the goods), you need to be aware of other types of import controls for your products, including import licenses and permits, various certificates, absolute and tariff rate quotas, and anti-dumping and countervailing duties.
Depending on which countries you are exporting your goods and their country of origin, they may be eligible for reduced or no duties upon import. By eliminating the import duties on your products, they become less expensive and more competitive in your chosen markets. You may want to alter how you source some of the parts of your goods in order to get your goods to qualify for a particular free trade agreement if it will eliminate the import tariff.
The U.S. currently has free trade agreements with 20 countries covered by 14 different treaties. The most widely used agreement is the North American Free Trade Agreement, more commonly known as NAFTA.
Each of the 14 different agreements have different rules of origin for determining whether or not your product qualifies under the agreement. It’s important to understand how these rules of origin work. Typically, the goods are wholly obtained or produced within one of the countries of the agreement, or they are substantially transformed in one of the countries.
The definition of “wholly obtained or produced” and “substantially transformed” can be very narrowly defined. You should not participate in the free trade agreement unless you are sure—and can prove—that the goods qualify. And even if they do qualify, there may be times when it makes sense to opt out and not choose to participate.
Whether you’re looking for a new partner or reviewing your relationship with your current freight forwarder, here are seven questions you should think about before taking action:
Do I have a specialized product line or type of export?
How many ports will I be using for exports?
Is automation easy with this partner?
What is the broker or freight forwarder’s general reputation?
Do I need a dedicated account representative?
Do we have a written working agreement?
Are there warning signs about the freight forwarder you might choose?
The answers to your questions about freight forwarders will help you identify if your relationship is as functional and profitable as it could be.
One of the first things to confuse new exporters is the difference in the type of trade terms that are commonly used in international trade versus domestic sales. While most companies use a variant of FOB as the trade term of choice within the U.S., there are currently 11 different trade terms, called Incoterms 2020, that are used internationally.
While using Incoterms for your export sale is voluntary, they are globally accepted and provide a shorthand of outlining when the responsibility for the goods transfers from the seller to the buyer. They don’t, however, say anything about the price of the goods, the method of payment, or when the title of the goods passes. Most importantly, they don’t replace the need for a sales contract.
We’ve written extensively about Incoterms:
Here are a few things you need to consider:
Does the country legally require using specific language?
Do the product content and country of origin need to be included?
Are weights and measures stated in the local units?
Do items need to be labeled individually?
Think about this for a second: Losses from improperly packed containers add up to $5 billion a year worldwide. That’s a pretty good reason new exporters should make sure they’re avoiding potential problems when they prepare their export shipping crates.
In The Art and Science of Packing a Shipping Container, we offer several tips that can help make sure your goods and containers are prepared for the journey ahead. You can also download a free export packing list to help you in your export process.
Depending on what you’re exporting, you may need to apply certain hazmat requirements. The regulations for shipping hazardous materials and dangerous goods are complicated, which you can learn about here. However, the most important step you can take when dealing with hazardous materials is to make sure you and the employees who will be dealing with these goods are thoroughly trained and knowledgeable about the regulations.
Companies like CARGOpak can help you get effective hazmat and dangerous goods training through on-site DOT Hazardous Materials (hazmat) compliance training classes, as well as live, instructor-led webinars.
New exporters need to decide what methods they are going to use to get their goods to their destinations—air, ship, rail, road or a combination. Just as with freight forwarders, make sure you’re asking questions, not just partnering with the first company you meet. What you think may be the most inexpensive, efficient way to carry your exports may not be. Explore all your options to find the most economical and efficient combination.
Insurance is an important, necessary protection for U.S. exporters. A Basic Guide to Exporting covers the options available and the information you need to know in order to purchase insurance. You should also consult with international insurance carriers or freight forwarders for more information about your specific goods.
Once you’ve completed all of the above steps, you’ve still got a way to go—you now need to fill out the documentation and supporting paperwork that will accompany your goods on their export journey. This is crucial to your success, because any errors (even simple typos) in your paperwork could delay shipments and your payday.
Depending on what you’re exporting, you may have dozens of forms to complete. You can either do this manually or use a software product that’s specialized for export documentation: Shipping Solutions. With Shipping Solutions, you’ll complete your paperwork up to five times faster than the traditional, manual process. Give it a try for free today.
It’s cost-effective, and the investment can even save you money by eliminating tedious tasks and giving you back your time. Try out this savings calculator to help identify how much money your company could save by using Shipping Solutions.
Arguably the most important part of being an exporter is getting paid for your goods. To make sure you get paid, you need to find an international banking partner and understand your payment options.
Interview several bankers from multiple banks. You’re looking for someone you feel comfortable with, someone with whom you have a good rapport, and someone you can trust.
Make sure your bank can help you. The bank you choose should do more than provide guidance in getting paid; it should also help you assess creditworthiness and guide you on the best payment methods for your particular situation.
Your bankers need to know the details about each type of document and supporting information you need in order to facilitate a smooth letter of credit. They should also know the sticking points regarding letters of credit and any other payment type, and be able to advise you regarding the best payment methods for your exports.
> International Trade Frequently Asked Questions
> What Is a Reexport?
> Surprise! You May Be an Exporter without Even Knowing It
> Deemed Exports: Exporting Without Shipping a Product
> Why the Deemed Export Rule Is So Critical: EAR and ITAR
There are a variety of ways you can structure an international sale and different options for getting paid. The five most common methods of payment in international trade are consignment, open account, documentary collections, letters of credit, and cash in advance.
Each of these options has specific advantages, and each option carries a different level of risk for the exporter. Getting Paid for Your Exports: Payment Options for International Transactions outlines both.
Make sure you understand the various terms that are important part of the international transaction.
For new exporters, it’s easy to be so excited to get started that you skim over details and get penalized.
|However, by taking care of the above five things up front, you’ll have much less to worry about down the road.
By taking the time to understand terms, regulations, procedures and processes, you stand a greater chance at
becoming a successful exporter.
Before you can take the proper export procedure steps, you need to understand who is involved in the export process. This chart can help:
In addition to the people involved, there are a wide variety of terms that relate to the process of moving goods through a supply chain. Understanding the different types of shipments and related terms is crucial to ensure your goods get shipped on-time, within compliance, and in good shape. To learn what each term means, use our glossary of international shipping terms.
International Commercial Terms (Incoterms), published by the International Chamber of Commerce (ICC), are the authoritative, globally accepted and adhered-to text for determining the responsibilities of buyers and sellers for the delivery of goods under sales contracts for domestic and international trade. Incoterms closely correspond to the U.N. Convention on Contracts for the International Sales of Goods. Incoterms are voluntary, but they are well known and implemented by all major trading nations.
Incoterms are only a portion of the export contract. They don’t say anything about the price to be paid or the method of payment. Furthermore, Incoterms don’t deal with the transfer of ownership of the goods, breach of contract, or product liability; all these issues need to be considered in the contract of sale. Also, Incoterms can’t override any mandatory laws.
> Terms of Trade: Uniform Commercial Code and Incoterms 2020
> FCA Incoterms 2020: A Replacement for the Domestic Trade Term FOB
> Incoterms 2020 Chart of Responsibilities
> From EXW to DDP: Incoterms 2020 Plain and Simple
> The Beginner’s Introduction to Incoterms
> An Introduction to Incoterms—Part 2: Why Do Incoterms Matter?
Incoterms that apply to any mode of transport are:
Incoterms that apply to sea and inland waterway transport only:
Product Classification for Customs Purposes
The U.S. does not use HTS or Schedule B codes for export control purposes—instead, there are two specific classification types that deal with export compliance: Export Control Classification Number (ECCN) and U.S. Munitions List (USML).
Most goods fall under the jurisdiction of the U.S. Commerce Department’s Bureau of Industry and Security (BIS) and the Export Administration Regulations (EAR). Items designed for military use most likely fall under the jurisdiction of the U.S. State Department’s Directorate of Defense Controls (DDTC) and the International Traffic in Arms Regulations (ITAR). See Chapter V for more details.
Only a small percentage of exports under BIS’s jurisdiction require an export license, as determined by the product’s technical characteristics, the destination country, the end user, and a product’s end use.
Commercial items that fall under the jurisdiction of the EAR may have an ECCN code if it is considered to be a dual-use item. Dual-use items are those goods that may be designed for commercial use but the government has decided could be used for military or terrorist purposes.
Most commercial items don’t have an ECCN. However, the only sure way to know is to check the Commerce Control List (CCL) in the EAR.
The ECCN is an alphanumeric classification found in the CCL. ECCNs specifically identify items that are subject to U.S. export control regulations, and may require an export license. Goods that are traded at high volumes worldwide are generally not controlled.
> The Harmonized Tariff Schedule: Beyond the General Rules of Interpretation
> Doing It by the Book: Classifying Your Goods for International Trade
> Who’s Responsible for Classifying Your Products for Import and Export?
The first step for deciding whether or not a product requires an export license is to check the EAR. If a product has a specific ECCN, the EAR will also list one or more reasons why it is controlled. Companies use these reasons to help them determine if they need to apply for an export license based on the countries to which they are exporting.
You can search for an ECCN code in a printed copy of the EAR or online at the BIS website. In addition, Shipping Solutions’ Product Classification Wizard allows you to search for the correct ECCN code by typing in a short description of your products.
Products that do not have an ECCN code and are not subject to control by any other U.S. agency are designated as EAR99. Products classified as EAR99 are low-technology consumer goods and usually do not require an export license. However, even EAR99 items require licenses for exporting to embargoed countries, to a restricted party, or in support of a prohibited end use.
As mentioned above, weapons and other defense-related items that fall under the jurisdiction of the ITAR use the USML to classify the goods.
In simplest terms, the USML is a list of defense articles and services that:
Are specifically designed, developed, configured, adapted or modified for a military application and don’t have a predominant civil application or civil performance equivalent.
Have significant military or intelligence applicability.
Could be classified as a defense article or defense service.
The first step in the export compliance process—determining who has jurisdiction over your exports—will determine whether the rest of the process goes smoothly. A misstep here could very well lead to severe fines, loss of export privileges, and even land you in jail.
Before you dive deep into the Commerce Department’s Export Administration Regulations (EAR) or the State Department’s International Traffic in Arms Regulations (ITAR), you should know which set of regulations you need to be concerned with and which agency’s guidelines you must follow. The jurisdiction sets the stage for the actions you can and can’t take, and determines what type of export restrictions or licensing requirements you may face.
Here’s how to get started:
1. Check ITAR to see if your product is on the U.S. Munitions List (USML).
The Directorate of Defense Trade Controls (DDTC) has a decision tool that can help exporters identify the steps they need to follow when reviewing the U.S. Munitions List (USML). This decision tool will help you classify items that are subject to ITAR. You can check the USML online.
If your item or product is on the USML, the State Department has jurisdiction over your export. Your company must be registered with the State Department, and you must apply for an export license through the State Department.
2. Check EAR to see if your product is on the Commerce Control List (CCL).
If you don’t see your product on the USML, then it may be under the jurisdiction of the U.S. Department of Commerce's Bureau of Industry and Security (BIS); these items require EAR classification prior to export.
EAR classification is the exercise of understanding where a product falls in the Commerce Control List (CCL). The CCL describes “dual-use” items (items that may be used for both commercial and military purposes). A classification will determine whether an export license is required based on the destination of the product. It is important to note that items for purchase off-the-shelf, directly from a manufacturer, or by any other commercial means may be controlled under the EAR. Likewise, imported items (notwithstanding foreign origin) could likewise be subject to EAR restrictions upon export out of the country. (CUNY)
You can use the BIS’s interactive export control classification tool, the CCL Order of Review, to help you classify items that are subject to the EAR.
3. If your product is not on any of these lists, it’s EAR99.
Items subject to the EAR that are not elsewhere specified are designated by the number EAR99. These products can still be controlled because of end use, end user and destination controls.
Self-classification is an important responsibility that you can’t take lightly. If you have any questions or doubts, apply for a commodity jurisdiction request to help you understand jurisdiction.
Commodity jurisdiction requests are processed by DDTC. To submit a request, fill out the commodity jurisdiction form on the DDTC website. You can also find contact information and answers to common questions there.
From the Gil Rosen Law blog:
Making mistakes can be very costly for a business and is likely to result in criminal offenses. Unless a business is absolutely certain of its determinations, the business would be advised to submit an application to DDTC to determine the jurisdiction of the item. This kind of application is known as a commodity jurisdiction and DDTC has stated that seeking and receiving a commodity jurisdiction determination is the only way to obtain legal certainty of the jurisdictional status of an item and thereby reduces the risk of civil and criminal penalties for noncompliance.
|Determining who has jurisdiction over your goods is the first—and most important—step you can take in your export journey. Even if you think jurisdiction is obvious, it could be very dangerous to make an assumption and be wrong.|
Like all good compliance programs, your decision-making process should be documented. This demonstrates your due diligence, so if something goes wrong, you can prove you made an effort to try to comply with the regulations.
Export compliance regulations don't just apply to the big guys. Even the smallest U.S. businesses that send their products to customers outside the country are subject to a variety of export regulations and could face substantial penalties for violating these rules. Unfortunately for many small- and medium-sized businesses, company personnel may not know about these requirements until it's too late.
According to BIS, fines for export violations can reach up to $1 million per violation in criminal cases, while administrative cases can result in a penalty amounting to $250,000 or twice the value of the transaction, whichever is greater. In addition, criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Penalties of this size and nature can be especially devastating to small and medium-sized businesses, which represent 97% of the approximately 300,000 U.S. companies that export, according to U.S. Census Bureau statistics. Small- and medium-sized businesses may think they lack the time or money to train personnel in export regulations, and downplay the necessity of compliance screening. Even if they do have the necessary experience and training, export personnel may not have the support of senior management, who are often totally unaware of U.S. export regulations.
BIS has published a book, Don't Let This Happen to You, which outlines exporters' compliance responsibilities and includes real-life examples of penalties they have recently issued against individuals and businesses.
Businesses that are already exporting or planning to start exporting need to follow some basic steps to ensure they comply with U.S. export regulations. While the following six steps are by no means all-inclusive, they should provide companies with a starting point for implementing an export compliance plan.
Most exporters are familiar with the Harmonized System (HS) or Schedule B codes used to classify products for duty, quota and statistical purposes. However, exporters are often less aware of the requirement that they determine whether or not their products are controlled for export by the Department of Commerce or the Department of State. See Chapter III.
There are several reasons the U.S. government prevents exports to certain countries without an export license. In the most extreme cases, the U.S. has placed embargoes on countries like Iran and Syria for supporting terrorist activities. In other cases, the U.S. restricts companies and individuals from exporting certain products to specific countries for reasons of national security, nuclear nonproliferation, chemical and biological weapons, or one of several other reasons outlined in the EAR.
Companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
If the CCL indicates that an export license is required, companies should check the ECCN in the EAR to see if a license exception may be available. For example, a Low Value exception may mean you don’t need to apply for an export license if the value of the export is below a certain dollar threshold. For more information about license exceptions, refer to the article, What You Need to Know about Export License Exceptions.
Virtually all exports—and many reexports—to embargoed destinations and countries designated as supporting terrorist activities require a license. These countries are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that tell you if an export license is required or a license exception is available based on the product’s ECCN code and the destination country. If indicated, companies must apply to BIS for an export license through the online Simplified Network Application Process—Redesign (SNAP-R) before they can export their products.
The U.S. government, as well as several other governments and organizations like the United Nations and the European Union, publish lists of restricted parties to whom you can't export without a license. That includes items that are EAR99 or otherwise don't require an export license based on the country of export.
These restricted parties are individuals, businesses and other organizations that have been identified as engaging in activities related to the proliferation of weapons of mass destruction, known to be involved in terrorism or drug trafficking, or who have had their export privileges suspended. These individuals, businesses or organizations could be located within the U.S.
While there is no requirement that companies check every export against these various restricted party lists, it is a violation of export regulations to export to anyone on the U.S. lists.
|Even the smallest exporters should check all the parties in every export transaction against the various restricted party lists to prevent penalties.|
Rather than manually checking each of the individual lists, Shipping Solutions Professional software's Export Compliance Module allows you to quickly and easily check all the parties in your export transactions against a consolidated list of denied parties.
Even products that seem harmless can sometimes be used in unintended ways. Companies are responsible for knowing how their products will be used once they leave the country. Some of these end uses are prohibited while others may require an export license. For example, companies may not export to certain entities involved in the proliferation of weapons of mass destruction (e.g., nuclear, biological, chemical) and the missiles to deliver them without specific authorization, no matter what the items are.
BIS publishes a list of red flags that could indicate a product may be destined for a prohibited use. For example, companies should be reasonably suspicious when orders are inconsistent with the needs of the purchaser; when a customer declines installation and testing that is included in the sales price or is normally requested; or when requests for equipment configurations are incompatible with the stated destination.
BIS cites the example of a South African businessman who tried ordering several dozen replacement switches for a medical imaging machine. In this case, it's normal to order one replacement switch; it's not normal to order several dozen at once. It turns out these switches were going to be used as detonators for nuclear bombs. If suspicion has been raised, a company should refrain from carrying out the transaction until an export license application has been submitted to and issued by BIS.
The export restrictions outlined in the EAR don't just apply to products being shipped outside the U.S. Companies are exporting technology simply by sharing technical data, such as plans and blueprints of products, or by allowing a visual inspection of a product to foreign nationals within the U.S. This is called a deemed export, for which companies must follow the same procedures outlined in steps #1 through #4 above.
When small- and medium-sized businesses become aware of their legal obligations as exporters, often their first reaction is to try to avoid these responsibilities by hiring a freight forwarder or another party to handle their exports. While there is absolutely nothing wrong with outsourcing the export functions, companies must realize they cannot outsource their liabilities.
Companies that hire third parties to manage their exports should require documentation that all export regulations are being followed, and retain copies of this documentation—as well as the actual export forms that must be generated for each shipment—onsite for at least five years. This documentation can be used to demonstrate compliance with the EAR or, in case violations are found by the U.S. government, be used as evidence of a good-faith effort to comply, which could result in reduced penalties.
Companies of all sizes need to be aware of their responsibilities as exporters. This section focuses on some basic steps that all export companies and their personnel should know, follow and document. It should serve as a starting point for creating a more comprehensive, written export management and compliance plan.
|For any plan to be effective, it must be endorsed by top management personnel and shared with all employees involved in the export process—from managers to sales and administrative personnel to the warehouse team.|
Such an effort can save companies thousands—if not hundreds of thousands or even millions of dollars—in fines, avoid restrictions on exporting, and even prevent jail time for the most serious violations.
To help create an effective export compliance program, BIS sponsors a variety of seminars across the U.S. In addition, companies like International Business Training offer a variety of books, webinars and seminars on export rules and procedures.
> What You Need to Know About Export Compliance
> Export Compliance: Understanding Restricted Party Screening
> EAR99 Isn’t a Free Pass for Export Compliance
> Export Compliance: The Importance of Knowing End Use and End Users
> How to Determine If You Need an Export License
> What You Need to Know about Export License Exceptions
> 3 Epic Fails in Export Compliance
Most exporters never plan on doing something wrong in the eyes of the law. However, mistakes do happen, and the consequences can sometimes be devastating. Companies can face fines, lose their export privileges, and, in the most egregious cases, see people go to jail. A properly implemented Export Compliance Program will help alleviate that risk.
According to BIS, “An Export Compliance Program analyzes pieces of information and individual decisions and builds them into an organized, integrated system. It is a program that can be established to manage export-related decisions and transactions to ensure compliance with the EAR.”
An effective Export Compliance Program includes nine elements:
Creating an Export Compliance Program for your company does require some work, but it is absolutely worth it for the health of your company. We detail the entire process in our white paper, How to Create and Implement an Export Compliance Program.
To ensure the timely movement of your goods, it’s important that you accurately complete a set of export documents. These documents will make sure the people transporting your goods know where they are going. The forms will help you clear your goods through customs in a timely manner and without unexpected fees, and they will make sure you get paid on time. The following export forms are commonly used to successfully complete your international sales transactions.
> Getting Paid for Your Exports: Required Export Documents
> How Does the Proforma Invoice Fit in the Sales Process?
> The Chamber of Commerce and Export Documents: The Certificate of Origin
> 10 Reasons Why a Shipping Packing List Is an Important Export Document
The AES is the primary instrument used by the U.S. Census Bureau to collect data on U.S. exports, which becomes part of the statistics used to compile the U.S. position on merchandise trade. In other words, by reporting your exports to AES, your information is included in the economic indicators and Gross Domestic Product (GDP) of our nation’s economy.
In addition, U.S. Customs and Border Protection (CBP) uses the data to ensure compliance with U.S. export regulations so that our country’s exports do not fall into the hands of unauthorized parties that may harm the homeland or U.S. interests abroad. So, reporting to AES is important!
Companies are required to file electronically using a system called AESDirect, which is accessed through the Automated Commercial Environment (ACE). The information you file is called Electronic Export Information (EEI). According to the Census Bureau, electronic filing of the export information improves the government’s ability to monitor and prevent exports of critical goods and technologies that may threaten our national security and significantly improves the quality and timeliness of export statistics.
An AES filing is required for most exports of merchandise from the United States to a foreign country if the merchandise is valued at $2,500 or more by Schedule B number. However, the origin of the goods, either domestic or foreign, is also considered. For example, if you have two items in your shipment with the same Schedule B number valued at $2,000 each for a total of $4,000, and both are of domestic origin or both of foreign origin, you do need to file through AES. However, if half of it is of foreign origin and half domestic origin, then you do not need to file because the items by Schedule B number and by origin are only valued at $2,000 each.
An AES filing is also required for all exports that require an export license from the U.S. Commerce or State Departments regardless of value. Goods subject to ITAR but exempt from licensing export requirements regardless of value or destination must be filed through AES.
Exports from the U.S. to Canada don’t require an AES filing regardless of the value of the merchandise unless the item is a self-propelled vehicle, or an export license or license exception is required. As a matter of fact, all self-propelled vehicles must be filed regardless of value or destination. An AES filing is also required for rough diamonds (classified under HS subheadings 7102.10, 7102.21 and 7102.31) regardless of value or destination.
In most cases, the filing must be done from one to 24 hours prior to the actual export of the shipment depending on the method of transportation.
> Who Is Responsible for Filing the Electronic Export Information (EEI)?
> Standard vs. Routed Export Shipment: What’s the Difference?
> What the Heck Is a Routed Export Transaction?
> USPPI vs. Exporter: What’s the Difference?
Civil and criminal penalties for failing to file through AES or for filing incorrect information can be up to a maximum of $10,000 per violation. It is the job of the Office of Export Enforcement within the U.S. Department of Commerce and U.S. Customs and Border Protection within the Department of Homeland Security to investigate and enforce these rules.
For most export shipment where the exporter, known as the U.S. Principal Party in Interest (USPPI) in the Foreign Trade Regulations (FTR), arranges for the transportation of the goods out of the U.S., the USPPI is the party responsible for the EEI filing. Alternately, the USPPI can authorize and pay a third party—often the freight forwarder—to do the AES filing.
|While the responsibility of filing with AES can be outsourced, the liability cannot. Be sure to request proof of filing if you authorize your freight forwarder to do it for you.|
If the buyer is responsible for shipping the goods out of the United States, this is called a routed export transaction. In this case, the buyer is called the Foreign Principal Party in Interest (FPPI) under the FTR, and must authorize a U.S. agent to must authorize the preparation and filing of the electronic export information (EEI) in one of two ways:
The FPPI can authorize the USPPI to file the EEI.
The FPPI can authorize their U.S.-based agent (typically the freight forwarder) to prepare and file the EEI.
In a routed export where the authorized freight forwarder or other agent is doing the filing, the FTR requires the USPPI to provide the following data elements:
The name, as well as the address of the USPPI;
The employer identification number or other tax identification number of the USPPI;
The point of origin for the merchandise awaiting exportation;
The appropriate merchandise code, Domestic (D) or Foreign (F);
> 4 Steps for Ensuring Accurate Export Documents
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The appropriate Schedule B number;
The appropriate Schedule B description of commodities;
The appropriate quantity and unit of measure;
The appropriate value; and
The appropriate export control classification number (ECCN) or enough technical information to determine the ECCN.
It is imperative to have accurate export documents.
|Inaccurate documents can cause delays in shipments and payments, and lead to violations of export regulations—which can lead to fines and penalties.|
Ideally, companies should have a consistent export documentation template and procedures in place that dictate what needs to be on each form. If you don’t—or if your information is inaccurate—you can get audited and penalized for making an inaccurate claim.
As a general rule (outlined in Part 762 of the Export Administration Regulations), export regulations require you to maintain export documentation for at least five years after an export transaction is complete. Five years is the standard for most agencies that have a hand in exporting, including the Bureau of Industry and Security (BIS), U.S. Census Bureau, U.S. Customs and Border Protection (CBP), the State Department’s Directorate of Defense Trade Controls (DDTC), the Office of Foreign Asset Controls (OFAC), and other agencies.
Be careful—five years isn’t quite as straightforward as it sounds. Certain agencies and departments date the documentation differently. For example, some export documentation requirements mandate five years from the date of export versus five years after the export is complete versus five years after an export license has expired. It’s your job to know what those caveats are and abide by them.
Even once those five years are up, you still may not be able to toss the records. If a government agency requests information pertaining to a particular export shipment before the five-year period is up, you must continue to keep all the records related to that shipment until you have written authorization to destroy them.
In cases where an export violation may have occurred, due diligence is a strong mitigating factor that could protect you from excessive fines or penalties such as loss of exporting privileges or jail time.
When can you throw away your export documents? Different departments and agencies define export records differently. The Export Administration Regulations (EAR), which cover most exports that don't fall under the jurisdiction of the U.S. State Department, defines the types of records that must be retained, including:
Export control documents as defined in Part 772 of the EAR
Invitations to bid
Books of account
Restrictive trade practice or boycott documents and reports (read more about anti-boycott compliance here)
Notification from BIS of an application being returned without action, being denied, or being reviewed
Other documents pertaining to the transaction
The EAR also identifies the dozens of records that are exempt from recordkeeping requirements. You can see the list here.
The Foreign Trade Regulations (FTR) require that all parties in an export transaction be able to provide "EEI, shipping documents, invoices, orders, packing lists, and correspondence as well as any other relevant information bearing upon a specific export transaction" within five years of the date of export.
The International Traffic in Arms Regulations (ITAR) states that anyone who is required to register with DDTC to export items "must maintain records concerning the manufacture, acquisition and disposition (to include copies of all documentation on exports using exemptions and applications and licenses and their related documentation), of defense articles; of technical data; the provision of defense services; brokering activities; and information on political contributions, fees, or commissions furnished or obtained, as required by part 130 of this subchapter."
The Ear and ITAR require that these records be maintained for five years from the expiration of the export license or from the date of the transaction when using an export license exemption.
As mentioned above, the EAR requires exporters and their agents (including freight forwarders) who export "commodities, software, or technology from the United States and any known reexports, transshipment, or diversions of items exported from the United States" to abide by these recordkeeping requirements.
The FTR expands that requirement to include all parties in an export transaction including the owners and operators of export carriers, U.S. Principal Parties in Interest (USPPI), Foreign Principal Parties in Interest (FPPI), and authorized agents such as freight forwarders.
Using Export Software to Increase the Accuracy and Efficiency of Your Export Documentation and Compliance Process
Completing your export documentation can be a hassle if you don’t have the right tools. That’s where Shipping Solutions export software fits in. Thousands of successful exporters use Shipping Solutions to complete their export forms up to five-times faster than preparing them by hand or by using Excel or Word templates.
The advanced version of the software—Shipping Solutions Professional—can save even more time by linking to your company’s accounting or ERP system, which also helps ensure compliance with export regulations.
With software, you’ll get these four benefits that outdated export documentation procedures and templates just can’t match:
Instead of manually entering the same information on every export form, Shipping Solutions automates the export documentation process for you. You simply enter your information one time, and the software automatically formats and places the data in the right places on all your exporting documents.
The software stores your company, customer and product details, so you don’t have to retype them for every shipment. That makes creating your export forms up to five times faster.
Not only will Shipping Solutions save you time, it will improve the accuracy of your export paperwork by reducing typos and inconsistencies that slow shipments and delay payments.
Shipping Solutions software stores your contact and product information so you don't have to type it every time you use it, which helps eliminate inconsistencies. You can also import orders from your accounting or ERP software so the data comes through exactly how it is stored in your ERP system.
When you use Word and Excel for your export documentation forms, you are taking the chance that the template is outdated or missing required information. That’s a huge risk—especially if you’ve just entered the name of a form in Google and selected the first template you came across!
The export forms included with Shipping Solutions software are kept up to date and follow industry best practices. Companies have been using Shipping Solutions for more than 20 years to generate hundreds of thousands of documents to accompany tens of thousands of successful export shipments.
In addition, Shipping Solutions makes it easy to file your export information through the Automated Export System (AES) by prompting you to enter all the required fields. The U.S. Foreign Trade Regulations hold you, the exporter, liable for the accuracy of the information that is filed through AES—even if you are paying a third party to file on your behalf—so it’s best to handle it yourself.
|Shipping Solutions makes it easy. Our Export Compliance Module uses the latest data from the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), and more than 140 different Denied Party Lists to make sure your shipments always comply with U.S. export regulations.|
Shipping Solutions gives you the ability to manage every aspect of your exporting, including:
Creating more than two dozen export documents to print or email.
Filing through AES.
Running export compliance screenings.
Importing orders seamlessly from your ERP system.
Documenting the steps in your export compliance program.
Using one tool for all your exporting needs shows that you’re serious about becoming a successful exporter, not an accidental one. To see how Shipping Solutions can help your company meet its export requirements, just fill out the form below to arrange a free online demo of the software.