Finding a Willing Buyer Is Only the First Step of the Export Process

December 13, 2012 Finding a Willing Buyer Is Only the First Step of the Export Process

U.S. Exporters Looking to Boost BusinessOverseas Need to Understand the Rules and Regulations That Apply toInternational Trade TransactionsByDouglas 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 ofthe NEI, the federal  government plans to increase its trade advocacyefforts, including educating U.S. companies about opportunities overseas,directly connecting them with new customers and advocating more forcefully fortheir interests. The NEI will also include a focus on improving access toexport financing and helping to remove barriers that prevent U.S. companiesfrom getting access to foreign markets. Only a very small percentage of U.S.companies currently export their products, and of those that do, the majorityexport to only one country.
Whileincreasing the number of U.S. companies that export and increasing tradepromotion assistance are laudable goals, U.S. exporters must be aware thatfinding 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 theirgoods, U.S. exporters need to understand the wide range of U.S. regulatory andlegal issues applicable to exports. The increasing exports is beneficial forU.S. companies, the penalties for violating export controls, sanctions, customsand other laws and regulations can be severe. Many U.S. exporters learn oftheir export and sanctions compliance obligations only after they receive anadministrative subpoena from the Commerce Department’s Bureau of Industry andSecurity (BIS), the Treasury Department’s Office of Foreign Assets Control(OFAC) or another U.S. enforcement agency. Many of those violations could havebeen avoided if the exporters understood their export compliance obligationsprior 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 beaware of when selling goods overseas include the following:

Jurisdiction and Classification of Goods – Proper jurisdiction andclassification of goods and technology under the Export AdministrationRegulations (EAR) (for commercial and so-called “dual-use” goods) andInternational Traffic in Arms Regulations (ITAR) (for defense articles) isrequired to determine the appropriate export licensing requirements and end-useand end-user restrictions for all products, software and technology exportedfrom the U.S. U.S. Customs and Border Protection (CBP) often seizes goods atU.S. ports, airports and border crossings that are being exported without theappropriate license or other export authorization.
Ultimate Destination – U.S. export controlsand licensing requirements vary by the country of destination. Some countriesare subject to comprehensive U.S. sanctions and embargoes, while others aresubject to targeted sanctions directed at certain individuals and companies. Inaddition, defense articles and technical data subject to the ITAR cannot beshipped to a number of “proscribed” countries. ElectronicExport Information Filings – The Foreign Trade Regulations (FTR)administered by the Census Bureau require exporters or their agents, such asfreight forwarders, to submit certain information before the export takes placein an Electronic Export Information (EEI) filing. The information that must beprovided in connection with most exports includes the quantity and value of thegoods, the Schedule B number and a description of the goods, as well as thename of the foreign buyer. Penalties can be imposed on U.S. exporters forinaccurate or late filings.
Export Screening – To avoid engaging in transactions with parties thathave been denied export privileges or are subject to U.S. sanctions, exportersshould screen all customers and parties involved in the export against thegovernment’s various restricted part lists, including the Denied Persons List,Entity List and Specially Designated Nationals List.
KnowYour Customer and Export Red Flags – It is important for U.S. companies to beaware of the various “know your customer” guidelines issued by the Bureau ofIndustry  to make sure that the goods will not be diverted to a prohibitedcountry 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 obtainthe 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 goodsfrom certain countries, are often found in documents involving sales to theMiddle East, including purchase orders, tenders, contracts, shipping requestsand letters of credit. Providing prohibited information in furtherance of anunsanctioned boycott is prohibited by the Antiboycott provisions of the ExportAdministration Regulations. Certain boycott requests must be reported to theBureau of Industry and Security’s Office of Antiboycott Compliance on a quarterlybasis.

Foreign Corrupt Practices Act – The U.S. Foreign Corrupt Practices Act(FCPA) prohibits U.S. persons and their agents from paying bribes and makingother prohibited payments to foreign government officials in order to obtain orretain business. Significant civil and criminal penalties can be imposed onindividuals and companies that violate the FCPA.
Incoterms2010© – InternationalCommercial Terms (Incoterms), such as FCA, CIF, DAP and DDP, are a set ofinternationally recognized terms published by the International Chamber ofCommerce. Incoterms establish the responsibilities, risks and costs associated withinternational shipments. It is important for U.S. exporters to have a clearunderstanding of the correct Incoterm to use for a particular transaction in order to determine which party willbe responsible for various aspects of the export transaction, includingtransportation 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.
CustomsRequirements, Import Duties and Taxes – Many countries impose customs duties, valueadded tax and other charges on imported goods. It important for U.S. exportersto understand who will be responsible for paying for the customs duties andother taxes imposed on the goods. It is also important for the U.S. exporter toknow the proper customs classification of the product under the HarmonizedSystem (known as the Harmonized Tariff Schedule number) they are exporting sothey can advise their customer.
FreeTrade Agreements– The growing number of U.S. Free Trade Agreements (FTAs), includingNAFTA (Mexico and Canada), KORUS (U.S.-South Korea) have leveled the playingfield for U.S. exporters by greatly reducing or eliminating the customs dutieson U.S. goods exported to many countries. However, for U.S. goods to qualifyfor preferential duty treatment under the FTAs when imported into thecustomer’s country the goods must “originate” in the U.S. Each of the FTAs hasspecific “rules of origin” that specify whether a product qualifies for dutyfree treatment or not. In some FTAS, such as NAFTA, the exporter must prepare aspecific 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 theapplicable FTA to make sure that the goods being exported qualify for the FTAand that the Certificate of Origin is properly completed.  
Thereare a number of other regulatory requirements that may be applicable to goodsexported from the U.S. For example, certain countries require labels, usermanuals and instructions to be printed in a particular language. Othercountries impose registration and licensing requirements. Some countriesrequire certificates of origin. Working with reputable customers, experiencedcounsel and other international trade resources will greatly enhance the chances thatan export transaction will be problem free.
*DougJacobson is a Washington, DC-based international trade attorney. He can bereached at (202) 431-2407 or at info@djacobsonlaw.com.