Exporting 102

Ohio Global SummitColumbus, Ohio – May 8, 2008

Solving the Solving the Global PuzzleGlobal Puzzle

Today’s Overview

• What are the functions of “Customs”?

• U.S. Export Controls / Denied Parties

• Shipper’s Export Declarations/AES Filings

• Power of Attorney / Records Management

• Export Management System (EMS)

• Harmonized Tariff System

• Customs Clearance Essentials

• Free Trade Agreements

Traditional and Evolving Roles of Customs Globally

Collecting duties Regulating trade Enforcing trade laws Interdicting illegal drugs, contraband and pirated and counterfeited goods Imposing penalties for fraud regarding country of origin, etc. Frontline of immigration controls Agricultural protection Ensuring anti-terrorism security

… and all this while still facilitating legitimate trade

United StatesExport Controls

Why Does the U.S. Have Export Controls?

Export Licensing Controls of the United States arise from a number of federal statutes and regulations administered and enforced by various departments of the federal government depending on the nature of the product to be exportedLicense requirements usually involve political considerations like:

-- Foreign Policy -- Nuclear Proliferation-- Shortages -- Weapons & Terrorist

Concerns And other factors such as:

-- End-user -- Destination-- End-use -- Product Characteristics

U.S. Government Agencies Exercising Export ControlsPrimary agencies:• Department of Commerce (BIS)

• Department of State (DDTC)

• Department of the Treasury (OFAC)

Some of the other agencies:• Dept. of Justice, Drug Enforcement Administration (DEA)

• Nuclear Regulatory Commission (NRC)

• Dept. of the Interior, U.S. Fish & Wildlife Service (F&W)

• Dept. of Energy (DOE)

• Food and Drug Administration (FDA)

Denied Party Screening

Denied Party Screening

When should you screen parties?

• Any time an order is received from a potential customer.• Prior to arranging finance • Upon completion of production • Prior to turn over to transportation company for export

Shipper’s Export Declarations(SEDs) and the

Automated Export System (AES)

• The Two Power of Attorney (POA) Parties

Principal Party-in-Interest (PPI) Freight Forwarder

PPI Freight Forwarder

The Power of an Export Power of Attorney (POA)

Blanket Use (multi-shipment use)– Unlimited Duration (no ending date)– Limited Duration (stated ending date)

Single Shipment Use– Shipper’s Letter of Instruction/SLI– Transportation Provider’s bill of lading– Signed statement on Invoice

Every export shipment to be handled by a freight forwarder requires one of these forms of Power of Attorney

Export POA Types

Records Management

Records Management

The following items must be kept for 5 years:• All documentation related to the export

transaction (invoices, sales orders, etc.)• SEDs or Automated Export System (AES) filing• Export licenses or authorizations• Denied Party Screening files• (Air)waybills of Lading

Export Management System

• Reinforces senior management commitment• Establishes procedures for export processing• Provides checks and safeguards• Incorporates training and awareness programs• Helps ensure compliance to U.S. export laws

Comprehensive and detailed U.S. Dept. of Commerce website on creating EMS: http://www.bis.doc.gov/exportmanagementsystems/emsguidelines.html

Harmonized Tariff System

Used by almost 200 countries, representing about 98% of world trade as a basis for:

• Customs tariffs

• Collection of international trade statistics

• Collection of duties and taxes

• Trade negotiations

• Monitoring of controlled goods

Commercial Invoice• Key Elements:• Company letterhead• Full details of shipper,

consignee and any intermediate consignee

• Dated and includes pertinent reference numbers (Inv#/SO/PO)

• Terms of Sale/Origin Country• Accurate description of items

including individual quantities and values

• Unit and extended prices• Destination Control Statement

(US Exports)• Commodity classification code

(if known or provided)• Certification/Signature

Poor invoice descriptions often result in:

• Holds and delays to clarify commodities with the customer

• Wrong duties and taxes charged to the importer

• Brokerage/Carrier/Customer fines and penalties

• Excessive cost to process held shipments

Other Important Invoice Details

• Monetary unit/currency code– Example: USD, EUR, JPY, GBP

• Shipment type/Reason for export– Ex: Sale, Gift, Return for repair, Temporary Import, etc

• Any other additional comments to assist clearance:– Ex: “Not for resale”, “Mutilated samples”, “Value for

customs only”, etc

• Shipping charges (for CIF countries)

Duty and VAT Calculation Exercise

Acme Suitcase company sends $2100 worth of briefcases to Germany, invoiced as described below:

Qty U/M Description C/O Unit Total Value 30 Ea Briefcases MY $70.00 $2,100.00

Trunks, suitcases, vanity cases, executive-cases, briefcases, school satchels and similarcontainers:4202 11 - - With outer surface of leather, of composition leather or of patent leather:4202 11 10 - - - Executive-cases, briefcases, school satchels and similar containers . . . . . . . . .3.0% duty

To correctly classify this shipment, the customs house broker must make a decision … is it a leather briefcase assessed at 3% duty as shown below?

Or ... is it a briefcase of plastic or of textile materials dutiable at a 9.7% rate?

Trunks, suitcases, vanity cases, executive-cases, briefcases, school satchels and similar containers:4202 12 - - - -With outer surface of plastics or of textile materials:4202 12 11 - - - - Executive-cases, briefcases, school satchels and similar containers . . . . 9.7% duty

• Broker holds the shipment for “inadequate description” resulting in:

• Delayed delivery – minimum 1 day• Extra cost: phone calls, warehousing, etc• Buyer dissatisfaction

• Broker assumes briefcases are plastic covered, resulting in:

• Assessment of higher 9.7% duty rate (highest rate usually required by Customs)

Possible Scenarios

Preferred Scenario: Commodity clearly described as:100% cowhide leather bound briefcases, resulting in:

• Correct application of lower 3.0% duty rate• Elimination of possible error – Customer

savings would be: $183.00 !

Free Trade Agreements

Summary

• Functions of “Customs”

• U.S. Export Controls

• Shipper’s Export Declarations

• Power of Attorney

• Export Management System (EMS)

• Harmonized Tariff System

• Customs Clearance Essentials

• Free Trade Agreements

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