You Can't Outsource Your Liabilities

When asked about their export compliance plans, many companies reply that they rely on their freight forwarders, third-party logistics companies or other consultants to complete their export documents, file their export information electronically through the Automated Export System (AES), and to ensure that their export shipments comply with U.S. export regulations.

While it is often a wise business decision to let freight forwarders and other third-party logistics companies arrange transport of your goods and advise you on common export issues, you may be asking for trouble if you depend too heavily on others to meet your compliance requirements.

Do these third parties understand your products, how they are made, and how they can be used? If not, they will have a difficult time properly classifying your products and knowing when to apply for an export license.

Do these third parties know your customers well enough to recognize any potential "red flags" that may indicate violations of U.S. export regulations? The Bureau of Industry & Security (BIS) has clearly stated that exporters must watch for certain signs—or red flags—that may indicate potential violations of the Export Administration Regulations. A third party that is only completing your documents and arranging transportation hasn't interacted with your customers to be able to spot potential violations.

And just because you've outsourced certain tasks to others doesn't mean you've outsourced your potential liabilities. If a third party fails to complete and file either a paper SED or an electronic version of the information through AES, fails to properly classify your products, ships your goods without the required export license, and/or ships them to a party on any of the restricted party lists, it is your company that is primarily responsible. It is your company that could be fined, banned from exporting, or see company officials sent to jail.

Understanding these responsibilities and liabilities is even more important in these days of increased export enforcement. There are now more agencies than ever with investigative and enforcement responsibilities, including the U.S. Census Bureau, which has increased the penalties for failing or inaccurately filing SED information 10-fold: up to $10,000 per violation.

Shipping Solutions Professional export documentation and compliance software can be an important tool for meeting your company's export obligations. With Shipping Solutions you can quickly produce more than two dozen standard export forms, easily file your SED information electronically through AES, and screen your products and customers against U.S. export regulations to ensure compliance.

To download a free demo version of the software, visit the Shipping Solutions Professional website, or give us a call at 1-888-890-7447 and we'll send you a free demo version on CD-ROM.

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U.S.—Chile FTA Rules of Origin

By Sue Senger email | bio

Exporters familiar with the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico will recognize some aspects of the U.S.-Chile Free Trade Agreement’s (FTA) Rules of Origin. The Chile and U.S. FTA is largely modeled on the NAFTA. However, there are some important differences that require close attention. This article will address these issues.

How to Read the Rules of Origin

Rules of origin are written in terms of the Harmonized System of Tariff Classification, also known as the Schedule B. The first step to using the Rules is to obtain the appropriate code for the product in question.

A rule of origin may consist of:

To better understand how to apply these rules, here are some examples:

1) Here is an example of a rule that employs a simple tariff shift:

Rule of Origin: "A change to heading 1902 through 1905 from any other chapter.”

Products: Breads, pastries, cakes, biscuits (HS 1905.90) Non-U.S. or Chilean input: Flour (classified in HS chapter 11), imported from Europe.

Explanation: For all products classified in HS headings 1902 through 1905, all non-U.S. or Chilean inputs must be classified in an HS chapter other than HS chapter 19 in order for the product to obtain preferential duty treatment. These baked goods would qualify for tariff preference because the non-originating goods are classified outside of HS chapter 19. (The flour is in chapter 11). However, if these products were produced with non-originating mixes, then these products would not qualify because mixes are classified in HS chapter 19, the same chapter as baked goods.

2) Here is an example of a rule that employs both the “tariff shift” and “regional value content”:

Rule of Origin: “A change to subheading 9403.10 through 9403.80 from any other heading”; or

“A change to subheading 9403.10 through 9403.80 from any other subheading, including another subheading within that group, provided there is a regional value content of not less than:

Product: Wooden Furniture (HS # 9403.50)

Non-U.S. or Chilean input: Parts of furniture (classified in 9403.90), imported from Asia.

Explanation: Wooden furniture can qualify for preferential tariff treatment in two different ways – through a tariff shift, or a combination of a tariff shift and regional value content requirement.

Because the non-U.S. or Chilean input is classified in the same heading (9403) as the final product in this case, the good does not make the simple “tariff shift” in the first rule. Moving down to the second rule, the good can meet the tariff shift because the non-originating component is from a different subheading than the final product. For the good to qualify as originating, however, it must also pass the regional value content test.

Regional Value Content

The Regional Value Content test allows the good to qualify using either one of two methods. These are the build-down and build-up methods.

1) Build-down method:

Regional Value Content (RVC) = (((Adjusted value) - (Value of Non-Originating Materials)) / (Adjusted Value)) x 100

2) Build-up method:

Regional Value Content (RVC) = ((Value of Originating Materials) / (Adjusted Value)) x 100

Using the example above, we will assume that the adjusted value for the piece of furniture in question is $1,000.

According to Article 4.3 of the U.S.-Chile FTA Rules of Origin, the value of non-originating materials used in the production of the good excludes:

The assumed value of non-originating materials in this case is $500.

Plugging this into the build-down formula:

Regional Value Content (RVC) = (($1,000 – $500) / $1,000) x 100 = 50%

The percentage is greater than the 45% required by the rule; therefore, the good qualifies as originating.

Using the build-up formula:

Regional Value Content (RVC) = ($500 / $1,000) x 100 = 50%

The Regional Value Content is again 50% and is greater than the 35% required by the rule.

With either method, the good specified in this example qualifies as originating under the U.S.-Chile Free Trade Agreement.

In order to take advantage of the benefits for U.S. goods under this agreement, exporters will need to understand how to determine that their goods are originating or qualify for preferential duty treatment under the U.S.-Chile FTA Rules of Origin.

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