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By John Goodrich email
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You all know about the three academic R’s, of Reading
wRiting and aRithmetic. But are
you familiar with the three R's of exporting: the FTR,
the EAR and the ITARs?
I am a relative newcomer to exporting having jumped into the fray
a mere 18 years ago. I came to exporting after becoming a customhouse
broker and working in commercial import departments.
“How different could it be?” I reasoned. “Exporting
is just the opposite of importing, right? Everything I know about
importing should apply to exporting but in reverse.”
Naively my new employer agreed with me and hired me as the import/export
manager for a small trading company.
Then reality struck! I was right. Exporting and importing are indeed
opposites, polar opposites. To be certain there are some disciplines
that cross over between the two including the concepts of classification,
INCOTERMS and the reality that vessels can sink regardless of the
direction they are sailing.
What I was least prepared for was the complexity of the export regulations.
Now, I don’t want to get in a shooting match over which regulations
are more onerous or difficult. Let’s agree that both the import
and the export regulations are burdensomely complex. Coming from
an importing background, however, I was used to there being a primary
point of contact for all imports, that being the U.S. Customs Service
(now Customs and Border Protection or CBP). This is the case even
when one of a myriad of other U.S. government agencies regulates
the import supply chain. Customs plays the lead role in enforcing
those regulations too.
It was counter-intuitive, therefore, to discover that U.S. exporting
is controlled by more than one set of regulations and more than
one primary regulator. It seems everyone wants to get their fingers
into the pie. With so many cooks in the kitchen it is no wonder
exporters can get confused.
It eventually became clear that just as students must go to school
to learn the three academic R’s, exporters also need to be
schooled in the three R’s of U.S. exporting.
The FTR – The Foreign Trade Regulations
15
CFR §30
Census
Bureau - Foreign Trade
The FTR, formerly known as the Foreign Trade Statistics Regulations,
are administered by the Foreign Trade Division of the U.S. Census
Bureau. The FTR have a dual purpose. They allow for the collection
of statistical trade data, and they also provide the tactical information
required by the Bureau of Industry and Security (BIS) and CBP to
perform their export oversight roles.
The FTR are, therefore, primarily concerned with the reporting of
an export shipment. It is within these regulations that the exporter
will find the details about the Automated Export System (AES) reporting
requirements and exemptions. The FTR define valuation, export powers
of attorney and record keeping requirements. They also address the
ever-vexing questions about the responsibilities of parties when
the foreign buyer routes the cargo and selects the international
transportation.
Referenced within the FTR is the Schedule B. This statistical classification
system is also administered by the Census Bureau and can be found
at its website.
The EAR – The Export Administration Regulations
15
CFR §700-740
Bureau of Industry
& Security
At first blush one would think these regulations would have something
to do with promoting better listening skills. One would be wrong.
While the FTR deal with statistical reporting of the shipment, the
EAR address U.S. export control policy. The EAR control the export
of so-called dual use goods and goods that are not controlled by
other regulations. Dual use refers to the idea that the product
has a commercial function but it also may be used in applications
or destinations the U.S. would prefer it not be used. Most commercial
shipments are subject to the EAR.
The EAR are organized under 10 general prohibitions that ask the
questions:
- What is the product?
- What is the destination?
- Who is the end user?
- What is the end use?
- If any of the above is restricted or controlled, will the U.S.
government permit the export from the U.S. under license or a
license exemption?
Product controls are enumerated within the Commerce Control List
of the EAR. These regulations are intertwined with end user, end
use and destination controls. End user controls are complex, partially
controlled by BIS under the entity, denied party and other lists
and supplemented by lists controlled by the Treasury’s Office
of Foreign Assets Control and the State Department’s Directorate
of Defense Trade Controls. The EAR include additional special controls
for embargoed destinations such as Cuba, North Korea and Syria.
In addition to goods, the EAR also control the export of certain
software, technological know-how and even certain business practices
such as contracting, financing and shipping.
Inexperienced exporters commonly assume that their everyday goods
and business practices are not subject to the EAR or any of its
restrictions. This is a risky assumption.
The ITARs - The International Traffic in Arms Regulations
22
CFR §120-130
State Department
- Defense Trade Controls
For the longest time I thought “I-TAR” is what you said
when resurfacing an asphalt driveway. I seem to have been mistaken.
The U.S. State Department’s Directorate of Defense Trade Controls
(DDTC) regulates the export of defense articles under the Arms Export
Control Act (AECA.) The details of this act are found primarily
within the ITARs. Goods regulated by the ITARs are detailed within
the munitions list and are subject to an export licensing requirement
by the State Department. Logically this list includes weaponry and
military equipment. A brief review of the munitions list would imply
that it is a simple matter to determine if exports are subject to
ITARs. For companies supplying components to the defense industry,
however, it may not be as clear. Companies engaged at any level
within the defense industry are cautioned about outsourcing production
to other countries or exporting any of their goods before reviewing
the ITARs.
The ITARs include an expanded list of embargoed destinations that
goes beyond the embargoes listed within the EAR. The ITARs also
allows for a process of statutory debarment. This is administered
by the DDTC through the debarred parties list, one of the primary
export restricted parties lists.
Like the EAR, the ITARs are concerned about unlawful distribution
of technology or software related to the specifications of defense
goods, their operation or their production.
With multiple regulators involved it is inevitable that exporters
might get confused about which regulations apply to their goods.
Sometimes the regulations reference one another and exporters can
make this determination on their own. Both the BIS and DDTC have
procedures for issuing commodity jurisdiction rulings to exporters
clarifying which regulations apply.
The Three R’s Are Just the Beginning
There is more to an academic education than reading, writing and
arithmetic. Mastery of these fundamentals, however, provides a strong
foundation for further learning. Likewise, there is much more to
U.S. export regulations than the FTR, the EAR and the ITARs. However,
understanding these three exporting R’s is the foundation
of a strong export compliance plan.
Happy learning!
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If
your company has any customers in Canada or Mexico, or if you have
domestic customers that ship to one of those two countries, you've
probably been asked for a NAFTA Certificate of Origin. And depending
on how much money these Canadian or Mexican customers can save in
duties under NAFTA, the requests may be frequent and strongly worded.
Keep
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includes goods that are manufactured or produced in Canada, Mexico
or the United States. Before you can determine whether or not your
products qualify for reduced duties under NAFTA, you must understand
the NAFTA Rules of Origin, you must know and document the origin
of each of the components of your products, and you must know and
document where your products were finished.
Don't
think this is important? If you provide someone with a NAFTA Certificate
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your company—and the person who signed the NAFTA Certificate—are
at the mercy of U.S. Customs and Border Protection, which can penalize
you thousands of dollars per violation.
You
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Each
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Each
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Seats
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You'll be glad you did!
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By Richard Vitas Palaikis II email
| bio
Before you commence with your next export transaction,
be sure that you are aware of the amendments that have been
applied to three specific sections of the Export Administration
Regulations (EAR) with regard to parties who appear on the
Entity List. The sections of the EAR affected by these amendments
are:
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744.10 - Restrictions on Certain Entities
in Russia
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744.11 - License Requirements that Apply
to Entities Acting Contrary to the National Security or
Foreign Policy Interests of the United States
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744.20 - License Requirements that Apply
to Certain Sanctioned Entities
The Bureau of Industry and Security (BIS) has
amended the above referenced sections of the EAR to incorporate
license requirements for transfers (in country) to persons
denoted on the Entity List, which the regulations had not
required prior to this amendment. A transfer (in country)
is defined as the shipment, transmission or release of items
subject to the EAR from one person to another person that
occurs outside the United States within a single foreign country.
The Entity List is maintained by the U.S. government and is
meant to provide notice to the interested public that certain
exports, re-exports or transfers (in country) to parties (i.e.
individuals, corporations, research institutions, governmental
and private organizations) denoted on the Entity List require
a license from BIS. The license is required because these
parties have been known to engage in activities that would
give substantiated reasons to believe that exported, re-exported
or transferred (in country) items could be diverted to weapons
of mass destruction programs, along with other activities
that have been sanctioned by the State Department, in addition
to any other activity that would be considered contrary to
the national security or foreign policy interests of the United
States.
So exactly what has changed here? Quite simply, the federal
government has amended the above mentioned sections of the
EAR to provide an enhancement to end-user control by incorporating
transfers (in country) to the license requirements.
These amendments became effective upon publication in the
Federal Register on Tuesday, September 8, 2009. Now would
be the perfect time to ensure that any pending transactions
you have are not affected by this amendment, and if by chance
they are, this is the time to make the necessary adjustments!
In today’s ever dangerous world, we certainly do not
want anything to fall into the wrong hands.
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