Preshipment Inspection of Imports
The Donít of Exporting
By Margaret M. Gattis Esquire
I Ďve seen many articles that deal with what you should do in
exporting (ďthe doís in exportingĒ) but I canít recall seeing
any article that deal with what you shouldnít do in exporting (ďthe
doís in exportingĒ). I donít want to seem like a glass is half
empty person, but as international business attorney whose practice is
limited to international business transactions, I get many new clients
because they Ďwe committed a ďdonít in exporting and because they
need an attorney to help them sort through the effects of the ďdonítĒ
theyíve committed. In sorting through the effects of the ďdonítsĒ
that come to my attention, I often think how much time trouble and
expense could have been saved, had the exporter done a little quality
control in advance and avoided committing the ďdonítĒ altogether.
The purpose of this article is to tell you how you can quality control your export operations by reviewing some of the ďdonítsĒ Iíve seen U.S. exporters commit.
# 1 :
assume that the U.S. Export Controls relevant to your product at one
point in time will remain relevant to your product will remain relevant
forever. U.S. Export controls, which take the form of export
prohibitions and various export, restrictions or license requirements,
results from Presidential and / or congressional action triggered by
concerns over national security, foreign policy and short supply.
Consequently, as Presidential and / or Congressional concerns over these
matters shift, export controls are likely to be subjected to change.
Violations of U.S. Exports Control Laws have many serious repercussions,
ranging from product seizure and denial of export privileges through
monetary fines to imprisonment.
Donít forget that you as a U.S. exporter are responsible for maintaining full compliance with all U.S. export control laws that are relevant to your products at the time of your export. Such responsibility makes you liable for the export control violations that you commit while engaging in an export transactions and for the export control violations that you agents (such as freight forwarders) commit while carrying out export operations on your behalf. Furthermore, such responsibility will additionally make you responsible for the export control violations that your customers commit in relation to the U.S. of your products for prohibited purposes and in relation to the illegal transshipment or illegal re-export of your products in whose instances when you have prior awareness of your customers intentions in these regards. Thus, if a U.S. export prohibitions or a U.S. export license requirement applies to your products, you are responsible for (a) maintaining full compliance with such prohibition or restriction in the course of conducting your own export operations (b) making your agents aware or such prohibition or requirement and insuring that your agents observe such prohibition or requirement in their conduct of export operations on your behalf, and (c) determining, transshipping or re-exporting your products while informing your customers of the export compliance obligations that apply to your products.
Donít neglect to investigate whether the foreign market into
which you are exporting your product has any Import Controls related to
the sale of your product. Import Controls breakdown into import
prohibitions, import restrictions (quotas) and import licensing
requirements. They may be based on country of origin, product type, or
product characteristics such as products produced by convicts and
counterfeit products. Imported products, which contravene an importing
countryís import controls, are generally refused entry at the
importing countryís border.
Donít assume that you can sell your products into foreign markets without making any alterations to your products. Many foreign markets attempt to discourage imports by subjecting imported products to various ďspecial requirementsĒ These ďspecial requirementsĒ are generally called non-tariff barriers and typically fall into the following categories:
Product specifications, product testing requirements or product certification requirements;
Marking requirements dealing with country of origin and the countryís
unique definition of country or origin;
Imported products which do not comply with an importing countryís
ďspecial requirementsĒ may be refused entry into the importing
country seized at the border assessed a monetary penalty or subject to a
program of forced compliance.
Donít ignore your responsibilities with regards to the U.S.
Export Laws that mandate against certain types of behavior i.e. the
Foreign Corrupt Practices Act and the Anti-boycott Act.
The Foreign Corrupt Practices Act Prohibits U.S. exporters from
paying, offering to pay or promising to pay monetary commissions, to a
foreign government official or to relatives or friends of a foreign
government official for the purpose of closing a deal, i.e. getting the
business U.S. exporters, who violate the Foreign Corrupt Practices Act,
are subject to fines and possibly imprisonment.
The Anti-boycott Act Prohibits U.S. exporters from knowingly or
inadvertently participating in an other countryís boycott of a country
friendly to the U.S. U.S.
exporters, who violate the Anti-boycott Act, are subject to penalties
ranging from denial of export privileges through monetary fines to
Donít neglect to evaluate country risk in addition to buyer risk in selecting the proper payment method for your export transactions. Countries frequently experience political and economic problems so severe that buyers in such countries are precluded from obtaining the necessary foreign currency to pay for their imports. Exporters that ship to such countries without having investigated the countryís political and economic situation and without having selected a payment method appropriate in light of such political and economic situation run the risk of not receiving payment for their export sale, regardless of the good intentions evidenced and fiscal responsibility exercised by their foreign buyers.
Donít confuse INCOTERMS with other sales terms formulations, i.e. the Received American Foreign Trade Definitions, the Uniform Commercial Code or the Warsaw Terms. Although all formulations of sales terms are somewhat similar, they are significantly different in that each has its own definitions of each individual term. Consequently, it is important to specify which sales terms formulation applies to your transactions. Additionally, it is important to insure that you donít misuse the specific INCOTERM selected and that you fully understand the costs, responsibilities, rights and obligations that accompany the U.S. of a specific INCOTERM. The misuse of a selected INCOTERM can lead to over or underpayment of costs and to over or under assumption of responsibilities, rights and obligations.
Donít # 8
Donít forget to analyze the adequacy of insurance coverage on your export transactions, given the transfer points for title and risk of loss and given the payment method selected. Determine the type, extent and tenure of insurance coverage required and deliberately assigns responsibility for insurance procurement and premium payment. Exporters who ignore insurance issues never comprehend the extent of the risk to which they are exposed until the risk becomes actual and they abruptly (and most unexpectedly) discover that they are either uninsured or underinsured.
Donít # 9
Donít think that your U.S. of a
letter of credit is a substitute for a valid, enforceable export sales
contract. A letter of credit deals only with payment and the documents,
which must be presented to obtain payment.
It does not deal with many other equally important issues, such
as product acceptance, product warranties or dispute resolution
procedures. These issues
are typically dealt with in an export sales contract. An export sales
contract should prescribe and incorporate the selected payment method
and deal with any issue deemed significant by the exporter and importer.
Exporters who undertake an export transaction without having entered
into an export sales contract are exposed to significant transaction
risk over which they are unable to exercise much control.
Donít # 10
neglect to give a letter of instruction to your freight forwarder and to
make sure that your freight forwarder carries errors and omission
insurance. Exporter who fails to provide forwarders with written
instructions leave too much to fate and often find themselves without
recourse when they discover that their forwarder has made a costly error
against the exporter interest. This discovery is further exacerbated
when a ďguiltyĒ forwarder doesnít carry errors and omissions
insurance and canít or wonít make good on the expense that the
forwarderís action has forced on an exporter.
Donít # 11
forget to insure consistency in your export transactions. By reviewing
your selection of payment terms, sales terms and insurance coverage
against the terms of your export sales contract and the instruction
letter given to your forwarder, you insure your transactions against
problems that result from contradictory, overlapping information.
Exporters who fail to perform a consistency check expose
themselves to unnecessary problems that quickly and effortlessly unravel
even the most soundly structured transaction.
Donít # 12
Donít randomly assign your product a harmonized code number. Most countries in the world subscribe to the Harmonized Tariff schedule to classify products for duty purposes. There is, however, often some room to maneuver with regard to the applicable harmonized code for a particular product, i.e. there is generally not one absolutely correct product code, but rather several possible choices. Since the choice of a harmonized code impact the duty rate that will be applied against a product and since duty rates vary country by country, it does not make sense to select one harmonized code over another, without also considering the applicable duty rates.
Donít # 13
ignore your responsibility to comply with the U.S. Export Laws as they
relate to required export documents. Exporters are required to prepare
and submit a Shippers Export Declaration (SED) for each export unless an
exemption applies. The SED
must list the contents of each shipment cite the appropriate export
license, and identify the final destination and user and end use.
Failure to provide a SED exposes and exporter to civil and or criminal
Donít # 14
Donít make any misrepresentations on your SED. Exporters are
responsible for accurate SEDís.
Donít under-invoice and over-invoice your products on your SED
to help an importing customer avoid tariffs or taxes.
Donít misrepresent the place of origin on your SED in order to
assist your foreign buyer to gain access to a preferential duty program
to which your foreign buyer is not legitimately entitled.
incorrectly identify the contents of your shipment in an effort to evade
the U.S. export controls that apply to your product.
These activities violate U.S. export laws and expose a U.S. exporter to civil and or criminal penalties. In addition, they expose the U.S. exporter to a potential violation of the importing countryís tax law under the theory that the exporter and abetted the importer in committing tax fraud.
Donít # 15
Donít neglect to comply with the record keeping requirements of U.S Export Law. Exporters must maintain records of all exports for a period of 5 years. Exporters that fail to comply with the record keeping requirements of U.S. Export Law expose themselves to civil and or criminal penalties.
Donít # 16
forget to check out the possible applicability of two (2) U.S.
Government sponsored programs available to U.S. exporters i.e. the
Extraterritorial Income Excl U.S. ion (EIE) and duty drawback.
The Extraterritorial Income Exclusion is a program available
under the Provisions of the U.S. Internal Revenue Code that offers U.S.
exporters the opportunity to reduce Federal
Income taxes on their export sales profits. (The EIE replaced the
FSC provisions of the
Duty drawback offers U.S. exporters the opportunity to obtain a
99% duty refund on products that they import and subsequently export.
Donít # 17
he greedy Ė if an export opportunity looks too good to be true, if
often isnít true! Just think of all the U.S. exporters who have gotten
caught in export scam Ė several thousand in 2001 alone Ė and donít
get lured into participation by thoughts of the millions of U.S. Dollars
available to you for little or nothing in return.
Donít loose your good business sense in the face of an export
opportunity and give export sales opportunities the same level of
scrutiny that you would give any business deal.
Esquire is the founder of Gatti and Associates. Her firm provides
comprehensive legal services for customs matters, international trade
transactions, international corporate operations and international tax
matters. Ms. Gatti is a frequent supporter of our newsletter and enjoys
hearing your comments or questions regarding all aspects of
international trade. You may contact her at email@example.com,