Export Compliance (4-13-10)

International Business Certificate
Program
Introduction to Export
Compliance
James Van Eenenaam
Lighthouse International Trade
Consulting, LLC
April 13, 2010

Introduction to US Export Controls
Overview
• Laws and Regulations
• Government Agencies
Export Administration Regulations (“EAR”)
• Bureau of Industry and Security
• Exporting Under the EAR
• Items Subject to EAR Controls
• General Prohibitions
• Foreign Nationals and Deemed Exports
• Classification – Export Control Classification Number
(ECCN), Commodity Classification List
• Classification Requests
• Embargoed or Sanctioned Countries
2010 Lighthouse International Trade
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Introduction to US Export Controls
EAR
• End Use / End User Screening
• Red Flags
• EAR Licensing
• Recordkeeping
• Voluntary Disclosures
• Penalties
• EAR Compliance Programs
• Lessons Learned
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Export Compliance Responsibilities
Maintaining your own compliance
with US export laws and regulations
Familiarizing yourself with certain
key regulatory areas
Being aware of potential criminal and
civil penalties that can result from
non-compliance with US export
controls
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US Export Controls Framework
The US export control laws and
regulations are intended to serve
various governmental agencies’
objectives and interests
• Restrict export of goods and
technologies that could contribute to the
military potential of US adversaries
• Advance US foreign policy
• Prevent the proliferation of weapons of
mass destruction and terrorism
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Export Jurisdiction of US
Government Agencies
US Department of Commerce, Bureau of Industry
& Security (BIS)
• Legal Authority - Export Administration Act & Export
Administration Regulations (EAR) (15 CFR 730-774)
• Jurisdictional Control - Export and re-export of dual-use
items as classified in 10 categories on the Commerce
Control List (CCL)
US Department of State, Directorate of Defense
Trade Controls (DDTC)
• Legal Authority - Arms Export Control Act &
International Traffic in Arms Regulations (ITAR) (22 CFR
120-130)
• Jurisdictional Control – Export and temporary import of
defense articles, defense services and technical data as
identified in 21 categories on the US Munitions List
(USML)
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Export Jurisdiction of US
Government Agencies
US Department of Treasury, Office of Foreign
Assets Control (OFAC)
• Legal Authority – Presidential Orders, Trading with the
Enemy Act and Foreign Assets Control Regulations (31
CFR 500-599)
• Jurisdictional Control – Economic and trade sanctions
transactions (i.e., investment bans, freezing of assets),
import transactional embargoes, and other commercial
activities such as travel related restrictions.
Other government agencies have cursory export
authority (i.e., the Census Bureau collects export
data from the exporter pursuant to the Foreign
Trade Statistics Regulations, 15 CFR 30)

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US Department of Commerce
Bureau of Industry and Security
Most exports are subject to BIS
Jurisdiction
BIS administers the Export Administration
Regulations (EAR) – 15 CFR 730-744
BIS controls exports and re-exports of
“dual-use items” – items not subject to
ITAR controls and identified on the
Commerce Control List (CCL)

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Exporting Under the EAR
“Export”
• Actual shipment or transmission of items out
of the US
• “Items” for export include commodities,
software, certain source code and technology
• Export of technology, software, certain source
code releases made in a foreign country or
made to foreign nationals in the US
• There is no registration requirement under the
EAR for manufacturers or exporters of EAR-
controlled items
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Exporting Under the EAR
Technology
• Specific information necessary for the development,
production or use of a product
• Takes the form of technical data (blueprints, diagrams,
plans, instructions, models, formulas, engineering
designs and specifications, manuals) or technical
assistance, which may take forms such as instruction,
skills training, working knowledge, consulting services
• Technology transfer, in one form or another, are likely to
occur everyday
• EAR awareness is required where EAR-controlled
technology is developed, technology transfers occur, and
foreign nationals are present

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Items Subject to EAR Controls
Items Subject to the EAR
• All goods produced in the US and identified on the CCL,
regardless of their current physical location
• All goods physically located in the US and identified on the
CCL, regardless of their country of manufacture
• Products manufactured outside of the US that incorporate US
origin technology or software
Items Not Subject to the EAR
• Items exclusively controlled for export by another agency
(e.g., DDTC)
• Publicly available technology & software (e.g., published
material)
• Foreign origin items with de-minimis US origin content (10%
or less of total value for embargoed/terrorist supporting
countries, 25% or less of total value for all other countries)

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General Prohibitions
Under EAR General Prohibitions 1-10, an exporter without a
license, license exception, or determination that no license is
required may not:
1. Export/re-export controlled items to listed countries
2. Re-export/export from abroad foreign-made items incorporating
more than a de-minimis amount of controlled US content
3. Re-export/export from abroad the foreign procured product of US
technology and software
4. Engage in actions prohibited by a denial order
5. Export/re-export to prohibited end-users or for prohibited end-uses
6. Export/re-export to embargoed destinations
7. Support weapons proliferation activities
8. Export/re-export an item through, or transit through, certain
prohibited countries
9. Violate any order, terms and conditions of a license or license
exception
10. Proceed with transactions with knowledge that a violation has
occurred or is about to occur

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General Prohibitions
Key Points
• The nature of the item may subject it to stringent export
controls
• Certain destinations (i.e., embargoed or sanctioned
countries such as Cuba, Iran, North Korea, Sudan,
Syria) require US Government authorization for virtually
all exports
• Export destined for certain end-uses (i.e., proliferation
activities such as nuclear weapons, chemical/biological
weapons, missile technology development require US
Government authorization)
• US Government authorization is also required for
exports to certain end-users (i.e., proliferators,
terrorists, diversion risks)

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Foreign Nationals and Deemed
Exports
“Foreign Nationals”
• Means any person who is not lawfully admitted for permanent
residence in the US and who is not a protected individual
under the Immigration and Naturalization Act (8 USC
1324b(a)(3))
What is a “Deemed Export?”
• The release of EAR controlled technology, software and certain
source code to foreign nationals in the US or abroad is deemed
to be an export to that person’s home country
How can a Deemed Export Occur?
• Transfers regardless of media (e.g., CDs, blueprints, hardcopy,
etc.)
• Electronic transfers (e.g., via company intranet, internet)
• Direct verbal transfers (e.g., meetings, presentations,
telephone)
• Visual inspection of US origin equipment and facilities

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Foreign Nationals and Deemed
Exports
Key points
• BIS will consider a foreign national’s most
recent citizenship or lawful permanent
residence status
• Be aware of release of EAR controlled
technology to US persons who act as a
representative of a foreign interest
• A “foreign national” is not a US citizen or
lawful permanent resident (e.g., green card
holder)
• A “foreign national” is a visa holder (e.g., H1-
B, L-1, etc.)
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BREAK

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Five Critical Questions to Ask
Before Exporting
1. What are you exporting?
• Is the item “specifically designed, developed, configured…” for a
military application subject to ITAR controls, or is the items “dual-
use” subject to EAR controls?
2. Where is your customer located?
• Is the export destined for a sanctioned or embargoed country?
3. Who are the parties to the transaction?
• Is the individual or entity a “restricted party?”
4. Why is your customer buying the product?
• Was due diligence conducted to determine whether the end-users or
end-uses relate to activities such as nuclear, chemical weapons,
biological weapons, or missile development?
5. Are there any red flags?
• Does the transaction involve any suspicious indicators that suggest
the export or re-export is destined for an unlawful end-user or end-
use?
NOTE: Be careful not put on “blinders”; due diligence is required

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Items Subject to EAR Controls
The Commerce Control List (“CCL”) contains 10 categories of
items assigned Export Control Classification Numbers (ECCNs),
Numbered 0-9

0. Nuclear Materials, Facilities and Equipment
1. Materials, Chemicals, Microorganisms & Toxins
2. Materials Processing
3. Electronics
4. Computers
5. Telecommunications & Information Security
6. Sensors and Lasers
7. Navigation and Avionics
8. Marine
9. Propulsion Systems, Space Vehicles and Related Equipment

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CCL Categories
ECCNs
• CCL Categories contain ECCNs that each have a 5 digit
sequence
“9A991 “Aircraft” and gas turbine engines not controlled by
9A001 or 9A101 and parts and components
First digit = Category
Second digit = Product Group
Third & Fourth digits = Reason for Control
Fifth digit = Sequential Numbering
• Each ECCN entry describes the following: reason for
control; applicable Country Chart; list based license
exceptions; unit description; related controls; related
definitions and item descriptions
• More information available at
• www.bis.doc.gov
• Look under “Licensing” and “Exporting Basics”
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ECCNs and License
Determinations
I found my item on the CCL…now what?
• Review reasons for control and Country Chart reference (e.g.,
“NS Column 2”)
• Review Country Chart (EAR Supp.1 to 738)
• Review list based exceptions
• Review activity based exceptions
• Review General Prohibitions
• Review publicly available or not
I did not find my item on the CCL…now what?
• Check to see if the item is subject to the jurisdiction of another
agency (e.g., DDTC)
• If not, item may be “EAR99”, the following statement appears
at the end of each CCL category
“EAR99 items subject to the EAR that are not elsewhere specified
in this CCL category or in any other category in the CCL are
designated by the number EAR99.”
Review General Prohibitions

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ECCNs and License
Determinations
Key Points
• The EAR permits the exporter to “self-classify”
items for export without assistance from the
US Government, however, the exporter has
the responsibility of correctly classifying items
for export
• Review and review again at all possible ECCN
entries
• If uncertain, seek the advice of a consultant
prior to submitting a formal export
classification request with BIS
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Embargoed or Sanctioned
Countries
The US has imposed embargoes or
sanctions against a number of countries
under US trade and export control laws
and regulations
• Examples of embargoed/sanctioned countries:
US trade embargo of Cuba, Iran and Sudan
US export sanctions against North Korea and Syria
• Examples of activities subject to embargoes or
sanctions
Export or re-export of goods, software or technology
Financial dealings
Brokering
Travel

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Embargoed or Sanctioned
Countries
Key points
• Also consider that BIS has focused on
the following countries as points of
illegal diversion:
China, Cyprus, Egypt, Hong Kong, India,
Malta, Pakistan, Russia, Singapore, Turkey,
United Arab Emirates

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End-User and End-Use Concerns
Restricted Party Lists – US companies are prohibited from
transacting with individuals or entities identified on the
“Restricted Parties” Lists unless authorized by the US
Government

• Denied Person List (Commerce)
• Unverified List (Commerce)
• Entity List (Commerce)
• Specially Designated Nationals List (State)
• Debarred Parties List (State)
• Nonproliferation Sanctions List (Commerce)

Proliferation concerns – If an item is to be used in activities
related to nuclear, chemical weapons, biological weapons,
or missile/unmanned aerial vehicle (UAV) development,
then US Government authorization is required

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Diversion Risks
“Red Flag” Indicators
• The US Government has warned that certain suspicious export
activity could be a tactic to divert goods or technology to
unlawful end users or end uses
• Awareness of “red flag” indicators can prevent an unauthorized
export transaction
• The following “red flags” identified by the US Government
should cause an order to be placed on hold until resolution
The customer or its address is similar to one of the parties found
on a Restricted Parties List
The customer is reluctant to offer information about the end-use of
the item
The products capabilities do not fit the customer’s line of business
or the customer has little or no business/industry background
The customer is unfamiliar with the product’s performance
characteristics but still wants the products
The customer is willing to pay cash for a very expensive item when
the terms of sale would normally call for financing

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Diversion Risks
Routine installation, training, or maintenance services are
declined by the customer
A freight forwarding firm is listed as the products final
destination
The shipping route is inconsistent with the stated method
of shipment or destination
When questioned, the buyer is evasive and especially
unclear about whether the purchased product is for
domestic use, for export, or for re-export
Key Points
• Red Flags awareness training should be provided to
individuals in certain positions such as Sales,
Engineering, Compliance, and Shipping
• A notification procedure for reporting red flags and other
potential export issues is a necessary element in an
export compliance program

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BIS Licensing
Reviewing agencies have 30 days to return
comment
License application will be either approved,
denied or returned without action (“RWA”)
Can appeal license denials (e.g., escalation
through Operating Committee (OC)/Advisory
Committee on Export Policy (ACEP)/Export
Administration Review Board (EARB)
Applications can take several months to process
The processing time clock does not begin to tick
until BIS receives all necessary information from
the applicant.
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What Type of Authorization Does
My Company Require?
Export of commodities, software, or technology for a
specified transaction value and quantity
• 748P (Individual Licenses)
Export of commodities or software for shipments of
unlimited value and quantity
• Special Comprehensive License
Key points
• 748P used for technology transfers to foreign nationals in the
US
• SNAP-R may be used to submit 748Ps and supporting
documentation
• License validity is 2 years
• License conditions may come with restrictions
• Failure to adhere to the conditions of an export license may
result in license revocation, license revisions, monetary
penalties, or loss of export privileges

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Common Export License
Exceptions
Shipments to Country Group B Countries (GBS)
Additional Permissive Re-exports (APR)
Servicing and Replacement of Parts and
Equipment (RPL)
Aircraft and Vessels (AVS)
Key Points
• License exceptions are different from other exclusions
from the EAR such as publicly available information,
fundamental research, patents, etc.
• Careful attention must be paid to the stated conditions
for the use of the exception

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Recordkeeping
Records to Keep
• Export control documents and related documents listed
in the EAR Part 762.2 and Part 772
Record Format
• Original or reproductions that meet standards of
legibility and readability requirements in Part 762.5
Retention Period
• 5 years from the date of the last transaction
Key Points
• Records may be kept in electronic media but must be
legible and easily retrievable
• Missing records is a compliance “red flag” to BIS

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What Happens if My Company
Gets it Wrong?
Voluntary Disclosure (EAR Part 764.5)
• Initiated by the exporter when an export violation is
identified
Not deemed to be a disclosure without senior management
support
• Violations disclosed are still investigated by the BIS
Office of Export Enforcement (OEE)
• Voluntary disclosure is a mitigating factor in determining
what administrative sanctions, if any will be sought by
OEE
Key Points
• Any violations must be disclosed prior to discovery by
BIS
• Does not prevent transaction from being referred to the
Department of Justice for criminal prosecution

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Penalties for Noncompliance Under
the EAR
Civil Penalties
• Greater of $250,000 or 2X value of transaction
(Corporate/Individual)
Criminal Penalties
• General Violations: Greater of $50,000 or 5X value of
transaction (Corporate); Greater of $50,000 or 5X value
of transaction, and/or 5 years imprisonment (Individual)
• Willful Violations: Greater of $1 million or 5X value of
transaction (Corporate); Greater of $250,000 or 5X
value of transaction, and/or 10 years of imprisonment
(Individual)
Others
• Denial of export privileges, license denial or revocation,
forfeiture of property, Negative publicity
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Penalties for Noncompliance Under
the EAR
Key Points
• Greater US Government scrutiny (e.g.,
license submissions) for future exports
• Fines grow for subsequent disclosures of
similar type violations

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EAR Compliance Programs
Similar to DDTC recommended compliance
programs, BIS recommends an export
compliance program contain the following:
• Corporate Commitment Statement
• Responsible Parties
• Order processing and Shipping
• Technology Control Plan
• Classification and Licensing
• Internal Review
• Training
• Notification
• Recordkeeping
• Violations & Penalties
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Export Clearances
Customs Requirements
Shippers Export Declaration or
Automated Export System (AES)
Record
Destination Control Statements
Frequently Seen Technical Violations

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Customs Requirements
US Principle Party in Interest (USPPI)
Responsibilities
• If required, the exporter (USPPI) or an agent
must file an Automated Export System (AES)
submission prior to export, unless the USPPI
has received US Government approval for post
–departure filings
• Power of Attorney required for an agent (e.g.,
freight forwarder) filing an AES submission on
behalf of a USPPI

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Automated Export System (AES)
The AES is the electronic method of filing the SED
and ocean manifest information directly with US
Customs
AES is a nationwide system, operational at all
ports and for all methods of transportation
AES was designed to assure compliance with and
enforcement of laws relating to exporting,
improve trade statistics, reduce duplicate
reporting to multiple agencies and improve
customer service
Used by enforcement agencies (e.g., BIS, DDTC,
ICE, CBP) to review export transactions
Accuracy of the data reported in AES is the
responsibility of the USPPI
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AES Reporting Requirements
Reporting Requirements
• Licensed Exports
• All commodities valued over $2500 per
Harmonized Tariff Schedule (HTS)
number or Schedule B number
• Not required for non-licensed shipments
destined for Canada

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Destination Control Statement
(DCS)
Notice to Intermediate Consignee and Consignee
The destination control statement is designed to prevent exported
items from being diverted while in transit or thereafter
Required to be printed on all copies of the invoice, air waybill and
bill of lading
ITAR
• “these commodities are authorized by the US Government for
export only to (country of ultimate destination) for use by (end
user). They may not be transferred, transshipped on a non-
contiguous voyage, or otherwise be disposed of in any
country, either in their original form or after being
incorporated into other end-items, without the prior written
approval of the US Department of State.”
EAR
• “These commodities, technology or software were exported
from the United States in accordance with the Export
Administration Regulations. Diversion contrary to US law
prohibited.”

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Destination Control Statement
(DCS)
A DCS is just one form of “notice”
(e.g., contract clauses) to parties
regarding their export compliance
responsibilities under US law
Make sure freight forwarders use the
DCS on air waybills and bills of lading

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Frequently Seen Technical
Violations
Omissions or Reporting Errors
• Failure to File an AES submission
• Failure to cite applicable license, exception or exemption
in AES submission
• Failure to submit export/import license with Customs at
Port
• Incorrect export information codes
• Incorrect value, items, HTS/Schedule B numbers, end-
use country, etc.
Key Points
• Mistakes in entering data are common
• Request from the Bureau of Census a report of your
company’s AES submissions for self-auditing purposes

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Government Initiatives and Industry
Leading Practices
Government Efforts
• Foreign Trade Division (Census) to perform compliance
reviews
• Greater scrutiny of AES submissions by enforcement
authorities
Industry Best Practices
• Self-audit AES submissions
• Audit freight forwarder AES submissions
• Provide training and refresher training as needed
Key Points
• BIS in particular is looking closely at the use of license
exceptions reported in AES
• Proactive auditing could reduce systemic and non-
systemic errors

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Questions and Answers

James Van Eenenaam
Lighthouse International Trade
Consulting, LLC
james@lhitc.com
(949) 842-2473

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Introduction to US Import Controls
Introduction to US Customs & Border Protection
Importing Fundamentals
Tariff Classification
Special Trade Programs
Customs Valuation
Country of Origin
Quantity
Recordkeeping
Prior Disclosure and Penalties
Enforcement
Maintaining Compliance
Customs Trade Partnership Against Terrorism
New Developments

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US Customs & Border Protection
Housed under the Department of Homeland
Security
Primary Goals
• Secure America’s borders
• Protect against terrorism
• Foster world trade
• Facilitate the flow of cargo into the US
• Enforce trade laws related to admissibility
• Regulate trade practices to collect appropriate revenue
• Collect import duties, taxes and fees
• Enforce the regulations of participating government
agencies (PGAs)

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US Importer Requirements
Importers are expected to:
• Exercise reasonable care when classifying and valuing
imported merchandise, and when furnishing Customs
with tariff classification, merchandise valuation, pricing
and financial information
• Apply information that Customs makes available (e.g.,
binding rulings, decisions and guidelines)
• Establish internal controls over Customs operations
(import manuals, written procedures)
• Conduct training
• Seek clarification from Customs requirements when not
understood
• Be aware of appropriate laws, regulations and reporting
requirements
• Maintain appropriate transaction records

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Entry Process
Automated Manifest System – certain advance data elements are
provided to Customs 24 hours prior to container landing at the
port of export
Entry/Release – Assuming Customs receives all necessary details
in advance of the actual arrival of the goods, the goods will enter
into the US and be released immediately upon arrival
Entry Summary – Declaration of information on imported goods,
prepared by a customs broker on an entry summary form and
submitted to Customs
• Generally states the HTS classification number, country of origin,
description, quantity, and CIF value of the goods, and the estimated
duty to be paid
Payment – The importer pays the applicable import duties and
fees
Liquidation – The official final determination by the Customs
authorities of the classification and value of the imported
merchandise (generally 314 days from the date of entry)

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Importing Fundamentals
Who is involved in importing
merchandise?
• Exporter
• Freight Forwarder / Carrier
• Customs Broker
• Importer
• US Bureau of Customs & Border
Protection

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Importing Fundamentals – Exporter
Exporters
• Prepare merchandise for shipping and
depending on shipping terms arranges for the
goods to be picked up for delivery
• Exporter prepares the commercial invoice and
packing list
Name of seller, name of purchaser, description of
merchandise, purchase price, terms of sale, quantity,
country of origin, dutiable assists, all charges upon
the merchandise
Must be in English
Harmonized Tariff Schedule number(s)
The port of entry to which the merchandise is
shipped

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Importing Fundamentals - Exporter
Typical charges (itemized) usually included in the
cost of merchandise (not an exhaustive list):
• Freight
• Insurance
• Commissions
• Containers
• Packaging
All goods and services may not be included in the
invoice price:
• Tools
• Dies
• Molds
• Engineering Work
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Importing Fundamentals – Freight
Forwarder and Customs Broker
Freight Forwarder / Carrier
• Agent that arranges the movement of
the cargo by contracting carriers for air,
land and sea transport
• Prepares the manifest that includes a
summary of the cargo on a vessel or
aircraft
• Prepares a bill of lading

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Importing Fundamentals – Freight
Forwarder and Customs Broker
Customs Broker
• Prepares entry packet (CF-3461, Commercial Invoice,
Packing Slip, etc.) for release of merchandise from CBP
custody
• Transmits entry documents to Customs via Automated
Broker Interface
• Duties are payable within 10 days from entry summary
date
• Maintain the following information per entry
CF7501/CF3461
Commercial Invoice and Packing List
Airway Bill or B/L
Certificates of Origin
All other documents involved with the importation of the
goods

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Importing Fundamentals – Importer
Importer
• Coordinates with the Customs Broker to clear the
shipment through US Customs
• Coordination of various departments to obtain
information related to imports
• Confirms all necessary documents are available to
submit to Customs
• Provides broker with correct information regarding
imports so broker can submit to Customs
• Provides supplemental information that cannot be found
on the Commercial Invoice to the broker to enable filing
of the Customs entry
• If the commercial invoice is missing information, the
broker and/or Customs may request additional
information from the importer

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Importing Fundamentals - Customs
Import Specialist reviews all import
documentation to allow clearance of entry for
delivery to importer
Customs will make a decision to release
merchandise or schedule an inspection
• Inspections occur for many reasons, targeted HTS
number, first time importer, errors on entry documents
Customs may issue a CF-28 (Request for
Information) to importer to request additional
information even if the shipment was released.
The inquiry may be related to classification,
valuation, country of origin, ADD, supply chain
security, trade program eligibility
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All imported articles must be classified
Distinct tariff classification numbers per the harmonized
Tariff Classification Schedule (“HTS”)
HTS contains approximately 65,000 HTS classification codes
Finding the correct classification can be extremely difficult
Many items may be classifiable in one of several potential
categories
The Us HTS code is a 10 digit (all numeric) assignment
used to define the imported article
Proper tariff classification is one of several reasons that
accurate part descriptions are essential on supplier invoices

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Correct tariff classification is essential for the
international movement of goods for several
reasons:
• Facilitates smooth entry of goods through US and
foreign customs territories
• Determines the amount of duty assessed
• Duties can range from duty free to >100% of the
product value
• Determines preferential treatment eligibility under
various trade programs like NAFTA, GSP, and others
• Determines applicability of quotas
• Determines applicability of ADD or CVD
• Determines participating government agency (PGA)
import requirements
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Organization of the Harmonized
Tariff Schedule
General Notes
General Rules of Interpretation (GRIs 1-6)
Additional Rules of US interpretation
All Product Categories
• Chapters
• Heading
• Subheading (tariff rates and preferential
treatment)
• Statistical annexes
• Alphabetical index
• Harmonized for members of the World Trade
Organization
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Ruling Requests
• Submitted to Customs if the classification (or valuation,
marking, country of origin, etc.) of a product is unclear and it
falls within a gray area
• Issued by Customs in response to prospective shipments
• Customs should issue a ruling letter within 60 days that
interprets and applies the provisions of Customs and related
laws to the requests specific set of facts
• Determination valid only for importer that requests information
and is specific to the product described in the request
• Importers should seek expert advice prior to submitting the
ruling request
• Referred to as a Binding Tariff Information (BTI) in the
European Union
• China also has binding ruling requests as well as pre-
classification ruling requests available on goods prior to
importation

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Importer’s Responsibilities
• Assign a department or specific individual who will be
responsible for determining tariff classifications of all
imported products
• Compile all the necessary information to make a tariff
classification determination
This includes product specifications and material make-up,
brochures, and end-use of product
Obtain access to the necessary resources to
determine tariff classifications
• HTS
• Customs Regulations
• Informed Compliance Publications
• Tariff Classification Rulings

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Decrease trade barriers among members and
provide access to larger export markets for
developing countries
Account for 50% of world trade
Agreement on Trade in Civil Aircraft (ATCA),
Generalized System of Preferences (GSP)
Free Trade Agreements
Reciprocal arrangement in which trade barriers
(tariffs) between participating countries are
eventually abolished
NAFTA, Israeli-US FTA, Australia-US FTA

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Special Tariff provisions
• Duty savings are conditional and products
must meet certain requirements
9801 (US Goods Returned), 9808 (Importations of
the US Government)
• Qualifying products are imported at a reduced
duty rate or duty free
• Importers are expected to qualify products
• Increased analysis and review to confirm
qualification
• Requires coordination with
supplier/manufacturer
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Customs Valuation
All imported merchandise is subject to
appraisement based on one of the
following valuation methods (in sequential
order)
• Transaction Value (the most preferred method
of appraisement)
• Transaction Value of Identical or Similar Goods
• Deductive Value (Resale minus)
• Computed Value (Cost plus)
• Other Fallback method
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Transaction value
Transaction value is the Price Actually Paid or Payable
(PAPP) for the merchandise when sold for exportation

Plus amounts equal to:
• Selling commissions
• Royalties or license fees
• Assists (tooling, molds, materials, foreign design work)
• Packing costs
• Proceeds of any subsequent resale of the imported
merchandise that accrue directly or indirectly to the seller

There is a presumption that all payments made by a buyer
to a seller are part of the price actually paid or payable for
the imported merchandise

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No Value Shipments
How do we handle situations where no value may
be present?
• Samples, trial shipments, items not subject to a
Purchase Order, Contract or Forecast
• Customs requires all items to have a value, meaning
everything is worth something, or goods can not be
valued at $0. A value must be stated on the
Commercial Invoice. The value should be reflective of
the cost of the good if it was to be sold.
• If goods are not for purchase, it is important that the
importer communicate with the
supplier/exporter/shipper that the following statement
be placed on the Commercial Invoice/Pro-forma Invoice:
“Value for Customs Purposes Only”

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Assists
An Assist is anything supplied directly or indirectly and free
of charge or at a reduced cost by the buyer on imported
merchandise for use in connection with the production or
sale for export
Assists provided to foreign suppliers must be tracked
• Purchasing
• Accounting
• Customs Compliance Team
• The foreign supplier must separately itemize assists and other
additions to the customs value on the customs invoice
• Review of Commercial Invoice and information filed to
Customs by the Customs Broker
• Post-entry adjustments made and reported to Customs, as
necessary

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Country of Origin
Importance of Country of Origin: Determining a
good’s country of origin is essential for accurate
duty payment and declaration to Customs
• A goods country of origin is defined as its “place of
manufacture, production, or growth.”
• If produced in more than one country, its country of
origin is determined by a tariff shift test
• A tariff shift occurs when processing causes the item’s
classification to change from one designation to another
• Country of origin affects the duty rate and applicability
of preferential trade programs
Certificates of origin
Shipping documents
Commercial invoices

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Country of Origin
It is essential that products are properly
marked to determine that the end-user is
aware which country the product
originated in
• Marking of containers
• Marking of products
Marking exceptions
• “J List” – a list of items which in and of
themselves are excepted (19 CFR 134.33)
from marking but this does not include their
containers or packaging materials. Examples
include screws, bolts, nuts, washers

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Country of Origin – Risk of
Noncompliance
If a product is not properly marked at the time of
importation, a special marking duty equal to 10%
of the Customs value may be assessed unless the
product is exported, destroyed or properly
marked under US Customs supervision
Improperly marked goods may be detained by Us
Customs and merchandise already released from
US Customs custody is subject to redelivery for
marking violations
Customs expects importers to confirm that the
imported products are properly marked
Importers should request country of origin
information on shipping documents and request
certificates of origin
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Quantity
Quantities of imported product affects the
declared value and amount of duty
collected by US Customs
Discrepancies between the declared
quantity and the received quantity could
result in the following:
• A loss of revenue for US Customs
• Overpayment of duties by the importer
• Affect US Government Trade Statistics
• Create potential compliance issues for the
importer
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Recordkeeping
All records and data required for one entry of merchandise
whether or not required for presentation at the time of
entry:

• 19 USC 1509 (a)(1)(A) list
• Must be retained for a minimum of 5 years from date of entry
• Must be produced upon US Customs request
• Records include computer programs necessary to retrieve
information
• Failure to comply with demand for production of (a)(1)(A)
records:
For willful failure to maintain, store or retrieve the demanded
information, the lesser of $100,000, or 75% of appraised value for
each release of merchandise
For negligent violations, the lesser of $10,000 or 40% of appraised
value for each release, plus potential loss of any special duty rate
(e.g., GSP, NAFTA)

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Examples of Transaction Records
Required by the (a)(1)(A) List
• Entry documents (CF7501, CF3461)
• Air Waybill or Bill of Lading
• Commercial Invoice
• Packing List
• Documents or certifications required for
special categories of merchandise (e.g.,
Special Trade Programs)

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Examples of Transaction Records
Additional Suggested Documents to be Maintained

• Purchase order
• Purchase order confirmation
• Receiving reports
• Chart of Accounts
• Audited financial statements
• SEC filings
• Royalty/license fee contracts
• General ledgers
• Documented internal controls
• Accounts Payable
• Correspondence files
• Proof of Payment
• Disbursement records
• Documents relating to assists, commissions, transportation costs and
any other documents directly or indirectly related to imported
merchandise

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Compliance with Recordkeeping
Requirements
Who are the Recordkeepers under the
statute?
• Importer, consignee, importer of record, entry
filer or person who,
Imports merchandise into the United States
Files a drawback claim
Transports or stores merchandise carried or held
under bond
Knowingly causes the importation or transportation
or storage of merchandise carried or held under bond
into or from the Customs territory of the United
States
An agent of any person described above
A person whose activities require the filing of a
declaration or entry, or both
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Prior Disclosure
An admission of a potential violation before or without the
knowledge of the commencement of a formal investigation
Cannot be used for recordkeeping violations or criminal
penalties
Under prior disclosure, the importer is still liable for any
potential loss of revenue due to US Customs (duties, fees)
that would have accrued against the original importation(s)
Benefits of filing a prior disclosure
• Penalties reduced to the interest on the amount of lost duty
and fees
• Allows flexibility in computing the loss of revenue
• Demonstrates the good will of the importer to rectify Customs
issues and discrepancies
Other methods of correcting errors with US Customs
• Post entry Adjustment (PEA)
• Reconciliation

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Interaction with Us Customs
CF 28 – Request for Information
• Issued against a particular entry or entries to
obtain additional information about the
imported merchandise
CF 29 – Notice of Action
• Issued against a particular entry or entries to
propose to increase duties due to change in
classification
CF 4647 – Notice to Mark of Redeliver
• Issued in response to a country of origin
marking violation
CF 5955A – Notice of Penalty
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Non-Compliance Risks
US Customs may detain and inspect any imported shipment
that has insufficient or incomplete documentation or if the
goods are improperly marked
US Customs can issue a pre-penalty notice when it has
reason to believe that the importer’s action have reached
the level of negligence, gross negligence or fraud
US Customs may conduct a Focused Assessment audit
which may include a review of the importer’s internal
controls and sample testing
• May last from 6 months to several years

US Customs may conduct Quick Response Audits which are
single issue audits with a narrow focus; designed to
address a specific objective within a shirt period of time
• Typically last from 3 to 6 months

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Customs Audit
The audit process involves the following:
• Examine the documentation relating to imports
over a specified period to foster compliance
with laws and regulations
• Verification covers all relevant Customs
Programs, including valuation, tariff
classification, and country of origin as well as
compliance with preferential trade programs
• Reviews the links between the importer’s
purchasing, receiving, customs reporting and
accounting systems
• Reviews any importer internal control systems
related to imports/exports

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Maintaining Compliance
Insufficient documented internal controls
• To manage discrepancies
• Not applied to the import process
Minimal monitoring and/or over reliance on the
Customs Broker
No management oversight of compliance issues
Staff lacks knowledge
High turnover of personnel
Complex customs transactions
Prior history of customs problems or violations
No testing or post-entry audit process to monitor
compliance

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Industry Leading Practices to
Achieve and Maintain Compliance
Conduct periodic internal compliance reviews of
import operations
Conducting, designing and implementing a
comprehensive corporate import compliance
program identifying customs compliance as a
priority and designating responsible officials to
carry out the program
Increase awareness of Customs laws and
regulations throughout the supply chain
Provide training opportunities for key personnel
Updating policies and procedures as necessary
and communicating those changes
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Industry Leading Practices to
Achieve and Maintain Compliance
Maintain interdepartmental communication
Visit the CBP web site and other trade related
web sites to enhance knowledge
Identify Customs Brokers that are clearing
entries for the importer and implement
procedures for broker oversight and review
Maintain communications with Customs Brokers
regarding any Requests for Information, Notice of
Action from US Customs and communicate any
changes to classification or any other relevant
information related to imported merchandise
Participate in industry trade associations and
attend trade seminars (e.g., International
Business Certificate Program)
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Internal Testing and Monitoring
Determine that import controls are in
place to effectively manage the import
process
• Upper management buy-in and support
• Document policies and procedures
• Communicate policies and procedures to
affected personnel – valuation, classification,
quantity verification, origin verification and
recordkeeping
• Training for personnel responsible for the
importing process – accounting and finance,
warehouse staff, logistics department,
purchasing, inventory, legal
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Internal Testing and Monitoring
Conduct periodic reviews of the import
process by third party customs experts
Document findings and recommendations
internally and to Customs Brokers
If areas of non-compliance are identified,
expand scope of transactional testing to
quantify loss of revenue if necessary
Implement a corrective action plan
Tender any additional duties due to US
Customs via a prior disclosure or post-
entry amendment

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CTPAT and New Developments
Customs Trade Partnership Against Terrorism
• Designed to increase security of cargo entering the US
• Maintaining the flow of trade to reduce supply chain
disruptions
10 + 2
• Advance trade data elements provided via AMS or
Automated Broker Interface (ABI)
• 24 hours prior to vessel loading
• Manufacturer name/address, seller name/address,
container stuffing location, consolidator name/address,
buyer name/address, ship to name/address, importer of
record, consignee number, country of origin, commodity
classification – plus container status messages and
vessel stow plan
Consulting, LLC

Questions and Answers
James Van Eenenaam
Lighthouse International Trade Consulting, LLC
james@lhitc.com
949-842-2473

Export Compliance (4-13-10)

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