Keys To Trade Compliance

Key Elements of International
Trade Compliance
Presented by:

Jim Chester
JD, LL.M, CHB, CCS
Chester/Associates, PLLC
Dallas, Texas

Trademark - Transactions - Trade

What is International Trade Law?

International International Civil
Business Litigation
Transactions

Life Cycle of International Transactions

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Trademark - Transactions - Trade March 28, 2008

I. Introduction
Every international shipment implicates at least
TWO legal regimes

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I. Introduction

US Trade Laws
When importing, exporting or
dealing with foreign affiliates,
numerous US trade regulations
must be observed.
- Certain goods have special
rules.

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II. Import Compliance
• Customs and Border Protection
(CBP)
– agency within Department of
Homeland Security
– primary responsibility for policing
the U.S. border and enforcing U.S.
import laws.
– CBP also enforces import-related
rules for over 40 federal agencies.

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II. Import Compliance (Cont’d)
• Brief History of Customs
– Pre-NAFTA
– After NAFTA
• Reasonable Care
• Audits
– Post 9-11
• ISA/FA
• C-TPAT

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• “Pillars of Importing”
– Quantity
– Classification
– Value
– Country of Origin
• Marking

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• Import Penalties - Civil
– False Statement or Omission
• Domestic value of imported goods
– Record Keeping
• Up to $100,000 per transaction
– Marking
• 10% of domestic value
• Other Customs Enforcement
measures
– Seizure & Forfeiture
– Criminal – 5 yrs; $500,000
– Additional scrutiny, exams & audits
– Referral to other agencies for action
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• Common Importing Pitfalls
– Over-reliance on 3rd Parties
– Failure to supervise and control
vendors & agents
– No (or inadequate) written ICP
– Assists
– Samples and other non-sales
transactions
– Country of Origin marking

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• Imports and IP
– Generally, IPR owners must self-police
– U.S. Trade law provides protections for certain
IPR against infringing imports
• Trademarks / Trade Names
• Copyrights
• Patent Surveys

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• IP Violations – 19 USC § 1526
– No “culpability” required
– Detention, seizure & forfeiture
– Penalties up to US resale price of
goods

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• $$$ Savings Programs
– Trade agreements (e.g., NAFTA, CAFTA-DR)
– US Trade promotion programs (e.g., GSP)
– Foreign-Trade Zones/Bonded Warehouses
– Duty Drawback

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III. Export Compliance
• The Bureau of Industry and Security (BIS) has primary
responsibility for enforcing export control laws
– Export Administration Act (EAA)
– Export Administration Regulations (EAR)

• Other agencies have export-specific regulations that
must also be observed.
– (e.g., Department of Defense Trade Controls (DDTC)

• Most export documents are delivered to CBP

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III. Export Compliance (Cont’d)
• What is an Export?
– Physical shipment of EAR-subject goods,
technology, or technical data outside US Customs
Territory
– Downloads and emails of technology and technical
data outside US
– “Sharing” technology with a foreign national, even
on US soil (“deemed” export)

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• 4 Key Questions for Exports
– What is it?
• description & classification
– Where is it going?
• country
– Who will be receiving it?
• person/entity
– How will it be used?
• dual use

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• Pre-Shipment Checks and License Requirements
(i.e., “General Prohibitions”)
1. Determine whether a license is required to
export the commodity.
Step 1: Obtain Export Commodity Classification
Number (ECCN) for product on Commerce
Control List (CCL),
Step 2: Compare to Country Chart
Step 3: If license is required, see if exception
applies.
Step 4: If license is required and no exception
applies, apply for license from BIS.

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2. Check the various “bad guy” lists
1. Denied Parties List - BIS
2. Specially Designations Nationals and
Narcotics Traffickers - OFAC
3. Entity List - BIS
4. Debarred Parties List – State
5. Unverified List – BIS

See http://www.treas.gov/offices/enforcement/ofac/sdn
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3. Ensure export would not violate U.S. sanctions.
– See current Office of Foreign Asset Controls (OFAC) Sanctions
(http://www.treas.gov/offices/enforcement/ofac/sanctions)
4. Don’t ignore “Red Flags”

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• Penalties for Export Violations
– Up to $1 million
– Up to 5 years in prison
– Denial of export privileges

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• Common Exporting Pitfalls
– Failure to check “bad guy” lists
– Failure to secure IP abroad
– Unlicensed exports
– Deemed exports
– Recordkeeping
– Incorrect SEDs/documents

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IV. Other Trade Regulations
International Traffic in Arms Regulations (ITAR)
Prohibits shipments of certain defense articles and
technology.
Controls trade in “Munitions”
- Including “Mil Spec/Std.”
Requirements
- Registration
- Licenses
- Recordkeeping

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Common ITAR Pitfalls
– No export/re-export license
– Recordkeeping/Reporting
– Shipments to affiliates
– Dual use items
– “Deemed” export

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ITAR Penalties
• Criminal & Civil:
– Up to $1 million per violation for
corporations
– Up to $1 million per violation and up to 10
years in jail for individuals

• Other Enforcement Measures:
– Seizure or forfeiture of goods
– Debarment from licensing for as long as
three years
– Potential debarment from Government
contracting for up to three years

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IV. Other Trade Regulations (Cont’d)
1 Anti-Boycott Laws
Cannot support “illegal” boycotts.
Prohibited conduct includes:
– Agreements to do business with Israel or
blacklisted companies, or other persons
based on race, religion, sex, national
origin or nationality.
– Furnishing information about business
relationships with these persons or
entities.
– Failure to report requests for boycott
info

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2 Common Anti-Boycott Pitfalls
– Providing information unwittingly
– Failure to report
– Foreign agents/subsidiaries

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3
Anti-Boycott Penalties
– Fines up to $50,000 or five times the value
of the exports involved, whichever is greater
– Imprisonment for up to 10 years.
– Loss of foreign tax benefits/credits
– Penalties under EAR

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V. Keys to Compliance
- Know & Follow the Rules
- Implement & update
written compliance
program
- Periodic compliance
training
- “Hands on” management
of vendors, agents,
brokers, forwarders, etc.

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- Check your Work
- Periodic compliance
reviews
- Self-awareness cuts off
“contingent” liabilities
- Prior Disclosures
reduce/eliminate potential
penalties

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- Use Technology to Reduce Costs
- ABI - input data to Customs
directly
- AES/SNAP – filed SEDs and apply
for export licenses online
- DPL software to check for “bad
guys”
- Integrate Customs entry number and
dates into inventory/accounting
systems
- Scan entry documents for storage
and easy retrieval
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- Implement record
retention program
- Different periods required
for various records
- Once Requisite period
expires, record becomes
unnecessary “contingent
liability”

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VI. Conclusion

- International trade involves
numerous rules & agencies
- Must be aware of rules and
ensure compliance through
training and internal reviews
- Rules change frequently
- Self-policing reduces
liabilities

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VI. Conclusion

 Failure to be diligent with trade compliance =
Lost opportunities
Substantial penalties
Interruptions in global supply chain

 Companies can budget and plan for compliance,
but not for enforcement.

Socrates -“The unexamined life. . . .”

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February 13, 2006

Questions?
Email JFChester@TradeLawFirm.com
Direct 214.800.2845
Toll Free 1.877.34.World

6060 NCX, Suite 560
Dallas, Texas 75206
www.tradelawfirm.com

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Keys To Trade Compliance

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