A Basic Overview of Export Requirements

U.S. Government controls on the export of goods and technical data are designed to protect the nation on two levels: to support U.S. national defense and to ensure the competitiveness of the nation’s industry and economy. All parties to U.S. export transactions must fully comply with the relevant statutory and regulatory requirements because of these controls.

In order to determine the applicable export control requirements, U.S. exporters must identify the item in question, the item’s intended end-destination, the item’s recipient and the item’s intended end-use.

An item’s classification as either a commercial good or a defense article is crucial in determining how to comply with U.S. Government regulations. There are two major categories that an item may fall under. First, items may be “dual-use” goods (i.e., items that are primarily civilian goods but may also be adapted for military purposes). “Dual-use” goods are regulated by the U.S. Department of Commerce (“DOC”). Second, items may be identified as defense commodities that are regulated by the U.S. Department of State (“DOS”). Depending on the item’s classification, there are two very different procedures an exporter must adhere to in order to comply with U.S. Government standards.

1. Exportation of “Dual-Use” Goods

The Bureau of Industry and Security (“BIS”) of the DOC is responsible for implementing and enforcing the Export Administration Regulations (“EAR”). The EAR regulate almost all commercial commodities. Items that are subject to the EAR are referred to as “dual-use” goods.

When an item is subject to the EAR, it must be determined if the item requires an export license. In order to make this determination, an exporter must consult the Commerce Control List (“CCL”), which is made up of Export Control Classification Numbers (“ECCNs”). The ECCNs identify particular items and indicate the specific controls related to those items.

Further, the item’s end-user and end-use must be identified. To determine an item’s license requirements, the Commerce Country Chart must be reviewed. This chart will determine license requirements based on the item’s destination and reason for control.

The transaction must also be screened against the Denied Persons List, the Entity List and the Unverified List. Entities listed on the Denied Persons List will be denied export privileges altogether. Entities listed on the Entities List or the Unverified List will be subject to additional license requirements.

2. Exportation of Defense Articles

The U.S. Government strictly regulates exports of defense articles as an integral part of safeguarding its national security. The Directorate of Defense Trade Controls (“DDTC”) of the Bureau of Political-Military Affairs (“PM”) is responsible for regulating the export of defense articles that are covered by the U.S. Munitions List (“USML”). The DDTC administers these regulations in accordance with the Arms Export Control Act (“AECA”) and the International Traffic in Arms Regulations (“ITAR”).

Since political and technological developments are ever-changing, these regulations are frequently revised, and the DOS, together with the U.S. Department of Defense (“DOD”), are responsible for determining the articles covered by the USML.

In order to comply with U.S. regulations, and before any export of a defense article may be made, it is paramount that exporters of defense articles take two required steps. First and foremost, as a prerequisite to any export privileges, U.S. exporters of defense articles must register with the DDTC. Second, exporters of defense articles must apply for a license to be approved by the DOS.

3. Penalties for Export Violations:

Both civil and criminal penalties may be imposed on export violators. Under the Export Administration Act of 1979 (“EAA”), criminal penalties include up to 20 years’ imprisonment and a $1 million sanction per violation. Civil penalties include up to an $11,000 fine per violation and up to a $120,000 fine per violation involving a defense article controlled for national security purposes.

Penalties may also be set under the International Emergency Economic Powers Act (“IEEPA”). When the IEEPA is in effect, criminal penalties include up to 20 years’ imprisonment and a $1 million sanction per violation. Civil penalties can reach the greater of $250,000 per violation or twice the amount of the transaction in violation.

For further information or assistance with exports, please contact us.

A Basic Overview of Import Requirements

1. The Mod Act:

Per the Customs Modernization Act (“Mod Act”), importers are legally responsible for declaring the value, classification and rate of duty applicable to a particular import. “Informed compliance” is a mandatory requirement under the Mod Act, and the U.S. Customs and Border Protection (“CBP”) of the Department of Homeland Security (“DHS”) must inform importers of certain requirements. In turn, importers must use “reasonable care” in meeting those requirements and providing timely and accurate responses if the CBP raises any questions.

The “reasonable care” determination includes a compliance assessment by the CBP that will evaluate the importer’s customs operations. Information necessary for consideration in the evaluation includes, but is not limited to, the importer’s record-keeping, merchandise classification, merchandise quantities, merchandise valuation, the applicability of antidumping and countervailing duties to the imported articles and, where applicable, quota conformity.

2. Duties and the HTSUS:

All merchandise imported into the U.S. is subject to a duty or duty-free entry determination. The importer must look to the Harmonized Tariff Schedule of the United States (“HTSUS”) in order to determine the proper classification of a particular import. Based on the item’s classification under the HTSUS, the applicable rate of duty may be determined. Although this initial classification is solely the responsibility of the importer, the dutiable rate will ultimately be determined by the CBP.

3. Preferential Treatment and Free Trade Agreements:

Depending upon the country-of-origin and the merchandise in question, duty rates vary or may be inapplicable altogether. For example, the Generalized System of Preferences (“GSP”) and a number of free trade agreements, including the North American Free Trade Agreement (“NAFTA”), provide preferential treatment to certain imports that may enable its duty-free entry. Eligibility for such preferential treatment depends upon the specific merchandise and whether the country-of-origin is of a designated beneficiary country or territory. All imports are subject to the concept of “substantial transformation” where the country-of-origin is determined by the extent of not only where a good is processed but also where it is manufactured. Only originating goods from beneficiary countries or territories may receive preferential treatment.

4. Penalties for Import Violations:

Notably, penalties may be applied to an improperly classified or valued transaction or one that does not meet other U.S. compliance standards.

Antidumping and countervailing duties are additional duties that may be imposed on items imported into the U.S. that are found to be either “dumped” or subsidized. Antidumping and countervailing duties may be imposed only after lengthy investigations by the DOC and the U.S. International Trade Commission (“ITC”) that find unfair pricing or government subsidization that will cause a material injury to a U.S. industry. These duties are imposed as a method to offset “unfair competition.” After the conclusion of DOC proceedings, the duties are assessed by the CBP.

Further, the CBP may apply civil sanctions under 19 U.S.C. 1592 where persons have negligently, gross negligently or intentionally provided false information regarding an import. The CBP may also apply criminal sanctions under 18 U.S.C. 542, which include a monetary fine and up to two years’ imprisonment for each fraudulent violation. All merchandise involved will be seized and forfeited by the importer.

For further information or assistance on imports, please contact us.

Upcoming Changes to the USML and the CCL

On April 16, 2013, the U.S. Department of State (“DOS”) and the U.S. Department of Commerce (“DOC”) published final rules in the Federal Register implementing export control reforms under the Obama Administration’s Export Control Reform (“ECR”) initiative. These final rules, which will go into effect October 15, 2013, mark the first changes to items from the U.S. Munitions List (“USML”) of the International Traffic in Arms Regulations (“ITAR”) that may shift to the Commerce Control List (“CCL”) of the Export Administration Regulations (“EAR”).

1. Amendments to the USML and the CCL

Revisions to USML Category VIII (Aircraft), Category XVII (Classified Articles, Technical Data and Defense Services Not Otherwise Enumerated), Category XXI (Miscellaneous Articles) and Category XIX (Gas Turbine Engines and Associated Equipment) go into effect on October 15, 2013. The changes will affect the classification of items that fall under any of these categories, thereby reshaping their export requirements.

These changes are just the beginning of the ECR initiative, and many more amendments to the USML and CCL will be finalized in the near future. Other upcoming changes that may affect the categories of the USML include:

– Category IV (Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs and Mines);
– Category V (Explosives, Propellants, Incendiary Agents and Their Constituents);
– Category VI (Vessels of War and Special Naval Equipment);
– Category VII (Tanks and Military Vehicles);
– Category XIII (Auxiliary Military Equipment);
– Category IX (Military Training Equipment);
– Category X (Protective Personnel Equipment);
– Category XI (Military Electronics);
– Category XV (Spacecraft Systems and Associated Equipment);
– Category XVI (Nuclear Weapons Design and Test Equipment); and
– Category XX (Submersible Vessels, Oceanographic and Associated Equipment)

2. The Major Reforms to USML Categories VIII and XIX

The foundation of the ECR reform is to relocate jurisdiction of less-sensitive military items that are currently controlled by the ITAR to the EAR. First, the final rules will amend Category VIII by narrowing its scope. Certain items will be removed from Category VIII and will become either subject to the CCL or to Category XIX of the USML. Category XIX, which will be created by the reform and added to the USML, will control certain military gas turbine engines under the ITAR.

3. The Creation of the CCL 600 Series

Military items, and most “specially designed” parts and components for such items deemed to be no longer controlled by the USML, will shift to the CCL under the newly-created 600 Series of Export Control Classification Numbers (“ECCNs”). The 600 Series ECCNs are to be included in each CCL category. Items falling under the 600 Series will be presumed to have a military end-use and will generally require a license, unless an exception is applicable.

CCL Harmonization with the Wassenaar Arrangement List

Effective June 20, 2013, the Bureau of Industry and Security (“BIS”) issued a final rule that revises the Commerce Control List (“CCL”) of the Export Administration Regulations (“EAR”) to implement modifications made to the Wassenaar Arrangement (“WA”)’s List of Dual-Use Goods and Technologies (“WA List”). The final rule harmonizes the CCL with the WA List, which is maintained and agreed to by states that participated in the December 2012 WA Plenary Meeting.

1. The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies

The WA is a multinational group of 41 countries that are devoted to organizing export controls of conventional arms and dual-use goods and technologies. The goal of the WA is to promote transparency and responsibility in the global arms trade, prevent destabilizing accumulations of arms, and to provide a level playing field for competitors who are WA-member countries.

2. Amendments to the CCL

The final rule amends Export Control Classification Numbers (“ECCNs”) that are controlled for national security reasons in each category of the CCL, except for Category 8 (Marine). The final rule also amends the General Software Note, WA reporting requirements and the definition section of the EAR. Additionally, the final rule includes unilateral controls to the CCL for the export of certain technology and software for aviation control systems that have been removed from the WA List.

DDTC Amendments to ITAR Brokering Provisions

On August 26, 2013, the State Department’s Directorate of Defense Trade Controls (DDTC) published an interim final rule in the Federal Register that will narrow the scope of persons and activities currently subject to the brokering requirements of the International Traffic in Arms Regulations (ITAR). The interim final rule, summarized below, will become effective on October 25, 2013.

1. The definition of “broker” and related “brokering activities”

The current brokering requirements set by the ITAR have posed major compliance challenges due to the ambiguous definitions of what constitutes a “broker” and related “brokering activities” and the potentially broad and extraterritorial application of the brokering provisions.

The interim final rule attempts to clarify these ambiguities and to narrow the definition of each. The DDTC’s interim final rule revises the definitions of those terms as follows:

a. A “broker” is –

– Any US person wherever located,
– Any foreign person located in the US, or
– Any foreign person outside the US where that person is owned or controlled by a US person, and
– Who engages in “brokering activities.”

b. “Brokering activities” are defined to include –

– Any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, re-export, or re-transfer of a US or foreign defense article or defense service, regardless of its origin, including (but not limited to) the following activities:

– Financing,
– Insuring,
– Transporting,
– Freight forwarding,
– Soliciting,
– Promoting,
– Negotiating,
– Contracting,
– Arranging, and
– Assisting.

2. Specific exclusions from the definition of “brokering activities”

The interim final rule specifically excludes certain activities from the definition of “brokering activities.” Among the excluded activities are non-administrative activities by regular employees acting on behalf of their employer; legal advice, including export compliance services provided by an attorney; and activities performed by an affiliate on behalf of another affiliate.

As a result of these exclusions, and upon the interim final rule becoming effective, many currently registered brokers may no longer be subject to broker registration requirements, or may be eligible to consolidate into their manufacturer/exporter registration.

For more information on the upcoming changes to the brokering provisions, please contact us.

Antidumping and Countervailing Duties: An Overview

An antidumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Antidumping duties come into play when a foreign company is selling an item significantly below the price at which it is being produced. In addition, a countervailing duty is a duty placed on imported goods that are being subsidized by the importing government. The logic behind antidumping and countervailing duties (AD/CVD) is to save domestic jobs, while leveling the playing field between domestic and foreign producers.

The duty rates of imported merchandise that is subject to AC/CVD are set by the U.S. Department of Commerce’s International Trade Administration. They set the AD/CVD rates, as well as establish the scope of AD/CVD orders. These decisions are in turn enforced by U.S. Customs and Border Protection (CBP), who also collect the AD/CVD due on imported goods.

Scope of AD/CVD

In order to determine whether merchandise that are being planned to be imported are subject to antidumping or countervailing duties, the importer must first review the scope of AD/CVD orders to determine whether the merchandise falls under the scope of an order. The scope of an AD/CVD order can be found in several locations such as the Federal Register notices from the U.S. Department of Commerce (Commerce), written instructions from Commerce to CBP, and the website of Commerce’s International Trade Administration. Knowledge of purely the Harmonized Tariff Schedule (HTS) classification of the goods that are being imported is not sufficient to determine whether a product falls under the scope of an AD/CVD order.

A product list is also available to importers to determine whether an import is covered by AD/CVD. List of products covered by AD/CVD orders can be found in two locations: the CBP’s Automated Commercial Environment (ACE), as well as the U.S. International Trade Commission website which publishes a list of every AD/CVD case. ACE contains comprehensive case information on every AD/CVD case, including company-specific case numbers and AD/CVD cash deposit rates. The website of Commerce’s International Trade Administration contains information on AD/CVD cases listed by country, as well as a monthly archive of AD/CVD notices published in the federal register. Federal Register notices issued by Commerce list the case numbers and AD/CVD cash deposit rates. In addition, Commerce instructions to CBP list the case numbers and AD/CVD cash deposit rates.

Importer’s Rights & Obligations

AD/CVD liability on an import does not cease at the moment the importer has paid the AD/CVD duties due. The AD/CVD paid at the time of entry are cash deposits of estimated AD/CVD duties. The final amount of duties owed is not determined until Commerce conducts an administrative review to establish the final AD/CVD rates on past entries. The final AD/CVD amount may increase, decrease, or stay the same from the AD/CVD cash deposit paid at the time of entry. After Commerce sends instructions to CBP on the final AD/CVD rate for the entry, CBP will assess this final duty. CBP will issue a bill for any increase in duty, and refund any decrease of duty. On average, this entire process, from the date of importation, takes approximately three years.

If an importer believes that their imported goods do not fall under the scope of an AD/CVD order, but CBP has required them to pay AD/CVD duties on their imported goods, the importer may apply to Commerce for a scope ruling which clarifies the scope of an AD/CVD order. Also, if the importer believes CBP misapplied the scope of the order as written, they may file a protest with CBP within 180 days after the entry has liquidated. Additionally, the importer may request an administrative review of their imports from Commerce to determine the final AD/CVD duty liability. Commerce will then instruct CBP on the final AD/CVD rates, and CBP will assess final duties based on these instructions.

Additional special requirements exist for imports subject to AD/CVD duties. Prior to liquidation and the assessment of antidumping duties, the regulations require that the importer file a certificate advising whether it has entered into an agreement or otherwise has received reimbursement of AD duties. Failure to provide a statement of reimbursement prior to liquidation from the importer will result in CBP presuming reimbursement and double the duties.

Once merchandise has been released from CBP custody, the importer is not entitled to a refund of AD/CVD duties.