ECommerce Export Readiness

Presented in partnership with The Start Up Practice Group at

U.S. Commercial Service IowaU.S. Export Assistance CenterAllen Patch, DirectorPatricia Cook, International Trade Specialist

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Disclaimer

This presentation and associated materials have been designed to provide only general information about US export control agencies.

Seek out detailed information and/or official rulings from the agencies mentioned.

These are serious matters with civil and criminal penalties for false or intentionally deceptive practices.

Get educated, train staff, and consider professional legal counsel.

Myths and Misunderstandings

“They pick it up at our door. I am not responsible for any of the export stuff.”

– Reality: As a USPPI (as a US company in more general terms) you are still responsible for all export reporting and compliance.

Myths and Misunderstandings

My product does not require a license, so I don’t have to worry about any of those export regulations.

– Reality: Licensing requirements are only one part of the picture. Trade compliance requires screening, classification, reporting, due diligence, and record keeping.

Export Controls

US Government Enforcement

– Investigations

– Civil and Criminal Penalties – fines and prison

– Nothing less than $250,000 and possibly many times more

– Loss of Export Privileges

Supply Chain Efficiency

– Avoid hold ups at U.S. and foreign customs

– Demands from customers in their supply chain

Export Controls

Strategic Planning

- Know the regulations in each country

- Obtain certifications limiting entry to business Business Management

– Avoid hidden liabilities

– Compliance programs improve record keeping & documentation

– Staffing for all roles

– Viral customer complaints will damage brand

Cloud Computing

U.S. Government policies & regulations Compliance issues

Encryption Controls

U.S. Government Policies Regulations Classification

ECommerce Export Success Stories

View examples of ECommerce Success

http://www.whitehouse.gov/blog/2012/03/12/how-has-exporting-helped-your-businessExample of ECommerce Failure

http://blog.trade.gov/2012/01/13/2011-export-success-highlights/

ECommerce Export Violation Stories

View Don’t Let This Happen To You Video

• http://www.bis.doc.gov/complianceandenforcement/othereetopics.htm#sba

• In the middle of the page find the link to the video, under Publications: Don’t Let This Happen to You

• http://www.bis.doc.gov/policiesandregulations/index.htm (left nav related links)

• http://efoia.bis.doc.gov/exportcontrolviolations/tocexportviolations.htm

Classification – Harmonized System Numbers

All Items individually classified Harmonized System Goods Nomenclature

• World Customs Organization, Brussels

• 171 Member Countries

• 6 digits

• Used by all countries to assess tariffs

• U.S. government requires classification for export in most cases

Introducing a number, one part at a time

8585

Chapter

0909

Heading

4040

Sub Heading

Schedule B vs. HTS

Schedule B

850940850940

Harmonized

00200020

Schedule B

Harmonized Tariff Schedule of the United States Annotated

850940850940

Harmonized

09320932

HTSA

Who Controls your Product ?

U.S. Department of Commerce

The Export Control Classification Number (ECCN) (U.S. Commerce Department)

0 A 987

0 Category Nuclear Materials, Facilities & Equipment (and Misc. Items)

A Product Group Equipment Assemblies, Components

987 Type of Control FC, CC, UN (738.2)

Optical sighting devices for firearms

Product Groups

Equipment, assemblies

and components

Test, inspection and

production equipment Software

Technology

Materials

Electronic Components (see list)

Deemed Exports

Happens when a foreign national is given access to the technology or source code (except encryption source code) of your product or technology that is controlled by the CCL (not EAR99)

http://www.bis.doc.gov/policiesandregulations/basis_of_ccl_controls.htm

You may need a license to show or share it with them

http://www.bis.doc.gov/deemedexports/deemedexportsfaqs.html

Country Screening - OFAC

Office of Foreign Assets Control (OFAC), U.S. Department of Treasury

• http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx• http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx• http://www.ustreas.gov/offices/enforcement/ofac/programs/index.shtml

You cannot sell goods or technology to these countries.

The 6 Lists to Check Denied Persons List (BIS)

– A list of individuals and entities that have been denied export privileges. Any dealings with a party on this list that would violate the terms of its denial order is prohibited.

Unverified List (BIS)– A list of parties where BIS has been unable to verify the end-user in prior transactions. The

presence of a party on this list in a transaction is a “Red Flag” that should be resolved before proceeding with the transaction.

Entity List (BIS)– A list of parties whose presence in a transaction can trigger a license requirement under

the Export Administration Regulations. The list specifies the license requirements that apply to each listed party. These license requirements are in addition to any license requirements imposed on the transaction by other provisions of the Export Administration Regulations.

The 6 Lists to Check Specially Designated Nationals List (OFAC)

– A list compiled by the Treasury Department, Office of Foreign Assets Control (OFAC). OFAC’s regulations may prohibit a transaction if a party on this list is involved. In addition, the Export Administration Regulations require a license for exports or reexports to any party in any entry on this list that contains any of the suffixes "SDGT", "SDT", "FTO", "IRAQ2" or "NPWMD“.

Debarred List (State Department)– A list compiled by the State Department of parties who are barred by §127.7 of the

International Traffic in Arms Regulations (ITAR) (22 CFR §127.7) from participating directly or indirectly in the export of defense articles, including technical data or in the furnishing of defense services for which a license or approval is required by the ITAR.

Nonproliferation Sanctions (State Department)– Several lists compiled by the State Department of parties that have been sanctioned under

various statutes. The Federal Register notice imposing sanctions on a party states the sanctions that apply to that party. Some of these sanctioned parties are subject to BIS’s license application denial policy described in §744.19 of the EAR (15 CFR §744.19).

Red Flags

Know your customer!

View this guidance from the Bureau of Industry and Security.

http://www.bis.doc.gov/complianceandenforcement/redflagindicators.htm

1. The customer or its address is similar to one of the parties found on the Commerce Department's [BIS's] list of denied persons.

2. The customer or purchasing agent is reluctant to offer information about the end-use of the item.

3. The product's capabilities do not fit the buyer's line of business, such as an order for sophisticated computers for a small bakery.

Destination Control Statement

Technically only required for non-EAR99 items (EAR 758.6) but good practice to use for all EAR shipments.

Put on your invoice, bill of lading, air bill.

"These commodities, technology or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. law is prohibited.”

"These commodities, technology or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. law is prohibited.”

Electronic Export Information

Filed through the Automated Export System (AES) or your shipping company/freight forwarder.

Required by law for most exports to foreign countries and U.S. territories

– Don’t forget Puerto Rico, U.S. Virgin Islands & Guam

– Shipping from St. Croix to Puerto Rico? File your EEI. Common exceptions:

– Shipments to Canada (if no license required)

– Shipments where value is under US$2,500 PER Schedule B number (again, only if NLR)

U.S. Principal Party of Interest (USPPI)

Long story short = the seller– “The person or legal entity in the United States that receives the primary

benefit, monetary or otherwise, from the export transaction”

Filing directly

– AESDirect.gov

– AES-certified software (AES PcLink or other certified software)

– Must register with AES and get approval before filing begins

– Provide Proof of Filing with your Internal Transaction Number (ITN)• The AES generated number assigned to a shipment confirming that an EEI

transaction was accepted and is on file in the AES. The ITN must appear on the bill of lading, air waybill, export shipping instructions, or other commercial loading documents.

http://aesdirect.gov/

Recordkeeping

5 years from the date of export Records can be scanned on disc for retention but must be able to be fully

retrieved in original form if audited Recoverable records include:

– Proforma & Commercial Invoice, Packing List, Bill of Lading or INTL AWB, Certificates of Origin, etc.

– AES Abstract from carrier

– Export controls research & documentation

– Sales contracts, notes and memoranda

– All financial records pertinent to the sale

– All other correspondence pertinent to the transaction

More Resources

BIS – Export Management & Compliance System guide– http://www.bis.doc.gov/complianceandenforcement/emcp_guidelines.pdf

Great presentation on export compliance– http://sbdcglobal.com/images/pdf/asbdc_2010/oscar_gonzalez.pdf

Question and AnswerQuestion and Answer

Allen Patch, Directorallen.patch@trade.gov

Patricia Cook, International Trade Specialistpatricia.cook@trade.gov

Contact us today to connect with a world of opportunity.

www.export.gov