Part 1 book Mastering import & export management has contents: Purchasing management skill sets in foreign markets, risk management in international business, technology in global trade, global personnel deployment and structure, developing resources in the import/export supply chain management,... and other contents.
MASTERING IMPORT & EXPORT MANAGEMENT SECOND EDITION This page intentionally left blank MASTERING IMPORT & EXPORT MANAGEMENT SECOND EDITION Thomas A Cook with Rennie Alston and Kelly Raia • Major Issues in Global Supply Chain Management • Main Features of the Incoterms᭨ 2010 • New TSA Regulations • Documents, Operations, & Procedures • Risk Assessment & Mitigation • Import & Export Management Tools American Management Association New York • Atlanta • Brussels • Chicago • Mexico City • San Francisco Shanghai • Tokyo • Toronto • Washington, D C Bulk discounts available For details visit: www.amacombooks.org/go/specialsales Or contact special sales: Phone: 800-250-5308 Email: specialsls@amanet.org View all the AMACOM titles at: www.amacombooks.org This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service If legal advice or other expert assistance is required, the services of a competent professional person should be sought Library of Congress Cataloging-in-Publication Data Cook, Thomas A Mastering import & export management / Thomas A Cook with Rennie Alston and Kelly Raia.— 2nd ed p cm Includes bibliographical references and index ISBN-13: 978-0-8144-2026-3 ISBN-10: 0-8144-2026-5 Exports—Management Export controls Foreign trade promotion Imports— Management International trade Exports—United States—Management Export controls—United States Foreign trade promotion—United States Imports—United States— Management I Alston, Rennie II Raia, Kelly III Title IV Title: Mastering import and export management HF1414.4.C665 2012 658.8Ј4—dc23 2011035514 ᭧ 2012 Thomas A Cook All rights reserved Printed in the United States of America This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019 American Management Association (www.amanet.org) is a world leader in talent development, advancing the skills of individuals to drive business success Our mission is to support the goals of individuals and organizations through a complete range of products and services, including classroom and virtual seminars, webcasts, webinars, podcasts, conferences, corporate and government solutions, business books and research AMA’s approach to improving performance combines experiential learning—learning through doing—with opportunities for ongoing professional growth at every step of one’s career journey Printing number 10 Contents Major Issues in Global Supply Chain Management Today Section One: The Global Supply Chain 37 Purchasing Management Skill Sets in Foreign Markets 39 Freight, Logistics, and Specialized Transportation Issues for Import/Export Managers 47 Risk Management in International Business 102 Technology in Global Trade 132 Global Personnel Deployment and Structure 146 Developing Resources in the Import/Export Supply Chain Management 155 Essential Overview of Import/Export Compliance and Security Management: Post 9/11 169 Section Two: Export Operations 10 185 Export Issues 187 Export Management: Incoterms, Documentation, Compliance, Operations, and Export Supply Chain Skill Sets 200 Section Three: Import Operations 233 11 Future Import Issues 235 12 The Import Supply Chain: Purchasing, Operations, Documentation, and Compliance Management 252 v American Managememt Association • www.amanet.org vi Contents 13 14 15 16 Import Strategies in Maintaining a ‘‘Compliant and Secure’’ Inbound Supply Chain 268 Bureau of Customs and Border Protection: Compliance and Security Expectations: Post 9/11 275 Getting on Top of the Regulatory Challenges of the Future 280 Concluding Remarks 286 Appendix 289 Index 665 American Managememt Association • www.amanet.org MASTERING IMPORT & EXPORT MANAGEMENT SECOND EDITION This page intentionally left blank Major Issues in Global Supply Chain Management Today The book opens with a view of current world events that impact global supply chains, import and export operations, and the entire responsibilities that business executives have in trade compliance management 2011 and into 2012 have seen a number of shifts in world politics, Middle East stability, and major physical occurrences that have huge short-term impacts on global trade, and these impacts may extend into the future for years to come Overview Physical Events The earthquake in Japan has rocked the world in a number of ways Perhaps most important, the long-term utilization of nuclear power is very much in jeopardy The impact of the devastating tsunami that followed goes far beyond the tragic loss of life that occurred The insurance community who insured the risks involved with both events will have to pay hundreds of million in claims, potentially in excess of several billion dollars This will impact insurance costs and the availability of certain types of insurances in risk-prone centers of the globe as well as for freight that moves on certain trade lanes Cost and availability will become major issues Personnel involved in international shipping and logistics who had freight coming in and out of Japan are witnessing great delays in transit times, limited access to transportation infrastructure, and increases in freight charges Shipping managers worldwide have looked at this disaster in Japan and have already begun to access risk management alternatives not only in earthquakeprone areas, but in all corners of the globe where there are significant physical risks such as but not limited to: • • • • • • Earthquakes Floods Tornadoes Hurricanes Harsh changes from winter to summer weather patterns Tsunamis American Managememt Association • www.amanet.org 218 Export Operations to the export transaction to be maintained for five years from the date of expiration of the license In processing a shipment under a Department of State license, the export documentation must be presented to Customs and Border Protection as required In addition, the export documentation must cite the destination control statement for the Department of State ‘‘These commodities are authorized by the U.S Government for export only to (country), for use by (end-user) They may not be transferred, transhipped on a noncontinuous voyage or otherwise be disposed of in any other country, in their original form or after being incorporated into other end-items, without the prior written approval of the U.S Department of State.’’ The penalties under the ITAR are severe and include seizure, forfeiture, criminal penalties, and civil penalties Any attempt to export from the United States any defense articles in violation of the ITAR may result in seizure or forfeiture In addition, an attempt to violate any of the conditions under which a license was issued may also result in seizure Any willful violation of any provision of the Arms Export Control Act and in a registration, license application including an omission of material fact, or issuing an untrue statement of a material fact may result in a three-year debarment, criminal fines not to exceed $1,000,000 per violation and/or imprisonment not to exceed ten years per violation, and civil penalties not to exceed $500,000 per violation The United States Munitions List (USML) consists of twenty-one categories Defense articles and defense services fall within the categories listed below As part of the licensing process, a company must be able to identify which category best describes their article or service Category I Firearms, Close Assault Weapons, and Combat Shotguns Category II Guns and Armament Category III Ammunition/Ordnance Category IV Launch Vehicles, Missiles, Rockets, Torpedoes, Bombs Category V Explosives, Propellants, Incendiary Agents, and Constituents Category VI Vessels of War and Special Naval Equipment Category VII Tanks and Military Vehicles Category VIII Aircraft and Associated Equipment Category IX Military Training Equipment Category X Protective Personnel Equipment Category XI Military Electronics Category XII Fire Control, Range Finder, Optical Guidance Equipment Category XIII Auxiliary Military Equipment Category XIV Toxicological, Chemical and Biological Agents, and Equipment Category XV Spacecraft Systems and Associated Equipment Category XVI Nuclear Weapons, Design, and Testing Related Items Category XVII Classified Articles, Technical Data, and Defense Services Category XVIII Directed Energy Weapons Category XIX Reserved Category XX Submersible Vessels, Oceanographic and Associated Equipment Category XXI Miscellaneous Articles Definitions under the ITAR include: Defense Article Any item or technical data designated in 121.1 (Munitions List) of the ITAR This term includes technical data recorded or stored in any American Managememt Association • www.amanet.org Export Management 219 physical form, models, mockups, or other items that reveal technical data directly relating to items designated in 121.1 It does not include basic marketing information on function or purpose or general system description Defense Services Furnishing of assistance (including training) to foreign persons, whether in the United States or abroad in the design development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing, or use of defense articles; the furnishing to persons of any technical data controlled under the ITAR whether in the United States or abroad; military training of foreign units and forces, regular and irregular, including formal or informal instruction of foreign persons in the United States or abroad or by correspondence courses, technical, educational, or information publications and media of all kinds, training aid, orientation, training exercise, and military advice U.S Person Lawful permanent resident who is a protected individual It also means any Corporation, business association, partnership, society, trust, or any other entity, organization or group that is incorporated to business in the United States It also includes any governmental (federal, state, local) entity Foreign Person Any natural person who is not a lawful permanent resident or is not a protected individual It also means any foreign corporation, business association, partnership, trust, society, or any other entity or group that is not incorporated or organized to business in the United States, and international organizations, foreign governments, and any agency or subdivision of foreign governments (e.g., diplomatic missions) Export Sending or taking a defense articles out of the United States in any manner, except by mere travel outside of the United States by a person whose personal knowledge includes technical data, transferring registration, control, or ownership to a foreign person of any aircraft, vessel, or satellite covered by the USML, whether in the United States or abroad; disclosing (including oral or visual disclosure) or transferring in the United States any defense article to an embassy, any agency or subdivision of a foreign government; or disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in the United States or abroad; performing a defense service on behalf of, or for the benefit of, a foreign person, whether in the United States or abroad Types of Licenses DSP-5 is an application for permanent export of unclassified defense articles and related unclassified technical data DSP-61 is an application for temporary import of unclassified defense articles DSP-73 is an application for temporary export of unclassified defense articles DSP-85 is an application for permanent/temporary export or temporary import of classified defense articles and classified technical data DSP-94 gives authority to export defense articles and defense services sold under the foreign military sales program Additional Export Considerations Consularization and Legalization Many countries require export documents to be consularized and legalized This process adds additional time constraints and costs to the export shipment Docu- American Managememt Association • www.amanet.org 220 Export Operations ments must be presented to a central consulate office, which then performs a brief review and applies a signature stamp to the documents This is generally done for a fee anywhere from $75 to $300.00 Exporters must be aware of the destination country’s requirement for consularization and legalization The requirement may be different based on the commodity, quantity, or value An attempt to import a shipment in the destination country without the proper legalization can result in storage fees imposed by local customs and the carrier and financial penalties Solid Wood Packing Material (SWPM) Certificates In response to the U.S import requirement of certification of treated wood pallets, other countries have implemented their own import policy on accepting shipments moving on such packing materials China, the European Community, and Australia have current regulations regarding the type of pallets and packing that may enter their countries An untreated pallet can result in additional costs of fumigation in the destination country Societe Generali Surveillence (SGS) Inspections Customs authorities in certain countries require goods be inspected prior to shipment The inspection may cover verification of quality, quantity, market price, value for customs purposes, customs classification, and import eligibility Societe Generali Surveillence (SGS) is a general inspection company that performs this function They have cargo surveying and inspection capabilities that enable them to mobilize a qualified cargo inspector to certify a cargo for count, accuracy, meeting quality specifications, documentation, or other issues related to a foreign importer’s purchase order North American Free Trade Agreement Certificates The North American Free Trade Agreement (NAFTA) formed a trade partnership between the United States, Canada, and Mexico One of the benefits of this partnership was the reduction of duties for goods qualifying under the applicable NAFTA criterion Therefore, it is not unusual for a customer to request the exporter issue a NAFTA certificate to accompany the export, considering the financial benefit of paying lower duties or in some cases no duties at all To issue a valid NAFTA certificate a company must be certain the product meets the applicable NAFTA criterion This can be done by verifying the origin of the product and following the rules of origin relevant to the product These rules of origin may be found in the Harmonized Tariff Schedule of the United States (HTSUS) NAFTA certificates are frequently validated by customs There are fines and penalties involved for incorrectly completing the NAFTA certificate so companies must be diligent in preparing this form Developing Resources Every export shipment is unique Whether it is the product type, the destination country, the potential use of a product, there are many factors that can impede American Managememt Association • www.amanet.org Export Management 221 the timely and cost-effective delivery of a company’s export With that understanding, exporters need to develop a dossier of resources in export documentation, export control, and foreign customs requirements The best resources are a company’s forwarder and the customer A company can ride on the back of the forwarder’s experience and worldwide office/agency network to provide documentation requirements in every gateway and relying on their expertise with export compliance concerns The foreign customer usually has the responsibility to deal with their local customs clearance issues and typically have previously imported The Appendix includes a detailed listing of sources for export documentation and compliance including the: EEI Decision Tree for U.S Exporters (Part 732, Supplements and 2) Commerce Country Chart CCL Case Studies in Export Compliance CASE STUDY 1—THE WRONG WAY Flying Free is a Connecticut-based distributor of aircraft spare parts A few of their products are subject to the Commerce Control List (CCL) as they are considered ‘‘dual use’’ items and are subject to export control regulations Donna Bisori, the salesperson, receives an e-amiled request from a potential new customer, Trois Avion, located in Paris The e-mail contains a request for an order of XKY2 XKY2 is one of the products distributed by Flying Free that is listed on the CCL The order is a high value order and the biggest order Donna has ever received in her three years working with Flying Free Donna processes the quotation and sends the standard documents by e-mail to Trois Avion These documents include a credit application and an end-use statement by Trois Avion Trois Avion accepts the quotation, returns the credit application, and requests the order be shipped immediately Donna grows concerned that the quantity requested is a large order for Flying Free and they may not be able to process the order timely Donna contacts Trois Avion by phone and speaks with Monsieur Mauvais Gars Monsieur Gars understands this is a large order and offers to pay cash to expedite the order Donna arranges to accept the wire transfer of funds on behalf of the company and waives the credit application She contacts her warehouse manager and begins to coordinate the materials for shipment Donna advises Monsieur Gars the order will be processed within the requested time frame At this time, Donna advises Monsieur Gars that Flying Free has a field engineer working another job in France and that the field engineer can be scheduled to demonstrate the installation of the parts to Trois Avion personnel Monsieur Gars informs Donna that Trois Avion is declining the field training Monsieur Gars e-mails Donna a letter of instruction The destination address is for a freight forwarder located in Paris, France There is also a notation on the letter of instruction to include installation instructions in Arabic Donna calls Monsieur Gars to advise instructions in Arabic are not available and hopes this is American Managememt Association • www.amanet.org 222 Export Operations not a problem Monsieur Gars advises the shipment should just ship out as instructed and not to be concerned about the instructions Donna receives a call that the order will be ready to ship on Thursday afternoon Donna confirms accounting has received the payment for the shipment Donna is anxious for the order to ship as she is scheduled to leave for a long planned vacation in Las Vegas on Friday morning This sale has also put Donna into the ‘‘Silver Sales Group’’ entitling her to a substantial bonus On Friday morning Donna contacts her shipping department and is advised the order was picked up by Flying Free’s forwarder and will be shipped on a flight on Friday evening Donna instructs her shipping department to forward the flight information to Trois Avion Donna phones Monsieur Gars to advise everything is moving on schedule Donna is relieved the shipment is moving and departs on her flight to Las Vegas On Friday afternoon, the airline carrier contacts Flying Free’s forwarder to advise the export shipment has been seized by Exodus, which is the enforcement arm of CBP for exports Trois Avion is listed as a Denied Person by the BIS On Monday morning, an officer from the BIS is waiting to meet with senior management at Flying Free The BIS officer requests to see the export transaction file for the XKY2 order and a copy of the export compliance procedures for Flying Free The senior manager at Flying Free is only able to produce a copy of the faxes and e-mails Donna sent and received from Monsieur Gars Clearly missing from the file are a copy of the denied party screening, end-use statement, export license, and any conversations regarding the various red flags that should have been raised within the transaction dialogue Flying Free pays civil penalties of $35,000 and is denied export privileges for one year As part of their settlement, Flying Free is required to spend an additional $15,000 in implementing an export compliance program including training, to prevent future incidents Upon Donna’s return from vacation she was seeking employment elsewhere, but not in the aircraft industry CASE STUDY 2—THE RIGHT WAY A Florida firm, PSC, receives a request from an engineering consulting firm in Italy The engineering consulting firm is looking to purchase an industrial pump to be used in Libya The compliance officer for PSC requests details from the engineering firm, including the name of the end-user in Libya and the details of the transaction, like the final use and type of project for which the system will be used Mario Biaggi, the buyer for the engineering firm submits the requested information to PSC’s compliance officer PSC receives the information and screens the names and locations of all involved parties by their compliance software The names and addresses come out with no hits found The compliance officer receives a copy of Mr Biaggi’s purchase order from his sales department The salesperson is questioning a statement contained within the purchase order requiring a certificate of origin for the product The salesperson’s question arises from an additional detail required on the certificate of origin ‘‘Certificate of origin should state goods are not of Israeli origin.’’ The compliance officer advises the salesperson this is indeed a boycott statement and advises the salesperson to request a new purchase order with this language removed from the purchase order The compliance officer advises his accounting office of receipt American Managememt Association • www.amanet.org Export Management 223 of the boycott statement, so they can add to their IRS report The compliance officer makes a notation of receipt of the statement, copies the file, and diarizes the item for his quarterly report to the Office of Antiboycott Compliance The compliance officer follows up with the salesperson the following day and is advised a new purchase order has been received and the boycott language has been removed from the purchase order The compliance officer next receives a telephone call from his customer service manager The customer service manager has received a set of shipping instructions for the pump The instructions include a request to move the shipment to Libya transshipping by United Arab Emirates The compliance officer is aware that this transshipment point is a potential red flag and decides to contact Mario Biaggi directly to inquire about the transshipping Mr Biaggi is reluctant to disclose any information about the request and advises the compliance officer to just send the product The compliance officer thanks Mr Biaggi and ends the discussion The compliance officer then contacts his local export enforcement office of the BIS The compliance officer advises the BIS of the all details of the transaction The BIS officer asks the compliance officer if PSC would be willing to cooperate with the BIS in their investigation of the engineering firm The compliance officer agrees and arranges to ship the goods to the United Arab Emirates under the direction of the BIS The shipment is moved per Mr Biaggi’s instructions Upon arrival in the United Arab Emirates, BIS operatives and local customs authorities are able to apprehend a terrorist cell that was looking to use the pump to manufacture chemical weapons The compliance manager receives a phone call from the Chief of Export Enforcement thanking him for his cooperation in the investigation The compliance manager is glad to see PSC’s compliance program is effective The compliance manager understands that if he did not report the transgression that the culprit would have found another U.S supplier with no due diligence process This type of effort follows the export regulations and is in the spirit of cooperating with the government in fighting terrorism Summary of Export Compliance Issues Various governmental authorities are moving to mandatory compliance of all export regulations Exporting has always been associated with intense documentation, bureaucracy, and much frustration With the increased government scrutiny exporters may find themselves: • Processing additional paperwork and/or electronic filings for each export shipment • Needing to automate compliance within the export transaction • Implementing procedures to ensure compliance with regulations and avoid fines and penalties • Creating extensive recordkeeping I have most recently followed numerous cases where exporters have received significant fines for not complying with various export regulations These cases American Managememt Association • www.amanet.org 224 Export Operations are on the increase as the various governmental agencies gear up for enforcement by technology, manpower, and mandates for stricter controls take priority In the Appendix is an update of fines and penalties issued by the BIS against U.S exporters for various violations of U.S export law I am also witnessing a time when many corporations, both mom and pop and Fortune 100s, are just not paying attention to these export compliance matters as seriously and diligently as is necessary The consequences are serious and costly Compliant exporters who have learned to pay attention to these important issues, like export packing, marine insurance, quality documentation, and successful logistics, will now be spending time, money, and resources on compliance issues to survive in global trade Incoterms in Exporting I have always felt that while Incoterms are the foundation of global trade that they are also the most misunderstood aspect of global trade In most U.S companies, a salesperson or sales division, agent, or distributor begins the sales process This is also where the terms of sale are generally introduced It has been my experience that most international sales representatives, though they have the responsibility, not understand the ramifications of Incoterms, particularly as it relates to who is responsible for various transportation costs associated with the export and who is responsible to manage the execution of the export documentation The consequences of not comprehending the Incoterms can sometimes lead to internal aggravation between operations, finance and sales due to the potential of additional or unaccounted transportation expenses An example might be where an export salesperson in Cincinnati has an internal EXW base price of $30,000.00 US dollars and is asked to deliver the freight to an ocean gateway, such as Baltimore Technically the sale has now changed to FOB Baltimore, in lieu of EXW Cincinnati This now puts the burden of the transportation costs of the inland leg (from Cincinnati to Baltimore) back to the exporter Unless this has been figured into the base costing or as a line item surcharge, after the fact, it will be difficult to account for or recover the cost from the buyer unless this cost was identified up front This is where the internal strife begins to escalate Most exporters not realize that FOB and CIF terms are terms that are meant for sea and inland waterway transport only The other nine terms are multi-modal and may be used for all modes of transportation I regularly see FOB USA airport and CIF destination airport, which is technically incorrect The other issue with Incoterms is that an Incoterm, like CFR by itself, is not complete An Incoterm term is complete when tied in with a ‘‘named place’’ (i.e., FOB Port Elizabeth, CFR Oakland, CIP Rotterdam, DDP Tokyo) An international salesperson who offers FOB, CIF, CPT terms, without the ‘‘named place,’’ is only addressing part of the equation and leaving out an integral component, leading to confusion A critical issue I will address with respect to Incoterms is that they are the standard terms of sale to describe what would be considered a ‘‘typical international transaction.’’ There are eleven terms However, normal trading practice will afford variations of the eleven leading to countless options and some combinations, which challenge the senses For example, you could have an export sale via ocean freight, FOB Charleston, American Managememt Association • www.amanet.org Export Management 225 but sales agrees to prepay the ocean freight to the importers domestic gateway, say Copenhagen, Denmark, billing the ocean freight charges back to the importer, by the EXW invoice cost While from appearances purposes, this might not make sense, it could be accomplished by any agreement reached between the two trading parties For tax or sales or inland distribution reasons, the importer might best be served by incorporating the international freight costs, so the exporter accommodates the client, by formally selling FOB Charleston, but functionally selling CIF Copenhagen The paperwork shows one thing, but a side agreement creates another One most always be careful when doing side agreements or extensions to make sure you are not creating an illegal transaction or a future compliance headache The reality is that international salespersons, agents, and distributors are always agreeing to provisions in the export transaction, which will alter the ramifications, liabilities, and costing as determined by the actual Incoterms The last issue I will address regarding Incoterms is that they are terms of sale that run in conjunction with a related but completely different subject, the terms of payment And that could be where confusion lies and potential pitfalls For example, an exporter sells FCA O’Hare Airport in Chicago Basically the exporter is accepting responsibility to the point at which the goods are loaded onto an aircraft at the designated airport They pass liability and costing once the goods are loaded on board the plane But the terms of payment are Sight Draft 60 days The plane crashes According to Incoterms, technically the risk of the international leg was for the account of the buyer Now the buyer having not received the goods, is still obligated to pay Will they? What will it cost for you to collect? The more third world the transaction, the less likely your opportunity to collect These are all true, very serious every day issues So international sales and operations must pay attention to the potential conflicts that arise in exports, between the terms of sale and the ultimate terms of payment On a side note, in the above example the exporter could have arranged for contingency/unpaid vendor insurance, which would of provide ‘‘All Risk’’ protection in the event they were unable to collect from the buyer It is also imperative to remember, as previously mentioned in the chapter, that irrespective of the Incoterm, the USPPI, which would typically be the manufacturer or seller, may be held responsible for compliance with the export regulations The BIS As a 35 year veteran of international trade, I never spent as much time on export controls as I now, in all three areas of my business: consulting, education and training, and logistics management The reality is that the government has stepped up its enforcement efforts, not only on issues typically engaged in national security, but now with our mainstream exporters in areas like with the accuracy of the EEI filings, the overall consistency, conformity, and trueness of the exporter’s invoice, packing list, certificate of origin, overall recordkeeping, and the due diligence process in determining what can be exported to whom and where The EAR (Export Administration Regulations) is complicated Understanding American Managememt Association • www.amanet.org 226 Export Operations the regulations in detail is cumbersome but can be boiled down to these basic questions framing the parameters of the export transaction: • • • • • What are you shipping? What quantity/what value? Where? To whom? For what utilization? In the simplest of explanations, this is what I believe the Bureau of Industry and Security is requiring each exporter to answer before they can be compliant in their export operations And a key factor here is that the BIS requires that in each transaction, each export relationship, etc., there is a ‘‘SOP’’ starting with proper due diligence, accountability, recordkeeping, and compliance before an exporter can successfully export Ignorance of the rules and regulations is not an acceptable excuse The fines and penalties can be severe and harsh Both civilly and personally, with prosecution, suspension/revocation of export privileges, and imprisonment as potential consequences One just needs to visit the BIS website to see the results of export enforcement efforts by the BIS and CBP in a proactive mode to catch potential noncompliant individuals and corporations • Corporations showing different values between the EEI and the commercial invoice or showing a lower value on the commercial invoice then was the transaction actually accounted for have been fined by the BIS • Corporations shipping freight to destinations knowing that a potential transshipment or third party sale will occur to a prohibited country have been penalized • Corporations shipping to individuals or corporations on the denied parties lists have had their export privileges revoked or suspended, temporarily or permanently • Corporations have had their goods seized for showing that the goods are of U.S origin, on the export documents, when they were originally imports into the United States • Technology companies appearing to export innocuous software only to learn that their products require export licenses, in that the technology has applications for national security exposures • High-tech companies finding out that their products are licensable due to the fact that by minor retooling, like with laser equipment for alarm systems, could be retooled for laser weaponry The bottom line is that there are hundreds of reasons that the exporter must pay attention to for the level of scrutiny that the BIS is executing on export compliance This is to avoid serious fines and penalties, prevention of export privilege suspensions, prosecution of the corporation and individuals, and to avoid the expense associated with litigation, mitigation, and the inability to export successfully I have observed many corporations ignoring their export compliance requirements and/or procrastinate on dealing with them For many, this delay or inaction has been very costly American Managememt Association • www.amanet.org Export Management 227 The activity of the BIS is not waning It is growing From the actual outbound ports to the corporate transaction, files are under stiff review and scrutiny The BIS decision tree documents the steps an exporter must use to make sure that they can export the product to a particular country, to a specific entity, and for certain utilization The process must be documented, maintained for at least five years, and be retrievable under any potential audit The BIS has established ‘‘red flags’’ or potential occurrences or observations made to the export company, from the potential foreign buyer, that are supposed to cause the exporter to raise their level of diligence, till the inquiry/diligence is successfully mitigated, closed out, or favorably rectified For example: • • • • The foreign buyer wants to pay cash The foreign buyer uses freight forwarder for the delivery sight The foreign buyer is in a completely different line of business The foreign buyer purchases a product that requires installation and training, but tells you not to provide it • The foreign buyer is not cooperative with details, delivery sights, dates, etc There are numerous other ‘‘red flags’’ that the BIS has identified that the U.S exporter must learn to understand and react to before completing the export transaction Corporate management would be ‘‘shocked to learn’’ the multitude of onus on them in the execution and diligence of their foreign sales Exporters must learn the regulations, maintain and update the changes, and have SOPs in place to deal with all the export compliance issues They must employ specialists on staff or delegate the responsibilities to third parties under contract who are well qualified to provide the export compliance management response necessary Law firms, freight forwarders, and consultants are the three major types of third party service providers that can offer export compliance expertise When the Occupational Safety and Health Administration (OSHA) was developed and expanded in the 1970s to 1980s, many corporations resisted this new governmental intrusion Some thirty years later, it is well entrenched into corporate America I view what happened with health and safety issues in corporate America back then to be very similar to what is happening now with export compliance We can argue about it, we can fight it, but it is here now and apparently here to stay We need to deal with it constructively, like a necessary evil I firmly believe that those corporations and individuals who embrace export compliance proactively will benefit immensely, as those that defer will be at a loss with export operations that are handicapped In establishing its export compliance program, the corporation has nominated its corporate compliance officer and created a set of SOPs The key to bringing the program to fruition is to establish an internal education and training program Importance of Internal Education and Training Internal education and training will enable the corporation to develop its own inhouse expertise As the compliance officer matures in his new role he will be developing outside resources on which to expand his knowledge At the same American Managememt Association • www.amanet.org 228 Export Operations time, one of the many responsibilities of the compliance officer is to disseminate information regarding the compliance program and newly established procedures A good export compliance program outlines the framework for the training Compliance training should begin with senior management for several reasons: • Compliance is directly related to the company’s bottom line • Senior management will understand the importance of compliance and, therefore, support the efforts of the compliance manager with additional funding and giving the ‘‘hammer’’ to be used by the compliance officer to enforce the new standard • Senior management will provide guidance on the execution of the agreed strategies to be used throughout the company Middle management and support staffing must also be included in training There should be a company directive stating that newly hired employees with specific supply chain responsibilities will require an export compliance overview within thirty days of date of start in the new position This type of directive requires the cooperation and assistance of the human resources department It can be incorporated as part of the new employee’s indoctrination schedule along with their becoming familiar with the latest benefit plan, for example Degree of Training The levels of training will vary depending on the import/export responsibilities of the employee As a minimum, all company personnel should be included in a basic compliance class Everyone in the company including shipping, receiving, accounting, customer service, and sales should be required to attend Everyone in the company would then be made aware of the compliance program in place within the corporate structure and that senior management is on the same page backing the program Accounting, sales, customer service, and operations training should include INCO terms, letters of credit, types of payments, risks of global trade, and denied parties screening Operations, shipping, and receiving training should include import/export documentation, NAFTA procedures, packing, marking and labeling, and valuation issues Training topics should also encompass regulations under other governmental agencies like the FDA, U.S Department of Agriculture, Department of State, and Department of Transportation, to name a few Whatever the topics, they should cover the specific needs of the organization Sources of Education and Training Training programs and seminars are offered using different venues Some programs are offered in connection with international trade organizations like the Society of International Affairs, Professional Association of Import/Export Compliance Managers, American Management Association, International Compliance Professionals Association and The World Academy, etc The government also sponsors compliance and regulations seminars throughout the U.S as well as overseas to provide an opportunity for companies to gain the government perspective on training American Managememt Association • www.amanet.org Export Management 229 One of the many benefits of attending these seminars is the access to the governmental personnel who are approving license applications, dispensing advice, and enforcing the regulations These personnel represent an important resource to the compliance manager and are available for in-house visits via their agency outreach programs Resource Development As the compliance officer further defines his role and networks himself with outside organizations he must funnel that information to the troops The corporate compliance officer must continue to update the supply chain CBP and the BIS have daily updates in today’s post-9/11 environment Employees that have received training and are familiar with their day-to-day responsibilities need to be informed of the latest changes Is United Parcel Service going on strike, will there be port delays in Long Beach next month? A company web site with a ‘‘compliance corner’’ may offer some corporations a good solution Other companies may choose to broadcast updates by e-mail to appropriate personnel within the supply chain Magazines and newsletters once read should not be tossed away but should make their way around the office Notable web site links should be sent to all in the company address book The corporate compliance officer is also a resource within his company He must advertise his position to make sure the appropriate person is answering the compliance questions Procedures in place, corporate support and the nomination of the corporate compliance officer are the fundamentals of the compliance team The corporate compliance officer is part of a team and part of a team effort The best strategy will not work if the team is not working together It is said ‘‘a dedicated team is the fuel for progress and growth.’’ The same lies true for the corporate compliance officer and his supply chain ‘‘team.’’ Is Your Company RoHS Compliant? RoHS Compliance FAQ What is RoHS? RoHS is an acronym for the Restriction of Use of Hazardous Substances regulations, and refers to European Union directive 2002/95/EC, which limits or bans specific substances—lead, cadmium, polybrominated biphenyl (PBB), mercury, hexavalent chromium, and polybrominated diphenyl ether (PBDE) flame retardants—in the production of new electronic and electric equipment RoHS applies to these products when destined for the EU market What is RoHS compliance? RoHS compliance means acting in full accordance with RoHS regulations and documenting your testing for RoHS controlled substances The specified materials are hazardous to the environment, pollute landfills, and are dangerous to workers during manufacturing and/or recycling What is RoHS training? RoHS training involves teaching yourself and your employees about the RoHS regulations as well as the correct testing procedures for these RoHS controlled substances Ignorance is not considered an excuse for RoHS noncompliance It is important to familiarize yourself and your employees about the existence of RoHS and how it applies to your company American Managememt Association • www.amanet.org 230 Export Operations Is my business affected by RoHS? If you are involved in selling, manufacturing, exporting, or importing electric or electronic equipment or parts to any member of the EU, you are most likely affected by these regulations and you should familiarize yourself with RoHS When did RoHS regulations become effective? RoHS regulations went into effect in the EU in July 2006 They remain in place, which means that all electric and electronic equipment being made today must meet RoHS directive rules How I know whether my products are RoHS compliant? In order to ensure that products are RoHS compliant, careful testing and documentation must be done in accordance with RoHS Directive regulations There are many resources that can assist businesses ensuring RoHS compliance For more information, go to www.rohs.edu What are the consequences for noncompliance with RoHS? Failing to make products RoHS compliant or refusing to comply with requests for documentation can result in heavy fines In some cases, businesses can be denied export of their products Specific penalties vary from country to country, but noncompliance is always far more costly for a business than compliance What is WEEE? WEEE (Waste from Electrical and Electronic Equipment) is a directive that controls how electric and electronic equipment is handled and recycled Most businesses that must ensure RoHS compliance must also ensure WEEE compliance as well Antiboycott Requests Outside of the Arab League The antiboycott provisions of BIS’s Export Administration Regulations (EAR) were designed to prevent U.S individuals and companies from participating in or promoting foreign boycotts that the United States does not support The Arab League boycott of Israel is the principal foreign economic boycott that U.S companies must be concerned with However, the antiboycott laws apply to all boycotts that are imposed by foreign countries that are unsanctioned by the United States, and violations have been reported regarding boycotts of Bangladesh, Indonesia, and Malaysia The antiboycott provisions of the EAR apply to all U.S persons even if they reside outside of the United States, as well as to companies located in the United States and their foreign subsidiaries While it is more common or more widely known, the Arab League boycott of Israel should not be the only boycott U.S companies should be concerned with All companies should be made aware of the possibility of a request to boycott other countries, such as Pakistan and India These requests may come in many different forms and relate to the sale, purchase or transfer of goods or services, including information, within the United States or between the United States and a foreign country For example, companies doing business in Libya before the ouster of Libyan leader Muammar Qaddafi were requested not to business with companies of Swiss nationality The tensions between Libya and Switzerland resulted from an incident in the summer of 2008 involving the Swiss police and Qaddafi’s son, who was arrested after two hotel employees from Tunisia and Morocco accused him and his expectant wife, Aline, of beating them with a belt and a coat hanger The Swiss police held the young Qaddafi in custody for two days while his wife remained under police supervision in a clinic in Geneva They were later released American Managememt Association • www.amanet.org Export Management 231 on $490,000 bail This created an uproar in Libya and resulted in Libya’s boycott of the Swiss companies It is necessary to stay abreast of current events which could possibly have an affect or an impact on your business EAR antiboycott issues may arise when dealing with any country and close attention should be paid to countries such as Indonesia, Bangladesh, Pakistan, Iran, India, Ethiopia and Eritrea Other countries also to be taken into consideration that may require the submission of boycott requests are China, Taiwan, and Serbia It is important that U.S companies actively engage their compliance staff to analyze any boycott-related language or request received, regardless of the countries involved While it may be difficult to determine if the request you received is actual boycott language or perhaps you are not certain if the request is in violation of U.S law due to the countries involved, for instance in the case of Libya and Switzerland, it is important to clarify any doubts you may have before acting on any such request Fines and penalties for complying with boycott requests can be quite high and could result in general denial of export privileges In addition to reporting boycott requests to the Department of Commerce, depending on the nature of the request, it may also be reportable to the Department of Treasury The Department of Treasury has a separate set of antiboycott laws and the basis for the Treasury Department’s antiboycott penalties (the Ribicoff Amendment to 1976 Tax Reform Act-Section 999 of the Internal Revenue Code) were issued before the antiboycott regulations contained in the EAR You can obtain clarification or more information from the Office of Antiboycott Compliance by visiting this page on their website: www.bis.doc.gov/compliance andenforcement/antiboycottcompliance.htm࠻requestform Foreign Corrupt Practices Act (FCPA) The U.S Foreign Corrupt Practices Act (FCPA) of 1977 prohibits U.S companies, their subsidiaries, as well as their officers, directors, employees, and agents from bribing foreign officials It also requires that U.S companies which issue debt or equity maintain internal accounting controls and to keep books and records that accurately reflect all transactions The anti-bribery, recordkeeping, and internal accounting controls provisions are applicable to all global operations The FCPA is enforced jointly by the Securities & Exchange Commission (SEC) and the U.S Department of Justice (DOJ) Companies operating globally must create procedures and train personnel in how to avoid participating in any form of activity that could create an FCPA exposure Concluding Remarks The export supply chain as identified in this chapter will run more safely, timely, and competitively when the export manager pays attention to detail and operates in a fashion integrating ‘‘compliance’’ into all facets of the export trade From creating the sale, to processing the order, to collecting payment are all integral issues that need to be paid attention to, and when they are, will assure successful exporting American Managememt Association • www.amanet.org This page intentionally left blank ... Supply Chain Management 15 5 Essential Overview of Import/ Export Compliance and Security Management: Post 9 /11 16 9 Section Two: Export Operations 10 18 5 Export Issues 18 7 Export Management: Incoterms,... promotion—United States Imports—United States— Management I Alston, Rennie II Raia, Kelly III Title IV Title: Mastering import and export management HF1 414 .4.C665 2 012 658.8Ј4—dc23 2 011 035 514 ᭧ 2 012 Thomas.. .MASTERING IMPORT & EXPORT MANAGEMENT SECOND EDITION This page intentionally left blank MASTERING IMPORT & EXPORT MANAGEMENT SECOND EDITION Thomas A Cook