In order to take advantage of the benefits of mutual recognition, U.S. importers must be Tier 1 or Tier 2 C-TPAT members, meaning that the adequacy of their security measures and their requirements for business partners must have been “validated” following inspection by CBP.  Similarly, EU AEOs must be AEOSs or AEOFs, meaning that they have been validated following examination and inspection by the national authorities of an EU member state as compliant with the safety and security component (as opposed to just the Customs simplifications component) of the AEO program.

The primary benefits available to importers will be lower automated risk assessment scores given reciprocally to members of C-TPAT and EU AEOs.  This has the very real advantage of dramatically decreasing inspection frequency for member company’s shipments on both sides of the Atlantic, and member companies’ shipments that are selected for inspection are given priority over nonmembers’ shipments.  For those companies that would have become C-TPAT members and EU AEOs absent mutual recognition, the primary benefit is the elimination of the requirement of repeat examinations/audits by both U.S. and EU member state officials of the same aspects of their operations before the companies can benefit from trusted treatment by U.S. and European authorities.  The U.S. and the EU have similar mutual recognition agreements with other countries and are in the process of negotiating new ones.  This significantly increases the incentive to make the initial investment of time and money and get certified and validated under C-TPAT and/or another jurisdiction’s similar program.

I have covered the Customs-Trade Partnership against Terrorism (“C-TPAT”), a U.S. Customs and Border Protection program that entitles importers who have proven their compliance with its requirements to less frequent security inspections of their goods, before on this blog. 

Have a wonderful afternoon,

Doreen

Understand the Market

Understanding whether a particular country is a suitable market is essential to any successful export strategy. Be able to answer the question: “Why this country?” If you are unable to provide an answer, you should not go. To help you determine whether a particular market is suitable for you, ask yourself if there a market for your particular product or service. Also, understand the regulatory environment – are there limitations or restrictions that will impact your ability to sell your product or service in the country? Identify any other barriers to entry. Understand the sales and distribution network for your product or service in that particular country. Learn about your competitors and their products and prices. Understand how cultural differences may impact how you market your product or service.

Identify the Correct Partner

Many small businesses do not have the resources to effectively market and sell their product or service in a particular foreign market all alone. Identifying the right partner to assist you in the foreign market is critical. Do your due diligence when selecting a partner. Is the potential partner who he says he is and can he do what he says he can? Also, consider a company that sells a complementary product or service, that understands how to do business in the market and that has a good distribution network in the country. Determine whether the U.S. considers the potential partner to be a denied person or entity. Will you form a joint venture or engage the local partner as your agent or distributor? Know the repercussions for terminating the partnership before making your decision.

Take Advantage of Free U.S. Government Resources

Remember the U.S. government has agencies available to help a small business to export its product or service, including the United States Commercial Service, the Small Business Administration and the Export-Import Bank of the United States. For example, the United States Commercial Servics can help you with market research and identifying potential partners. The Small Business Administration provides counseling, training and financing to support small business export opportunities. The Ex-Im Bank can help you secure financial support that will enable you to expand your sales to existing markets and to enter new ones and can protect you against the risk of non-payment, enable you to extend credit, access working capital or provide term-financing to buyers. Many state and local governments also offer assistance to small businesses. In addition, retain appropriate advisors, including legal, accounting and a good freight forwarder. These individuals will help you understand regulatory issues, whether your proposed business is permitted, export compliance, and tax and trade treaties that may impact the structure of your export strategy. And last but not least, ensure you understand your obligations as an exporter. You must comply with U.S. export control requirements and sanction requirements.

-Doreen

United States v. Smith & Nephew

A British medical device company’s Greek distributor used slush funds to bribe Greek government surgeons and was reimbursed for “marketing services.” When Smith & Nephew did question the distributor’s excessive reimbursements, the distributor explained exactly what it was doing. Smith & Nephew ignored this red flag and kept paying. The failure to stop what any good compliance program would have cost the company $22 million dollars, plus legal fees, investigation costs and damage to its reputation.

United States v. Biomet

Biomet’s distributors paid kickbacks to surgeons in Argentina and Brazil to use its devices, calling the payments “commissions” and “consulting fees.” Executives and internal auditors failed to stop the payments for eight years after they discovered them.

Payments described no more specifically than “commissions” or “consulting fees” require follow-up by trained accounting staff before they are approved. Also, Biomet’s executives who knew about bribery, but failed to stop it, lacked the commitment to compliance — the “tone from the top” — that government gives companies a lot of credit for when mistakes do happen.

United States v. Pfizer

Pfizer used a points system to give prizes to government doctors in China for prescribing Pfizer products. High-prescribing doctors were invited to participate in recreational activities and this was all an accepted part of the business models of subsidiaries all over the world.

Nonetheless, Pfizer paid only $60 million to the government to resolve charges of tens of millions of dollars in systematic bribery, whereas Siemens paid $800 million for its systemic, worldwide bribery. This shows that compliance checks, followed by voluntary disclosures and full cooperation with authorities can limit a company’s exposure.

Change Your Compliance Best Practices

• As your opportunities abroad grow, so must your anticorruption compliance. Your compliance must be more specific to your business issues.
• You can no longer limit training to the FCPA.
• In my opinion, the UK Bribery Act is the new standard. Even Russia has standards following the UK Act.
• You also must train locally. China is different from Brazil and France.

Hope this was helpful.

Doreen

How do you become a C-TPAT partner?  While the exact requirements vary by industry, at minimum, you must:

• Show how you have addressed past violations.
• Explain your import compliance procedures to CBP in detail.  If you don’t present a strong initial application and you are denied, you have to wait 5 years to reapply.
• Develop a security profile to show CBP all of your security procedures, focusing on the “nodes” that CBP thinks are most important.

What are some benefits of joining C-TPAT?

• Reciprocity in other countries.  For starters, as of this year, you get beneficial import procedures in the EU.  And, the U.S. also has mutual recognition agreements with New Zealand, Canada, Jordan, Japan, South Korea, and Taiwan.
• More and more businesses are demanding that their business partners become C-TPAT compliant.
• Access to Free and Secure Trade (“Fast”) lanes at the Mexican and Canadian borders.
• Priority processing of shipments that are subject to inspection.
• C-TPAT is a prerequisite for the Importer Self-Assessment program, discussed here, which decreases the frequency of an importer’s Customs audits.

C-TPAT and reciprocal treatment can give your business an edge.  The certification process is tedious and does require a robust trade compliance program. Don’t do it alone though.  You must “dot your I’s and cross your T’s.”

Have a great week,

Doreen

The General License, which allows U.S. companies access to four major financial institutions, came shortly after the following General Licenses were released last year:

• General License No. 16 - Authorizing the exportation or reexportation of financial services to Burma; and
• General License No. 17 – Authorizing new investment in Burma. 

These General Licenses are aimed towards promoting interest in the Burmese market by U.S. companies and although most commercial activity is now permitted by use of the General Licenses, many caveats remain. 

Although the General Licenses and easing of U.S. economic sanctions provide great opportunities for U.S. companies interested in Burma, it is imperative for companies to carefully read the limitations outlined in the General Licenses and evaluate whether their activities fall within the realm of the General License, if a specific license applies or if their activities are prohibited.  If your company is interested in investing in Burma, you will need to pay close attention to the reporting requirements outlined in General License No. 17.  Any U.S. company or individual investing in Burma is subject to the Department of State’s “Reporting Requirements on Responsible Investment in Burma,” which requires an annual reporting requirement for any U.S. person whose total investment in Burma exceeds $500,000. 

Additionally, as with any sanctioned country, all transactions with blocked entities or individuals on OFAC’s Specifically Designated Nationals List (“SDN’) are prohibited. Those individuals, entities and financial institutions which have previously remained blocked, do not change under the issuance of the General Licenses.  Other entities to check prior to engaging in transactions with individuals or companies from Burma, include:

• Entitles detailed in the Jade Act (Junta’s Anti-Democratic Efforts);
• Entities or transactions directly or indirectly related to the Burmese Ministry of Defense, including the Office of Procurement;
• Entities related to State or non-state armed groups; and
• Entities owned by the Burmese Ministry of Defense or a state or non-state armed group.

-Doreen

Currently, there are four active Centers in the U.S. serving the following industries:  Automotive and Aerospace, Electronics, Petroleum, Natural Gas & Minerals and Pharmaceuticals, and Health & Chemicals.  The initiative is well underway for the new year as CBP plans to open  ten new Centers to service the following industries: Industrial & Manufacturing Materials, Agriculture & Prepared Products, Base Metals, Machinery, Consumer Products & Mass Merchandising and Textiles, and Wearing Apparel & Footwear. 

The benefits of Centers are two-fold.  First, Centers will allow CBP more oversight of specific industries and a better understanding of each industry’s practices.  Second, Centers will help streamline the import process for the importer through increased consistency, which is likely to result in reduced transaction costs.  According to CBP, the expansion is expected to result in new Centers across the U.S., and will cover the full range of imports within each specific industry. 

How can you locate and utilize the Center pertinent to your business and industry?

CBP is actively looking for volunteers to work with Centers – watch out for Federal Register notices for more information on how to participate.  If you chose not to volunteer, your company can still access the Centers as an industry focused informational hub. 

The contact information for active Centers can be found here.

How will the Centers affect your  imports?

If you chose to actively participate in a Center, the process for entry and entry summary will not change. However, the location of CBP entry documentation processing and other activities will be moved from the port of entry to the appropriate industry Center.  Since the Centers are “virtual,” they will not require importers to change ports or location of importation.  Instead, the Centers will serve as a virtual source of clear and consistent information on CBP requirements while allowing importers to continue using the most convenient port for their business needs. 

What benefits will the centers provide for your business?

• Streamlined processing of import documentation and communication at one centralized location;
• Reduced transaction costs;
• CBP contacts with specific industry knowledge; and
• Centralized management of each industry’s imports.

- Doreen

1.  Export Regulations will change – New trade agency to be considered

Our previous post discussed the combined efforts of Department of Commerce’s Bureau of Industry and Security and Department of State’s Directorate of Defense Trade Controls to streamline the export process under the Export Control Reform Act.  But that’s not all.  In 2013, companies can expect the consolidation of several federal agencies creating one department that will carry out the trade related tasks of the: 

• U.S. Department of Commerce
• Export-Import Bank
• Overseas Private Investment Corporation (OPIC)
• Small Business Administration
• U.S. Trade and Development Agency
• Office of the U.S. Trade Representative

2.  The U.S. Government will try to expand opportunities for Service Industries

Global negotiations to boost and expand trade inU.S.services will commence in 2013.  This last month, the U.S. Government announced plans for talks with 20 countries regarding a service sector trade agreement.  Countries involved include members of the European Union, Canada, Mexico and Japan.  Notably, China will not be joining the negotiations.  Too bad.  Potentially, the negotiations may open the door for additional free-trade agreements. 

What will the global trade agreement mean for your company?

• Opportunities to expand your footprint within a predictable environment;
• The removal of trade barriers and regulatory red tape; and
• Transparency and job creation to support the expansion of U.S.services.

3.  Doing business in Russia?

With Russia’s accession to the World Trade Organization (WTO) last August, the U.S.pushed to normalize U.S./Russian trade relations.  To start, the U.S. repealed the Jackson-Vanik Amendment, an amendment that conditioned “normal trade relations” and Most Favored Nation (MFN) tariff rates on Russia emigration policies.  Under the WTO rules, this type of condition is not allowed.  Keeping the Amendment would of have allowed Russia to implement discriminatory trade measures against the U.S.

Moving quickly, the U.S. Government is already working with Russia to expand the economic potential for both countries.  Many U.S. agencies and offices are working on concrete ways to increase bilateral trade and investment.  Last month Russia and the U.S. agreed to an Intellectual Property Rights (IPR) Action Plan.  This plan will boost protection and enforcement of IPR.  Additionally the United States-Russian Federation Intellectual Property Working Group will continue to work on IPR issues and concerns.

How does this help your company?

• Russian companies will want U.S. partners;
• U.S. companies can sell into the Russian market with competitive pricing;
• Skyrocketing demand for certain U.S.exports.  For example, agricultural products and machinery; and
• Legal mechanisms and governmental programs will be created to protect and support parties engaged in U.S./Russian trade.

Inevitably, despite all these positive measures, disputes will arise.  This month Russia banned imports of U.S. and Canadian pork treated with certain growth enhancing drugs.  U.S. officials claim that this is a violation of Russia’s WTO commitments.  It seems the honeymoon is already over. 

Takeaway: keep an eye out for developments effecting your business – both good and bad.

Have a great week,

Doreen

The proposed rules come through a combined Commerce and State effort to streamline the export process. The Departments will transfer certain items that no longer require intense control from State’s U. S. Munitions List (USML), which controls defense articles and services, to Commerce’s Commerce Control List (CCL), which is generally less onerous and restrictive. The process began in July 2011, with the first set of proposed rules recommending a new regulatory construct for the transfer of items on the USML to the CCL.

This particular proposed rule, released on November 28^th, 2012, covers:

• Military electronics (Category XI) and related items, which would be controlled by new Export Control Classification Numbers (ECCNs) 3A611, 3B611, 3D611, and 3E611; and
• Certain cryogenic and superconductive equipment designed for installation in military vehicles and that can operate while in motion (Categories VI, VII, VIII, and XV) which would be controlled under new ECCNs 9A620, 9B620, 9D620, and 9E620.

Additionally, there are changes being drafted to other UMSL categories, including categories I-IV.  The proposed rules regarding these changes are released periodically and are available for public comments typically thirty days after release.  As public comments for the proposed rules close and are evaluated, final rules are being released with the first final rule published earlier this year creating a new Export Control Classification Number (ECCN) series, 0Y521, for items that warrant control on the CCL, but have not yet been identified an existing ECCN.

Happy New Year and remember, the clock is ticking to get in your comments before January 28^th!

Best,

Doreen

• EB5 and E2 Funds: According to the amended General License, any pending E-2 or EB-5 applications are now considered approved under the General License and the pending applications will be administratively closed out with a Return Without Action letter referencing the amended General License.  In other words,  specific licenses are no longer required to facilitate the transfer of funds for E-2 or EB-5 investment projects, unless the activities are outside the scope of the amended General License.  Any specific requests for a “No License Required” Letter for USCIS purposes or for documentation purposes will receive a Return without Action letter stating no specific license is required and will be deferred to the amended General License.

CAVEAT REMAINS:  Although this is great news, U.S. persons receiving funds from Iran in relation to an E-2 or EB-5 investment project, must be certain they are not accepting funds from sanctioned Iranian financial institutions (or more informally known as “bad banks”) or individuals on the Specifically Designated Lists (SDN).  It is imperative to confirm that both the individuals and banks are cleared on all governmental watch lists prior to accepting funds or initiating the transfer of funds. And document your research.

Now, you may be asking – what about specific licenses for selling property or personal remittances? 

• Personal Funds Transfers:  No specific license is now required for U.S. persons selling property in Iran and transferring funds to the United States.  This transaction also is covered under the General License, provided that such real property was either acquired before the individual became a U.S. person, or inherited from persons in Iran.  Additionally, no specific license is needed for personal remittances transactions, as certain noncommercial, personal remittances to or from Iran are authorized under the General License.  However, sanctioned Iranian financial institutions cannot be used throughout these transaction processes and again, it is critical to confirm you are using an OFAC approved bank prior to engaging in such transactions.  Pending applications will be returned without action and the funds may be transferred.

 This happy news is brought to you by OFAC!

-Doreen

There is a way, however, not to be one of those importers that are subject to focused assessments at any time.  CBP offers an Importer Self-Assessment (“ISA”) Program that allows importers located in the U.S. that have been importing for two years to take responsibility for ensuring and monitoring their own compliance, in exchange for establishing, demonstrating, and testing robust compliance procedures.

In order to benefit from the ISA Program an importer must either:

• Be a member of the Customs-Trade Partnership Against Terrorism (“C-TPAT”), a process by which importers complete a questionnaire, maintain an internal control system, conduct annual risk assessments and compliance system tests, comply with various recordkeeping and disclosure requirements; or
• has completed a focused assessment by CBP and can use the results of and the system resulting from the audit to join the ISA Program by an abbreviated process—by submitting a memorandum of understanding, agreeing to comply with CBP regulations and submitting an internal controls testing plan for approval.  (This alternative was just approved this month).

Once a member of the ISA program, the importer is exempt from focused assessments, receives special access to CBP personnel who can provide assistance, access to its own trade statistics, and, most important, advantages in the event that it makes a mistake.  By adhering to the ISA standards, the importer entitles itself to mitigation of penalties and damages for an import violation that it did not manage to avoid and an opportunity make a voluntary disclosure (which itself supports mitigating penalties) even of a violation that is discovered by CBP.

The ISA Program may seem like a lot of work, but it is intended to provide some compliance peace of mind.  We advise importers and exporters to conduct their own compliance audits periodically, and the ISA Program is a way of conducting the compliance audits that should be done anyway with some added benefits.

Hope this is helpful!

- Doreen