On Monday the Thompson Coburn team explored the first three questions that outline the process of gathering the information necessary to understand a product for purposes of international trade compliance. Today they share the final three, where the same methodology may also be used to evaluate supply chain, pricing, and customer and supplier issues.
Why?
Why is the product being manufactured/sold (i.e., what is the end-use of the goods, technology or services)? Certain products are classified under the HTSUS in accordance with their actual use after importation; others, by their principle use. An understanding of the purpose for which the item is designed and for which it may be used can provide important information regarding the classification of the product.
For exporters, it is important to understand the intended use of a product from the outset. Products designed for military applications may be subject to the ITAR even if there is no specific military customer and civil end-uses have since been developed. The EAR prohibits sales for certain end-uses (e.g., missile systems, chemical and biological weapons, maritime nuclear propulsion) regardless of the product. Finally, a poor fit between the customer and the product may be an indication of illegal activity (i.e., a “red flag”).
How?
How is the product being made and what are your supply chain processes? Is the production process simple or complex? Will the product be further manufactured after importation? The resolution of these “how” questions will assist the compliance department in understanding classification, ascertaining the appropriate country of origin marking on a product, and determining if there may be additions to the value, such as for assists.
With regard to export controls, if a company is collaborating with foreign entities on making a product, technical exchanges undertaken with those foreign entities may require export authorizations. This applies even if the foreign collaborator is a parent, a subsidiary or a branch office. Similarly, are persons who are not U.S. citizens or Green Card holders involved in the manufacturing operations? Their exposure to manufacturing or design information will likely be “deemed” to be exports to their home country and may require a license.
When?
When should a company consider these questions? The answer is simple: the sooner the better. It takes time to gather all of the necessary product information. To avoid delays when a product is ready to be shipped, compliance personnel should get involved at the time of product development, the contract negotiation stage or, at the latest, the ordering/sales stage. Doing so allows a proactive approach that can minimize or avoid delays and enhance compliance.
Conclusion
International trade compliance starts with a systematic approach to gathering the necessary product information. In this article, we have focused on the six basic “question words” that can assist in the information gathering process.
While the reasons for obtaining this information may be different, there is commonality between export and import product information gathering. The final step is to assure that there is a robust process for storing and accessing this information. To this end, we find a product matrix or database to be a best practice and an essential component of most international trade compliance programs.
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About the Authors
Robert Shapiro is vice chair of Thompson Coburn LLP‘s Transportation and International Commerce practice group. His practice focuses on issues concerning the international trade and shipment of goods. He regularly represents clients before Customs and Border Protection, the U.S. Department of Commerce, the U.S. International Trade Commission, the U.S. Department of State, the Federal Maritime Commission, the Office of the U.S. Trade Representative and United States Congress.
Teresa Polino is a partner in Thompson Coburn’s Transportation and International Commerce group. Her practice focuses on import compliance, the various import preference programs, valuation issues, country of origin marking and labeling issues, and supply chain security requirements. She works with clients ranging from small producers to large multinationals regarding the import requirements of both the United States and other countries.
James Slear is a partner in Thompson Coburn‘s International Trade practice. Jim advises domestic, foreign and multinational clients in a wide array of industries, including aerospace, biomedicine, defense, financial services, insurance, Internet services, manufacturing, semiconductor and telecommunications. He focuses his practice on international trade compliance and enforcement, including the economic and trade sanctions administered by the Office of Foreign Assets Control (OFAC), the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR) and the Foreign Corrupt Practices Act (FCPA). He also advises clients regarding matters before the Committee on Foreign Investment in the United States (CFIUS).
Sean McGowan practices in Thompson Coburn‘s Transportation and International Commerce group. He counsels clients on compliance matters involving U.S. federal regulations that affect the aviation, maritime, trucking, rail and hazardous materials transportation industries. In addition, he counsels clients on U.S. federal regulatory compliance issues associated with the international movement of goods and the international transfer of services and technology. He advises on matters involving the Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR), and sanctions programs under the Office of Foreign Assets Control (OFAC).
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