by Will Batton, owner Cargo Services Inc. 

Recent global events remind us all how important security measures implemented by the U.S. government and related entities truly are when it comes to global shipping and travel. Sanctions have been imposed on Russia by the government due to conflict in Ukraine. The missing Malaysian jetliner leaves officials pondering security measures. In turn, it’s a good time to review import/export requirements related to goods to ensure company compliance. Violation of these measures can delay cargo and incur additional costs.

Most exporters are familiar with the Harmonized System (HS) or Schedule B codes used to classify products for duty, quota and statistical purposes. However, exporters are often less familiar with the requirement that determines whether or not their products are controlled for export by the Department of Commerce or the Department of State.

STEP 1: Research export license requirements for goods.

The Bureau of Industry and Security (BIS) controls the export of most commercial products. While only a small percentage of exports under BIS's jurisdiction require an export license, it's a product's technical characteristics, the destination country, the end user, and a product's end use that factor into this determination. (As a side note, Products under State Department control are typically products or services specifically related to defense and are outside the scope of this article.)

·      The first step in deciding whether or not a product requires an export license is to determine if it has a specific Export Control Classification Number (ECCN). To do this, check the U.S. Export Administration Regulations (EAR).

·      If a product does have a five-character ECCN code, the export regulations will list one or more reasons why it is controlled. Companies use these reasons to help determine if they need to apply for an export license based on the countries to which they are exporting.

·      You can search for an export classification code in a printed copy of the export regulations website or online at the BIS website. In addition, ExportCompliance.com website includes a product classification wizard. It allows a search for the correct classification code by typing in a short description of your products.

·      Products that do not have an ECCN code and are not subject to control by any other U.S. agency are designated as EAR99. Products classified as EAR99 are low technology consumer goods and usually do not require an export license. However, even EAR99 items require licenses for exporting to embargoed countries, to a restricted party, or in support of a prohibited end use.

STEP 2: Consider why export licenses are required and comply

When the export requirements are researched and understood, exporters should refer to the Commerce Country Chart in the export regulations to determine if a license is required from either the U.S. Department of Commerce or the State Department. A free white paper is available through the export compliance website that explains in detail how to determine if the license is required and the application process.

·      Companies are responsible for knowing how their products will be used once they leave the country of origin. Keep in mind, there are several reasons the U.S. government prevents exports to certain countries without this export license, so compliance in this area is critical. In the most extreme case, the U.S. has placed embargoes on countries such as Russia, Iran and Syria for various acts of war or terrorist activities.

·      In other cases, the U.S. government restricts companies and individuals from exporting certain products to specific countries for reasons of national security, nuclear nonproliferation, chemical and biological weapons, or several other reasons outlined in export regulations.

·      Companies must use the export classification codes and reasons for control described in step #1 to determine whether or not there are any restrictions for exporting their products to specific countries.

·      Although a relatively small percentage of all U.S. exports and reexports require a Bureau of Industry Control license, the bottom line is that virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. These countries are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.

STEP 3: Research the possible use of exports

To help understand the possible use of an export, do some research. The Bureau of Industry and Security publishes a list of Red Flags. For example, companies should be reasonably suspicious that orders for items that are inconsistent with the needs of the purchaser, a customer's declining installation and testing when included in the sales price or when normally requested, or requests for equipment configurations that are incompatible with the stated destination could be violating U.S. export regulations.

The bureau cites the example of a South African businessman who tried ordering several dozen replacement switches for a medical imaging machine. In this case, it's normal to order one replacement switch; it's not normal to order several dozen at one time. It turns out these switches were going to be used as detonators for nuclear bombs. If suspicion has been raised, a company should refrain from the transaction until an export license application has been submitted to and issued by BIS.

Commit to Compliance

Companies of all sizes need to be aware of their responsibilities as exporters. This article focuses on some basic steps that all export companies and their personnel should know, follow and document. It should serve as a starting point for creating a more comprehensive and written export management and compliance plan.

For any plan to be effective, it must be endorsed by companies' top management and shared with all employees involved in any part of the export process—from managers,to sales and administrative personnel to the warehouse team. This committed effort can save companies thousands if not hundreds of thousands or even millions of dollars in fines, prevent restrictions on exporting that can cost companies millions of dollars in lost revenue, and even jail time for the most serious violations.

An effective export compliance program includes ongoing training of all company personnel involved in the export process including all management, sales and support staff. BIS sponsors a variety of seminars across the U.S. In addition, companies like International Business Training offer a variety of books, webinars and seminars on export rules and procedures.

Industry professionals at freight forwarding companies also can support a client’s compliance efforts. It’s our profession to understand and stay updated on compliance topics. Our professional team can help sort through the export compliant maze – we do it every day.

by Will Batton, Cargo Services Inc. owner