A client recently asked for help in determining Country of Origin for their imports. As they noted, it is not always obvious. 21st Century supply chains are complex for even the simplest products. Parts are sourced globally before being assembled and shipped to the final destination.

Country of origin, often abbreviated COO, is one of the elements, along with harmonized code and commodity valuation, in determining duty/tax rates. While trade agreements such as USMCA (formerly NAFTA) have specific and complex rules of origin, the basic COO elements are:

Country in which the commodity is made, mined, grown, manufactured, or underwent substantial transformation. The 3 way test for substantial transformation is new name, new character, new use.

Substantial Transformation Rule….used to determine country of origin if articles or components are not wholly obtained from one country…Does article have new name, character, or use?

Change in character- altered physical characteristics of article or components. Were changes cosmetic? What was the process that resulted in change?

Change in use- Is end use of article interchangeable with end use of components? Is end use of component predetermined at time of importation? What was the process that resulted in change of use? Predetermined end use generally precludes substantial transformation but subject to specifics of article/components in question.

Change in name- this is the least compelling of the factors supporting substantial transformation. Do components retain original name after processing?

Subsidiary/Additional Factors- extent and nature of operations (complex or simple); value added and/or cost incurred during transformation process; essential character of article (components transformed into finished product); change from producer to consumer good; tariff shift.

Ad Hoc Logistics can help with regulatory questions or your international logistics needs. Contact mitch@52.91.45.227

One of our most common services, for both new and existing clients, is reviewing customs entries for accuracy. Clients understandably want to make sure that they are not overpaying duties on their imports. This, of course, leads to examination of the commercial invoices.

As everyone involved in international trade knows, the commercial invoice is one of the primary documents of the transaction. While there is no universal standard format for commercial invoices, including the following key elements will help reduce customs delays and entry mistakes:

Invoice Number, Page Numbers – Avoids confusion for entries with multiple CIs or CIs with multiple pages.

Country of Origin– Best to use ISO country codes.

Related/Not Related parties

Incoterms and currency- these are elements of the sales contract. Indicate version of Incoterms (2010, 2020) as all parties may not be aware of updates.

Harmonized tariff # and duty rate if known

Description of goods – avoid trade names, brand names. What is it? What is it made of? What is it used for?

Summary of Value- must include IV Invoice Value. Can also include NDC Non Dutiable Charge (subtractions), AMMV Add to Make Market Value (additions), NEV Net Entered Value (bottom line- dutiable)

For immediate assistance contact mitch@52.91.45.227

Compliance is about attention to detail, consistency, process, and oversight. I guarantee that your compliance folks are not trying to practice “sales prevention”. The goal is to complete transactions the right way, avoid customs or logistics delays and reduce exposure to fines and penalties. However, there is no doubt that complying with all of the agencies involved in international trade generates a lot of red tape and can be frustrating.

Compliance managers must have the authority to stop shipments when red flags appear. In order to ensure independence compliance folks should not be in the supply chain, finance, or marketing chain of command. Better reporting relationships would be with the legal department, CEO, or COO.

Consider just a few of the details that can make or break a smooth transaction:

Harmonized Codes to the full 10 digits including heading and sub heading. It is very easy to transpose digits.

Schedule B Codes, ditto

ECCN , Alpha numeric, number, letter, followed by 3 numbers. Example 4A994. Then followed by sub paragraph level and don’t forget the dot between the last number and the sub para.

License Exceptions are designated by 3 letter codes and must be compatible with the ECCN listed.

COO, Country of Origin markings and proper codes on documents and AES filings. Best not to guess here. Have you ever entered CH for China?

Valuation must be determined accurately and is best covered in a separate post which I have done on 05/09/2019.

These are just some of the basics. We could also mention commodity descriptions, red flag screening, incoterms, and plenty of other details. So, hats off to the compliance teams.

For assistance contact mitch@52.91.45.227

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I have often noted that export compliance is good risk management. While risk management always gets C level attention, export compliance is often a mid-management or lower level function. Fines and penalties for violations should make export compliance a basic part of risk
management.

Best practices, including an Export Management Compliance Program, will reduce exposure to steep fines and penalties as described by BIS (Bureau of Industry and Security) on their website.

If you are relying on your logistics service providers, or your busy shipping department, for export compliance you may be at risk. Both upper management commitment and front line training are essential parts of an EMCP.

BIS offers a number of on-line courses at no cost. Check them out under the Compliance and Training tab and get started!

Under the EAR (Export Administration Regulations) criminal penalties can reach 20 years imprisonment and $1 million per violation. A denial of export privileges prohibits a person from participating in any transaction subject to the EAR. Furthermore, it is unlawful for other businesses and individuals to participate in any way in an export transaction subject to the EAR with a denied person.

contact mitch@52.91.45.227

We have been working with a New Hampshire client to determine the cause, and reduce the frequency, of customs delays on their imports. More accurate commodity descriptions on the commercial invoice and airbills will no doubt solve the problem.

As everyone involved in international trade knows, the commercial invoice is one of the primary documents in the transaction. While there is no universal standard format for commercial invoices, including the following key elements will help reduce customs delays and entry mistakes:

Description of goods – If you do nothing else take an objective look at your commodity descriptions. Avoid trade names, brand names. A good description answers the questions: What is it? What is it made of? What is it used for? Most customs brokers and integrators pre-clear shipments electronically so descriptions can sometimes be truncated in the process. Best practices would include leading the description with the most critical info. Additional data such as part numbers or specs can be included in the body of the CI if necessary.

Invoice Number, Page Numbers – Avoids confusion for entries with multiple CIs or CIs with multiple pages.

Country of Origin– Best to use ISO country codes.

Related/Not Related parties

Incoterms and currency- these are elements of the sales contract. Indicate version of Incoterms (2010, 2020) as all parties may not be aware of updates.

Harmonized tariff # and duty rate if known

Summary of Value- must include IV Invoice Value. Can also include NDC Non Dutiable Charge (subtractions), AMMV Add to Make Market Value (additions), NEV Net Entered Value (bottom line- dutiable)

For immediate assistance contact mitch@52.91.45.227

One of the key elements in export compliance is the ECCN or Export Control Classification Number. In order to determine if a license is needed for your exports it is first necessary to determine the ECCN for your commodity. As we have noted in previous posts, many exporters automatically enter EAR99 and NLR on shipping documents. This is a mistake unless you have done due diligence on your products. EAR99 indicates that a commodity is subject to Export Administration Regulations but is not specifically listed on the Commodity Control List (CCL). NLR states that no license is required.

ECCN can be determined by consulting with manufacturers of products, filing a classification request with BIS (Bureau of Industry and Security), or self classifying. BIS offers a specially designed decision tool that is very easy to use. Check it out on the Exporter Portal @ bis.gov.

Contact mitch@52.91.45.227 for immediate help.

When making entries on export documents shippers routinely use EAR99 for their ECCN (Export Control Classification Number) . While this may be the correct entry, it is important to first check the CCL (Commerce Control List) to make sure. Also items classified as EAR99 may require a license under certain conditions. Make sure you are using EAR99 and NLR (No License Required) appropriately. Here is some language from BIS (Bureau of Industry and Security) explaining EAR99.

If your item falls under U.S. Department of Commerce jurisdiction and is not listed on the CCL, it is designated as EAR99. EAR99 items generally consist of low-technology consumer goods and do not require a license in most situations. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern, or in support of a prohibited end-use, you may be required to obtain a license.

For assistance contact mitch@52.91.45.227

Best of luck to anyone taking the Customs Broker exam on October 8th. No doubt it will be challenging. Most exams include one or two obscure questions. Here is one from a previous post. Answer below.

Importations of switchblade knives is permissible by 15 U.S.C 1244 if:

A. The importation is pursuant to a contract with a branch of the State Militia.
B. The importation is destined for a specific member or employee in a branch of the Armed Forces of the United States specifically for personal pleasure off-duty use.
C. The importation of the switchblade knives have a blade not exceeding 6 inches in length.
D. The entry will contain, among other documents, a declaration in duplicate stating that the switchblade knife has a blade not exceeding 3 inches in length and is possessed by and is being transported on the person of an individual who has only one arm.
E. The entry will contain, among other documents, a declaration in duplicate stating that the switchblade knife has a blade not exceeding 6 inches in length.

Answer – D

The Bureau of the Census (USBC) Proposed Rule: Foreign Trade Regulations: Overall Impact of the Removal of Electronic Export Information Filing Requirements for Shipments Between the United States and Puerto Rico and the Virgin Islands

Your comment:

Comment:I support removal of EEI filing requirements for shipments between the US and Puerto Rico and the Virgin Islands. US territories should not be treated as separate countries.

I recently participated in another KPMG TradeWatch webinar on export compliance smart practices for audits and corrective actions. The presenters packed a lot of useful information into 60 minutes. Here are some highlights.

Employ transactional testing to determine areas of greatest risk including: licensed shipments, end destinations, end users, freight forwarders, jurisdiction and classification determinations, denied party screening.

Periodic Self Testing using:

Internal Controls- Do they provide visibility?

Internal Processes- Are they appropriate for the level of business?

Systems- How are compliance updates handled?

Personnel- Is staff trained in export compliance responsibilites? What is escalation protocol?

External Factors- What procedures and communication is in place for third parties and supply chain partners?

 

Consider voluntary self disclosures as part of corrective actions. VSDs can help mitigate fines and penalties.